Many times people will see that one or more of their debts is "charged off".
Charged off is an accounting term that means an account is no longer active. Often if you have not made payments on a particular account for six months, the creditor will "charge off" the account. Frequently thereafter they will transfer the account to a collection agency or sell it to a debt buyer.
Many people mistakenly believe a deb\t which is "charged off" is no longer owed. Unfortunately, that is incorrect. Debt collectors may try to collect a "charged off" debt even years after the original creditor designated the account as "charged off".
Accounts can get too old to collect -- which is called being barred by the statute of limitations.
If you are contacted regarding a charged off account, one thing to check is whether the statute of limitations prevents you from being sued on a time barred debt.
Thursday, July 28, 2011
Sunday, June 5, 2011
Three Common Mistakes to Avoid
Three Common Bankruptcy Mistakes to Avoid
Bankruptcy can be complicated. Many people are fearful just thinking about filing for bankruptcy. However, it is important not to let this concern lead you into mistakes. Here is a short list of common mistakes people make, so that you can avoid them.
A. Don’t transfer things or money.
Do not transfer things you own to a friend or relative -- such as a car, boat, or cash. Many times you can protect the items you own; if you transfer them you may forfeit that protection.
B. Don’t pay off creditors.
Don't pay back relatives or friends amounts you owe them. The trustee will ask, and the person you pay likely cannot keep the money. Don't pay unrelated unsecured creditors as much as $600 within the 90 days before you file. Doing so typically creates what is called a “preference” and the trustee can recover that amount from the payee but you do not get the money back yourself.
Don't pay back relatives or friends amounts you owe them. The trustee will ask, and the person you pay likely cannot keep the money. Don't pay unrelated unsecured creditors as much as $600 within the 90 days before you file. Doing so typically creates what is called a “preference” and the trustee can recover that amount from the payee but you do not get the money back yourself.
C. Don't borrow against your 401(k). The funds in your 401(k) account are virtually guaranteed to be protected from creditors; if you take the money out, you may forfeit that protection.
Sunday, May 1, 2011
Mom's house as a problem
Postings on another listserv reminded me of a problem that does not often come up, but one that is potentially very serious when it does occur.
The problem arises when, as often happens, your Mom deeds her house to you and your siblings, reserving a life estate.
Even though your Mom owns the house and can live there, you have an asset that must be disclosed.
The case that brought this to mind is that the debtor's Mom deeded the house to the debtor and three siblings. The debtor had to file bankruptcy, but did not list the asset when he filed his case several years ago. Recently his mother passed away, and as part of selling the house the title company did a title search and found that the debtor had filed bankruptcy, but had not listed the asset.
So, now the case must be re-opened. To make matters worse, the trustee is now claiming that because Mom passed away, that the debtor must value his interest in the house as a full one-fourth of the value, whereas if he has listed it when he file his case several years ago the value of Mom's life estate could have been deducted. Let's say the house was worth $100,000; if the house had been valued when Mom was alive and had a life estate in the house, we would have deducted, say, $50,000 as the value of Mom's life estate. The value of the debtor's interest, then would have been $10,000 ($100,000 total value - Mom's $60,000 life estate = $40,000 / 4 = $10,000). The debtor could have protected that with his $11,975 federal wild card exemption. If the trustee convinces the judge that the life estate should not be deducted (since Mom is deceased) the debtor's interest is $100,000 ($100,000/4= $25,000), which means that the debtor cannot protect even half of the asset.
This does not even include the truly horrific possibility that the trustee will think that the debtor was deliberately concealing the asset and seek to revoke the debtor's discharge.
So, I think the moral is: If you are going to file, check with Mom to see if she has does any "estate planning" which will have to be taken into account in planning your bankruptcy.
The problem arises when, as often happens, your Mom deeds her house to you and your siblings, reserving a life estate.
Even though your Mom owns the house and can live there, you have an asset that must be disclosed.
