Things to avoid

Over the years I have seen some people do some lots of things to try to avoid bankruptcy.  Some of the things they try are, I think, really bad decisions.

For instance, sometimes people borrow against, or withdraw from, their 401(k) account or other retirement account in order to keep up payments on their credit cards.  The cash keeps them afloat for a while, but then it runs out and they wind up filing bankruptcy anyway.  The sad part is that a 401(k) or other retirement account is protected from creditors, so they have "wasted" money that was protected.  (As with lots of legal issues, there are some exceptions to the protection.), 

Sometimes people give stuff away to a friend to try to protect it.  This is a terrible idea.  If you give something valuable to a friend you have created a "fraudulent transfer" or a "voidable transfer".  The trustee can go to the person to whom you gave it and get it back from them.  And because it was a voluntary transfer, you can no longer exempt it.

Many of the things that people own can be protected in bankruptcy.  So, just like tapping your 401(k) plan, giving something away means it cannot be protected any longer.

This does not mean that you cannot sell surplus items.  If you sell to a third party, no one will think that you made a gift.  The trustee may well ask you what you did with the money.  It is a bad idea to say "I don't remember!"  On the other hand, if you sell to your brother, a trustee may wonder if you sold something for much less than it was worth -- in effect, making a gift.  And if so, the trustee will try to reverse the gift.

There are a lot of nuances -- that's why I will do a no-charge meeting with you to gather facts and try to figure out your next step(s).   Call me at 320-252-4473 to set up a time to meet, by Zoom, by phone, or in person.

2021 Federal Stimulus Payments at Risk

 The Congress just passed a bill, known as the American Rescue Plan, giving Americans up to $1400.00 in "stimulus money".

You may know that the stimulus money that was paid in late 2020 was off-limits to creditors.  However, that protection was not included in the 2021 law due to the rules under which the bill had to be passed.

Therefore, I understand that the 2021 stimulus money is NOT protected from creditors.

I haven't read through the legislation yet, but if the money is not protected from creditors it is presumably not protected from bankruptcy trustees either.  If you have unused wild card exemption you should be able to use that to protect the stimulus money from a bankruptcy trustee, but if you are using the state exemptions, or if you have used up your wildcard exemption, the trustee may be able to demand the money if you still have it when you file bankruptcy.

This is a developing story, so things may change, but I thought I should give you a heads up about this issue.

As always, if you have questions about bankruptcy, please call me at 320-252-4473.

Sam Calvert

Trap for the unwary in Transfer on Death Deeds

 The Eighth Circuit Court of Appeals issued an opinion on February 5, 2021 that should be of concern to anyone who has put into place a transfer on death deed. 

The name of the case is "Strope-Robinson v. State Farm Fire & Cas. Co." and is case number 20-1147.

Briefly, David Strope owned a house.  He signed and recorded a transfer on death deed to his house on August 11, 2017.  The transfer on death deed said that upon his death that the house would automatically go to his niece, Dawn Strope-Robinson.  A few days after David Strope died, his ex-wife burned down the house!  (Apparently there were some hard feelings between David Strope and his ex-wife.  Just guessing there.)

Dawn Strope-Robinson was appointed as special administrator of David Strope's estate (equivalant to an "executor") and made a claim against State Farm for the value of the house.

State Farm turned her down and refused to pay.

Their legal argument was that ownership of the house passed to Dawn Strope-Robinson at the instant that David Strope died, and therefore the estate did not have an "insurable interest" in the house.

This is a scary case.  Who knows how many transfer on death deeds have been issued over the years and no thought at all about adding the grantee beneficiary to the insurance policy?

If you have a transfer on death deed in force, please check with your own insurance to see if your grantee beneficiary would be covered.

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

Two myths about wills

 There are several myths about wills.

One common myth is that you can write out a will in your own handwriting.   This is usually called a "holographic will", (not to be confused with the holodeck on the Starship Enterprise).

A holographic will may be valid in some states, but is NOT VALID in Minnesota.  So, don't try it!

In Minnesota a will must be signed by the person who makes the will (the "testator") and must be witnessed by two witnesses. We often add a notarized section to a will.  This is not because of the will itself, but because of something called a "self-proved affidavit".  A "self-proved affidavit" is intended to help in the probate process because at the time you have the court approve the petition for probate and appoint the personal representative, you do not need to find the witnesses and have them testify to the court that they saw the will being executed. In effect, the witnesses to a self-proved will testify in advance. Finding the witnesses could be hard, or perhaps impossible, so this can be a very valuable add-on to a will.  The statutory cite is Minn. Stat. 524.2-504.  I should add that due to the Covid-19 pandemic, the legislature has temporarily allowed some wills which are technically defective to be probated anyway.  However, I think it is much better to comply with the statutory requirements than try to convince a judge that it is "close enough".

