Bankruptcy and inheritance

By doug | Published: April 9, 2019

When a bankruptcy debtor inherits money from someone who dies within 180 days of the date the debtor filed bankruptcy that money becomes part of the debtor’s bankruptcy estate. The inherited money that becomes part of the bankruptcy estate is used to pay your creditors. This is true even if you have received a discharge and your Chapter 7 bankruptcy case has closed.

The reading of the will.

For instance, if you file a Chapter 7 bankruptcy on April 1, and your great aunt dies on September 28 (within 180 days of the bankruptcy filing date), any money you receive from your great aunt’s estate must be turned over to the bankruptcy trustee. It does not matter when you receive the money or when your case was discharged. You might receive the inheritance years later, and it must be turned over to the bankruptcy trustee for payment to creditors. You may be charged with bankruptcy fraud (a federal crime) if you fail to inform the trustee of your inheritance or turn over the money.

If the trustee receives inherited money, your case will be reopened and a bankruptcy estate is formed. Notices to creditors are sent and the trustee will distribute the funds to creditors. In some cases you will be able to keep some of the money, and in other cases some of the funds may be returned.

Inherited property is treated the same as cash. If you receive a car or a family heirloom, the property must be turned over to the trustee. In some cases you may be able to exempt inherited property or the trustee may consider the value of the inheritance too small or burdensome to liquidate and distribute.

If you are considering bankruptcy and are aware of a significant chance of someone leaving you inheritance money, speak with your attorney. There are options to avoid turnover including rewriting the will to cut you out, or setting up a spendthrift trust. A spendthrift trust cannot be reached by creditors. Consult with an attorney to properly create a spendthrift trust or rewrite a will. There is nothing illegal or immoral about estate planning and your loved one may prefer leaving money to you rather than your creditors.  Contact Doug Beaton today for a free consultation.

For a free consultation or if you need any assistance from Doug, or have questions about Chapter 7 bankruptcy, or Chapter 13 bankruptcy, please call Beaton Law Office at 978-975-2608 today.

Posted in Uncategorized | Tagged , | Comments closed

How the bankruptcy court can lower your car payment(s)

By doug | Published: January 18, 2019

While some Americans are able to get by without a personal vehicle, having reliable transportation is necessary to most. Whether it is a means to get to work or to school or to take the kids to soccer practice, a vehicle can be an important part of daily life. It is no wonder that one of the first questions bankruptcy clients ask is, “Can I keep my vehicle during bankruptcy?” Fortunately, a Chapter 13 bankruptcy debtor may be able to keep his or her vehicle and qualify for lower monthly payments.

Commonly called a “cram-down,” Section 506 of the Bankruptcy Code allows a bankruptcy court to separate a creditor’s claim into two parts (called “bifurcation”). The first part is a secured claim, which is allowed up to the value of the securing collateral. The second part is an unsecured claim, which is paid at the same rate as other general unsecured creditors or simply discharged at the end of the case.

Take for example a vehicle with a fair market value of $10,000 and a loan of $20,000 secured by a perfected lien. Under the cram-down provisions a bankruptcy court can designate $10,000 of the loan as secured (equal to the vehicle value) and $10,000 as unsecured. The secured portion is paid over three to five years in the debtor’s plan. The remaining unsecured debt is treated the same as the debtor’s medical bills, credit cards, and other unsecured debts. Obviously, cram-down can be a tremendous benefit to a debtor with an upside-down vehicle loan.

