Blogs

Credit Score Concerns Everybody is concerned with their credit score these days. Everybody wants to rebound as quickly as possible after a bankruptcy case. A better credit score will indicate that you are a better risk for future credit opportunities. The interest rate that you can garner will be better if your score is better+ Read More
The post Credit Bureaus Should Reflect Payments For Non-Reaffirmed Mortgage Debt appeared first on David M. Siegel.

Here at Shenwick & Associates, as part of our bankruptcy, creditors' rights and asset protection planning practice, we get many questions about spendthrift trusts.

A spendthrift trust is a trust that is settled for the benefit of a person (usually a person who is believed to be unable to control his or her spending) that gives a trustee authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. In this post, we are specifically not discussing trusts that are self–settled (where the grantor/settlor is also the beneficiary). Creditors of the beneficiary generally (but with exceptions, discussed below) cannot reach the funds in the trust, and the funds are not actually under the control of the beneficiary.

To qualify as a spendthrift trust, the trust agreement should generally include a spendthrift provision–a provision that creates an irrevocable trust preventing creditors from attaching the interest of the beneficiary in the trust before that interest (cash or property) is actually distributed to him or her. Also, the trust agreement should not provide for mandatory distributions to beneficiaries (which allows the accumulation of income), but should provide for distributions at the discretion of the trustee. However, once a distribution is made from the trust to the beneficiary, creditors can attach that distribution.

In New York, there are two ways a creditor can attach the income a beneficiary receives from a trust. One way is via § 7-3.4 of the Estates, Powers and Trust Law, which provides that if a trust doesn't provide for accumulation of income (i.e. all income from the trust must be distributed at least annually), then a judgment creditor can reach all of the income due the beneficiary in excess of the amounts required for his or her education and support.

The other way is through § 5205(d) of the Civil Practice Law and Rules (CPLR). This section of the CPLR governs personal property exempt from the satisfaction of money judgments. Subsection (d) provides that a creditor can reach 10 percent of the income interest of a trust. However, if a court determines that the reasonable needs of the beneficiary and his or her dependents can be met by less than 90 percent of the trust income, then a greater percentage of the income can be reached by the creditors.

In a Florida bankruptcy case that applied the provisions of the CPLR to a New York spendthrift trust, the bankruptcy court took into account the beneficiary's total income and support from all sources, held that half of the trust income was unnecessary to meet the reasonable needs of the debtor and her dependents and concluded that such income could therefore be reached by the beneficiary's creditors.

In bankruptcy, spendthrift trusts are exempted under § 541(c)(2) of the Bankruptcy Code, which provides that "[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law is enforceable in a case under this title." So if a spendthrift trust is validly created pursuant to applicable state or federal (i.e. qualified retirement plans) law, then the spendthrift trust will not be property of a debtor's bankruptcy estate and not be subject to reach by creditors or the bankruptcy trustee.

To learn more about spendthrift trusts or protecting your assets from creditors both inside and outside of bankruptcy, please contact Jim Shenwick.

Flickr: Jacob BotterWHO CAN KEEP PROPERTY IN A CHAPTER 7 BANKRUPTCY?

Flickr: RyanWhen filing a chapter 7 bankruptcy, understanding how exemptions work is important. Debtors are allowed to keep exempt assets.  Debtors lose non-exempt assets in a chapter 7 bankruptcy, so it is important to know whether an asset is exempt from bankruptcy or it is not.    
Bankruptcy Exemptions
The bankruptcy code allows an individual debtor to exempt real, personal, or intangible property from being sold in bankruptcy.  Real property is another name for real estate.  Examples of personal property can be money, cars, clothing, jewelry or household furniture.  Intangible property can include the goodwill of a business. What is important to understand is that a lot of different types of property can be classified as exempt when filing bankruptcy. 
Flickr: Canon