The case that brought this to mind is that the debtor's Mom deeded the house to the debtor and three siblings. The debtor had to file bankruptcy, but did not list the asset when he filed his case several years ago. Recently his mother passed away, and as part of selling the house the title company did a title search and found that the debtor had filed bankruptcy, but had not listed the asset.
So, now the case must be re-opened. To make matters worse, the trustee is now claiming that because Mom passed away, that the debtor must value his interest in the house as a full one-fourth of the value, whereas if he has listed it when he file his case several years ago the value of Mom's life estate could have been deducted. Let's say the house was worth $100,000; if the house had been valued when Mom was alive and had a life estate in the house, we would have deducted, say, $50,000 as the value of Mom's life estate. The value of the debtor's interest, then would have been $10,000 ($100,000 total value - Mom's $60,000 life estate = $40,000 / 4 = $10,000). The debtor could have protected that with his $11,975 federal wild card exemption. If the trustee convinces the judge that the life estate should not be deducted (since Mom is deceased) the debtor's interest is $100,000 ($100,000/4= $25,000), which means that the debtor cannot protect even half of the asset.
This does not even include the truly horrific possibility that the trustee will think that the debtor was deliberately concealing the asset and seek to revoke the debtor's discharge.
So, I think the moral is: If you are going to file, check with Mom to see if she has does any "estate planning" which will have to be taken into account in planning your bankruptcy.
Monday, March 7, 2011
Should You Keep Paying Credit Cards
Clients often ask if they should stop paying their credit card bills before we file their bankruptcy case.
There are at least two issues. The case to continue payments is that there is an argument that the more "lates" you have on your credit report, the lower your credit score will be.
The counter argument is that if you need to file bankrupcy, you need to be saving your money to, for instance, catch up your home mortgage payments. Money paid to the credit card company is gone.
There is another "legal" issue, which is as follows: Bankruptcy trustees are on the lookout for payments to unsecured creditors which exceed $600 per creditor in the 90 days before the case was filed (one year for 'insiders'-- basically, people who are relatives or close friends.) The reason is that such a payment may be a "preference". I usually say that there is nothing immoral, illegal or fattening about a preference, but the point from the trustee's standpoint is that he or she can recover the preferential payments and earn a commission for doing so.
So, you don't get the money back and the company you paid doesn't get to keep the money.
Sort of a lose-lose proposition.
So, I think as a general matter, once you have decided that you have to file bankruptcy, stop paying the credit cards.
As usual, there are exceptions to every rule; be sure to ask about your specific question.
There are at least two issues. The case to continue payments is that there is an argument that the more "lates" you have on your credit report, the lower your credit score will be.
The counter argument is that if you need to file bankrupcy, you need to be saving your money to, for instance, catch up your home mortgage payments. Money paid to the credit card company is gone.
There is another "legal" issue, which is as follows: Bankruptcy trustees are on the lookout for payments to unsecured creditors which exceed $600 per creditor in the 90 days before the case was filed (one year for 'insiders'-- basically, people who are relatives or close friends.) The reason is that such a payment may be a "preference". I usually say that there is nothing immoral, illegal or fattening about a preference, but the point from the trustee's standpoint is that he or she can recover the preferential payments and earn a commission for doing so.
So, you don't get the money back and the company you paid doesn't get to keep the money.
Sort of a lose-lose proposition.
So, I think as a general matter, once you have decided that you have to file bankruptcy, stop paying the credit cards.
As usual, there are exceptions to every rule; be sure to ask about your specific question.
Sunday, February 20, 2011
Your trustee meeting
About a month after your case is filed, you must meet with the trustee. This meeting is usualy called "the first meeting of creditors" or "the 341 meeting". It is called the "first meeting of creditors" because, in the old days, creditors apparently would come to the meeting. It is very unusual for a creditor to attend nowadays (unless it is someone who is personally mad at you, like an ex-spouse!) It is sometimes called the "341 meeting" because that is the section of the bankrupcy code that requires you to come to the meeting.