Not all vehicle loans qualify for cram-down. Section 1325(a) of the Bankruptcy Code prohibits bifurcation under certain circumstances. Let’s look at when those limitations occur:

. . .section 506 shall not apply to a claim described in that paragraph if[:]

(1) the creditor has a purchase money security interest securing the debt that is the subject of the claim,

(2) the debt was incurred within the 910-day period preceding the date of the filing of the petition,

(3) and

the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) [and]
acquired for the personal use of the debtor…

First, if the secured loan isn’t a purchase money interest (PMSI), there is no cram-down prohibition. Black’s Law Dictionary defines PMSI as the interest created when a buyer uses the lender’s money to make a property purchase and the lender retains a secured interest in the property as collateral for the loan. See Black’s Law Dictionary (9th ed.2009). Refinancing loans or pledges of a vehicle as collateral are not PMSI loans, so Section 1325(a) does not apply.

While the federal bankruptcy laws are meant to be uniform across the country, the sweeping changes to the Bankruptcy Code in 2005 left many questions that are still being resolved by different circuits. Courts are also currently struggling with whether inclusion of negative equity from a trade-in or purchase of an extended warranty plan transforms or bifurcates the PMSI. If transformed, then section 1325(a) does not apply. If bifurcated, then the loan is split into PMSI and non-PMSI interests. Section 1325(a) would only apply to the PMSI portion.

For instance, a California court in the case of In re Penrod broke from the rest of the country and decided that the amount of negative equity in a trade-in that was rolled into a new vehicle loan could be stripped off, even when the loan is less than 910 days old. This case highlights the different interpretations of the new bankruptcy laws and why it is critical to investigate current case law in the jurisdiction and local bankruptcy court practices.

Second, a vehicle is ineligible for cram-down if it was purchased within 910 days of the bankruptcy filing. Vehicles ineligible for cram-down during Chapter 13 bankruptcy must be repaid over the three to five year repayment period. If the vehicle was purchased more than 910 days before the bankruptcy filing, the court may bifurcate the loan in a cram-down.

Third, is the property a “motor vehicle” as defined by 42 USC 30102? The answer will almost always be “yes,” but this definition does leave some wiggle room. A “motor vehicle” means a vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, but does not include a vehicle operated only on a rail line. Consequently, a Segway, a travel trailer, semi trailer, racing bike, dirt bike, and ATV are all outside the classification of “motor vehicle.”

Fourth, the vehicle must have been acquired for the personal use of the debtor. The term “personal use” is not defined by the bankruptcy code. Most courts interpret this section to mean non-business use. Some courts use a totality of the circumstances test and find that a vehicle is not acquired for personal use if it allows the debtor to make a “significant contribution” to the family income. Vehicles such as a delivery van or work truck with racks used in the debtor’s business probably fail the “personal use” test. A tougher question is when the debtor purchased the vehicle for a child or non-filing spouse. A vehicle acquired for the personal use of a non-filing family member may be outside the protection of the hanging paragraph.

One last note: even if the principal amount of the secured loan is ineligible for cram-down, the interest rate can be adjusted to a maximum allowed rate, called the “Till rate” so named after the U.S. Supreme Court case, Till v. SCS Credit Corp., 541 U.S. 465 (2004). The Till rate is constantly fluctuating, and has recently been around 6.25%. Vehicle debt for many Chapter 13 debtors is paid at the Till rate over the course of the bankruptcy case.

Posted in Chapter 13, Secured loans | Comments closed

A primer on credit repair

By doug | Published: October 3, 2018

When people go through bankruptcy, whether they use Chapter 7 or Chapter 13, one of their top concerns is repairing their credit score afterwards. It is a valid concern, as bankruptcy can negatively impact your credit score, and a poor credit score can make your future finances and purchases harder to manage. In order to help people through bankruptcy from the beginning and even beyond the end, my law firm offers comprehensive credit repair services to our bankruptcy clients who have completed their bankruptcy case.

Making Credit Repair Possible for You

Creditors are not on your side when you need to repair your credit. Industry regulations are also prone to causing complications for the consumer, not for creditors and banking institutions. This places you in a difficult situation after completing your bankruptcy. Allow our credit repair specialist in North Andover to guide you through the process, providing unique legal insight whenever necessary.

