Posted by Kevin on October 21, 2009 under Bankruptcy Blog | 
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Posted by Kevin on October 19, 2009 under Bankruptcy Blog | Comments are off for this article
Every advertisement or website concerning bankruptcy will include the following statements, “Stop foreclosure”, “Stop wage garnishment”. What stops the foreclosure or the garnishment is the automatic stay.
The filing of a bankruptcy petition, in and of itself, stops (or stays) most collection efforts automatically. This includes lawsuits, garnishment of wages, levies on bank accounts and foreclosure sales. It also includes harassing telephone calls, letters and emails. If a creditor continues collection efforts after the petition is filed, the Court may impose a fine on the creditor or order the creditor to pay damages to the debtor.
As soon as we are retained, we instruct our clients to refer all creditor calls to our offices. We deal with your creditors and get them to stop calling even before the bankruptcy is filed.
The automatic stay lasts until it is terminated by the court, the case is dismissed or a discharge is granted. In addition, in a Chapter 7 the stay as to a specific piece of property expires when the Trustee abandons that property on notice to creditors and the court.
As with most rules, there are exceptions to the automatic stay. The automatic stay does not apply to co-signers or guarantors in a Chapter 7. So if a husband and wife are on the debt and only the wife files under Chapter 7, the creditor can still go after the husband. The automatic stay does not stop a criminal proceeding, or the commencement or continuation of an action concerning paternity, divorce or domestic support obligations. The automatic stay does not apply to certain IRS actions.
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Posted by Kevin on September 21, 2009 under Bankruptcy Blog | Comments are off for this article
In a mortgage modification, the lender alters the terms of an existing mortgage loan to make it more affordable to the borrower.
In recent years, mortgage modifications have become a topic of much discussion because of the large number of mortgage defaults during the current recession. In April, 2009, the government announced the HAMP program whereby lenders and mortgage servicers were given incentives (meaning $) to modify mortgages. The problem is that, to date, the HAMP program has not worked. Less than 10% of borrowers get permanent modifications
As with other voluntary programs, it is up to the lender to offer you a mortgage modification. There is a ton of paperwork (which seems to get lost an awful lot) and the process drags on for months. Finally, what the lenders are offering is not meaningful relief. The typical modifications have been a lower fixed interest rate for a period of 3-5 years, or “forgiving” arrears by adding them to the principal. So, you get a slightly smaller monthly payment but you owe more than when you closed on the loan. No wonder so many modifications fail.
That being said, I encourage my clients to go through the mortgage mod process. Why? Because unless you file a Chapter 13 bankruptcy, eventually you are going to work out a mortgage modification or go into foreclosure. If you get foreclosed, it is important to show the New Jersey court that you took all reasonable steps to save your home.
At Kevin Hanly, Esq., LLC our goal is to keep you in your house, or put you in a better financial situation if you have walk away from your house. The strategy varies from client to client because no two clients have exactly the same situation. Go to www.FightForeclosureNJ.com for more information, and then contact us to set up a free consultation to analyze your mortgage situation.
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In 1978, the Bankruptcy Code underwent a major overhaul. It gave bankruptcy judges more power. It established the Office of the United States Trustee. It allowed consumers to file for bankruptcy without proving insolvency. Moreover, a debtor could choose whether he or she wanted to file under Chapter 7 or Chapter 13 irrespective of his or her income. Almost from the beginning, creditors complained that the law, especially in consumer bankruptcies, was too pro-debtor.
Over the years, Congress amended the 1978 Code to make it less pro-debtor. But the outcry for a new law continued. Creditor groups argued that too many people were filing. More importantly, they argued that too many people who could afford to pay something to their creditors were filing under Chapter 7, and paid nothing.
Starting in the early 1990’s and continuing until 2005, the credit card and banking industries lobbied Congress for a new bankruptcy law. In October, 2005, Congress enacted BAPCPA. In the area of consumer bankruptcy, one of its main purposes was to make more people file under Chapter 13 so that payments could be made to creditors.
To accomplish this objective, BAPCPA puts restrictions on filing Chapter 7 based on the income of the debtor. To determine whether a prospective debtor qualified for Chapter 7, BAPCPA adopted the so-called means test. The means test was adapted from the test used by the IRS to determine whether a taxpayer could qualify for a payout plan and how much he or she could pay.
