What is the "means test"?

There are two types of bankruptcy usually used by individuals -- Chapter 7 and Chapter 13.  Either can help you deal with your finances.  Chapter 13 is a payment plan type bankruptcy, that lets you pay your bills, or a portion of your bills, over three to five years.  Chapter 7, on the other hand, wipes out your dischargeable debt without a payment plan, and usually takes about four months. 

However, in 2005 Congress, after a massive lobbying campaign, enacted something called the "means test".   In the means test we add up all your income for the six months (not including the month of filing) before your case is filed.  We then divide by six, and the result is your "current monthly income". 

If your "current monthly income" is less than the median income in Minnesota for a household of the same size as yours, you "pass" the means test.  

If on the other hand your "current monthly income" is more than the median income in Minnesota for a household of the same size as yours, we go on to substract specific monthly expenses, such as mortgage payments, car payments, tax withholding, and living expenses.  Some of these expenses are what you actually spend; some of these expenses are limited to amounts specified by the Internal Revenue Service.  If there is a surplus after completing the means test there is a presumption that your case is a substantial abuse and the US Trustee may ask the court to force you into a chapter 13.

The median income is adjusted periodically according to Census Bureau information.  For example, in December, 2020 (when this post is written), the median income is as follows:

     Household of one -- $61,811

     Household of two -- $81,478.00

     Household of three -- $100,430.00

     Household of four -- $118,646.00

     For each household member over four, add $9,000.00.

As always, if you have questions, feel free to call me at 320-252-4473 to set up a meeting by Zoom, telephone or in person.  

Priorities in estate planning

Do you have a will or an estate plan? For about half of Americans, the answer is “No”. The website The Motley Fool says that estate planning is an opportunity to provide for loved ones and protect your own interests in the face of life’s uncertainties.

Many people think only the rich need to do any estate planning. But, if you have a family (most especially if you have a blended family – children with someone not your current spouse) you should consider having an estate plan. For instance, if you have children from a prior marriage, if you die without a will you may “disinherit” them. When done properly, an estate plan can help you resolve issues ranging between designating a guardian for children to passing on a family-owned small business and hopefully avoiding or reducing any intra-family conflicts.

Even if you already have a will, family changes like marriage, divorce, births and deaths happen. These life events can render an estate plan obsolete.

Also, estate planning does not mean only what happens after your death. You may want to include a Health Care Directive (often called a living will) and a durable power of attorney. The Health Care Directive is in case you cannot communicate your health care wishes; the durable power of attorney in case you are no longer able to make your own business decisions.

You may have individuals who rely on you, such as minor children or incapacitated adult family members. An estate plan can help provide that their care and maintenance continues even if you are unable to provide it yourself. You can name a guardian for your children in your will and someone to take care of your minor child’s money.

If you want to talk more about estate planning issues, call me at 320-252-4473 to talk about it.

Basic Estate Planning Documents

If you are a Minnesota resident, there are three estate planning documents you should consider:

First, a will. A Will leaves your property to whoever you want when you die. If you don’t have a Will, Minnesota law will decide who gets your property; and it might not go to who you want if you die without a Will. A Will can also simplify the process of probate after your death, appointing a personal representative, which is what Minnesota calls an executor, and make sure that the personal representative does not have to post a bond. A Will may be especially important if you have children from more than one marriage, or if you have children from a prior message, as the law of intestacy (dying without a Will) can have results you would not expect, such leaving the home you share with your spouse partly to your spouse and partly to children from a prior marriage. If you have children who are under eighteen, you can include a contingent trust in your Will to have the money administered with more flexibility than leaving it directly to your minor children.

The second document is a Health Care Directive. A Health Care Directive lets someone else make medical decisions for you if you are unable to make those medical decisions yourself. Most people name their spouse as their health care agent and then name one of their children as an alternate. It is important that the health care agent know that the directive exists and where to find it. There is a very simple form located at: https://honoringchoices.org/health-care-directives/english-directives

The third document is a Durable Power of Attorney. (It is called "Durable" because it remains effective if you become mentally incompetent.) A Durable Power of Attorney permits someone to handle your affairs if you can’t. Many people think that they don’t need a Power of Attorney because their spouse is named as co-owner of bank accounts and is on the deed to the house. But a spouse cannot sign contracts, deeds, tax returns and other documents for you just because they are named as a co-owner on an account. Most people name their spouse on the power of attorney, and name one of their children as an alternate. It is very important, however, to know that a Durable Power of Attorney is literally a blank check, so you need to have the utmost confidence in the person you name. Every year there is a news story about a child who stole a lot of money from their parent. You can name two persons who are required to act jointly.

I can help you with all of these, if you wish. Feel free to visit with me, either in person or remotely.  Call my office at  320-252-4473

If you vote by mail ....