Parts of a typical credit repair process include:

Credit score check: Before we can get to work on the repair of your credit score, we need to have a clear picture of it after your bankruptcy ended. We can help you get an accurate credit score from nationwide credit groups, like Experian, Equifax, and TransUnion.
Correspondence: In some cases, credit score repair will be hindered by miscommunications among yourself, your creditors, and your banks. We will make certain to send out proper notifications and correspondences as needed to eliminate any confusion.
Legal action: If a credit group oversteps legal boundaries after your bankruptcy concludes, you can depend on us to advise the best course of legal action in response.
General counsel: One of the most important parts of credit repair is learning to properly manage income and expenses. Our credit repair system can help you craft financial plans for now and the future that keep you afloat while restoring your credit score. This takes a careful balance of spending and repaying credit balances regularly.

by Doug Beaton

Posted in Credit cards, Practical tips | Comments closed

Get a super discharge with Chapter 13

By doug | Published: October 2, 2018

In consumer bankruptcy cases, all discharges are not exactly alike.

The rules concerning the discharge of debts in bankruptcy are more generous in Chapter 13 cases. A Chapter 13 debt discharge is commonly known as the “super discharge” because the scope of the discharge is broader than the discharge given in Chapter 7 cases. In Chapter 13 cases, all debts are dischargeable, potentially without any payment, except for the following. But even if a debtor successfully completes his Chapter 13 plan, the following types of debts will not be discharged:

► non-dischargeable tax claims;

► fraud claims – adversary proceeding required;

► child support and alimony obligations (both arrearages and ongoing obligations;

► student loans;

► restitution or a criminal fine included in a sentence on the debtor’s conviction for a crime;

► unlisted debts;

► theft, conversion or breach of fiduciary duty;

► willful and malicious injury causing personal injuries or death to another person ; and

► drunk drivers causing death or injury.

While the super discharge in Chapter 13 potentially covers more debts, it rarely is the sole or even driving reason for filing under that chapter. Avoiding foreclosure or a reposession, and paying legal fees over time remain the most common reasons debtors opt for Chapter 13.

by Doug Beaton

Posted in Chapter 13 | Comments closed

A quick primer on discharging income taxes in bankruptcy

By doug | Published: October 1, 2018

Are you a bankruptcy practictioner or curious taxpayer interested in whether income taxes will go away by filing a bankruptcy case? Well, the rules involved are notoriously tricky, but can be summarized as follows:

In order to discharge income taxes through bankruptcy, the taxpayer / debtor must qualify under three rules — the three year rule, the two year rule, and the 240 day rule — and then check for tax liens.

Let’s take them in turn:

Three year rule: The three year rule has to do with tax filing periods, instead of tax returns per se. The rule looks at how old the tax is by looking at the tax period involved. So: for a tax to be dischargable, the tax year must have had a deadline for filing (including all extensions granted) that fell than three years
before the day the bankruptcy case was FILED.

It works like this: Say the debtor owes taxes for tax year 2014. His return was due April 15, 2015. So he can wait three years and file for bankruptcy on April 16, 2018, right? NOOOOO — because there were holidays (Patriots Day, etc.) in 2015 that delayed the IRS deadline to April 17, 2015. So if the debtor filed for bankruptcy on April 16th, he’s just screwed himself. Trap for the unwary.

But this debtor requested the automatic six-month extension for filing that everyone can get. That means his return wasn’t due until October 15, 2015, and he can’t file a bankruptcy case to discharge the tax until after October 15, 2018. See ya next fall, or he’s screwed again.

Two year rule: Here is where we start looking at tax returns, not just calendar pages. The two year rule requires that in order to discharge a tax, the debtor must actually file his return more than two years before filing his bankruptcy case.

Implicit in the two year rule is that the return for the year in question must actually have been filed. Once filed, the debtor must wait two years before bankruptcy relief. When interviewing clients, you can turn this around. Ask them if they have filed a return for year X, and if the answer is no, the analysis is simple: The tax isn’t going away.

