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A debtor’s funds held in a Health Savings Account (“HSA”) or Flexible Spending Account (“FSA”) do not appear to be exempt under either New York state exemption law or Section 522 of the Bankruptcy Code. This means that a debtor with a Health Savings Account or Flexible Spending Account might find the funds liquidated by a Chapter 7 Trustee.
A Health Savings Account is a tax-exempt account funded by a debtor, his employer or both, to be used to pay the debtor’s non-insured medical expenses. The debtor owns the account, and the funds in the account belong to the debtor and follow the debtor should he obtain employment elsewhere. In addition, the funds can accumulate from one year to the next—there is no “use it or lose it” provision. When funds from a Health Savings Account are used to pay medical expenses it is not a taxable event.
Some states do provide a specific exemption statute for a Health Savings Account, but New York is not one of them. The most common argument proffered for exemption is that a Health Savings Account is akin to a retirement fund and therefore is exempt for the same reasons that retirement funds are. However, in New York a “retirement fund” is exempt only if “qualified” for tax-exempt status under Internal Revenue Code (“IRC”) sections 401, 402, 403, 408, 408A, 414, 457 or 501(a). Since the tax status of a Health Savings Account is governed by IRC § 223(d), this argument seems destined to fail. Another argument proffered is that a Health Savings Account is akin to a health aid, and should be exempt for that reason. However, the list of health aids exempt in New York is a very narrow one covering essentially prosthetics and guide dogs, and HSA’s do not appear on the statutory list. If a New York debtor does not claim a homestead exemption the state “wild card” exemption of $1,000.00 can be applied to protect an HSA, but any funds above that $1,000.00 figure would be fair game for the Chapter 7 Trustee.
An attempt to claim Health Savings Accounts as exempt under federal bankruptcy law does not seem to fare much better. Since a Health Savings Account is not created “on account of illness, disability, death, age or length of service”, and its tax-exempt status is not derived from IRC sections 401, 402, 403, 408, 408A, 414, 457 or 501(a), it is not exempt as a retirement fund. Further, only “professionally prescribed health aids” are exempt under the federal scheme. It is difficult to imagine that a fund established by the debtor to pay non-insured medical expenses would be deemed “prescribed” by a medical professional, so an HSA is probably not exempt under this section either. In instances where the federal homestead exemption is not being fully used a debtor can employ their federal “wild card” exemption to exempt up to $11,975.00 (increased to $12,725.00 on April 1, 2013) in any asset, including an HSA. Any funds above the “wild card” exemption figure would be fair game for the Chapter 7 Trustee.
A Flexible Spending Account (“FSA”) is a tax-deferred savings account established by an employer to pay a debtor’s medical expenses not paid by insurance. Money withdrawn from an FSA to pay for a debtor’s qualified medical-related expenses is done so tax-free. Unlike an HSA, there is a “use it or lose it” quality to a Flexible Spending Account. Funds in an FSA are forfeited to the employer if not used in the benefit year. While this writer has not seen any reported cases on the issue of whether a Flexible Spending Account is exempt, it is believed that the above analysis concerning Health Savings Accounts applies equally to Flexible Spending Accounts.
How can you know if bankruptcy is right for you if you don’t know how much you make?
An important part of the decision to file for bankruptcy involves your income, your expenses, your debts and your property. You need to know what’s coming in on a monthly basis before you can determine whether paying your debts is outside your ability.
Beyond that, it may impact your ability to file for Chapter 7 bankruptcy or fund a plan in Chapter 13 bankruptcy.
Here’s the scoop.
How Much Do You Make?
If you get paid weekly, you need to take that weekly gross income and multiple it by 52 (that’s the number of weeks in a year). From there, divide by 12 (the number of months in a year) to get your monthly income. Why not take the weekly amount? Because some months have 4 weeks whereas others have 5 weeks.
If you get paid biweekly, that means you get paid every other week. You don’t get paid the same date of each month, and a few times a year you get a magical third paycheck in a single month. If that’s the case then you need to take the biweekly gross income and multiple it by 26 (that’s the number of weeks in a year). From there, divide by 12 (the number of months in a year) to get your monthly income.
If you get paid semimonthly, that means you get paid twice per month. You always get paid the same date of each month. If that’s the case then you need to take the biweekly gross income and multiple it by 24. From there, divide by 12 (the number of months in a year) to get your monthly income.