The means test is a three part test. The first part appears to be straightforward. The debtor must calculate his or her average income for the 6 months prior to the bankruptcy filing. Note that income does not include social security or unemployment. This average figure is multiplied by 12 to arrive at an annual income. The debtor’s annual income is compared to the median income for your State based on your household size. If the debtor’s income is below the median income, then he or she can qualify for Chapter 7. If not, then the debtor must proceed to the second part of the means test.
The second part of the means test tries to determine what money would be available for creditors after you deduct your expenses from your average income. This portion of the means test focuses on expenses- but not necessarily actual expenses. Remember, the means test is based on the IRS test for how much money should be available to pay back Uncle Sam. The IRS test has both National Standards (food, clothing) and Local Standards (housing, transportation). The means test incorporates the National Standard and Local Standards with some actual expenses. It also allows a debtor to deduct 1/60 of any secured debt (mortgages). If your net income (what’s left over after you subtract your means test expenses from your means test income) multiplied by 60 is less than $6575, you qualify for Chapter 7. If it’s greater than $10.950, then the debtor must file under Chapter 13. If it’s between, then you go to step 3.
In step 3, you compare your net income to your unsecured debt. If your net income is less than 25% of your unsecured debt, you may file under Chapter 7. If the income is above 25% of unsecured debt, then you are relegated to Chapter 13.
Sounds easy, right? Well, there are additional bumps in the road along the way of the means test. First, the Code does not define household size. Second, the line item expenses in the test are not fully explained. This has led to lots of litigation all over the country. If the statute is not clear and the parties cannot agree, then a judge must decide.
Now, for the last bump in the road. Even if you pass the means test and qualify for Chapter 7, the trustee can object to a Chapter 7 filing based on your actual income and expenses. But that’s for another lesson.
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Debt consolidation is where you combine a number of debts, usually with high interest rates, into a single debt with a lower interest rate. The result is a lower, single payment. On its face, debt consolidation is a good idea.
But, you have to be aware of what you are getting into. First, if you are dealing with a counseling company, there is usually a fee attached to the service. Make sure that you are dealing with a reputable counseling company (see discussion on credit counselors), that the fee is reasonable, and is not paid, in full, up front.
Most offers from debt consolidation, however, do not come from credit counselors but from banks or other financial institutions. In most of these cases, the bank will offer to wrap your credit card debt into a lower interest, tax deductible second mortgage. Not usually a bad deal, but as said above, know what you are getting into.
Credit card debt is what is referred to as unsecured debt. That means there is no collateral to support the debt. If you do not pay unsecured debt, the creditor can sue you and get a judgment. The creditor can attach a bank account or garnish your wages, but will probably not be in a position to foreclose on your house.
When you consolidate your credit card debt into a second mortgage, you will pay less each month and probably have a tax write off. However, what you have done is turned “unsecured debt” into “secured debt”. Moreover, if the second mortgage is a home equity line of credit, it may very well be at an adjustable rate. So that low interest rate that you signed on for may be good for only a year.
If you default on secured debt, the second mortgage holder has the right to either sue on the Note or foreclose on your mortgage or do both. If your house has substantial equity, then the creditor will probably choose to foreclose and take out the first mortgage. Now, instead of a few nasty telephone calls and a possible wage garnishment, you could lose your home.
Go into any debt consolidation with open eyes. If your job is laying off workers, it may not be a good idea to consolidate. If your employment is stable and your health is good, consolidation may be a good idea.
One last caveat- never consolidate your debt into a second mortgage with the company that has your first mortgage. In many cases, the documents will state that a missed payment on the second constitutes a default on the first mortgage. Then your chances of being foreclosed on are that much better.
For further information, please refer to the following videos
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Credit counseling is an alternative to bankruptcy which can work for some people. A good credit counselor can teach you how to manage your money, help you establish a workable budget, and negotiate debt management plans with your creditors to reduce interest rates and spread out payments on your credit cards.
My experience has been that credit counseling works best for consumers who have relatively few credit cards, who do not have significant debt in relation to their income, and who can pay off the modified debt in 2-3 years. Repayment through a credit counselor is voluntary. So, each creditor has to agree to the proposal. If one or two do not agree, then effectively the consumer does not have a deal ( no reason to pay off 5 or 6 creditors when the other creditors get judgments against you and levy against your bank account or garnish your wages). Balking creditors, lots of creditors, substantial five figure debt- bankruptcy is probably the better option.