List and Describe ALL Assets
Under bankruptcy law, debtors are required to list ALL of their assets in their bankruptcy paperwork.  Debtors are required to declare whether an asset is exempt, and the amount an asset is exempt.
Home Exemption Example: Flickr: David PrasadFor example, let’s say a homeowner lives in a home worth $100,000.  She has a mortgage with $50,000 left to be paid.  If the homeowner were to sell the home (with no costs), she would pocket $50,000 after paying off the Mortgage.  Therefore, the homeowner has $50,000 in home equity. 
If the homeowner would have to file a chapter 7 bankruptcy, she would need to describe in the paperwork the home address, the fair market value, and the amount owed on the mortgage. 
Next, the debtor will then need to declare whether the home equity is exempt.  The amount afforded in home exemptions is NOT set.  It is different from state-to-state.  It can change depending on the debtors’ age and marital status.  It can also differ by which set of exemption laws a debtor chooses.  For example, in California, debtors can choose from two separate sets of California exemption laws. 
Flickr: CaliDebtors need to determine how much they can claim BEFORE filing bankruptcy.  This should be done with a qualified bankruptcy attorney.  A mistake in the amount of exemption permitted by the law could cause the home to be sold. 

Other Exemptions: 
California also prescribes exemptions for other assets.  Generally speaking, qualified retirement accounts are fully exempt.  Debtors can claim exemptions for equity in cars, household items, and tools of the trade, to name a few of the popular exemptions. 
Wild Card Exemption:   In California, debtors can SOMETIMES add exemption credits to cover extra equity in particular asset categories if a debtor runs out.  Here is a general description of how it works:

Flickr: Peter   
Let's say a debtor is an auto mechanic.  He owns $10,000 in "tools of the trade".  Let’s assume that the exemption law where he lives – after working with qualified bankruptcy attorney, right? -- determine he is allowed to exempt up to $7000 of his tools.  That means $7,000 of the tools are protected and $3,000 worth of the tools are not protected (non-exempt).  The bankruptcy trustee would have every right and a duty to seize and sell the $3000 worth of tools for the benefit of the creditors.  By using the "wild card" exemption, the debtor can apply extra exemption money and declare the $3,000 as exempt. 

Flickr: Tim PierceThis California exemption is the “Wild Card” exemption.  It gets its name from the poker card game.  Have you ever played poker, calling out “deuces wild” or “Jokers wild”?   "Jokers wild" in a card game means that you can turn a Joker into another card to help your hand of cards out.    
As you can see, deciding which assets are exempt and how and how a debtor can claim an asset as exempt from the bankruptcy estate can be one of the more important and difficult aspects of his bankruptcy case.  A mistake can cause an asset to be sold to pay creditors.  It is extremely important to consult an attorney if the debtor has any questions regarding the issue of exempt assets.

So you wish to offer the home? Like most people you are mounted on your home as you spent a long time living there. Your house is associated with a lot of memories. For that reason assessing the price of a home can be extremely difficult. Nonetheless, first estimates in the value will condition the success or failure of the sale. Look at this website to find out more.
The traditional procedure of a sale consists of numerous steps. The first step before offering a property is actually effectively estimating its worth. For this, there are many solutions for example price evaluation internet sites in your area or simply by appealing to experts (estate agents, expert estimators, and so on). You will get a cost range that you could expect to sell your house or perhaps apartment. When these quotes are proper from the present price of your neighborhood housing market, selling your house is a lock.
Or else, this is where items get complicated. Whether you have used helpful estate agents or you are trying to promote the property yourself, there will come a time when you could have the lower the price to find a buyer. The more you are from the price a buyer is willing to pay, the longer it will take you to market. The most careless people could have already used money these were expecting to get. Emotionally, it is not easy to get rid of a first expected price. Whenever a small drop is enough in order to trigger the sale, it’s usually not a problem. By negatives, when the first evaluation proves to be excessive, they must replace your rates down 10%, 20%, if not more.