If you get paid monthly, that means you get paid once per month. If that’s the case then your gross income is your monthly income.
Don’t Confuse The Numbers
If you have a gross salary of $1,976.25 and get paid semimonthly then your monthly income is $47,430 – below median income for a household of one person in California. All things being equal, you scoot through Chapter 7 bankruptcy without being subjected to the means test.
If, however, you have a gross salary of $1,976.25 and get paid biweekly then your monthly income is $51,382.50 – above median income for a household of one person in California. You may or may not be able to file for Chapter 7 bankruptcy, but it will depend on how your means test shakes out.
See how just a small difference in calculations can make a big difference?
Pay Frequency Can Make Or Break Your Bankruptcy Case
Your income is important not only to means testing and whether you fall above or below median income, but also in figuring out how much money you have left over at the end of each month for debt payment.
If you don’t know how much you make, how can you know the answer?
Simple – you can’t.
Image credit: casperam
How Often You Get Paid Impacts Your Bankruptcy Case was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
If you’re reading this blog because you are facing foreclosure, you may have already spent some time on the internet researching ways to help you keep your house. Probably you have found a variety of lawyers and non-lawyer websites touting miracle “solutions” that will allow you to “prove” that your mortgage servicer lacks the right to foreclose on you. Maybe you have read about “securitization fail” arguments, or “split-the-note” arguments, or “MERS is a fraud” arguments, or “robo-signer” arguments, or “modification fraud” arguments, or any number of other strategies that, the deeper you go, eventually spiral into conspiracy-theory territory.
It is true that there ARE real problems with the securitization process, and there ARE real problems that arise as a result of mortgage servicers’ robo-signing practices. There may even be problems with the MERS system that are actionable in court.
In our experience, though, litigating these problems in court is a difficult and expensive road to justice. One cannot simply buy an “audit” from some online source, present it to a court, and expect to get anywhere at all with it. Most lawyers I know would scoff at such “audits”.
Some of these services are apparently even scams just out there to make a buck selling false hope. The Federal Trade Commission has information about false mortgage relief schemes here: http://www.consumer.ftc.gov/articles/01 … lief-scams and http://www.consumer.ftc.gov/blog/mortga … vides-none
That said, there are still many ways for you to prolong your stay in your house, some of which could help you keep your house for the long-haul. Some of these are proper, legal methods we endorse and employ ourselves. Other strategies we discourage and do not offer to our clients because we believe they cross the line into bad-faith and/or illegal territory or are just not going to work.
The “Good” List of Strategies For Staying in Your Home
Chapter 13 Bankruptcy
The best and most certain way to keep your home, especially if you have defaulted on your mortgage relatively recently and can afford to make your payments going forward but just can’t afford to get caught up all at once. People hate the thought of “bankruptcy”, but really, it’s just a word for being responsible and accepting the financial reality that you cannot afford to solve your problem without legal intervention. We realize that, especially with the proliferation of loan mod offers and foreclosure defense/rescue operations, it can be very appealing to try to use non-bankruptcy options first, before resorting to bankruptcy as a last-ditch effort.
The problem is, by the time loan modifications fall through and foreclosure defense/rescue efforts play themselves out, you are probably going to be so much further behind on your house (or worse, you’ve already lost it to foreclosure) that a Chapter 13 bankruptcy is often no longer a viable option. On the other hand, the good news is that Chapter 13 bankruptcy offers a legal, organized, well-established process through which folks are permitted to “cure and maintain” their mortgages – i.e. catch up, while making ongoing payments.
Chapter 7 Bankruptcy + Loan Modification
This is a combo folks. For reasons that are difficult to explain, mortgage servicers are modifying loans while borrowers are in a Chapter 7 bankruptcy at a far greater rate than they are modifying loans outside of bankruptcy. Maybe it’s because the servicers are concerned about the heightened government oversight that accompanies a bankruptcy. Maybe having a bankruptcy attorney involved gets these modification applications put on a shorter list for faster consideration. Maybe it’s because you are getting rid of many of your other debts during the Chapter 7 bankruptcy and cannot file another bankruptcy for a while, so you appear to be a better credit risk. Who knows? Who cares?
