As part of the intake process, I always ask clients if they have a great aunt or uncle who is going to leave them $1,000,000. Invariably the answer is no. I do this to alert clients to the fact that any inheritance given or to which the debtor becomes entitled within 180 days of filing for bankruptcy is part of the bankruptcy estate. The trustees want me to give clients this information. It is the law after all.
Last week I had a client whose mother died within the 180 day period. Obviously, this was sad for the client. I think it is even sadder that her mother's assets are now being used to pay her daugther's creditors. With proper estate planning this result could have been avoided. In fact, good estate planning is important if one has many creditors. If a client is being is being pursued by creditors or even before that point, if potential claims can be made against the debtor, then the debtor ought to alert relatives that this is a possibility. In that case, a parent, for instance, can set up a testimentary trust with "spend thift" provisions. These types of provisions allow the trustee to avoid payments to the debtor that would result in attachments by creditors. There are exemptions under state law to protect spend thift provisions in trust documents. We have an estate planning department and would be happy to assist you to protect prospective inheritances.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Wednesday, August 31, 2011
Sunday, August 28, 2011
401(K) AND IRAS NOT PART OF BANKRUPTCY ESTATE; PLAN TREATMENT
Many times, I will sheepishly ask individuals about their 401(K) and 403(B) plans and IRAs in an intake interview. I am happy when the client has saved much. Unfortunately, usually that is not the case. Typically clients raid their retirement plans to save their houses from foreclosure or to pay harrassing creditors. We should not do this. But if the world were perfect, I would not be employed.
For some reason, this information concerning retirement benefits and balances is required to be disclosed on Schedule B of the bankruptcy petition. The trustees always ask about retirement assets. It must be their curiosity. Section 541 explicitly states that such plans or accounts ARE NOT PART OF THE BANKRUPTCY ESTATE.
More importantly, Congress in 2005 explicitly allowed debtors in Chapter 13 plan to contribute to their retirements while in bankruptcy. Recently, we came across an appellate decision from the United States Court of Appeals for the Sixth Circuit (BTW, we are in the Fourth Circuit!) in which the debtor increased her payments to her retirement after filing for bankruptcy under chapter 13. The Court did not allow this. The debtor could maintain the contribution level she had prior to the bankruptcy filing, but could not increase her contributions afterwards.
The Sixth Circuit case suggests, if possible, one should establish a sustainble retirement contributions prior to filing for bankruptcy under chapter 13. Bankruptcy takes some planning, and for that reason, one should consult with counsel early in the process. There are many steps that one make take prior to filing, and these can't be done overnight.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstances.
For some reason, this information concerning retirement benefits and balances is required to be disclosed on Schedule B of the bankruptcy petition. The trustees always ask about retirement assets. It must be their curiosity. Section 541 explicitly states that such plans or accounts ARE NOT PART OF THE BANKRUPTCY ESTATE.
More importantly, Congress in 2005 explicitly allowed debtors in Chapter 13 plan to contribute to their retirements while in bankruptcy. Recently, we came across an appellate decision from the United States Court of Appeals for the Sixth Circuit (BTW, we are in the Fourth Circuit!) in which the debtor increased her payments to her retirement after filing for bankruptcy under chapter 13. The Court did not allow this. The debtor could maintain the contribution level she had prior to the bankruptcy filing, but could not increase her contributions afterwards.
The Sixth Circuit case suggests, if possible, one should establish a sustainble retirement contributions prior to filing for bankruptcy under chapter 13. Bankruptcy takes some planning, and for that reason, one should consult with counsel early in the process. There are many steps that one make take prior to filing, and these can't be done overnight.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstances.
CONVERSION FROM A CHAPTER 13 TO A CHAPTER ; NOT ALWAYS THAT SIMPLE
Recently, I had a client come into the office. She was disappointed with her current bankruptcy counsel. She had filed for a chapter 7 in 2002 and unfortunately recently received a divorce and therefore filed for a chapter 13 in 2010. A year later, she could no longer comply with her chapter 13 plan and was in default. Instead of modifying her plan payments downwards, which she is allowed to do, the debtor chose to convert her plan to a chapter 7. Her counsel filed the documents converting the case to one under chapter 7. It is not hard to do, the forms for this are in Best Case, the leading bankruptcy software. Anyway, she converted and filed the additional documents required and even attended the creditors' meeting. She thought everything was fine. Then the US Trustee's Office filed a motion to dismiss and a motion to disgorge the $750 the debtor paid her counsel for the conversion.