Most of my trustee meetings are in St. Cloud. We meet at the Red Cross building, across the street from the new public library. Depending on the trustee, there are between three and five creditors schedules per-half half, so the trustee is only allocating between six and ten minutes per case. The room is set up with tables at one end, where the trustee sits, and movable chairs at the other end, where we sit and wait for your name to be called.
When your name is called, we get up, go to the tables, and sit down across from the trustee. You must show the trustee the following: a) your driver's license, b) your Social Security card; c) the bank statement(s) that show your bank balance on the date you filed; and d) your most recent paystub (if you are employed).
The trustee will ask you around twenty questions. The questions are, generally, as follows:
1) what is your name; 2) what is your address; 3) what is your phone number; 4) have you read the "bankruptcy information sheet"; 5) did you sign the bankruptcy papers? 6) did you read the papers before signing them; 7) is all of the information true and correct; 8) are there any mistakes to bring to the trustee's attention; 9)) within the 90 days before you filed bankruptcy, did you pay an unsecured creditor amounts that would add up to $600 or more; 10) within the year before you filed, did you pay a relative or friend $600 or more; 11) within the 90 days before you filed did someone take something from you, as by a garnishment or repossession; 12) within the six years before you filed, did you transfer something to a relative or friend that would have been worth $1,000 or more; 13) if you own a home, do you live there? 14) if you own a home, what is it worth, and how much do you owe against it; 15) how did you determine the value of your home; 16) do you intend to stay in the home; 17) have you ever been in business for yourself; 18) if you have, when did you start and when did you stop; 19) if you have been in business, are there any assets remaining from that business?; 20) do you own anything not listed in your bankruptcy papers; 21) do you expect to inherit within the next year; 22) if you do inherit, do you understand that you have to notify the trustee of that fact.
Once the trustee has finished, he or she will usually say "Thank you" and (hopefully) "That concludes this meeting. You are then free to leave.
Most of my trustee meetings are in St. Cloud. We meet at the Red Cross building, across the street from the new public library. Depending on the trustee, there are between three and five creditors schedules per-half half, so the trustee is only allocating between six and ten minutes per case. The room is set up with tables at one end, where the trustee sits, and movable chairs at the other end, where we sit and wait for your name to be called.
When your name is called, we get up, go to the tables, and sit down across from the trustee. You must show the trustee the following: a) your driver's license, b) your Social Security card; c) the bank statement(s) that show your bank balance on the date you filed; and d) your most recent paystub (if you are employed).
The trustee will ask you around twenty questions. The questions are, generally, as follows:
1) what is your name; 2) what is your address; 3) what is your phone number; 4) have you read the "bankruptcy information sheet"; 5) did you sign the bankruptcy papers? 6) did you read the papers before signing them; 7) is all of the information true and correct; 8) are there any mistakes to bring to the trustee's attention; 9)) within the 90 days before you filed bankruptcy, did you pay an unsecured creditor amounts that would add up to $600 or more; 10) within the year before you filed, did you pay a relative or friend $600 or more; 11) within the 90 days before you filed did someone take something from you, as by a garnishment or repossession; 12) within the six years before you filed, did you transfer something to a relative or friend that would have been worth $1,000 or more; 13) if you own a home, do you live there? 14) if you own a home, what is it worth, and how much do you owe against it; 15) how did you determine the value of your home; 16) do you intend to stay in the home; 17) have you ever been in business for yourself; 18) if you have, when did you start and when did you stop; 19) if you have been in business, are there any assets remaining from that business?; 20) do you own anything not listed in your bankruptcy papers; 21) do you expect to inherit within the next year; 22) if you do inherit, do you understand that you have to notify the trustee of that fact.
Once the trustee has finished, he or she will usually say "Thank you" and (hopefully) "That concludes this meeting. You are then free to leave.
Tuesday, January 11, 2011
Bad, bad mortgage company
I seem to write some of these posts out of frustration. Recently I had a client who needed to file bankruptcy due to a pending garnishment, but was behind on their home loan with Wells Fargo bank. The client could borrow money from his 401(k) plan to catch up, but the plan administrator would not release funds without proof that the foreclosure really was imminent.