Well, how do you get information about credit counseling or find a reputable credit counselor?
Credit counseling will impact on your credit score but less than bankruptcy.
For further information, please refer to the following videos
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Usually during the initial consultation, a Chapter 7 debtor will ask, with some trepidation, if he or she is required to appear in court. The answer is that most Chapter 7 debtors will never see the inside of a court room. However, every Chapter 7 debtor must attend a 341(a) meeting.
Section 341(a) of the Bankruptcy Code states that within a reasonable time after the filing of the bankruptcy petition, the United States Trustee shall convene and preside at a meeting of creditors. In New Jersey, the Office of the United States Trustee has established a panel of trustees to administer Chapter 7 cases. Almost all of the so-called “panel” trustees are attorneys or accountants who are familiar with bankruptcy. The United States Trustee assigns upwards of 70 cases to each panel trustee in a given month. It is the job of the panel trustee to conduct the 341(a) meetings for each debtor.
Prior to the meeting the debtor must provide his tax return to the trustee. At the meeting, the debtor must produce a photo ID (usually a driver’s license) and a social security card. If the debtor does not bring these two items of identification, the 341(a) meeting is usually adjourned, and the debtor’s attorney is required to send a written notice to all creditors of the adjourned date (for which the debtor usually will be charged an additional fee).
The debtor is required to bring his latest pay stub (called a payment advice), and may be required to bring documentation to prove his expenses if requested by the trustee. In addition, the debtor is required to produce his latest bank statement(s) and brokerage statement(s) if any. Although not required, a debtor who owns real estate should provide a copy of a comparative market analysis and a mortgage payout statement. This will allow the trustee to determine whether any equity exists. If the debtor does not speak English well, it is advisable to bring a translator and to notify the trustee in advance.
Although called a meeting of creditors, it is rare for a creditor to attend a meeting, and even more rare for a creditor to question the debtor. In the cases that I have seen a creditor attend and question a debtor, it is usually because an unsophisticated creditor believes that he is required to appear, or a creditor is trying to find out the location of collateral. If the creditor is not represented by an attorney, the exchange between the debtor and creditor can get a bit unpleasant because they tend to know each other. Therefore, the trustee usually limits questioning and advices the creditor to retain counsel.
For the most part, the trustee conducts the questioning of the debtor. In most cases, the questioning lasts for less than 5 minutes. In all cases, the trustee confirms that the debtor signed the petition and other required documents, and reviewed them for accuracy. He asks about assets, income, expenses, possible lawsuits, domestic support obligations, transfers of property, and why the debtor got into financial trouble. More time will be spent if the debtor sold real property within 3 years of the filing, or if the debtor had his own business.
I have been involved in many 341(a) meetings both as a trustee and as debtor’s counsel. No matter what you say to a client, he is going to be nervous about the 341(a) meeting. The debtor is worried that he may freeze, that he may forget something important, that he will make a misstatement, that the trustee will say something that will embarrass him, that he will not get his discharge. Being questioned under oath by a trustee, who certainly is not your friend, is enough to make anyone nervous.
Besides preparing my clients with sample questions, I ask them to show up for the meeting early. As stated above, in today’s economic environment, panel trustees may have upwards of 70 cases per month for which they must conduct 341(a) meetings. Trustees will usually schedule 30-40 meetings for a single day beginning at 9 AM and going until 3 or 4 PM. If the debtor gets to the hearing room early, he can listen to the questions that the trustee is asking the other debtors. They tend to be the same questions. He can also see that the rest of the debtors in the room look like him, sound like him and are in the same boat. This tends to calm down the debtor. Finally, I stress to my clients that I am there to protect them- that’s my job.
Most 341(a) meetings are closed by the trustee at the end of questioning. In some cases, the debtor may be required to provide some additional documentation. It is advisable to meet all reasonable requests of the trustee as soon as possible. The quicker the 341(a) meeting is closed, the quicker the debtor will receive his discharge- and that is the goal.