Why? The Bankruptcy Code provides that upon conversion, the converted chapter relates back to the filing date of the original filing. So what, you might ask? Well in this particular case, the debtor was ineligible to file a chapter 7 at the time she filed her chapter 13. One can only file a chapter 7, once in every 8 years. Therefore, the conversion was not successful and the client was very angry with her prior counsel. I explained that I would be very happy to refile her chapter 7, for which she is know eligible, but the bankruptcy code itself is fraught with hazards, and that perhaps counsel should be forgiven. She stated that the prior counsel refused to return her calls, etc. That is another matter entirely.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Why? The Bankruptcy Code provides that upon conversion, the converted chapter relates back to the filing date of the original filing. So what, you might ask? Well in this particular case, the debtor was ineligible to file a chapter 7 at the time she filed her chapter 13. One can only file a chapter 7, once in every 8 years. Therefore, the conversion was not successful and the client was very angry with her prior counsel. I explained that I would be very happy to refile her chapter 7, for which she is know eligible, but the bankruptcy code itself is fraught with hazards, and that perhaps counsel should be forgiven. She stated that the prior counsel refused to return her calls, etc. That is another matter entirely.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Monday, May 23, 2011
EXEMPTIONS COMMENCING JULY 1: AUTOMOBILES, FIREARMS
The General Assembly has amended the protections given to debtors. These protections are known as exemptions. Under state law, the debtor asserts exemptions by filing a homestead deed in the county in which he/she resides. A separate homestead deed is filed for each debtor, even if both spouses file in a bankruptcy. In a bankruptcy filing, the homestead deed must be filed within five (5) days from the conclusion of the creditors' meeting. There are numerous exemptions by amount, by category and by the status or age of the person asserting the exemption. Commencing on July 1, 2011, a debtor may claim an exemption up to a value of $6,000 for an automobile. Also commencing on July 1, the Commonwealth grants families an exemption to own a firearm valued up to $3,000.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Thursday, March 17, 2011
DELAWARE BANK ACCOUNTS PROVIDE ASSET PROTECTION
Last year European authorities got angry with American authorities complaining about Swiss Bank accounts. They responded to American authorties (particularly) the I.R.S., that you have Delaware and Nevada, which sometimes act as if they were offshore banking centers. Why don't you clean these up before you find fault in the financial institutions and laws of other countries?
What does that mean to a lay person? Well, let me be very specific. Under Title10 Section 3502 of the Delaware Code, "banks, trust companies, savings institutions and loan associations" . . . "shall not be subject to the operation sof the attachment laws of this State." This simply means that a creditor cannot garnish or attach funds in the bank account of a Delaware chartered banking institution or any bank or financial institution located in Delaware using state law collection procedures. If you put your funds in the correct banking institution then your bank account is safe from creditors! This state law does not bar the federal Internal Revenue Service. The Supremacy Clause of the United States Consitution trumps Delaware law.
What banks do you use? I would not use a nationally chartered bank. That's the bank with "N.A." after its name. Instead, use a Delaware chartered state bank that only has branches in Delaware. You can find a list of these banks on the website of the Office of the Delaware State Bank Commissioner. A deposit into a Delaware charted bank located in Delaware should protect your money. Look for an account that allows you to wire money or to transfer money to other accounts online. That way you can keep your current account in Virginia and use the Delaware savings account only when needed.
Please be aware, the Delaware account will give you only so much protection. You may not lie on bankruptcy schedules, and if a court compels you to sign over the account on penalty of jail, then you will have to comply or else suffer the consequences. Nonetheless, a Delaware bank account ought to be considered for asset protection
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
What does that mean to a lay person? Well, let me be very specific. Under Title10 Section 3502 of the Delaware Code, "banks, trust companies, savings institutions and loan associations" . . . "shall not be subject to the operation sof the attachment laws of this State." This simply means that a creditor cannot garnish or attach funds in the bank account of a Delaware chartered banking institution or any bank or financial institution located in Delaware using state law collection procedures. If you put your funds in the correct banking institution then your bank account is safe from creditors! This state law does not bar the federal Internal Revenue Service. The Supremacy Clause of the United States Consitution trumps Delaware law.
What banks do you use? I would not use a nationally chartered bank. That's the bank with "N.A." after its name. Instead, use a Delaware chartered state bank that only has branches in Delaware. You can find a list of these banks on the website of the Office of the Delaware State Bank Commissioner. A deposit into a Delaware charted bank located in Delaware should protect your money. Look for an account that allows you to wire money or to transfer money to other accounts online. That way you can keep your current account in Virginia and use the Delaware savings account only when needed.
Please be aware, the Delaware account will give you only so much protection. You may not lie on bankruptcy schedules, and if a court compels you to sign over the account on penalty of jail, then you will have to comply or else suffer the consequences. Nonetheless, a Delaware bank account ought to be considered for asset protection
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Friday, August 13, 2010
BEWARE OF DEBTOR INTERROGATORIES, YOUR JAIL TICKET
Your jail ticket. That's right. It is not a meal ticket. In the debt collection process, the debtors can be jailed for failing to attend state court collection proceedings. Sometimes it is, emotionally speaking, very difficult for debtors to actively open the mails and learn about their financial circumstances. Creditors often make threats or sound threatening; over time such threats become psychologically crushing, and our capacity to deny and avoid kicks in. Creditors cannot threathen criminal action. This is, not only a violation of the federal Fair Debt Collections Practices Act, but in Virginia it amounts to extortion under Sec. 18.2-59 of the Virginia Code. So if a creditor threatens you, tell them to back off.