A second common myth is that a person who benefits under a will cannot be a witness.  Minn. Stat. 524.2-505 says:  "(b) The signing of a will by an interested witness does not invalidate the will or any provision of it."

Frankly, I think it is better practice to have someone other than a beneficiary witness your will, but in a technical sense it is okay.

Let me know if I can help you with a will and other estate planning issues by calling me at 320-252-4473.

Foreclosure moratorium extended to February 28 2021

The following news release was posted on the Federal Housing Finance Agency site.  It is important to note that this does NOT apply to every mortgage everywhere.  Many mortgages are owned by Fannie Mae or Freddie Mac, but not all of them. Still, this moratorium and possibility for forbearance will help many people.  See at the bottom of this post for instructions on how to look up your mortgage.

"1/19/2021

​Washington, D.C. – Today, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) will extend the moratoriums on single-family foreclosures and real estate owned (REO) evictions until February 28, 2021.  The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on January 31, 2021.

“To keep our communities safe, and families in their homes during the COVID-19 pandemic, FHFA is extending Fannie Mae and Freddie Mac's foreclosure and eviction moratorium," said Director Mark Calabria. 

Currently, FHFA projects additional expenses of $1.4 to $2 billion will be borne by the Enterprises due to the existing COVID-19 foreclosure moratorium and its extension. FHFA continues to monitor the effect of the foreclosure and eviction moratorium on borrowers, the Enterprises and their counterparties, and the mortgage market and extend or sunset its policies based on the data and health risk.

The Enterprises continue to offer comprehensive loss mitigation programs for borrowers with eligible hardships. These programs, which were established pre-pandemic and have helped more than 4.5 million families stay in their home, will remain available even when COVID-19 forbearance flexibilities end.

Under the comprehensive loss mitigation programs, qualified borrowers with a financial hardship that affects their ability to pay their mortgage may be eligible for temporary forbearance of up to 12 months, whether their hardship was caused by COVID-19 or not. Qualified borrowers can also obtain loan modifications to assist their ability to resume regular monthly payments once their hardship is resolved."

According to www.https://www.makinghomeaffordable.gov 

"To find out if Fannie Mae or Freddie Mac owns your loan, use their respective loan lookup tools or contact your mortgage company to ask who owns your loan. 

FANNIE MAE, 1-800-2FANNIE (8am to 8pm EST), KnowYourOptions.com/loanlookup 

If you mortgage is owned by Fannie Mae, visit Know Your Options to learn more about foreclosure assistance options.

FREDDIE MAC, 1-800-FREDDIE (8am to 8pm EST), FreddieMac.com/mymortgage 

If you mortgage is owned by Freddie Mac, visit My Home to learn more about foreclosure assistance options.

Credit Card Authorized User Issues

Many of my clients are married and have credit cards that at least look like they are joint cards.  It can be confusing to figure out which of the two of them is obligated on a credit card.

If you have a credit card with someone else, the second person can be either a "joint account ownerr" or an "authorized user".  

An "authorized user" is a someone who is allowed to make purchases using your credit card.  Usually that someone has their own card with their name on it.  However, they are not legally responsible to pay the account, because they are not the account owner (although if they sign the credit card slip or terminal at the merchant I suppose it is possible the merchant could pursue them.  I think that is unlikely.)

If you, as the authorized user, don't have a credit history, or if you want to improve your score, being an authorized user on someone else's card might improve your own credit score if you are current and if the card issuer reports to the credit reporting agencies (as most do).  This is because the card issuer will report your usage to the credit reporting agency in your name as well as in the name of the account ownerr.  

However, as the account owner, adding an authorized user exposes you to the frolics and mistakes of the authorized user.  If they go out and have a party on your card, or if you trust them to make the payments on the card and they "forget", your credit score can be dragged down.  Worse, you are legally responsible for the permitted use of your card, so the card issuer can sue you.

If you are the authorized user, and if it is the account owner who is messing up, you can ask to have your name removed from the card.

Minnesota law provides that if you are joint account owners with your spouse "Either spouse may close a credit card account or other unsecured consumer line of credit on which both spouses are contractually liable, by giving written notice to the creditor." Minn. Stat. 519.05, subd. (b).

If you are in financial trouble, feel free to contact me at 320-252-4473.

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.