Bankruptcy Trustee -- Foe or Enemy?

When you file a chapter 7 bankruptcy, the United States Trustee (which is a part of the Department of Justice that oversees bankruptcy cases) appoints a person whose title is "trustee". The US Trustee will invariably select someone for "the private panel of trustees" -- a list of people who are pre-qualified to serve.  Technically your creditors could elect a different person at the first meeting of creditors, but I have never seen that happen.  By the way, what I am saying here is about trustees in a chapter 7 case.  In other chapters there are trustees, but they function very differently.

The job of a chapter  7 trustee is to interview you (currently by Zoom or phone) and to locate and sell assets to pay your creditors.  The trustee will look at the paperwork you file with the court, and will ask questions at the trustee meeting.  I would say that there are three basic types of  questions:  

a)  you have little or no equity in your home, so you can use the federal exemptions.  The trustee's  questions are going to be pretty basic. 

b)  you have a lot of equity in your home -- over $27000 or so for an individual or $55,000 for a couple.  In that case you are likely to use the state exemptions, and the trustee will probe to see if you have things that cannot be protected by the state exemptions, such as guns, boats, tax refunds, etc.  This is because the trustee can take those items from you and sell them, although a trustee will ordinarily negotiate with us about selling them back to you.

c)  you have a complicated farm or business;  the trustee will spend a fair amount of time asking  you about individual assets.

In any of these three types of questions, the trustee will also ask if you have given something valuable to a relative or paid an unsecured creditor.  The reason is that if you have done so, the trustee is likely going to be able to go to the person who got the gift, or whom you paid, and try to get the money back from them.

For conducting this interview the trustee gets $60 (paid from the $338 filing fee paid to the court. There is a separate fund that sometimes pays trustees a little more.)  However, the trustee also gets a commission on the money he earns from collecting assets and selling them.  The commission rate is 25% of the first $5,000.00;   10% of the next $45,000;  5% of the next $950,000;  and 3% of anything over $1,000,000.00.  In addition, trustees frequently hire themselves to act as attorney at a rate of $350 an hour or so.

Frankly, in a huge majority of the cases the trustee gets $60 and nothing more;  but if the trustee sees that you have non-exempt assets  you can expect them to bore in on you.  That's why we meet and talk about your case;   that's why we put together detailed lists of what you own.  If you are accurate in telling me what you own and what it is worth, we can usually predict very closely what a trustee will and won't go after.

As always, each case is a little different.  Feel free to call me at 320-252-4473 to discuss your particular situation.

Don’t lose your contract for deed house

 

A prior post talked about the situation where you are the buyer on a contract for deed, are current, and the seller files bankruptcy.  (Basically the message is:  You’re okay for the term of the contract).

 But what if you are behind on your contract for deed?  Then the situation can be an emergency.   The reason is this:  In Minnesota a contract for deed can be canceled (terminated) by giving a particular notice which gives the buyer 60 days to catch up. (There are a few oddball situations where the timing would be different.)   If you don’t catch up within that 60 days you lose your purchaser’s interest and all the payments you have made and any equity you have built up. 

You say to yourself “The Bankruptcy Code stops foreclosures, so I’ll file bankruptcy.”  Well, it is true that bankruptcies can stop foreclosures, but once the notice of cancellation is correctly served, a “clock” is running.   And bankruptcy won’t stop that clock from running.

The Bankruptcy Code does give an automatic 60-days-from-filing extension on this “clock”, but Bankruptcy Judge Gregory Kishel wrote an opinion several years ago in which he said that the extension was in favor of the bankruptcy trustee, not the person who files the bankruptcy for themselves.   I don’t know how widely that opinion is honored in real life – sellers often just want their money, not the property back-- but it is certainly a concern.

So, what’s the moral?

If you are behind on your contract for deed, we should be talking about filing a chapter 13 bankruptcy BEFORE you are served with a notice of cancellation.  If we file BEFORE the notice is served, then the “clock” isn’t running and we can catch up the missed payments through the chapter 13 plan while you make the current monthly payments directly.  Or, if the financial hardship is temporary, we can file a chapter 7 to get rid of your other debts and you can catch up on the contract for deed yourself during or after the bankruptcy.