We filed the case to stop the garnishment, and I wrote the law firm which regularly represents Wells Fargo and asked if they would provide a "hostile-gram" for the purpose of showing it to the 401(k) plan administrator to enable the client to borrow money to catch up.
Well, the law firm did that just fine, but about ten days later also filed a motion to lift stay, for which they demanded payment of $800.00 for their attorneys fees and costs.
The motion is pretty much pointless -- the client would have been discharged in 90 days, so the motion for relief from stay "released" Wells Fargo from the bankruptcy by a whole 30 days or so.
Because the client wants to keep their home, and has always wanted to keep his home, he may well be stuck with what amounts to an $800 late fee.
I'm not sure what the moral of the story may be (obviously, one is to not bank with Wells Fargo, but it was too late to change mortgage companies when the client came to see me) -- so maybe this is just a cautionary tale to try your very best to be current with y our mortgage company if you file a chapter 7 and wish to keep your home.
We filed the case to stop the garnishment, and I wrote the law firm which regularly represents Wells Fargo and asked if they would provide a "hostile-gram" for the purpose of showing it to the 401(k) plan administrator to enable the client to borrow money to catch up.
Well, the law firm did that just fine, but about ten days later also filed a motion to lift stay, for which they demanded payment of $800.00 for their attorneys fees and costs.
The motion is pretty much pointless -- the client would have been discharged in 90 days, so the motion for relief from stay "released" Wells Fargo from the bankruptcy by a whole 30 days or so.
Because the client wants to keep their home, and has always wanted to keep his home, he may well be stuck with what amounts to an $800 late fee.
I'm not sure what the moral of the story may be (obviously, one is to not bank with Wells Fargo, but it was too late to change mortgage companies when the client came to see me) -- so maybe this is just a cautionary tale to try your very best to be current with y our mortgage company if you file a chapter 7 and wish to keep your home.
Saturday, January 1, 2011
Chapter 7 or Chapter 13
There are six types of bankruptcy, chapter 7, chapter 9, chapter 11, chapter 12, chapter 13, and chapter 15. Chapter 9 is for cities; chapter 11 is a business reorganization; chapter 12 is for farmers, and chapter 15 is for foreign businesses. So, for most people, the choice is between chapter 7 and chapter 13.
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
A chapter 7 case allows an individual to wipe out most ordinary debts while keeping "exempt" assets. There are two sets of exemption laws, which are the state exemptions and the federal exemptions. Minnesota atate exemptions allow you to keep $330,000 of equity in your home, $4,400 of equity in your car, and about $9,000 worth of household goods. Federal exemptions let you keep $10,100 of equity in your home, $3,450.00 of equity in your car, about $9,000 of equity in household goods, and provide a wild card exemption of $11,875.00. In 2005 Congress enacted a "means test", which was intended to force more people into chapter 13 bankruptcies.
Generally speaking, in a chapter 7 you are "in and out" in about 90 days from the day we file the case with the trustee.
If you are behind on your house or car payments, although chapter 7 will temporarily stop a foreclosure or repossession, you will have to catch up on your house payments or car payments on your own.
A chapter 13 is put together much like a chapter 7, but instead of being "in and out" in 90 days, you make payments to a trustee for a period of three to five years.
A chapter 13 can be used to catch up on a home mortgage. Typically you have to pay those payments that come due after the case is filed with the court, but the payments which were behind when you filed can be stretched out over a three to five year period. For example, if your house payments are $1,000 a month and you are behind $9,000.00 when the case is filed on February 10th, you would pay the $1,000 regular payment directly to the mortgage company starting March 1st, and you would pay the chapter 13 trustee $200 a month starting March 15th. The trustee would take the $200.00 and deduct a commission and send it to the mortgage company to apply to the missed payments.
(The above is a very simplified version, by the way!).
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