On the other hand, there is one limited instance in which creditors may have debtors jailed. If a debtor is served with court papers, she ignores the service of such documents at her peril. First, a creditor may seek judgment against the debtor for a debt owing. If th debtor had contacted the creditor's attorney and admitted the debt, he may avoid attorneys' fees. Or sometimes a creditor will exaggerate its claim for prinicipal, interest or late fees; the debtor's active review coupled with his minimum level of participation at court may limit the amount of any judgment rendered against him. Second, once a judgment is taken, the creditor may begin enforcement of the judgment. In legal parlance, this is known as "execution" of the judgment. An execution can result in a levy by the sheriff on the debtor's personal belongings and automobiles. It can result in a garnishment of wages or bank accounts. As part of the execution process, the judgment creditor may also bring a debtor interrogatory (Virginia) or proceeding in aid of execution of judgment (Maryland). Debtors ARE FORWARNED the debtor interrogatory is the most effective weapon in the creditor's arsenal. The debtor can go to jail as a result of such a proceeding.
The Debtor Interrogatory is a proceeding actually started by Queen Elizabeth I of England as a part of the "Star Chamber." That should tell you something. If the debtor fails to appear at the proceeding, the court in which the proceeding is pending may issue a bench warrant for his/her arrest. If the debtor appears, but fails to bring documents requested or to answer questions about his estate, the court may give the debtor a free night's stay at the county hotel. The court can also compel the debtor to sign over property to the sheriff. If the debtor fails to comply, you guessed it, the bailiff (the Court's bodyguard) will escort the debtor to the jail. Also the debtor can be compelled to assign over her interest in bank accounts, patents, accounts receivable and a host of personal property (tangible or intangible). The creditor can also compel the debtor to grant the sheriff a deed to real property located outside of the Commonwealth of Virginia. The debtor interrogatory is a very powerful weapon. Thank goodness most creditors fail to utilize the proceeding to its fullest extent.
Basically, we advise clients, especially if they are anxious by nature, to contact our bankruptcy department and to file bankruptcy petitions before judgments are entered against them. That way the debtors avoid those nasty state court judgment execution proceedings.
Martin Conway
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
On the other hand, there is one limited instance in which creditors may have debtors jailed. If a debtor is served with court papers, she ignores the service of such documents at her peril. First, a creditor may seek judgment against the debtor for a debt owing. If th debtor had contacted the creditor's attorney and admitted the debt, he may avoid attorneys' fees. Or sometimes a creditor will exaggerate its claim for prinicipal, interest or late fees; the debtor's active review coupled with his minimum level of participation at court may limit the amount of any judgment rendered against him. Second, once a judgment is taken, the creditor may begin enforcement of the judgment. In legal parlance, this is known as "execution" of the judgment. An execution can result in a levy by the sheriff on the debtor's personal belongings and automobiles. It can result in a garnishment of wages or bank accounts. As part of the execution process, the judgment creditor may also bring a debtor interrogatory (Virginia) or proceeding in aid of execution of judgment (Maryland). Debtors ARE FORWARNED the debtor interrogatory is the most effective weapon in the creditor's arsenal. The debtor can go to jail as a result of such a proceeding.
The Debtor Interrogatory is a proceeding actually started by Queen Elizabeth I of England as a part of the "Star Chamber." That should tell you something. If the debtor fails to appear at the proceeding, the court in which the proceeding is pending may issue a bench warrant for his/her arrest. If the debtor appears, but fails to bring documents requested or to answer questions about his estate, the court may give the debtor a free night's stay at the county hotel. The court can also compel the debtor to sign over property to the sheriff. If the debtor fails to comply, you guessed it, the bailiff (the Court's bodyguard) will escort the debtor to the jail. Also the debtor can be compelled to assign over her interest in bank accounts, patents, accounts receivable and a host of personal property (tangible or intangible). The creditor can also compel the debtor to grant the sheriff a deed to real property located outside of the Commonwealth of Virginia. The debtor interrogatory is a very powerful weapon. Thank goodness most creditors fail to utilize the proceeding to its fullest extent.
Basically, we advise clients, especially if they are anxious by nature, to contact our bankruptcy department and to file bankruptcy petitions before judgments are entered against them. That way the debtors avoid those nasty state court judgment execution proceedings.
Martin Conway
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Wednesday, July 14, 2010
INCOME FOR BANKRUPTCY PURPOSES
When facing financial troubles, many people turn to family members or close friends for financial assistance. While these gifts or loans may be necessary in order to live, these contributions are considered as income for the purposes of filing bankruptcy. Regular or frequent contribution from anyone paid to a debtor qualifies as income. The Bankruptcy Code treats any money received in the six months prior to filing for bankruptcy as income. 11 U.S.C. § 101(10A). This includes any household expenses that are paid for by anyone other than the person filing for bankruptcy. 11 U.S.C. § 101(10A). For example, the car payments your brother made on your behalf is considered income for the purposes of filing bankruptcy. You should inform your attorney of any income you receive whether it is in the form of a gift, payment from your employer or a contribution to your household expenses, when discussing whether you qualify to file for bankruptcy.
Martin Conway
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Martin Conway
This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.
Subscribe to:
Posts (Atom)
Posts
