They Were Ashamed About Their Debt. Bankruptcy Gave Them a Second Chance.

I came across an article in the New York Times by Rachel Bussel, (dated Nov. 4 2024) that I thought was worth sharing.  So the following is not original to me.  The article is longer.

Many people who should consider filing for bankruptcy avoid doing so out of shame or fear it could ruin their credit. But it can provide much-needed relief.

In my 20s, while attending law school at New York University by day and concerts by night, I racked up over $30,000 in credit card debt. I wasn’t thinking about my credit score; I was solely living in the moment.

 After three years, I left law school without graduating. The $40,000 salary for my administrative assistant day job barely covered rent and student loans. I made minimum payments on my credit cards, cringing as hefty interest rates ballooned my balance.

 A friend whom I confessed all this to advised me to “never declare bankruptcy,” citing a bad experience. He was older and, I assumed, wiser, so I took his words to heart, crossing that option off my list.

Instead, I consolidated my debt with a service that promised to streamline the repayment process. But because my monthly income wasn’t high enough to pay extra toward the principal, I didn’t make much headway after several years of making payments. So I researched bankruptcy options, discovered that I was eligible and decided to file. The process was far less painful than I had anticipated, wiping my debt slate clean.

I regret not filing sooner. Many people avoid filing for bankruptcy out of shame and embarrassment around their financial circumstances, because they receive poor advice or because they’re too proud. But bankruptcy may be a prudent option to eliminate burdensome debt, save a home from foreclosure and end collection calls

As always, if I can be of help discussing or dealing with your financial issues, call me at  320-252-4473

Sam Calvert

Congress requires me to say that I am a debt relief agency and help people file for relief under the Bankruptcy Code.

Mom co-signed for me. Now what?

 From time to time  I run into a person (we'll call him Bob) who has a loan which was co-signed by someone, usually a parent (we'll call the co-signer Mom). So, what happens if Bob files bankruptcy?

Well, if the debt is unsecured, in a chapter 7 Bob's debt is wiped out but the co-signer is still liable for the debt.  After the bankruptcy is filed, Bob is free to pay the debt if he wants to, or he is free to give money to Mom and Mom can pay the debt.  But the lender is free to try to collect from Mom in the meanwhile.

But in a chapter 13, there is something called "the co-debtor stay" for consumer loans (11 U.S.C. Sec. 1301).  What that means is that if Bob got the benefit of the loan, and if Bob promises to pay the co-signed debt in full through the chapter 13, the lender has to sit back and accept payments and leave the co-signer alone.

On the other hand, if Bob does not  pay the co-signed debt in full, the lender can ask the court for permission to go after the co-signer.

The real moral of the story is:  Don't co-sign for someone else's loan.  If you refuse to do so, you won't have to worry about the co-debtor stay!

As always, if I can be of help, call me at 320-252-4473.

Don't pay mom back!

 Actually, the headline should say:  "Don't pay mom back before filing".

In the paperwork that is filed with your bankruptcy paperwork, we have to list any payments that you have made to "insiders" within the year before filing the bankruptcy.  And at the trustee meeting the trustee will ask about payments to relatives or friends. 

So, what is an "insider"?  Relatives and business "partners" are insiders.  Close friends may be insiders.  (A definition is below.)

If you owe mom money and  have paid mom $600 or more dollars (payments of less than $600 are exempt) within the year prior to filing bankruptcy, the trustee may very well sue them to get the money back.  The trustee will then subtract his fees from the amount he gets and divide up the remainder amongst all your creditors. 

One of the theories of bankruptcy law is that similar creditors should be treated in a similar manner.  If you "prefer" one unsecured creditor over all of your other unsecured creditors, that  preferential transfer must be disclosed and can be reversed.

You can't "forget" to mention this in your paperwork, because you are signing the papers under penalty of perjury.  And the money is probably traceable, anyway.

Notice that I said "unsecured" creditor.  Your car payment or house payment are payments on secured debts and would not be subject to this. 

However, the good news is that after you file, you can pay mom back without a problem.  You may hear someone say that doing so brings all the debts back, and even if that were true in 1960 or so, that has not been true since the Bankruptcy Code became effective in 1979

As always, if you have questions, feel free to call me at 320-252-4473.

Sam Calvert

The definition of "insider" for individuals is below:

The term "insider" includes-

(A) if the debtor is an individual-

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control;

New Law Helps People

You can't always write that headline, of course, but I think it applies to a law passed by the Minnesota Legislature in 2024.  Chapter 114 updated exemption laws in Minnesota.  (An exemption law means that a creditor cannot take a specific item).  Among other things the new law did the following:

a)  the exemption for a motor vehicle is $10,000 (more if modified to be handicapped accessible);

b)  there is now a jewelry exemption of $3,062.50 (formerly it was only "wedding rings")

c)  there is now an exemption of $3,000 for tools, snow removal equipment and lawnmowers

d)  there is now an exemption of $1,000 for pets.

All of these increases or new exemptions are effective ".. August 1, 2024, and appl[y] to causes of action commenced on or after that date."  I am not sure what that means.  Does it mean if the debt arose before August 1, 2024 you are stuck with the old exemptions?  Or does it mean that if a lawsuit or garnishment or bankruptcy is filed after August 1, 2024 that the new exemptions apply?  I assume we will get some court decisions fairly soon on that point.  

Whatever it means this is good news going forward.

As always, if you have questions feel free to contact me at 320-252-4473.

New unhappy decision in chapter 13 cases

 In In re Goetz, 2024 WL 998765 (8th Cir. Mar. 8, 2024), the Eighth Circuit Court of Appeals gave bankruptcy 13 debtors reason to be concerned about conversions from chapter 13 to chapter 7.