For further information, please refer to the following video:
Meeting of Creditors in personal bankruptcy cases
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A Chapter 13 bankruptcy may be filed by individuals with regular income. This includes a sole proprietor who runs a business but does not include a corporation, an LLC or a partnership. In a Chapter 13, the debtor pays all or a part of her debts over a period of 3-5 years under the supervision of the bankruptcy court.
A Chapter 13 bankruptcy is initiated by the filing of a Chapter 13 petition together with a Chapter 13 plan. The plan must provide for a fixed monthly payment to the Chapter 13 trustee. The debtor must begin making payments pursuant to the plan beginning the month after the filing. For example, if the filing is on April 10, then the first payment is due on May 1. Creditors and/or the Chapter 13 trustee may object to the plan. The debtor can either modify the plan to meet the objections or allow the bankruptcy judge to decide if the plan complies with the law and is, therefore, confirmable.
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Chapter 11 bankruptcy basically deals with the reorganization and/or liquidation of businesses. However, an individual may file under Chapter 11. For consumers, Chapter 11 is available when a debtor wants to retain assets, like her home, but does not qualify for Chapter 13. A prospective debtor does not qualify for Chapter 13 if her unsecured debt exceeds $336,900 and/or secured debt exceeds $1,010,000.
For further information, please refer to the following videos
The different types of bankruptcy
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Chapter 7 is known as a straight bankruptcy or liquidation. It is the most common consumer bankruptcy. The person who files a Chapter 7 petition is called a debtor. When the petition is filed, the case is assigned to a trustee. The trustee’s job is to collect all of the debtor’s non-exempt assets, turn them into cash, and distribute the proceeds to the debtor’s creditors according to the priority set up in the Bankruptcy Code.
In the vast majority of consumer Chapter 7 cases, however, all of a debtor’s assets are exempt so the debtor keeps them. Moreover, if the debtor complies with the requirements of the Bankruptcy Code, most, if not all, of his debts are discharged. This means that they are wiped out. This is called a no-asset case.
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Bankruptcy is a legal process that lets you use the protection of the courts to deal with debts that you cannot pay. The right of Americans to file bankruptcy is found in the Constitution of the United States. I repeat- this is a constitutional right. The first bankruptcy code was enacted by Congress in 1800. The current bankruptcy law is known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or BAPCPA.
The Bankruptcy Code is divided into chapters. Consumers file bankruptcy under Chapter 7, Chapter 13, or, in rare cases, under Chapter 11. The Bankruptcy Code is federal law; therefore, bankruptcy cases are handled in federal court and not state court.
Prior to filing bankruptcy, a debtor must take a credit counseling course from a government approved agency. The course can be taken in person or on line, and takes about 90 minutes.
A debtor starts the bankruptcy process by filing a petition. Along with the petition, the debtor files schedules of assets and debts, and income and expenses. Under BAPCPA, the debtor is also required to file a means test to determine under what chapter he or she may file, and a certification indicating that the debtor completed the credit counseling course.
In Chapters 7 and 13, the case is assigned to a trustee who administers the case. In a Chapter 11, the debtor administers his or her own case unless the Court appoints a trustee for cause. There is a filing fee of $299 for a Chapter 7, $274 for a Chapter 13, and $1000 for a Chapter 11 case. In a Chapter 7 case, the filing fee can be waived if your income is below a certain level. In both Chapter 7 and 13, the filing fee can be paid in installments with court approval.
A husband and wife can file together. This is called a joint petition. There is only one filing fee involved in a joint petition. If the debtors are domestic partners or live together but are not married, each person must file a separate petition with a separate filing fee.
Once you file bankruptcy, creditors with some exceptions (just like everything else in life, there are exceptions) must stop all collection efforts. This is called the automatic stay, and is one of the big benefits that you get from filing bankruptcy. The automatic stay also means that if your wages are being garnished, it stops. It’s a big plus to pick up an extra $200-300 per paycheck.
Lot’s of people get nervous about filing bankruptcy because they think that they will have to appear in court before a Judge to explain why they are not paying their bills. Well, that does not happen. But, each debtor must appear before the trustee to answer questions at the first meeting of creditors (also called the 341(a) meeting). That’s the bad news. The good news is that the questions lasts only for a few minutes and you have your lawyer with you to protect your rights.