This is a strategy that (a) legally and effectively stops foreclosure efforts, and (b) gives you a legitimate chance for a modification. This may be a better strategy for folks who have waited too long to file a traditional Chapter 13, or for folks who, even if they filed a Chapter 13 early after defaulting on their mortgage, still could not afford their mortgage payments going forward. Benefits include a shorter time “in bankruptcy” than Chapter 13, and, if it works, a better loan payment. Negatives are that it is not certain that you will be able to get a mod, and if you don’t, then you could find yourself either having to file another bankruptcy – this time, a Chapter 13, to stop subsequent foreclosures, or else you may be out of options to stop foreclosure efforts.
Individual Chapter 11 Bankruptcy
This is not for the faint of heart or light of pocket book. Chapter 11 has traditionally been the territory of corporations big and small, but recent statistics indicate that Chapter 11s for individuals have skyrocketed (individual filings are up 88% in the Northern District of Texas) over the last year or so. Chapter 11 offers more flexibility than Chapter 13 in some respects, and individuals whose debt levels are too high for Chapter 13 are not barred from Chapter 11. However, with that flexibility comes exponentially more complexity. That complexity results in exponentially more cost to you. Filing a Chapter 11 is usually at least five times more expensive than a Chapter 7 or Chapter 13, and often it can be much more expensive than that. Chapter 11 allows you to propose a plan of reorganization, but your creditors have to accept the plan, and your creditors also have a right to propose a plan of their own if they don’t like yours. You may be able to work out a modification with your mortgage creditors, but that is far from certain.
Mortgage Modification
Yes, we know the banks “lose” your paperwork and repeatedly demand that you update your mod applications. Yes, we’re outraged and infuriated by it too. But this is the only other serious, legal, and proper option for preventing a foreclosure, and it does not guarantee that foreclosure efforts will be halted. There is also a major downside to pursuing a mortgage modification without first filing a bankruptcy: you will get further and further behind unless you are careful to save the money that would have gone toward your mortgage payments. In our experience, most people do not save up their mortgage payments while a modification is being considered. Many folks will be stuck in mortgage modification purgatory for a year or more while they wait and wait for their mod to be approved, or reconsidered, or for their paperwork to land in the right person’s hands. Not only is this frustrating, but it’s incredibly destructive to your chances of keeping your home in the end.
Remember: if you file a Chapter 13 or Chapter 7 bankruptcy early on after you default, you may still try to modify your loan later, so this option isn’t off the table, but if you’re impossibly far behind on your mortgage after years of trying to get a mod, your chances of succeeding in Chapter 13 will be almost nil, and a Chapter 7 may only offer a brief reprieve, rather than a long term fix. In our view, a mortgage modification strategy should be pursued either as a last resort, or in connection with a bankruptcy, but not as a first option. Unfortunately, this is counter-intuitive, and most people find themselves stuck in the mortgage modification vortex for months and even years before finally turning to a bankruptcy attorney when it’s already too late. Don’t be one of those folks!
The “BAD” Tactics We Strongly Disapprove of:
The Foreclosure “Rescue” Scam
If anyone asks you to temporarily “sell” them your property or to otherwise transfer title to your property (or even a minor ownership share in your property) in order to prevent a foreclosure, (a) run away, and (b) call the FBI. Seriously. These are some of the most insidious scams out there, and they usually also involve getting people to sign bogus promissory notes and making monthly payments to the scammers. Some of these scammers will even tell you to file a bankruptcy – they may even give you bankruptcy paperwork to fill out and tell you to take it to the courthouse. There is nothing legitimate or legal about this kind of operation, even though they may have an office and staff and official-looking documents. Stay away.
Anti-foreclosure Litigation Stall-tactics
These tactics involve lawsuits filed by attorneys (or individuals) solely for the purpose of delay, not to resolve any legitimate dispute. As someone who has litigated many legitimate claims against mortgage companies, I can tell you that there are many legitimate bases for disputes with mortgage companies, and most any reasonably intelligent attorney with experience in this field can find one or more of these disputes to assert in a lawsuit against your mortgage company. The problem is, while many of these disputes may be legitimate, their resolution almost definitely will not result in you getting out of paying for your home, nor can they offer any promise of a loan modification or other long-term solution.
Most of the time, “foreclosure defense” litigation just buys time, while you pay the lawyer instead of the mortgage company. If time is all you care about, this may be a perfectly acceptable arrangement, but we don’t encourage it. Instead, we think it is almost always in folks’ best interests to pursue strategies that are focused on their long-term economic rehabilitation, not simply maintaining an unhealthy status quo, which is about all these tactics do.