Some cases raise the question of what is a “return?” If the IRS files what they call a substitute return (or SFR) that doesn’t qualify as a return. Worse, some courts say that the substitute return blocks the debtor from filing his own return later, and so the tax will never be dischargable. Substitute returns are usually found with recalcitrant debtors who have had long running battles with the IRS.

240 day rule: If a tax is assessed by the taxing agency less than 240 days before the bankruptcy case is filed, the tax will not be discharged in the bankruptcy case. Debtors who are engaged in audits with the IRS or MDOR may be tripped up by this rule, as the audit may result in a new assessment. The rule also raises the question of how do you know when the tax has been assessed? Answer: the assessment date may appear on IRS or MDOR correspondence, it will appear on a taxpayer’s account transcript, or it may be obtained by calling the tax agency on the phone. Fortunately, avoiding the 240 day rule can be dealt with by a simple tactic: wait awhile before filing the bankruptcy petition.

Tax liens: Debtors who pass all three rules may think they have a clear path to getting rid of their tax problems through bankruptcy. Maybe so, but there is at least one more hurdle to climb: checking for tax liens. The general rule is that tax liens issued before a bankruptcy filing survive the bankruptcy, so that even if the debt is discharged through the bankruptcy process, the tax agency may still recoup the money if property is sold after the case is over. This is definitely a trap for the unwary — always check for tax liens before filing your bankruptcy case!

by Doug Beaton

Posted in Taxes | Comments closed

Don’t panic if you see zeros on your credit report after bankruptcy

By admin | Published: June 15, 2018

Clients often call me months or years after their bankruptcies are finished with a version of the same complaint: “I just checked my credit report, and my [car loan, mortgage, etc.] shows a zero balance. Plus, the payments I’m making aren’t being shown on the report.”

Relax, I say.

First of all, this is correct credit reporting. After receiving a bankruptcy discharge, you have no personal obligation to make payments on a secured debt like a mortgage or car loan, so your balance really is “$0.00.” However, the lender still has a right to take back the collateral (foreclosure, repossession) if payments are not made, so debtors need to stay current on the payments if they want to keep the property.

This is done by forwarding voluntary payments to the lender. In the credit reporting industry, these are considered strictly voluntary, and don’t count as reportable payments toward a debtor’s credit score.

This drives some people crazy, and they call me, sometimes even willing to sigh a reaffirmation agreement on the loan years after the case is closed (which can’t be done, by the way).

Again I say, relax.

Consider that if the discharged debt were to be added back to your credit report, that would reduce you available debt-to-income ration for borrowing, which itself could lower your credit score.

A far better means for boosting credit after bankruptcy is through the use of secured credit card accounts. You establish a modest savings account with a bank ($500.00 works great for this), which holds the account as security for a credit line in the same amount, and issues a credit card to use it.

Buy a few things on credit (a few things! restrain yourself….), make the monthly payments on time, and your credit score will be on the rise again, without the risk of putting loads of old debt back on the books to your detriment.

You can read a little more about setting up secured credit cards by clicking here: https://www.magnifymoney.com/blog/building-credit/build-credit-with-10-a-month-on-a-secured-card714882391/ .

by Doug Beaton

Posted in Practical tips | Comments closed

What do you need to stop a foreclosure sale on your house?

By doug | Published: June 14, 2018

If a foreclosure sale has been scheduled on a property you own, and the auction date is looming, and you are thinking about filing a bankruptcy case to stop the sale, what exactly will it take to get the sale postponed?

Maybe not as much as you expected. First, I would need basic information from you: name, address, social security number and so on.

Second, I need a list of ALL your creditors. The list needs to be COMPLETE. If there are any creditors not on the list, they are going to have to be added in late, and that will cost you extra money (think $200 to $300).

