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/

An Expensive Win

The Eighth Circuit Court of Appeals issued an opinion in November, 2019 about a debtor who got caught holding hidden assets.  The court said:

... the Trustee conducted further investigation and discovered Debtor had withdrawn over $30,000 from a different account more than one year prior to entering bankruptcy and had placed that cash in a home safe. When this additional information came to light, Debtor again amended his schedules, identifying several assets. He included a possible interest in the $30,000 cash and claimed that interest as exempt. The Trustee objected to this amendment, alleging Debtor had acted in bad faith by initially failing to disclose the cash in the home safe.

The trustee lost at the bankruptcy court level, and appealed to the next level.  The trustee lost at that level, too, and appealed to the Eighth Circuit Court of Appeals (which is, practically, the last stop before the Supreme Court). 

At all three levels the judges said that the Debtor was able to amend his claim of exemptions to cover what he could of the "hidden" funds.  (I am not sure what the debtor said to explain how he forgot that he had $30,000 in a safe at home!)

So, superficially the debtor "won".  However, if you look at the bankruptcy case, the debtor lost his discharge (waived it, presumably because he was certain to lose);  AND the debtor had the thrill of trying the case and going through two levels of appeal.  And he did not represent himself at least during some parts of the case.

THE MORAL:  It is VERY expensive to try to hide things from bankruptcy trustees.  Not only did the debtor not get rid of his debts, he surely ran up a lot of attorneys fees during the case.  So, don't hide stuff -- it ain't worth it!

The case is:  Rucker v. Belew (In re Belew) No. 18-3045 ( 8th Cir. 11/26/2019)

You have a moral obligation to claim your $125 from Equifax:

This following is an article from Slate.com of July 26, 2019:

Help make sure that companies pay the consequences for data breaches. By Josephine Wolff.

Go claim your $125 from Equifax.

[copy and paste the following:  https://www.equifaxbreachsettlement.com ]

Right now. Even if $125 isn’t a sum of money that matters to you, even if you don’t feel you were really directly affected by the breach. Even if the prospect of filling out a relatively brief online form fills you with more dread than the theft of all your personal data.Consider it a part of your civic duty: driving up the costs of data breaches for corporations so they have an incentive to invest more heavily in security. The payouts to individuals are part of the $575 to $700 million settlement that Equifax reached with the Federal Trade Commission, the Consumer Financial Protection Bureau, and 48 states. (Indiana and Massachusetts are still pursuing their own lawsuits against Equifax.) It’s an astonishingly large settlement for a data breach, though some people are still criticizing it as inadequate given the scale of the breach and the number of individuals affected. They argue that Equifax and other companies will view these fines as simply the “cost of doing business.” I’m OK with that. I think the costs of security breaches should, in some sense, be the costs of doing business, as opposed to an existential threat that drives the breached company into the ground. That way companies can weigh those costs against the costs of larger security investments and adjust their budgets accordingly. But I would like for those breach costs to be high enough to drive significant investment, and for that to happen, you have to do your part. (Also, if you won’t claim your check, then you forfeit your right to complain about how the costs of data breaches are too low.)

You may be thinking, But I don’t want to give Equifax the last six digits of my Social Security number and my birthdate and mailing address after it’s demonstrated just how much it can’t be trusted! Believe me, the company already knows all that information—and so much more. But it’s so much work to fill out the entire form! It’s really not, unless you want to claim additional lost time or expenses beyond the base $125 payout, in which case you have to submit a description of the time you lost or receipts for any identity protection services or other security purchases you made in the aftermath of the breach.

If, for instance, you went ahead and purchased LifeLock or some other credit monitoring service after the Equifax breach, go ahead and submit that receipt too. Each individual is eligible to receive up to $20,000 as part of the settlement; $125 is just the amount you can receive without having to do any extra work or claim any extra losses. The settlement also includes provisions to reimburse you for your lost time at a rate of $25 per hour. If you spent hours on the phone trying to clear up suspicious credit activity or figure out whether you had been affected, go ahead and submit that as well. One of the notable things about this claims process, in fact, is its recognition of the fact that people lose time dealing with these incidents and that time is, in itself, valuable to them. Claiming your Equifax settlement share also prevents other people from claiming it for you. It’s only a matter of time before someone with a long list of stolen Social Security numbers starts trying to claim these payouts in bulk the same way criminals try to fraudulently claim other people’s tax refunds. Don’t be that person! And don’t let them steal your money either. (Also check to make sure that you’re at the legitimate settlement website, equifaxbreachsettlement.com, before submitting your information. If fraudulent sites don’t already exist to steal your settlement, they soon will.)