Suffice it to say that if you face reality and go with one of the legitimate methods above, you will be much better off. Too many people are getting suckered into these worthless and/or illegal foreclosure prevention programs.
The post Alternatives to “Foreclosure Defense” Offer Better Results appeared first on AKB.
One of the more frustrating parts of bankruptcy practice occurs when I have to tell a prospective client that he cannot file because he recently transferred property out of his name in an attempt to protect that property from creditors. Most of the time, the transfers are made by someone who owes money to a creditor that he cannot pay and he wants to protect assets from that creditors.Recently, for example I spoke to a man who has well over $100,000 of equity in his home and over $150,000 in credit card debt. Recognizing the risk to his house, this gentleman executed a quit claim deed to his wife, transferring all of his interest in the house to her. Five months after the transfer he called me to say that he was ready to file bankruptcy. Unfortunately, I had to advise him not to file now because Section 727 of the Bankruptcy Code says that a transfer of property for no purpose other than to frustrate the intent of creditors within a year prior to filing is considered a fraudulent transfer and would prevent such a filer from receiving a discharge.Another type of troublesome transfer can arise when an elderly parent attempts to transfer assets to an adult child in an effort to qualify for Medicaid. Usually the problem arises not for the transferor but for the transferee.A recent case out of Virginia highlights the problem. In the Woodworth case, an adult child convinced her elderly mother to invest the mother’s life savings in an account opened in the adult child’s name. Both mother and daughter testified that the purpose of the transfer was to move assets from the mother’s name in an effort to qualify for Medicaid 1 in the future if the need ever arose.Both mother and daughter stated that both considered the funds to be the mother’s property, even if it was in an investment account owned by the daughter.When the adult daughter ran into financial difficulties and filed Chapter 7, the trustee asserted a claim on the investment account. The judge agreed with the trustee that the daughter had complete ownership of the funds at the time they were transferred to the daughter and that her mother had retained no beneficial interest in them. The bankruptcy law does not allow a debtor to voluntarily dismiss a bankruptcy so debtor Woodsworth and her elderly mother had to turn over the mother’s funds for distribution to creditors by the Chapter 7 trustee.The point here: it does not matter if your intentions were pure or if the property titled in your name really belongs to someone else. It also does not matter that you were not thinking about filing bankruptcy when the transfer occurred. Anytime you give or receive property of value for nothing in return, problems can arise in many areas of the law – bankruptcy, state fraudulent transfers, Medicaid eligibility. So, before making one of these transfer, make a phone call to a lawyer for advice about consequences.
- Transferring assets from a senior to an adult child is not per se illegal. However, Congress has created a complex set of rules creating financial penalties for transfers made less than 5 years prior to the date the transferee becomes eligible for Medicaid. An excellent summary about how Medicaid asset transfer rules are applied in Georgia can be found on the web site of the Hurley elder care law firm. ↩
The post Troublesome Transfers Disrupt Bankruptcy Planning appeared first on theBKBlog.
Your mortgage lender is demanding that you “reaffirm” a mortgage note on your residence in your bankruptcy case. Should you agree to do so? First the basics: There are two parts to your agreement with the mortgage lender regarding your residence. The first part is the note, your promise to repay the amount of money [...]The post Should I Sign a Reaffirmation Agreement? appeared first on National Bankruptcy Forum.
The Casey Anthony bankruptcy is a good illustration of the two immutable rules of bankruptcy:
- Everything can be monetized.
- If it can be monetized, the chapter 7 trustee will liquidate it.
In case you’ve been living under a rock for the last couple of years, the Casey Anthony bankruptcy case is as follows. Casey Anthony was accused of murdering her toddler daughter. Her behavior after her daughter’s disappearance could be described as lacking in good taste and sound judgment. She was tried for capital murder in Florida and acquitted. Her acquittal provoked outrage, since many in the media and on the internet believed that she was guilty. She went into hiding for about a year and emerged to file a chapter 7 bankruptcy. Her bankruptcy case has some important lessons for anyone who is considering bankruptcy.
The purpose of the bankruptcy system is to determine whether a debtor has any assets or income that is available to make a partial or full payment to their creditors. If there are available assets or available income, then the debtor must turn it over to a trustee. The trustee then distributes it to creditors based on their priority in bankruptcy on a pro rata basis. If, after this distribution, there is any remaining indebtedness it is usually discharged. There are some exceptions to the discharge, but most debt is dischargeable in bankruptcy.