Since it’s best to have a complete list, I will get your credit report, show it to you, and invite you to add any creditor you know about that isn’t on the report. Cost: $33-55.

Once I have a complete list of creditors, I will need you to complete a credit counseling session ASAP. In a pinch go here: www.DECAFnow.com . DECAF operates 24/7 and in English or Spanish. When you have completed the counseling (usually in less than an hour), they will send me the certificate I need directly.

And that’s it! I’ve stopped a foreclosure sale in less than 24 hours before, but that’s hard on the heart. Give me a few days at least and it will go as smoothly as it can!

by Doug Beaton

Posted in Foreclosure | Comments closed

How to protect your tax refund when you file bankruptcy

By doug | Published: June 13, 2018

Expecting a tax refund from the IRS or Massachusetts DOR? Thinking about filing a bankruptcy case to get rid of debt? Fine — but take a minute to think about how the two are related.

Tax refunds are hidden assets in bankruptcy cases. Meaning they are not the sort of thing ordinary people consider assets at all. Ordinary people just expect they might get them once a year or so. But assets they are, and that means doing some planning before a bankruptcy case is filed.

Because a tax refund is an asset, it needs to be listed on Schedule B (line 28 to be exact). Beyond that, the name of the game is to declare the refund exempt on Schedule C. Ideally, the entire refund can be exempted, but a partial exemption is better than nothing.

To declare the refund exempt, dipping into the “wild card” exemption is required. Individual debtors who can use the federal wild card exemption have about $13,000 in total to work with. But don’t forget to save some to cover bank accounts and other liquid assets! Retirement accounts (IRA, 401(k), etc.) don’t need to be covered with wild card.

If you can’t use the federal wildcard (perhaps because you also need to protect home equity with a Massachusetts or New Hampshire exemption) then you can use the wild card exemption from your home state against the refund. Massachusetts comes in a little less generous than the feds, with $6,000 available for this.

Married couples may be able to combine exemptions to bump up these amounts. But there is a need to be careful here; sometimes tax refunds “belong” to one spouse or the other in greater or lesser degrees, for example when one spouse makes all the money (and incurs all the tax deductions that generate the refund), while the other spouse stays at home with the family. Both the refund and the wild card exemptions may need to be carefully allocated in these circumstances.

In Massachusetts and New Hampshire, bankruptcy trustees start dreaming about collecting debtor’s refunds as early as October of the prior year, and the interest remains high right through the April 15th tax filing deadline. But refunds are fair game all throughout the year by law, so attorneys should be on guard and ready to some exemption tax planning in every case, all year long.

by Doug Beaton

Posted in Taxes | Comments closed

How long will my bankruptcy case last?

By doug | Published: June 12, 2018

A man with a toothache cares about only one question — when will the pain go away? For most people, filing for bankruptcy shouldn’t be as painful as a toothache, but even the most sanguine of debtors are often curious about when their case will be over.

For a consumer Chapter 7 case with no special legal issues other than the debts themselves, I tell people to expect that it will be done in about four months. This is calculated as follows:

* About two weeks to gather documents and the attorney’s fee and filing fees, prepare and review drafts of the bankruptcy petition.

* From the actual filing date, about one month until the meeting of creditors is held at the trustee’s office.

* Then there is a two month period to wait to see if any objections are received. Kind of like a wedding: “Speak now or forever hold your peace……”

* Assuming there are no objections, it may take another two weeks for the discharge to issue and the case to be closed. So about four months, soup to nuts.

Of course, cases with complications will take longer. What sort of complications? Well, the most common one by far is that the trustee is going to sell some of the debtor’s non-exempt property. In that event, the case will remain open until the property is sold — several extra months at a minimum.

Chapter 13 cases present a whole different time line. In Chapter 13, debtors file a plan for paying off a percentage of their debts through monthly payments. The bankruptcy code specifies that the length of the plan must be between three and five years. Therefore, the typical Chapter 13 case — if it is pursued to completion — should be expected to last between three and five years.