You would have to not own a television to not know that a Presidential election is a few days away.  Personally, I know how I am going to vote, and am already tired of political commercials.  Minnesota is apparently a battleground state, so I suppose we can expect the deluge of ads to continue until November 2.  If you want to talk politics, call me and we can discuss.  But I am trying to keep this post non-political. And when voting, remember that there are a lot of contests on the ballot in addition to the election of a President. My sample ballot has elections for: 21 Judges, school board, mayor, city council, soil and water district, state representative, state senator, US representative, US senator, and the President.

I know that many people will be voting by mail/absentee.

If you choose to vote by mail, you may want to verify that your ballot was received.

The Minnesota Secretary of State office has a "check your ballot" page.  Here is the link:

https://mnvotes.sos.state.mn.us/AbsenteeBallotStatus.aspx

Still time to get $1200 stimulus payment

 I received teh following email from the National Consumer Law Center:

Help needed to reach 12 million non-tax-filers facing September 30 and October 15 deadlines to claim their stimulus payment!

Dear friends and allies, The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided economic impact payments to individuals up to $1,200 to help dampen the impact of the economic fallout of COVID-19. Most people have already received their payments via direct deposit, check, or prepaid debit cards.  But 12 million people who desperately need and are eligible for the stimulus payments could miss out unless they take action by October 15 – and we need your help to reach them.  This group of people, who do not typically file tax returns, includes very low-income families with children, people who have been disconnected from work opportunities for a long period, and many low-income adults not raising children in their home. A simple IRS form they may not know about now stands between them and their much-needed stimulus funds. Please help spread the word by alerting people to fill out the IRS’s “Non-Filers” Form.  Additionally, the IRS is extending to September 30, 2020 the deadline for recipients of Social Security, federal disability benefits, and other benefits – who have already received their individual payment – to apply for an additional $500 for each qualifying child.

Take action to spread the word about the September 30 and October 15, 2020 deadlines for non-filers to complete the IRS form to receive their Economic Impact Payment.

The Center on Budget and Policy Priorities (CBPP) has just issued a new analysis on the estimated 12 million people who are eligible for Economic Impact Payments (EIP) but who must file an online form with the IRS by October 15 to claim the funds this year or must file a 2020 tax return next year to receive it in 2021. The paper provides demographic information, state by state numbers, and suggestions for steps that states, as well as community and legal service providers, can take to help the most vulnerable individuals claim the substantial economic stimulus payment.  Action Item Spread the word in your program and communities. CBPP has developed resources to support EIP outreach work including flyers, press release templates, FAQs, and additional outreach tools.  Please also spread the word that people who received an EIP prepaid card should activate it or replace it to receive their money. More information Center for Budget and Policy Priorities: Aggressive State Outreach Can Help Reach the 12 Million Non-Filers Eligible for Stimulus Payment IRS takes new steps to ensure people with children receive $500 Economic Impact Payments Center for Budget and Policy Priorities: Stimulus Payments Outreach Resources NCLC: IRS Sending Letters About Unactivated Stimulus Prepaid Cards NCLC: The EIP Stimulus Payment Prepaid Card: Not a Scam; How to Avoid Fees (sample card and mailer) NCLC's COVID-19 website (continually updated) has extensive information on responses to the crisis, including state-by-state information on orders that have been issued. We hope you are staying healthy and thank you for joining us to ensure those most in need of Economic Impact Payments receive them.

Surprise: Sometimes lying will get you in trouble!

Updated Dec. 3, 2020:   I am in Minnesota;  the guy I was talking about is in Pennsylvania.  To my astonishment he called me today and asked to take down this post. He said he had just gotten out of prison.  Because I have no reason to wish him ill, I have updated this entry to delete the guy's last name.  He did say that if I had a client who was contemplating lying he could talk to the client and tell them how badly it turned out!

I recently saw a news report about a man in Pennsylvania who got caught in some serious lies in his bankruptcy.

 XX was sued in the Court of Common Pleas in Philadelphia, along with a number of other entities.   He lost, and in April 2014 a judgment for about $2,400,000 was entered against him.  The bankruptcy case is xxxxx, the criminal case is xxxxx, and I believe the state court case is xxxxxx.

According to the criminal indictment:

On or about April 12,2014, defendant XX purchased a 2009 BMW X3 for approximately $26,085. On or about April 14,2014, defendant XX purchased a 2014 Porsche 911 for approximately $118,176.  On or about April 15,2014, defendant XX purchased a 2014 Porsche Cayman for approximately $68,267. Defendant XX charged all three cars to his American Express Centurion Card. 

( I don't know about you, but I don't know if American Express card would let me charge $212,000 worth of cars in one week!)

Mr. XX then filed Chapter 11 bankruptcy (a reorganization) on April 21, 2014.