Most debtors do not have enough assets or income available to make any kind of meaningful distribution to creditors; and so, their case is simply discharged as a no asset chapter 7. Their debts are discharged in full, and they go on with their lives. However, the lesson in the Casey Anthony bankruptcy is that “asset” is very broadly defined; and, the trustee has very broad powers to seize those assets.
Assets In Bankruptcy – A Brief Background
So here’s how it works. When you file bankruptcy, everything that you own that is not either fully secured or subject to an exemption becomes property of the bankruptcy estate. Now you don’t just own the stuff in your house. You have property rights and property interests that become property of the bankruptcy estate. Those property rights and property interests include the ability to turn something – even something intangible – into a valuable asset in the future.
For example, a real estate agent who files bankruptcy may have future commissions based on sales contracts that were signed before the bankruptcy but will not close until after the bankruptcy. That real estate agent can’t turn their future commissions into cash on the day they file bankruptcy. In fact, if the sale falls through, the real estate agent will never get that commission. But the right to the future commission is still property of the estate. If the sale fails to close, then nothing happens; because the property right was worthless. However, if the sale closes, then the real estate agent is entitled to the commission, and the property right had value. Even though the closing happened post-petition – after the bankruptcy was filed – the fact that the sales contract was signed before the bankruptcy means that there is a property right; and, that property right is property of the bankruptcy estate that the chapter 7 trustee can use for the benefit of unsecured creditors.
What This Means For Casey Anthony
Case Anthony apparently has no income and lives on the charity of friends and family members. However, she does have an asset. She has the rights to her story. You can sell the right to tell your life story. Most of us have very boring life stories. For instance, nobody wants to hear about that time I got out of a speeding ticket. However, Casey Anthony’s life story is valuable, because of the sensation surrounding her trial.
Evidently, she has not tried to sell the rights to her story yet; but that doesn’t matter. What matters is that on the day she filed bankruptcy, she had the right to sell her story. The chapter 7 trustee can take that right and sell it to the highest bidder, who can then publish the “exclusive authorized Casey Anthony life story,” turn it into a TV movie, etc.
If the chapter 7 trustee sells the rights to her story, it does not prevent her from telling her story. It just prevents her from profiting from it. For example, people like Casey Anthony are often paid to give interviews, particularly their first interview. If someone buys the rights to her story, then anything she receives for giving an interview is actually payable to the person who buys her story. She can give the interview, but she doesn’t get the interview fee.
Of course, the buyer can’t force her to write a book or give an interview. This means that the rights to her story are worth very little, unless she reaches an agreement with the buyer. For example, the buyer could offer her 25% of the net proceeds from an interview as an inducement to her granting an interview with a news outlet.
The buyer cannot, however, obtain some kind of blanket gag order that prevents her from ever telling her story in any form. That would violate her First Amendment right. She can pretty clearly tell her story to whomever she chooses, whenever she chooses. Purchasing the rights only means that any profit she derives from her story is payable to the owner of rights.
What This Means For A Potential Bankruptcy Filer
Very few of us have anything as sensational as the rights to the Casey Antony story. However, her case illustrates an interesting point. When you file bankruptcy, you expose all of your property, your property interests, and your property rights no matter how small or remote to liquidation by the chapter 7 trustee. This relates back to the two rules of bankruptcy I proposed earlier.
Everything Can Be Monetized
When you file bankruptcy, the case is about money. Specifically, the case is about whether there is money for your creditors. In effect, the trustee and the court will look at all of your assets and determine whether there is non-exempt value that is available to repay unsecured creditors.
Basically, everything has value. It’s just a question of how much. In order to monetize something, it has to have enough value that there is 1) a market for it, and 2) the market is willing to pay enough to make the sale profitable. That’s why you don’t see chapter 7 trustees selling people’s pet goldfish. The value of the pet goldfish cannot be monetized. Despite the market for pet goldfish, gold fish is not worth enough to actually produce value; and so, it cannot be monetized.
If It Can Be Monetized The Chapter 7 Trustee Will Sell It
Chapter 7 trustees are paid $60, plus a percentage of what they recover. The vast majority of debtors do not have any non-exempt property; and so, the chapter 7 trustee gets paid $60 per case, in most cases. This is a powerful incentive to find and liquidate non-exempt property. Filing bankruptcy and hoping that the trustee will not notice how much something is worth is a fool’s game. A chapter 7 trustee would not last very long if they couldn’t ferret out value to monetize.