As always in the law, there are exceptions. If a debtor is able to propose a plan that pays 100% to the unsecured creditors, the plan length can be shorter than three years — essentially it can be any length shorter than 60 months the debtor can swing. A debtor who has big mortgage problems, but relatively little credit card debt, for example, may fit into this category. Also, some debtors may have properties that can be sold to pay the debts, but they need time — breathing room to stave off a foreclosure, for example.

by Doug Beaton

Posted in Practical tips | Comments closed

Questions asked at bankruptcy meetings

By doug | Published: June 11, 2018

Every person who files a bankruptcy case has to show up somewhere for at least one hearing and face the music by answering a series of questions under oath.

These “hearings” are called the “meeting of creditors” or sometimes the “341 hearing” after section 341 of the bankruptcy code which requires it. They will take place somewhere in the state where the case was filed, often in an office building instead of a courthouse. The trustee — another bankruptcy lawyer — presides, instead of a judge. Creditors are invited to attend, hence the name, but rarely do in consumer cases. If you have hired a bankruptcy attorney, he or she will be sitting next to you. I tell people to expect that the meeting will typically last between five and ten minutes.

So, what types of questions are asked? Here are a few of the common ones:

Have you owed real estate in the past six years?

Real estate is a prime focus for bankruptcy trustees. It’s usually worth a lot of money, and may not be exempt from attachment unless it is the debtor’s primary residence. Trustees love finding real estate they can sell. There is nothing magic about the “six years” figure, some trustees may ask about a different period. Some may ask if you have ever owned real estate.

Do you have an interest in a trust?

Anything to do with trusts are also of extreme interest to bankruptcy trustees. While most debtors realize that a piece of real estate needs to be listed as property when they file for bankruptcy, they may not know (or remember) about trusts. If a debtor is involved in a trust, he should expect at a minimum that the trustee will ask for a copy of the trust documents, which will be scoured with a fine-tooth comb for loopholes. To avoid trouble with trusts, give your attorney a copy of the trust as soon as you hire him.

Do you have any uncashed winning (lottery, bingo, racing) tickets?

I’ve never met anyone struggling with financial problems who sat on winning tickets, but I guess hope springs eternal.

(For renters) Who is your landlord?

After the debtor spits out the name of the landlord, the followup question is whether said landlord is a relative. Rest easy — it’s not against any law to rent property from a relative. What the trustees are looking for (and what will be a problem) is situations where the debtor has transferred real estate to a relative before filing the case, in order to avoid it’s detection. That’s bad news.

Have you been involved in a personal injury accident, or worker’s compensation claim?

Injury claims are another sort of hidden asset that debtors might not think about if there focus is on property that is actual stuff. Depending on your situation, you may be able to claim a federal exemption for up to $15,000 in personal injury claims, so small cases may be fully exempt, and you should be able to receive at least part of a settlement in every case. But they need to be disclosed.

Did you pay any creditor more than $600 in the ninety days prior to filing the case?

This is one of a series of questions attempting to identify what the bankruptcy code calls “preferences” — where one creditor gets paid in lieu of the others. Bankruptcy trustees can make money by finding preferences and undoing them, either by sending out threatening letters or by filing lawsuits, or both.

The law on preferences is complicated, and riddled with technicalities and exceptions. But easily the most worrisome for the debtor is where the preferred party is a parent or other close relative. Watch out here — making payments on family loans before filing a bankruptcy case can cause embarrassing grief for both the debtor and his relatives.

Also note that answering this question properly means you need to know the date the case was filed, and to make some mental calculations. Spending a few minutes before the meeting reviewing the notice of bankruptcy filing that was mailed out to you can help relieve a lot of the anxiety involved in these usually short, perfunctory meetings.

by Doug Beaton

Posted in Practical tips | Comments closed
Call now: (978) 975 - 2608