Convincing clients that they need to include all of their debts in bankruptcy is one of the hardest parts of being a bankruptcy lawyer.

The struggle often seems Herculean.

Sometimes, they will tell me they don’t want to include their car loan in the case because they “need the car”.

Sometimes I find the student loan payment in the budget but not on the list of creditors.

Or there’s a creditor they don’t want to know about the bankruptcy.

Listed not the same as discharged

Part of the issue is confusion between scheduling a debt and discharging the debt.

When you file bankruptcy, you are required to list all debts and or risk denial of discharge if you don’t.

After all, you sign the schedules under penalty of perjury.  One of the standard questions the trustee asks at the first meeting of creditors is “did you list all of your debts”.

You need to be able to say, honestly, “yes”.

However, debts are not necessarily discharged just because they are listed.

The Bankruptcy Code specifies a number of debts that simply aren’t dischargeable in bankruptcy. Those debts still must be listed.

Debts secured by your assets must be listed, even though the lien on the asset will survive the bankruptcy.

The bankruptcy bargain involves making full disclosure of your financial situation in exchange for the discharge.

Debts after bankruptcy

The desire to exclude debts from the schedules is sometimes fanned because debtors don’t know that they can reaffirm debts during their case.

A reaffirmation agreement essentially waives the discharge as to that particular debt.  A reaffirmation agreement puts the parties back on the same legal footing as they had before the bankruptcy was filed.

Reaffirm the car loan and you are protected against repossession as long as you make the payments as you did before bankruptcy.

More on keeping your car through bankruptcy

You can keep paying

Clients are frequently surprised when they learn that they can continue to pay a discharged debt voluntarily if they wish.

“Pay the dentist after the case is filed if you wish, but list them in the bankruptcy if you owe money when the case is filed. “

Then, there are the clients who “love” their credit card issuer and want to keep paying because of loyalty or out of fear of being without plastic.

I have to tell them the sad news that the love is one sided.  The issuer has other ways to find out about the bankruptcy case and may cancel the card independently of being listed or not in the case.

Moral of the story, there are a number of options for debts post filing, so don’t get tripped up by leaving out creditors.

More

Who you need to pay after bankruptcy

If you left a creditor out of your bankruptcy papers

Image credit:  Monidas de Mon and Flickr

I keep encountering posts on internet bankruptcy boards from individuals who have “filled out the means test” and then proceed to announce their conclusions.

Given the uncertainties in the legal community about how to apply the means test, I can’t imagine a non lawyer learning anything reliable from trying to do this themselves.  As a certified bankruptcy specialist, I end up thinking, and rethinking, treatment of income and expenses on the means test.

Yet the results of the means test determine whether you get to choose which chapter of bankruptcy you want to file, or how much you have to pay if you file Chapter 13.

Means test rat’s nests

The tricky issues include how to deal with income from non filing spouses; from roommates or extended family members; shared custody situations; changing income issues, and how to handle business expenses for the self employed.

One bankruptcy appellate panel recently decided that the judges who drew up the form did it wrong!  That really helps.

You have to parse out income “received” but not “derived” during the look-back period and figure out how to report children where custody is shared.

Then there is the dispute on the deduction side about ownership allowances for paid-for cars; operating allowances for older cars; debts associated with property you’re surrendering, and just what part of your telecommunication expenses go on the form.

And how do you treat the costs of delayed health care needed in the future?  Do you divide that cost over the life of a Chapter 13 plan, or over 12 months, or….?

Can you swear to that?

I cringe when I ask a client to sign this form, as they cannot possibly validate all of the entries on the form, given the complexities of the law.

While I won’t say “don’t try this at home”, I am certain you should draw no conclusions about the means test and your eligibility for Chapter 7 based on your efforts to take the test.

Get an experienced bankruptcy lawyer involved.

Read more

Means Test Misunderstood

Means Test Is Paper Tiger Here

Means Test In Chapter 13

Image courtesy of Pixabay.

Car lenders who make new car loans with an underwater trade-in will face the music in Chapter 13.

The Supreme Court declined to review a 9th Circuit decision that stripped car loans of their protected specially protected status in bankruptcy; as a result, Californians will continue to benefit from the debtor-friendly decision in Penrod, rising out of a San Francisco bankruptcy case.

The question in Penrod

At issue was whether the prohibition on cramming down the debt on a vehicle purchased within 910 days of a bankruptcy filing protected “negative equity” financed in the car purchase.

“Negative equity” is the debt in excess of the trade in’s value. That left-over debt is added to the total of the new car loan and is unrelated to the value of the purchased vehicle.

And BAPCPA, the bankruptcy “reform” act of 2005 prohibited reducing a secured claim on a vehicle purchased within 910 days of the bankruptcy.  But did it similarly protect that part of the loan that wasn’t really related to the cost of the vehicle purchased?

