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.

It's time to let go of shame over debt

I recently ran across a newspaper column by Liz Weston which I thought was worth sharing.

The gist is that if your credit card debt is out of control that you should consider both credit counseling and bankruptcy.  In St. Cloud credit counseling is available from Catholic Charities and The Village Financial Services.  Lutheran Social Services also provides that service.  Generally speaking, they would do a "debt management plan" which has you pay your debts over about four years.  They get ahold of your credit card companies and get them to agree to payments.  Often the interest rate can be lowered substantially.  This is NOT the same as the radio commercials and TV ads that say you can settle your debt. 

And I would be willing to talk to you about bankruptcy options, so you can see which alternative is better for you.

A link to the newspaper column is here:  https://www.nerdwallet.com/blog/author/lweston/