 As always, there are exceptions and exceptions to exceptions, so if this post applies to you, give me a call at 320-252-4473 and we can discuss it.

Oh no, my contract for deed seller filed bankruptcy

 

Since mortgage rates seem to be on their way up, we may run into more folks buying their home on a contract for deed.  In case you don’t know, a contract for deed is a device under which you agree to pay the purchase price to the owner of the house over time instead of getting a mortgage and paying the seller with that loan.  (Some states refer to this as an installment land contract.)   Contracts for deed often have relatively small down payments, monthly payments that are largely interest only, and must be paid off in (balloon) in three to five years. 

So, let’s say you bought your home that way.  And today you got a “Notice of Official Proceeding in Bankruptcy Court” in the mail.  You open the letter, wondering what’s up, and find out that the person who sold you the house filed their own bankruptcy.

In the words of Douglas Adams:  “DON’T PANIC”.

If you live in the property, and if you stay current on the contract for deed (payments, insurance, taxes, etc.) then your contract for deed cannot be terminated by the seller just because he or she filed bankruptcy. (Bankruptcy Code Section 365(i) )   Now, the person to whom you owe the money may change because your seller may “lose” the contract to their bankruptcy trustee.  That means that the trustee will collect the payments instead of your seller, and if so the trustee merely has to deliver title when the contract for deed is paid off.  This may open up a chance for you to get a discount on your contract for deed.  If it runs several more years, and if you can get a mortgage, you can negotiate with the trustee to pay off the $100,000 balance for, say, $90,000 or less.  Since a trustee has to liquidate things fairly quickly, the trustee might take a reduced payoff to be able to close the case. 

So, the important thing for you as a contract for deed buyer is to stay current.  Then, as a bankruptcy attorney, I suggest you consult an attorney (!) to figure out what the heck is happening.

NOTE:  This is a situation where the seller files bankruptcy.  This is not discussing what happens when the buyer is in default and the seller has served a notice of termination.

As with most things legal, there are nuances here.  That’s why I am happy to talk to you about your particular situation.  Give me a call at 320-252-4473

Completely off topic post

 I usually post about bankruptcy issues, once in a while about estate planning or real estate.  This post has nothing to do with bankruptcy.

Back in February I listened to a program of Science Friday on MPR and the subject of the program was brain donation.  I did not know such a thing existed.  It turns out that the National Institutes of Health has a program called the NIH NeuroBioBank.  That program takes the brain from a deceased person and sends it for study.  The idea is to compare the brain tissue of people who die from Alzheimers or other brain-type diseases against the brain tissue of people who die from other causes -- so to speak "normal" brains.

I was so intrigued by the idea of helping people after my death that I signed up.  I hope that when I (eventually!) die that I have a "normal brain" and that it can be used to look for differences that may help cure or prevent Alzheimers or some other terrible disease.   I have at least one relative who was descending into dementia when they died -- it was so sad to see them slip away.  If there is anything I can do to prevent that for some other family I think it would be a final good deed on my behalf.

Besides, as many of you have probably already said "Sam, you're already not using your brain".

Below is a clip from the Science Friday program that gives some basic information.

The easiest way to begin the process of registering yourself (or someone else) to become a brain donor is to visit braindonorproject.org and click on the “pre-registration” button in the upper right area of the home page. It is a brief online form that collects contact information and a few other details. You may complete it for yourself or on behalf of someone. Once that online form is submitted, the information will be referred to the appropriate Brain Bank in the NeuroBioBank network. Within ten business days (this time period can be expedited if necessary), a packet of consent and release forms will be sent that needs to be completed, signed and returned in order to be considered a registered donor of that brain bank. You’ll also be given instructions for the family regarding what they need to do at the time of your death. The most important thing is to notify the brain bank within an hour of the donor’s passing, as time is of the essence for the recovery procedure. The body would be transported to a local facility – often this can be the funeral home involved; if not, another mortuary or medical facility is identified. The brain is then retrieved through the back of the head (so as not to be disfiguring) and it is shipped to the brain bank. All of that is at no cost to the family. Once that’s taken place, the body is released to the family to proceed with whatever (funeral or other) arrangements have been made.

