Blogs

Before Bankruptcy, There Are Two Ways Your Credit Score Tricks You
 
Are you worried about what bankruptcy will do to your credit score?
Your credit score is the tool the banks and credit card companies use to trick you into paying them, even when you can’t afford it. Think for a moment. Is your credit score more important than feeding your children?  Probably not.
Is it more important to pay Capital One or take care of you family?
Back in 1934, the Supreme Court said that a fresh start in bankruptcy is “of public, as well as private, interest.” Here’s what they meant. The country is better off if you take care of your family; Capital One will be ok without your help. The fear of your after-bankruptcy credit score tricks people into worrying about the wrong thing.
There’s a second reason it really is trick. When you file bankruptcy, your credit score will go up.  (At least for most people.)
I talk to people whose score is around 550 and assume with bankrutpcy it will drop into the 400;s.  The opposite will actually happen. For most people, your credit score after bankrutpcy will shoot up over 600.
Not only that. Within six months, Capital One will be offering you a new credit card.
 
 
The post Before Bankruptcy, Don’t Let Your Credit Score Trick You appeared first on Robert Weed Bankruptcy Attorney.

The very hot topic in Nebraska bankruptcy courts these days center around how courts apply changes to the homestead exemption law enacted in 2014.

The exemption protects up to $60,000 of equity in a debtor’s home, but the question is whether the exemption is limited the home or to the debtor. In the case of married debtors, do they receive a $60,000 exemption or $120,000?

In a recent court case handled by our firm (In re Hudson BK 23-80949), the Nebraska bankruptcy court clarified the limits of the exemption.

First, some background on the homestead exemption:

Neb. Rev. Stat. §40-101:  A homestead not exceeding sixty thousand dollars in value shall consist of the dwelling house in which the claimant resides, its appurtenances, and the land on which the same is situated, not exceeding one hundred and sixty acres of land.

• The original homestead law in territorial Nebraska did not contain a dollar limitation. The dollar limitation ($2,000) was added in 1875, and that amount was sufficient to exempt the entire value of an average home.
• To put that in perspective, the average cost of a home in Nebraska in 2024 is $282,000. 
• The value of 160 acres of land in Nebraska can easily exceed two million dollars.
• Over time the Nebraska legislature has watered down the homestead protection by failing to index it to inflation.

Nebraska Legislative Bill 964

In 2014 LB 964 extended the homestead exemption to protect single debtors without children.  No longer was the homestead limited to families.

LB 964 modified both sentences of Nebraska Statute § 40-102: 

1. If the claimant is married, the homestead may be selected from the separate property of the husband claimant or, with the consent of the wife from her separate property. claimant’s spouse, from the separate property of the claimant’s spouse.
2. When If the claimant is not married, but is the head of a family within the meaning of section 40–115 or is age sixty-five or older, the homestead may be selected from any of his or her property.

What is the homestead?

Reviewing the long court case history of the exemption law, the bankruptcy court first addressed the nature of the homestead: “What is a “homestead”? Is it the present worth of the exemption or is it the family home?”  Answer: The homestead is the home, not the exemption.

If the homestead is the exemption each debtor could claim the exemption, but if the homestead is the actual home, there is only one. The court pointed out that “the claimant does not claim the exemption. The claimant selects the homestead.” Since there is only one actual home the protection is limited to $60,000.

The bankruptcy court relied on past decisions:

• LB 964 did not change well-established and longstanding caselaw holding a parcel of property cannot sustain two homesteads, which change must have occurred to sustain the debtors’ two exemptions.
• It is true that a homestead cannot be occupied jointly by two families so that both will have homesteads therein. Also, it is true that if a tenant in common claims a homestead, he must occupy the property to the exclusion of his cotenants.  Luenenborg v. Luenenborg, 259 N.W. 649, 652 (Neb. 1935)
• The Nebraska Supreme Court affirmed the nature of a homestead in 1989: Analogizing to the rule that “[a] person cannot have two homesteads, nor can he have two places either of which at his election he may claim as a homestead,” Travelers Indemnity Co. v. Heim, 218 Neb. 326, 330, 352 N.W.2d 921, 924 (1984), we note that two separate homesteads cannot exist in the same parcel of land.  Landon, 438 N.W.2d at 760

In rejecting the debtor’s contention that each married debtor was entitled to a $60,000 exemption, the court made the following observation:

• LB 964 did not go as far as the debtor contends. The head of a family requirement was only in subsection (2) of § 40-102, which subsection never applied to a married couple.  Removal of the head of a family from subsection (2) did not change the law applicable to married couples who are, and were, governed only by subsection (1).
• The homestead continues to be in property, not in an “interest” in property. Finally, and perhaps most importantly, the LB 964 did not change long-standing Nebraska law holding one parcel of property cannot sustain two homesteads. Section 40-102 continues to differentiate between an individual claimant and a married claimant. The debtors’ construction impermissibly ignores the differentiation.
• Consent: The statute also retains the “consent” and “separate property” language. Under the debtors’ construction, consent becomes irrelevant. If both spouses can each separately claim two exemptions in one parcel of property, there is no need to make a claim from the spouse’s separate property. The spouse can claim the exemption on his or her own. The consent language only makes sense if the homestead remains in a singular family home, which might still be owned by one of the two spouses.