The primary object of bankruptcy is to wipe out your debts. This is called a discharge. In addition, you should be able to keep most, if not all, of your assets allowing you to get a fresh start following bankruptcy.
Individuals do not need to have an attorney to file bankruptcy (corporations do). Individuals can file on their own or utilize a bankruptcy petition preparer. But then again, you don’t need an electrician to rewire your house. Even for the most simple cases (which really are not that simple), legal counsel is recommended. If you cannot afford an attorney, you should contact your local legal aid office to see if you qualify for help.
Filing bankruptcy stays on your credit report for 10 years and does affect your credit score. Since most people who file bankruptcy were behind on payments, their credit score is already in the tank before the filing. So, the hit that you take may be less than expected. Believe it or not, many people show an increase in credit score within 1 year of discharge. Moreover, if you re-establish credit, and pay your bills on time, your credit rating will be substantially rehabilitated within 3-5 years.
For further information, please refer to the following videos
How do I file for Bankruptcy?
Do I need a Bankruptcy Attorney?
Introduction to Bankruptcy
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Posted by Kevin on August 17, 2009 under Bankruptcy Blog | Comments are off for this article
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Posted by Kevin on October 22, 0201 under Bankruptcy Blog | Be the First to Comment
Chapter 7 puts you in the driver’s seat to either keep or surrender the collateral securing your business debts.
_________________________
As you close your business, you may have different intentions about what to do with the collateral securing any of your business loans and debts.
A Chapter 7 bankruptcy filing will help with each of these.
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Regardless what kind of debt you may have that is secured by any business collateral, the odds are very high that if you were to surrender the collateral to the creditor you would still personally owe a large debt. Whether a simple business equipment or business vehicle purchase, the lease of a business premises secured by the business assets on site, or a business bank loan secured by virtually all assets of the business, the collateral’s value at surrender is almost never enough to pay off the entire debt. Furthermore, as you’ve likely learned, you are required to personally sign or guarantee almost all small business credit obligations; efforts to shield your personal liability behind a business or corporate name seldom work.
So it’s good to know that a Chapter 7 bankruptcy almost always (other than in situations of fraud) discharges (forever writes off) any “deficiency balance”—the amount that you would contractually owe after the surrendered collateral is sold and credited to the account.
If you are personally liable on a debt with collateral you want to keep, generally the creditor will allow you to keep it as long as the account is current when your Chapter 7 bankruptcy case is filed (or else quickly brought current) and you agree to remain legally liable on the debt. You would likely have to “reaffirm” the debt—formally exclude the debt from the general discharge of your debts. Whether that is wise depends on the value of the collateral compared to the balance on the debt, the importance of the collateral to you, and your confidence in being able to pay off the debt.
A Chapter 7 bankruptcy will help you bring the account current and then to pay it off, since it discharges all or most of your other debts, enabling you to focus your financial resources on keeping the business collateral you need.
Earlier, when you initially entered into credit obligations on behalf of your business, the creditor may have insisted on securing the debt with your personal assets, such as your vehicle, boat, or even a second mortgage on your home. After your business fails, your practical choices on such secured debts would be not very good. If you were willing to surrender the particular collateral, you would very likely owe a deficiency balance. So, in spite of having given up the collateral, you would still have to pay a part of the debt, and often a very large part of it. If you wanted to keep the personal collateral, you would have to catch up on your payments and then make those payments on time until you paid it off. But that would be either extremely difficult or impossible while burdened with all the rest of your business and personal debts.
But a Chapter 7 bankruptcy, as stated above, would enable you to surrender whatever collateral whose debt you felt was not worth paying for, and almost certainly (again, except in circumstances of fraud) without being required to pay any deficiency balance. And on debts with collateral you want to keep, you would much more likely be able to catch up with, make consistent payments on, and eventually pay off the secured debt if you are discharging your other debts through bankruptcy.
Posted by Kevin on August 2, 0201 under Bankruptcy Blog | Be the First to Comment
Chapter 13 gives you up to 5 years to catch up on your past-due mortgage. How does this actually work?
You get a bunch of tools to help you keep your home when you file a Chapter 13. But the most basic of those tools is this large chunk of time—up to 5 years—to “cure the arrearage.” If you are many thousands of dollars behind on your home mortgage, you need to fully understand how this tool works before investing a lot of time and money doing a Chapter 13 case. This blog, and the next one, should answer your most pressing questions about this.