He "forgot" to list the BMW and the two Porsches in his bankruptcy paperwork.  He "forgot" to list a lot of other stuff, too, including $214,000 of cash, a 21 foot ski boat, $30,000 of tax refunds, etc.

He was asked at his trustee meeting if he owned any vehicles (other than a $4,000 Harley and a leased Honda) and he flatly denied owning other vehicles.

I don't know who "turned him in", but someone did or somehow the justice system found out about it.  A grand jury issued an indictment dated April  20xx; and the case wound its way through the system for a while, and in August 20xx there was a plea hearing.  Mr. XX pled guilty to two counts, involving hiding the BMW and the two Porsches and making false oaths in his bankruptcy papers. 

He has now been sentenced to a year in jail, three years of supervised release, a $50,000 fine, and some other conditions.

In the meanwhile, American Express sued him in his bankruptcy, and he wound up agreeing that he would not get a discharge of his debts.  

It is probably true that some people lie in their bankruptcy paperwork.  (For that matter, it is probably true that some people lie in reporting political contributions, and about how many fish they caught last week, and lots of other things).  But this case shows that if you get caught lying in bankruptcy or hiding assets that there may be some serious repercussions.  Mr. XX got his bills back, even though he filed bankruptcy, and he gets to spend time in prison, and he gets to spend three years on supervised release, and he gets to pay a $50,000 fine.

There is a saying:  "Bulls make money, bears make money, pigs get slaughtered".  

Don't be a pig!!

As always, if you have questions about bankruptcy, feel free to contact me.

401(k) Contributions are Okay in a Chapter 13

Minnesota is in the Eight Circuit, which includes the Dakotas, Nebraska, Iowa, Missouri and Arkansas.  Nevertheless, cases from other circuits may be helpful in understanding the law.

A recent case out of the Sixth Circuit (Michigan, Ohio, Kentucky and Tennessee) dealt with a person who filed chapter 13 bankruptcy but wanted to deduct her voluntary 401(k) contributions from her bankruptcy budget.  She had been making the contributions for more than six months before filing bankruptcy.

The court formulated the issue as follows:

Davis proposed a bankruptcy plan that would pay her unsecured creditors a total of $19,380—equal to sixty monthly payments of $323. To obtain court approval, her plan needed to provide for payment of all her “projected disposable income” to her unsecured creditors.  Davis believed that $323 represented her monthly disposable income. Although she reported gross monthly income of $5,627, she claimed $5,304 in allowable monthly expenses. One of those claimed expenses was a monthly retirement contribution. Long before her bankruptcy, Davis had authorized her employer to withhold $220.66 from her monthly wages as contributions to a 401(k) retirement plan. Davis sought to continue those contributions during her bankruptcy. The Trustee objected to Davis’s plan. The Trustee contended that wages withheld as voluntary 401(k) contributions are considered disposable income under the Code; as a result, Davis’s proposed plan would not pay all her projected disposable income to her unsecured creditors. The bankruptcy court sustained the Trustee’s objection.

In other words, the bankruptcy court said that Davis should pay $543.66 per month to her creditors instead of $323.00.

The Sixth Circuit Court of Appeals, in a 2-1 decision, noted that there are "four competing views of whether voluntary retirement contributions constitute disposable income in a Chapter 13 bankruptcy." The court went on to rule that Davis could continue to make her 401(k) contributions, saying" 

"Here, Davis’s employer withheld $220.66 in 401(k) contributions each month from Davis’s wages for at least six months prior to her bankruptcy. We hold only that a debtor in like circumstances may deduct her monthly 401(k) contributions from her disposable income under § 1325(b)(2). See 11 U.S.C. § 541(b)(7)(A)."

It is important to note that this pertains to Chapter 13 cases, not Chapter 7 cases.  But this decision may give comfort to those who need to file a Chapter 13 case that they will not have to stop contributing to their retirement plans while in the Chapter 13.

The case in question is In Re Davis, 960 F.3d 346 (6th Cir., 2020)

As always, if you have bankruptcy questions, feel free to contact me.

$1200 stimulus payments

Back when Congress was about to pass the "Cares Act" -- the response to the Covid 19 pandemic -- I emailed a couple of US senators asking them to exclude the proposed $1200 per person payments from being swept up in bankruptcy cases.

Unfortunately, the Congress seems to have ignored my suggestion. Humpph.