A good chapter 7 attorney can spot potential assets before the case is filed and counsel the client about the risks that the trustee will liquidate property. One hopes – for the sake of her attorney’s malpractice premium – that Casey Anthony was adequately counseled on the risk that the rights to her story could be sold to the highest bidder. Actually, in a case like Anthony’s – I’m not sure why she didn’t file a chapter 11, sell the rights herself, and negotiate a plan with her creditors.
The casual reader may think that this wouldn’t have been an issue in a chapter 13 or a chapter 11. That, however, is not the case and one of several pitfalls for the unwary in bankruptcy practice. The reorganization chapters – that is chapter 13 and chapter 11 – both require that unsecured creditors either agree to their treatment under a plan or receive as much as they would in a hypothetical chapter 7. The principle of chapter 7 liquidation is applicable even when the debtor files another chapter.
You may, therefore, wonder why someone would file a chapter 13 or chapter 11, when they have to pay just as much as they would in a chapter 7. The answer is control. In a chapter 13 or a chapter 11, the debtor is generally able to control the liquidation of the asset. In a chapter 7, the trustee sells the asset without any input from the debtor. When you have a unique and valuable asset – such as the rights to your life story – you may be able to get a better deal for yourself by retaining control over the sale through a chapter 13 or chapter 11 reorganization than you would by letting the trustee sell the asset in a chapter 7.
As various bloggers did (such as Chris Brogan and Christopher S. Penn), so am I: if you read this blog on Google Reader, it’s going away on July 1. The blog will keep going, but Google Reader will be shutting down.
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Do You Get This Blog On Google Reader? Subscribe By Email Instead! was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Here’s an email I got on Friday, March 15 2013.
I started the bankruptcy process with your office in 03/2012 and stopped the process. That was a wrong decision!!! My house is scheduled for foreclosure on Monday 03/18/13 and I have tried working with Wells Fargo to postpone the sale. NACA and Senator Mark Warner’s office also joined me to work with Wells Fargo but they are slow to give me a decision. Can you help me stop the foreclosure?
That is an easy problem to fix, but not so easy on a Friday afternoon, before a Monday foreclosure. I do emergency bankruptcies when I’m able to, but that Friday I was already booked up.
Bankruptcy should be a last resort. But it should NOT be an emergency. We offer a two part, two hour free consultation. But if you wait until Friday before a Monday foreclosure, bankruptcy lawyer Brian Madden may be able to help you.
Fortunately, I was able to direct Tom (not his real name) to Brian Madden, an experienced bankruptcy lawyer here in Northern Virginia. Brian takes phone calls until 11:00 PM most weekdays and most of the day on Saturday, too. He specializes in emergency bankruptcies.
Tom told me Brian Madden was able to help.
Bankruptcy is a last resort, but it should not be a last minute emergency. It is easy to make mistakes under the bankruptcy law, which was designed by the banks in 2005 to make things hard and trip you up.
That’s why I ask people to fill in my complete forms and take the time to go through our two part, two hour free consultation. So we can work out exactly what bankruptcy will do for you, in your specific situation. Taking the time to do it right is one reason my client reviews are so strong.
But if you wait until Friday afternoon, before a Monday foreclosure, you can usually get Brian Madden on the phone and he will try to help you.
(I do take emergency bankrutpcy when I can, and when there’s no choice. I helped a guy last fall who was working temporarily in Boston. He drove down to see me Tuesday with a Wednesday morning foreclosure. He missed his Tuesday morning appointment because of traffic, and I was booked the rest of the day. So he came back Tuesday evening at 7:30. We got it done before 10:00 PM. We made some small mistakes because we were rushing, but got the job done and saved his house. That’s not the best way to do it.)
Here’s an email I got on Friday, March 15 2013. I started the bankruptcy process with your office in 03/2012 and stopped the process. That was a wrong decision!!! My house is scheduled for foreclosure on Monday 03/18/13 and I have tried working with Wells Fargo to postpone the sale. NACA and Senator Mark Warner’s [...]The post Emergency bankruptcy filing in Northern Virginia appeared first on Robert Weed.