On August 19, 2020, the debtor Machele Goetz (“Debtor”) filed a chapter 13 bankruptcy petition and plan. At that time, she owned a residence worth $130,000 and claimed the full $15,000 homestead exemption under Missouri law. The lender held a roughly $107,000 lien against the residence. Liquidation of the residence on the date of the petition would have resulted in no recovery for the bankruptcy estate.

On April 5, 2022, Debtor converted her case from chapter 13 to chapter 7. Between the chapter 13 filing and the date of the conversion order, Debtor’s residence had increased in value by $75,000. Liquidation of the residence on the date of conversion would have resulted in a recovery of roughly $62,000 for the bankruptcy estate. 

The Bankruptcy Court for the Western District of Missouri held that, pursuant to 11 U.S.C. § 348(f)(1)(A) and § 541, the post-petition, pre-conversion increase in equity in Debtor’s residence became property of her converted bankruptcy estate. The Bankruptcy Appellate Panel for the Eighth Circuit affirmed and Debtor appealed.

In affirming, the Eighth Circuit Court of Appeals (“Eighth Circuit”) looked to the text of § 348(f)(1)(A) that states, for a chapter 13 case converted to chapter 7, the “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.” The  Eighth Circuit held that the post-petition, pre-conversion increase in Debtor’s equity was property of the converted estate, as proceeds “from property of the estate” under § 541(a)(6), and Debtor had effective control of the equity because she still possessed her residence on the date of conversion. 

In Minnesota, the state homestead exemption is significantly higher than the Missouri homestead exemption. As such, for a case converted from chapter 13 to chapter 7, the Goetz decision may have little impact for a post-petition, pre-conversion increase in equity in a debtor’s residence protected by the Minnesota homestead exemption; however, the decision could impact a post-petition, pre-conversion increase in equity in non-exempt property of the estate. 

What paperwork is needed to file bankruptcy?

Before I can file a bankruptcy, I need an amazing/annoying amount of paperwork.  WE CAN MEET AND TALK BEFORE YOU BRING ALL OF THIS, but I will eventually need the following to prepare the case:

Paystubs covering the seven months before we meet

A record of non-paystub income by month for the seven months before we meet (for example, Social Security, VA payments, side jobs)

Tax return for the tax year just ended (when prepared)

Tax return for the prior tax year 

Bank statements for each account for the last six months 

Divorce decree, if applicable

Address and phone number of DSO (support or alimony) obligee if applicable

Legal description of any land you own or are buying or have an interest in (copy of deed)

Mortgage statement for any mortgage against your land.

Appraisal, if you have one

Credit Counseling certificate if already done

Copies of titles for car/boat/etc.

Bills (or copies of bills)

A monthly budget showing how you spend your money (but not deducting payments on credit cards we are going to get rid of )

Monthly car loan statement or coupon book (if applicable)

Most recent 401K / 403(B) / IRA statements  

A statement showing any life insurance policies that have cash surrender value

Driver's license or other government picture identification

Social Security card, or W-2 or 1099 with your full Social Security number on it

If  you are being sued, a copy of the complaint.

Even if you have lost or don't have some of these items, there's often a way to get the information. 

Getting this information helps both of us to understand your financial situation and make some plans about what to do.

Again, we can discuss your situation in general terms without all of the above, but it is more productive to have it in hand when we meet.

Feel free to call me at:  320-252-44373

Who will know about my bankruptcy?

 People often ask me who will know about their bankruptcy filing.

Just like most court proceedings, a bankruptcy filing is technically "public information".  However, being public information does not mean that it is "publicized".

When we filing bankruptcy, we put together what amounts to a mailing list and file that with the court.  The court system then sends a notice by mail or electronically to those who are listed on the mailing list.  And the credit bureaus (Experian, Transunion, Equifax) will pick up the filing and include it in a credit report (for up to ten years after filing). 

If you look at the "legal notices" section of your local newspaper, you will see mortgage foreclosures, and probate notices and certificates of assumed name, among other notices.  Those are there because a statute requires that information to be  published at the expense of the person or company placing the notice.  But no one pays the newspaper to publish a bankruptcy notice, so those notices are NOT published in the local paper. If you look in the notices of, for instance, the Sauk Rapids Herald, you will not see any bankruptcy notices.

On Mondays the Star Tribune and Pioneer Press publish a list of bankruptcies, but the list is only for those who look like businesses.  For instance "Doug Peterson, d/b/a Doug's Auto Body" might be listed.  But it is very unlikely that the Star Tribute and Pioneer Press would list just "Doug Peterson".  There are specialist newspapers, such as Finance and Commerce, in the Metro area, that list bankruptcies.  And for some reason the Duluth News Tribune seems to publish filing information for cases which are filed in Duluth.  But other than those, I am not aware of any Minnesota newspaper that publishes bankruptcy notices. 

If someone subscribes to the PACER system they can look up a case, but they have to be a subscriber and they have to pay a fee to do so (if the lookups exceed a certain amount per calendar quarter) and they have to look for your case specifically.

Also, a bankruptcy is in the federal court system, not the state court system.  Nothing will be automatically filed in the courthouse in the county in which you live (St. Cloud for Stearns County, Foley for Benton County, etc.).  So anyone looking in your local courthouse will not learn of your bankruptcy filing from those records, unless there was a specific reason to file a bankruptcy notice in a specific case.

I hope this eases your concern about how public your "public record" would be.

As always, if you have questions, feel free to call me at  320-252-4473.