But I want to keep my house!

 One of the biggest concerns people have when they meet me is whether they can keep their house if they file bankruptcy.  Fortunately the answer is usually "Yes, if ..."

The "if" part of the answer is that if you have a mortgage against your home you will, in any ordinary case, have to keep paying it.  If you have equity in your home, we can protect up to $450,000.00 of equity ("value minus mortgage balance") (more for farmers) and up to 160 acres in size, so it is unlikely that the trustee will try to take your home.

Now, sometimes, if you have two mortgages and if the first mortgage is more than the total value of the house, we can get rid of the second mortgage in a chapter 13.  And if you are behind on payments when you file bankruptcy, we can catch up in a chapter 13.  And on three occasions during my career I've run into a mortgage that's not valid because it was a refinance of a homestead and only the husband signed the mortgage.  

Other than that sort of situation, who will take your home is your mortgage company if you don't pay them. As a practical matter the mortgage company may stop sending you statements, so you will have to push the payments from your end rather than having the company pull it from your end.

But if you are current on your home mortgage when your case is filed, "all" you have to do is to stay current.

What will the trustee take?

Most people file a chapter 7 bankruptcy.  In a chapter 7 bankruptcy the trustee may claim some of your stuff.

There are two sets of exemption we can use in "state" and "federal".

The "state exemptions" protect (generally) $450,000 of equity in your home; $5000 of equity in one car;  $11,250 of household goods; $3,062.50 in wedding rings exchanged at the ceremony; tools of trade of $12,500 ($13,000 for farmers); three-fourths of wages due but not paid; Social Security benefits; and (in a bankruptcy context) $1,512,350 of 401(k) or IRA accounts.  There are some other exemptions that aren't as common.  The homestead exemption is single or joint;  the others are per person.

The "federal exemptions" protect $27,900 of equity in your house, $4450.00 in a car; $14,875 of household goods ($700.00 per item); $1875.00 of jewelry;  $1,512,350 of 401(k) or IRA accounts; Social Security benefits; and a wild card of up to $15,425,00.  And like the state exemptions,  there are some other exemptions that aren't as common.  These exemptions are per person.

What we do is match up what you own against this list (we can't pick and choose -- we need to use one list or the other) and see what doesn't fit into each little bucket.  The trustee gets what "doesn't fit".

Many people -- maybe most people -- who don't have a lot of equity in their home will be able to fit all their assets into the federal exemptions.,

Now, the trustee can't just take your "excess stuff";  he has to turn it into cash.  And to do that he has to sell it to someone.  You are the logical target market.  So if you have "excess stuff" we can sometimes haggle with the trustee and buy it back at a discount.

As always, this is at least mildly complicated;  that's why we meet in person or by Zoom and discuss and work these things out.  Feel free to call me at 320-252-4473.

Get Cheaper Internet

 I came across a program that will help some people save money on their monthly internet bill.

Internet access seems like a necessity these days, but what with inflation hitting all of us, it sometimes seems out of reach.

THe "Affordable Connectivity Program" will cover $30 of your internet bill.  I happen to have Spectrum internet, and everytime I log on at home there is a  banner at the top saying that I might qualify for a monthly discount.

Briefly, if your household income is less than a certain amount, you likely qualify for the program.  For a single person the amount is $27,180;  for a household of two it is $36,620.00;  for a household of four it is $55,500.00, and so on.

But in addition to the income qualification, if someone in your household gets government assistance, you also qualify.  "Government assistance" includes SNAP, WIC, SSI,  reduced school lunch and, I believe, Medical Assistance.