Penrod facts

In Penrod, the Redwood City resident had traded in a car worth $6,000 on which she owed $13,000.  The new car loan included $7000 necessary to pay off the debt on the trade in.

The legal issue is whether that left over debt should enjoy the projections extended car sellers in BAPCPA for purchase money loans on the debtor’s car.

Every other circuit that addressed the question has given purchase money protection to the entire debt including the negative equity portion of the new loan.

The 9th Circuit held the negative equity was not purchase money as to the current car.  The appeals court remanded the case for the bankruptcy court to figure out how to apportion the payments made before bankruptcy between the purchase money element and the leftover debt element.

It’s surprising to me that SCOTUS didn’t accept cert on Penrod, since there is clearly a split among the circuits and it seems to this California bankruptcy lawyer that the Supremes take great pleasure in overturning the 9th Circuit.

But I’ll take a victory however it presents itself and await a decision on how to calculate what can be trimmed from a debtor’s car loan in bankruptcy.

Image  Snackariah under a Creative Commons license

If an asset isn’t titled to you,  it does not have to be disclosed in a bankruptcy filing.

I hear it and see it in action again and again.

If it isn’t titled to you, it will be “safe” from the bankruptcy trustee and from creditors.

And yet it is wrong.

Wrong, wrong, wrong.

Still, people transfer titles to cars and cash and quitclaim their homes to friends before bankruptcy, thinking that’s smart.

No.  It’s both dumb and dangerous.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts your bankruptcy discharge at risk.

Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

What could delay your creditors more than shedding assets without getting anything in return?

Transferring asset unlawful since Elizabeth I

For well more than four hundred years, the law has contained prohibitions on fraudulent transfers.

A transfer of an asset by one who has debts constitutes a fraud on creditors if

1) the transfer is for less that fair consideration; or

2) was made for the purpose of putting the asset beyond the reach of creditors; or

3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

So, a transfer is actionable even if it’s a gift to charity; you intended to hide the asset; or the transfer left you broke.

Consequences of fraudulent transfer

The usual remedy against the person who gets the asset is  an order requiring the return of the asset or a money judgment in the amount of its value.

The bankruptcy code has a statute empowering the recapture of transfers made within two years of filing.

In addition, the bankruptcy trustee has the rights of the debtor’s creditors under state law to recovery any property that the debtor wrongfully transferred.  In California, creditors have four years to recover fraudulent transfers.

Putting your assets in someone else’s name

So, a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney.

Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things.

Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, I get a chance to say “Don’t do it”.

And they have a chance to get a discharge.

More

What your bankruptcy lawyer can’t tell you

Bankruptcy’s 90 day rule

Do it yourself bankruptcy

 

Queen E. The First courtesy of Wellcome and Wikimedia.

Going to court for your first meeting of creditors?

What are they going to ask me?, you wonder.

My bankruptcy clients imagine a quiz on the contents of their bankruptcy papers.

Or worse, an inquisition on why they needed to file bankruptcy.

That’s not likely.  The first meeting of creditors is much more likely to be a snooze.

Jay Fleischman set out a very comprehensive list of questions a Chapter 7 trustee might ask at your bankruptcy hearing.

Let me add my rules for answering those questions.

1.  Listen to the question

Just because you’ve read Jay’s list and think you know what’s coming, listen to the trustee’s question, all the way to the end.

First of all, it’s only polite.  Second, you want to make sure that you know what the trustee wants to know.

Your answer is being recorded.  You want to make sure you are answering the question that the trustee asked.

2.  Answer truthfully

Honest disclosure is the price of getting a bankruptcy discharge.  This is not the time to be cute or tell anything less than the truth.

You are answering under oath.  You are subject to the penalties of perjury if you are intentionally are less than honest.

3.  Be brief

Answer the question that the trustee has asked, truthfully, in as few words as possible.

Don’t explain, don’t justify, don’t ramble.

Just answer the question.

If the trustee needs to know more, he can ask a follow up question.

Usually, the trustee is just trying to make a record that he has done his job.

He has a list of cases he has complete.  Don’t make his day any longer by volunteering more than he wants to know.

4.  Don’t guess

If you don’t know the answer to a question, say so.  If the answer is honest, it’s perfectly OK.

Perhaps your counsel can help.  Maybe there are documents that provide the information.

Don’t pretend to a level of certainty if you don’t really know.

All’s well

If you’ve been diligent about getting your attorney all the requested information, chances are the first meeting of creditors will be the last, and you’ll be on your way to a fresh start.

More

How to review your bankruptcy papers

What happens to your car in bankruptcy

Who to pay after you’ve filed bankruptcy

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