For years we bankruptcy attorneys have questioned the effect of the 2014 amendments to the homestead law, and there were rumors that perhaps a married couple could exempt up to $120,000 of their equity. However, unsuccessfully claiming a homestead exemption in a Chapter 7 case can have dire consequences, so attorneys have meekly assumed the exemption was capped at $60,000.

Our firm decided to get a ruling on the issue in a Chapter 13 case because if our challenge proved to be unsuccessful, the debtor’s home would nonetheless be protected. Although the opinion is disappointing to debtors, at least we have a clear decision on how much home equity is protected.

But good news is on the horizon. This case and others have caused our Nebraska legislature to consider an expansion of the homestead exemption, and that will be the topic of our next post.

Image courtesy of Flickr and Matt Turner

Treasury Offset Program (TOP) and SBA EIDL LoansMany clients have contacted our office to report that their delinquent SBA EIDL loans have been transferred to the Treasury Offset Program (TOP), and a 30% penalty has been added to their loan balance.The purpose of this Blog post is to discuss the Treasury Offset Program (TOP).   The Treasury Offset Program (TOP)  is operated by the Department of the Treasury’s Bureau of the Fiscal Service and it is a federal agency that was created to help the Government collect debts from individuals and businesses that owe money to the Government. When a debt owed to the Government is past due, TOP assists in collecting the debt by withholding funds due from the Government to the delinquent borrower. This process is known as "offsetting the payment" or "administrative offset."Examples of offset include the government withholding a tax refund due to a taxpayer who owes money to the government, garnishing 15% of a taxpayer's Social Security payment, or not paying money owed to a government vendor who defaulted on an SBA loan.When a defaulted SBA loan is transferred from the SBA to TOP, a 30% penalty is added to the loan balance and TOP will notify credit reporting agencies of the referral. A borrower may try and have the Defaulted SBA loan “recalled” from TOP to the SBA, but in our experience that is hard to do
What are a borrower's options when a loan has been referred to TOP?They can pay the full amount owed (including the 30% penalty). They can submit an Offer in Compromise to TOPThey can file for Bankruptcy to stay TOP’s collection efforts and discharge the loan balance orDo nothingThe basis for filing an offer in compromise is Federal Regulation 31 CFR § 902.2 - Bases for compromise. That regulation provides that (a) Agencies may compromise a debt if the Government cannot collect the full amount because:  (1) The debtor is unable to pay the full amount in a reasonable time, as verified through credit reports or other financial information; (2) The Government is unable to collect the debt in full within a reasonable time by enforced collection proceedings; (3) The cost of collecting the debt does not justify the enforced collection of the full amount; or (4) There is significant doubt concerning the Government's ability to prove its case in court.
Factors that will be considered in accepting an offer in compromise are Ability to Pay: TOP assesses the taxpayer's income, expenses, asset equity, and overall financial situation to determine their ability to pay the full amount owed.Income and Expense Analysis: A detailed analysis of the taxpayer's income sources, monthly living expenses, and discretionary spending is conducted to evaluate their financial circumstances.Asset Equity: TOP reviews the taxpayer's equity in assets, such as real estate, vehicles, investments, and other valuable items, as potential sources of payment.Future Income Potential: The borrowers earning potential are taken into account to estimate their ability to pay the debt in the future.History: The borrower's  attempts to pay or resolve the debt, are evaluated.Special Circumstances: Exceptional circumstances or other hardships, may be considered when evaluating an OIC.Collectibility: TOP reviews the likelihood of collecting the full amount owed.Tax Administration: An OIC may be accepted if it would promote future compliance or resolving economic hardship.Client’s or advisors who have defaulted SBA loans that have been transferred to TOP should contact Jim Shenwick, Esq.
Jim Shenwick, Esq  917 363 3391  [email protected] Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15minWe held individuals & businesses with too much debt!

Success in Chapter 13: What You Need to Know
You want to be one of three consumers who succeed in Chapter 13.  As the lawyer in over a thousand successful Chapter 13 cases, I’ve collected tips for success in Chapter 13.
The Chapter 13 Trustee in Northern Virginia is Thomas Gorman
When you file Chapter 13 bankruptcy in Alexandria Virginia, you make payments to the Chapter 13 Trustee, Thomas Gorman. But you do NOT send them to his Alexandria address.  There’s a bank in Memphis that handles Chapter 13 payments for most of the bankruptcy courts in the country.  You send your payment to:
You mail your monthly Chapter 13 payment to a bank in Memphis.
                                               Thomas Gorman, Trustee 
                                               P.O. Box 1553 
                                               Memphis, TN 38101-1553
Be sure to put your case number on your check. Make the check payable to Thomas Gorman, Trustee.
I have a lot more info on Chapter 13 Trustee Thomas Gorman, here.  PS, His physical address is 1414 Prince Street, Suite 202, Alexandria VA.  You should never have to go there.
Pay Your Mortgage On Time
Did you file Chapter 13 to protect your house? Then make your house payment on time.
In Chapter 13, make that house payment on time!
Each month you are in Chapter 13, besides making your payment to the Chapter 13 trustee, you need to make your mortgage (or rent) payment. If you get in a short-term jam and are slipping behind–tell me!–but make the house payment first.
Here’s why. If you get thrown out of Chapter 13, you are out of Chapter 13.  If you get thrown out of the house, you are out of your house.  I explain more about that, here.
 
 
 
The post Success in Chapter 13: What You Need to Know appeared first on Robert Weed Bankruptcy Attorney.