Fortunately, however, the United State Trustee (which is an agency within the Department of Justice that oversees bankruptcy) has in effect told bankruptcy trustees: "Hands Off" by issuing the following notice:

Regardless of whether the rebate is property of the estate, the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances, including: the modest amount of the recovery rebate; the applicability of state and federal exemptions; any interest of a non-debtor spouse in the recovery rebate; the cost to the estate of recovering and administering the recovery rebate, including litigation with debtors who may seek a judicial determination; and the extent to which recovering the recovery rebate will enable creditors to receive a meaningful distribution. In rare chapter 13 cases filed on or after March 27, 2020, the recovery rebate may be relevant to the confirmation standard contained in 11 U.S.C. § 1325(a)(4). For chapter 13 cases filed before March 27, 2020, the recovery rebate is excluded from that analysis because it would not have been available for payment to creditors in a chapter 7 case. Trustees are directed to notify the United States Trustee prior to taking any action to recover recovery rebates or objecting to a chapter 13 plan based on the treatment of recovery rebates. 

So this is moderately good news.  I don't know if Congress will give any more stimulus payments later, but if they do I hope that bankruptcy trustees will "ignore" the existing $1200 payments and any future payments.

More wages are now protected from garnishment

The Minnesota Legislature recently passed a small but helpful change in the garnishment law.  Formerly the amount which was protected from garnishment for regular debts (child support has different rules) was the larger of:

     a)  40 times the federal minimum wage;  or
     b)  three-fourths of the total wages minus amounts required by law to be withheld.

Since the federal minimum wage is $7.25, that meant the first $290 per week was protected from garnishment.

The change in the law is to make the amount protected the larger of:

     a)  40 times the federal minimum wage or the state minimum wage for large employers, whichever is more;  or
     b)  three-fourths of the total wages minus amounts required by law to be withheld  (basically, your "take home wages" other than voluntary withholdings).

Since the state minimum wage for large employers is $9.50 per hour, that means that the first $380 per week is protected from garnishment.

An example:

Under the old law, if your take home wages were $400 per week, the garnishing creditor could get $100 from your paycheck.  Under the new law, if your take home wages are $400 per week, the garnishing creditor can get $20.

This is not a earthshaking change, of course, but it will help a bit.  The trade-off for this raise is that garnishments used to run for 70 days;  they now run for 90 days.

This law is effective August 1, 2020.

As always, if you are being threatened with wage garnishment, feel free to contact me to discuss options.  My office number is:  320-252-4473

Mortgages in the time of Covid 19

These are incredibly unusual times, of course.

If you are a homeowner, there may be some help available to you.  If your mortgage is owned by one of the two very large "government sponsored enterprises" you may be able to get some relief.  One of these two is Federal National Mortgage Association (FNMA), commonly known as Fannie Mae;  the other is the Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac.  These two companies own a large portion of all home mortgages.  

Basically, the help is that, if your income is hurt by the this pandemic, you may be able to defer some of your monthly payments.  This means that the payments will be delayed, but not forgiven.

Here is a clip from the FHFA.gov website:  

 Help For Homeowners
If your ability to pay your mortgage is impacted, and your loan is owned by Fannie Mae or Freddie Mac (use the "loan lookup" tools: https://www.knowyouroptions.com/loanlookup for Fannie Mae or https://ww3.freddiemac.com/loanlookup/ for Freddie Mac to find out), you may be eligible to delay making your monthly mortgage payments for a temporary period, during which:

     You won’t incur late fees. 
     Foreclosure and other legal proceedings will be suspended        

If you have trouble catching up at the end of this temporary relief period, additional assistance may be available.  You can work with your servicer to resume making a mortgage payment.  Or if you need additional assistance, you can work with your servicer on other foreclosure prevention options to keep your home.

Contact your mortgage servicer (the company where you send your monthly payments) as soon as possible to let them know about your current circumstances. The telephone number and mailing address of your mortgage servicer should be listed on your monthly mortgage statement. 

****************

If you cannot get enough help through the above, or if your mortgage does not qualify for this sort of relief, we may be able help you catch up through the legal system.  Each case is different -- but feel free to call my office and set up a time to discuss matters.

Insurance special enrollment

In these strange times health insurance may be an issue.  Here is a clip from the St. Cloud Times of Sunday, March 22, 2020.  Note, in particular, that you can get coverage effective April 1 even if you select a plan later:

Friday, March 20: MNsure announced a special enrollment period for eligible uninsured Minnesotans in response to growing concerns over the spread of COVID-19 in Minnesota. This enrollment period begins Monday, March 23 and runs through April 21.

Individuals seeking coverage can visit MNsure.org starting March 23 to complete an application and enroll in coverage. Individuals must select a plan by April 21 for coverage beginning April 1. Plans selected by April 21 will have a retroactive coverage start date beginning April 1.

Minnesotans who lose their employer-sponsored insurance due to layoffs may already qualify for an existing special enrollment period.

Minnesotans who qualify for MinnesotaCare, Medical Assistance, or are a member of a federally recognized American Indian tribe can sign up at any time year round on MNsure.org.