If you’re extremely worried about identity theft, you may be tempted to forgo the $125 and instead ask for four years of free credit monitoring through Experian. Don’t do that. Odds are very good you already have some free credit monitoring services from other data breaches you’ve been subject to over the past few years. If you don’t, go sign up for a free CreditKarmaaccount instead and monitor your credit that way.

Even better, go freeze your credit so that no one can open new accounts or loans in your name without your knowledge. Credit freezes are free as of 2018, and they’re much more effective at stymieing identity theft than credit monitoring, though they can also be a little irritating to deal with when you do things that require people to be able to look up your credit (e.g., buying property or cars or applying for new credit cards).  Maybe $125 seems like a laughably small sum of money to compensate you for the loss of your personal data—and maybe it is. But as a standard for what happens to companies who lose your data, I’m not sure it’s a terrible solution either, for them or for us. If I had $100 for every data breach I’ve ever been affected by, well, I wouldn’t be rich, but I might feel like the incidents were a little less consequence-free. And if all of you had $100 for every data breach you’ve ever been affected by, then those incidents really wouldn’t be consequence-free. Sure, those costs would quickly become the cost of doing business. But they could be high enough costs of doing business that they might tip the scales in favor of a little more security. And that, in the end, is the real goal.

Getting rid of judgments

     Judge Michael Ridgway recently issued an opinion that summarizes how to "avoid" judgment liens in bankruptcy.  The case is In re Mus, case number 17-42895.
     A little background:  Most real estate in Greater Minnesota is "abstract property".  In Hennepin and Ramsey much of the land is "Registered property", a/k/a "Torrens property".  For this post I will ignore Torrens property.
     When a judgment is entered and docketed in District Court, the judgment becomes a lien on all abstract property in that county.  The lien does not "attach" to property which is homestead property under state law;  however, there is no way to determine if a piece of land is homestead or non-homestead.  So, practically, a judgment is an apparent lien on any real estate you may own in that county.
     When you file bankruptcy the personal liability on the debt would be discharged.  However, the judgment would remain of record and still look like a lien on your real estate.
Generally we would simply discharge the judgment using the state court mechanism of Minn. Stat. 548.181.
     Alternatively, however, we could ask the bankruptcy court to "avoid" the lien.  That means the bankruptcy court would issue an order saying that the lien have no effect on a particular piece of land.
     That is what Mr. Mus sought to do in his case.
     The Court quoted a law review article posing the question of whether "a bankruptcy debtor must have equity in the property to properly claim the homestead exemption, and in turn, avoid the lien? That is not the case. “The debtor does not need to have equity in the property, only an interest. If an exempt homestead is fully secured by a mortgage, the judicial lien can be avoided in its entirety, any appreciation or additional equity in the property is saved for the fresh start of the debtor. Since impairment is a mathematical test, the debtor can avoid any and all intervening judicial liens. On the other hand, if the debtor claims an exemption in property worth more than the total of consensual liens, the available exemptions and the judicial liens, the judicial liens my not be avoided. You ‘do the math.’” Timothy D. Moratzka, “Do the Math! Avoidance of Judicial Liens Under § 522(f),” 21-JAN Am. Bankr. Inst. J. 12 (December/January 2003)." Mus, page 5.
     Since the value of Mr. Mus' property was less than the sum of his mortgage and his exemption, he was entitled to "avoid" the contract judgments.  (There were some divorce court orders which were dealt with differently.)
     So, although the case as to ordinary judgments is not very novel as regards "ordinary judgments", it is a handy summary of the procedure available through the bankruptcy court.
     If you have judgments that remain of record against you after you filed bankruptcy, feel free to contact our office to talk about getting them off the public record.

Health Savings Accounts/Medical Savings Accounts now protected under state law

In 2018 the Minnesota legislature added an exemption to state law to protect health savings accounts (“HSA”) and medical savings accounts (MSA) up to $25,000.00 from creditors, other than divorce court/child support orders.

The new law, effective August 1, 2018 says that the following is exempt:

Subd. 26.Health savings accounts; medical savings accounts.

(a) All money held in a health savings account, as defined in the Internal Revenue Code of 1986, section 223(d), as amended, up to a present value of $25,000.

(b) All money held in a medical savings account, as defined in the Internal Revenue Code of 1986, section 220(d)(1), as amended, up to a present value of $25,000.

(c) The exemptions in paragraphs (a) and (b) do not apply pursuant to the division of marital assets under section 518.58, a surviving spouse benefit under section 518.581, and a support order under section 518A.53.