You can get more information and see if you qualify by going to this link:

 Home - ACP - Universal Service Administrative Company (affordableconnectivity.gov)

And by the way, there is another program for telephone service, called Lifeline, that  may help with the cost of phone service.  The income limits are a little lower for that program.  Here is the link for that program:   Get Started - Universal Service Administrative Company (lifelinesupport.org)

Can you get rid of judgments?

You have an outstanding bill. Or you have a bunch of outstanding bills. But you don't have enough money to pay, and the creditor has turned it over to collection.  You ask to set up a payment plan, but the collector refuses.

What happens next?   Generally, after a several months of collection calls and letters, you get a letter from an attorney that says something like "We are ABC Lawyers.  We have been  hired by Discover Card to collect an account you owe them.   They tell us you owe $5,315.00.  If we do not hear from you within 30 days we will assume that this is valid."   This letter is sometimes called the mini-Miranda letter (like the Miranda warning in police shows (You do not have to say anything...).  If you have a genuine dispute with the debt, now is the time to write and dispute the debt.  A phone call probably won't do the trick.

But if the debt is legitimate, the next thing is that someone will knock on your door and say "You've been served."  This is the summons and complaint, and you have twenty days after the date of service to send a formal response to the law firm.   If you don't do, you will be in "default" and the creditor  will be able to have the court enter a judgment against you.

What can the creditor do then?   Well, they can serve a garnishment on your employer and take one-fourth of your take-home paycheck (with a threshold of $413).  Or they can seize your bank account and you will have to show the court that the funds in the account are exempt.  This can go on and on, until the debt is paid.

However, if  you file bankruptcy the collections of ordinary debts must stop!  In some cases we can get back any money you have lost in the prior 90 days.

And the bankruptcy will generally discharge the debt, meaning that the creditor can no longer try to take your money.

If you are in financial trouble, or just want to discuss your options, feel free to call me to discuss your options.  You can reach me at:  320-252-4473.

Don't "Forget" What You Own

     I recently came across another case which reinforces the importance of being accurate when you fill out your bankruptcy papers.  For background, when you file bankruptcy, you must complete a list of assets, and give  values.  Then you must sign the papers "under penalty of perjury".  By doing so, you swear that everything in them is true, including that your forms are a complete listing of all of your property, income, and debts. 

     The case I saw involved a person who had filed bankruptcy and listed his household contents as being worth $9,000.00. Several years later he had a fire which apparently was a total loss.  He filed a claim with his insurance company for $300,000  of household contents (really!).

     The insurance company hauled out his bankruptcy papers and refused to pay the claim on the basis of "judicial estoppel".  "Judicial estoppel" is a situation in which in you have two separate legal proceedings.  In the first legal proceeding you take a certain position -- in the case I am talking about, that the household contents were worth $9,000.  But in a later case you take a different position -- that the household contents were worth over $300,000.  

     The insurance company was able to convince the court that there was no way on earth that the person had $9000 and only a few years later had $300,000.  The claimant tried to argue that he's bought a lot of stuff after filing bankruptcy, but his income during the years was not enormous.  So, the insurance company got out of paying the claim.

     Now, I think it is true that the Goodwill retail price of household goods is a lot lower than the replacement cost.  As I was writing this I looked at the Goodwill site and saw that I could buy a "Global guitar" for $8.95;  a similar one from the Walmart site was $99.95.  But the jump from $9000 to $300,000 was just too much for the court to accept.

     Even worse than having an inaccurate value, however, is omitting something.  There are lots of cases in which a person has a valid lawsuit claim and "forgets" to list the claim in their bankruptcy papers.  The person against whom the lawsuit would be brought can often convince the court to say:  "If you didn't list the claim in bankruptcy,  you can't pursue it after bankruptcy."  

      And, if you deliberately hide property or omit assets or omit important information about your financial affairs, in a worst-case scenario you could be prosecuted criminally for bankruptcy fraud.  

     The moral of this story:  Try to be accurate when you estimate the value of the things you own when we are filling out your bankruptcy petition.