It is broadly accepted by most non-bankruptcy practitioners that bankruptcy lawyers are “a different breed,” and (similarly) that Bankruptcy Court is a “whole other ballgame” compared with “normal” litigation in state and federal courts. Consequently, it is common for personal injury attorneys to feel especially edgy about representing bankrupt debtors during active Chapter 13 cases, given the cocoon of bankruptcy statutes and rules that appears to envelop debtors while they are “in” a bankruptcy.
While these concerns are well-founded, and the healthy respect such non-bankruptcy lawyers accord the bankruptcy process is entirely due, a savvy P.I. lawyer need not abandon all hope of obtaining a good result for a would-be client simply due to the existence of a pending Chapter 13 bankruptcy. In this blog, we attempt to break down some of the steps that are necessary for the non-bankruptcy attorney to survive his/her Adventures in Bankruptcyland using a personal injury claim as an example. Note: not all pre-petition claims are equal under the law – personal injury claims, for example, are specifically provided-for in the Bankruptcy Code.
The First Step
If the personal injury claim arose prior to filing the bankruptcy case, the debtor must disclose the claim in his or her bankruptcy schedules that pre-bankruptcy P.I. claim. Every debtor’s bankruptcy is commenced by the filing of a bankruptcy “Petition,” and the Bankruptcy Code also requires that the debtor promptly file “schedules” listing detailed information about the debtor’s financial situation. These schedules include lists of the debtor’s real and personal property, a list of the applicable property exemptions (i.e. the stuff they get to keep / stuff a bankruptcy trustee cannot claim under either state or federal law), information about the debtor’s monthly income and expenses, lists of the debtor’s creditors (secured, priority unsecured, general unsecured), various statistical summaries, and other information required by the Bankruptcy Code.
Every bankruptcy debtor must elect either the Federal or State (Texas) exemption scheme when they file their schedules, and these exemptions provide lists of items which are protected by law from the debtor’s creditors (and the Chapter 13 Trustee) in bankruptcy. By properly exempting the pre-petition claim (or as much of it as the applicable exemptions will allow), the debtor will get to personally keep the maximum amount of the settlement or judgment proceeds once the case settles or is reduced to judgment. Note: the Texas exemptions do not provide for exemptions on Personal Injury claims. However, the Federal Exemptions do provide an allowance for pre-petition personal injury claims, see, e.g. 11 U.S.C. 522(d)(11)(D). The Federal Exemptions also provide for a “wildcard” exemption amount, which is cumulative with the P.I. exemption, see, e.g. 522(d)(5). In total the Federal Exemptions could allow your client to keep more than $30,000 of the personal injury settlement proceeds. However, this amount will vary depending on the debtor’s specific circumstances.
The Debtor and his or her bankruptcy counsel also need from you a complete list of any creditors – anyone who could have a claim — against the debtor or the proceeds of the lawsuit, including any medical bills, for example. Is the claim secured by a statutory lien? Have you issued a letter of protection? Let the debtor’s bankruptcy attorney know, as this information will also have to be disclosed.
The Second Step
Then, you have to get employed by the Bankruptcy Court as the debtor’s personal injury attorney. This is something the debtor’s bankruptcy attorney can handle for you, or you can handle yourself. If you fail to get approved for employment in a timely manner, you may not be able to collect any of your fees.
If the case settles, you must get your settlement approved by the Bankruptcy Court. The approval process is not difficult, but it may include a little coordination with the debtor’s bankruptcy attorney and some communication with the Chapter 13 Bankruptcy Trustee. It may be wise to engage the services of an experienced consumer bankruptcy attorney to shepherd you through the process your first time around, rather than jumping right in without a lifeline.
If the case goes to a successful verdict and you are able to collect the entire judgment on the debtor’s behalf and are now ready to begin disbursing the proceeds, you should now go to bankruptcy court to obtain approval of any expected disbursements prior to making them. Note that general unsecured creditors of the debtor may or may not get paid anything from the proceeds of the settlement.
You also want court approval of your attorneys’ fees. This is usually simple if you had your fee agreement approved properly when the bankruptcy court approved your employment.
The Third Step
Finally, once the bankrupcy court approves any settlement and issues its order directing how the proceeds of the settlement or judgment are to be disbursed, you may disburse settlement funds as directed. It is not unusual for some portion of the settlement proceeds that would otherwise go to creditors or to the debtor to be instead disbursed to the Chapter 13 Trustee for distribution.
Bankruptcy can be someone complex and opaque, but an experienced debtor’s counsel can help a personal injury attorney navigate through the process to a successful outcome.
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