So, what is an HSA or an MSA?  To quote from the IRS definitions from Publication 969, which you can access at:  www.irs.gov

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider. …

To be an eligible individual and qualify for an HSA, you must meet the following requirements. You are covered under a high deductible health plan (HDHP), described later, on the first day of the month. You have no other health coverage except what is permitted under Other health coverage, later. You aren’t enrolled in Medicare. You can’t be claimed as a dependent on someone else's 2017 tax return.

*******

Medical Savings Accounts an Archer MSA is a tax-exempt trust or custodial account that you set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses.

To qualify for an Archer MSA, you must be either of the following. An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. You can have no other health or Medicare coverage except what is permitted under Other health coverage, later. You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. If another taxpayer is entitled to claim an exemption for you, you can’t claim a deduction for an Archer MSA contribution. This is true even if the other person doesn’t actually claim your exemption.

I do not see a lot of people with this type of account, but for those who do have one it can be significant, and previously Minnesota law did not protect these accounts.  I am glad that law now protects these assets. This protection is not limited to bankruptcy cases; it is effective to protect these accounts, up to the dollar limit, whether or not you file bankruptcy.

If you have questions about this, or if you have other questions about what assets are protected from the claims of creditors, feel free to set up a mutually convenient time to meet and discuss.  You can reach my office at:  320-252-4473.

IS BANKRUPTCY A BAD THING?

You will often hear that “bankruptcy is bad”, or that “bankruptcy is a forever mistake”.   It is likely that the people who say bankruptcy is bad don’t understand the process.  Each bankruptcy case is a little different, and people chose bankruptcy for many different reasons, most of which are beyond their control.

Certainly, filing bankruptcy is not something to take lightly, but Congress created the bankruptcy law to help people get a fresh start on their finances. 

Medical bills are often cited as causing a large percentage of bankruptcies.  For many people, unexpectedly losing a job puts them into a financial tailspin.  And in the current farming environment, with such low commodity prices, farmers are being pushed into bankruptcy by their lenders.  And, unfortunately, marriages end in divorce, and the couple – who now have two apartments or houses on which to pay, with two utility bills, two of everything else, plus driving back and forth for visitation – cannot afford to pay their bills.

It is true that bankruptcy will be on your credit record for up to ten years.  However, I routinely see people who filed bankruptcy four years ago getting perfectly normal home loans to buy a house because they have been able to rebuild their credit. 

And, oddly enough, some creditors will offer you credit when you are just out of bankruptcy.  They figure that since will you not be able to file bankruptcy again (there is an eight-year period between filing Chapter 7 cases, less for Chapter 13) that it is reasonable to take a chance on you.

None of this means you should not pay your bills, if you are able to do so.  But if you cannot pay, the law gives you a way to deal with overwhelming debt.

Each person’s situation is different, which is why we sit down with you in person to discuss your options.  We do not charge for a short initial visit.  If you are in financial hot water, feel free to call for an appointment.

Debts which may not be discharged

     When you file bankruptcy, you usually want to get rid of your debts -- in bankruptcy parlance, to discharge them.

     In a fairly recent case, the United States Supreme Court considered whether a creditor could succeed in having the debt owed to it ruled not discharged if the person who owed the debt lied to incur it. The summary by the Supreme Court says:

Respondent R. Scott Appling fell behind on his bills owed to petitioner law firm Lamar, Archer & Cofrin, LLP, which threatened to withdraw representation and place a lien on its work product if Appling did not pay. Appling told Lamar that he could cover owed and future legal expenses with an expected tax refund, so Lamar agreed to continue representation. However, Appling used the refund, which was for much less than he had stated, for business expenses. When he met with Lamar again, he told the firm he was still waiting on the refund, so Lamar agreed to complete pending litigation. Appling never paid the final invoice, so Lamar sued him and obtained a judgment. ....
Because Appling's statements were not in writing, the court held, [the Bankruptcy Code]      § 523(a)(2)(B) did not bar him from discharging his debt to Lamar.

     Frankly, it is never good to lie to your creditors.  Doing so may convert a debt that you could discharge into a debt you cannot discharge, under the theory that you tried to hinder, delay, or defraud your creditor.  That sort of objection arises under a different section of the Bankruptcy Code ( § 727).

     But with regard to a particular debt, if you lie in writing about the debt the creditor could use that writing to have your debt not wiped out.

     MORAL:  Either don't say anything, or tell the truth!  

     (Your mom would probably say the same thing!)