Let’s say your monthly mortgage payment is $1,500 and you’ve missed 10 payments, so you are $15,000 behind. If this $15,000 were paid over the full 60 months of a 5-year Chapter 13 plan, that would be $250 each month. ($15,000 divided by 60 = $250.)
If you filed a Chapter 7 case instead, you’d likely be given about 10 months or so to pay that arrearage—amounting to about an extra $1,500 per month. So you’d essentially have to pay double payments, impossible for most people. An extra $250 per month through Chapter 13 may seem hard enough, but this would almost always come with the elimination or significant reduction in what you are paying to other creditors.
(To keep the above calculation simple here, we’ve not included any other fees that could be added to the mortgage arrearage. In most cases the lender would be able to add some late charges, maybe its attorney fees, and perhaps some other costs. And the Chapter 13 trustee would also be entitled to a fee as well.)
Most of the time, yes. Although the lender may be able to attach conditions in its favor.
To use the above example, the lender would almost always have to accept the $250 per month arrangement, and give you an opportunity to make those payments under your Chapter 13 plan. But if the mortgage lender is aggressive, it may be able to impose some conditions, ones that are potentially dangerous for you. For example, the lender could require conditions stating what would happen if you failed to comply precisely with the plan’s payment terms—by not being on time with either the arrearage payment or the regular monthly mortgage payment. If you did not make these payments on time, you could be given a very short last chance to pay them or else the lender would be able to start (or re-start) foreclosure proceedings.
Another way of putting this—Chapter 13 gives you a relatively long time to catch up on your missed mortgage payments, but the system is not particularly patient with you if you are then not able to keep to that payment schedule.
You’re certainly not required to use the full 5 years, if you can pay off the arrearage and the rest of your Chapter 13 obligations (such as any taxes or back support) faster. Using the above example, $15,000 in missed mortgage payments spread over 36 months would require about $417 per month (again, excluding some likely extra fees), instead of $250. Generally, you would want to finish your Chapter 13 case faster if possible, but should keep your monthly payment low enough to make more likely that you will be able to complete it successfully. If your income qualifies you for a 3 year plan, you are generally allowed to have in a plan that lasts anywhere between 36 and 60 months, depending on what your budget allows.
The next blog will cover these remaining questions:
How are back property taxes handled?
What if the mortgage lender and I don’t agree on the amount of arrearage that’s owed?
What happens if my circumstances change and I decide not to keep the house after all during my Chapter 13 case?
Posted by Kevin on May 8, 0201 under Bankruptcy Blog | Comments are off for this article
Most of the time, you get to keep whatever you own when you file bankruptcy. These 10 truths tell you how it works.
Truth #1. Exemptions can be trickier than they seem to be: There is much more to protecting your assets than just matching assets to exemptions. Although some exemption categories are straightforward, important ones often are not. Some require knowing prior court decisions, and/or how the local trustees and judges are informally interpreting them.
Truth #2. Federal and state exemption schemes: Congress has left it up to each state whether to use a federal set of exemptions in the Bankruptcy Code for bankruptcies filed in that state, or instead a set of exemptions created by the state, OR even to allow each debtor to choose to use either the federal or state set of exemptions. In New Jersey, we generally employ the federal standards. Why? Because most of the NJ exemptions were instituted about 100 years ago and were never adjusted for inflation.
Truth #3. Which exemption scheme you must use can depend on how long you’ve lived in your present state: If you have not been “domiciled” in your current state for two full years before filing bankruptcy, you cannot use the set of exemptions available to residents of your state. You must use the state you were “domiciled” in during the 6-month period immediately before those two years. And if you were “domiciled” in more than one state during that 6-month period, you must use the exemptions available to the residents of the state where you were domiciled the longest during that 6-month period.
Truth #4. If you have assets that exceed the applicable exemptions, you stand a much better chance of protecting them with pre-bankruptcy planning: This is one of the most important reasons to meet with a competent attorney well before you are pushed into filing bankruptcy. What you do with your assets before filing bankruptcy can be scrutinized by the trustee and/or creditors afterwards, so you must get thorough legal advice beforehand. Doing so can make all the difference in protecting what is important to you.
Truth #5. Some trustees are more aggressive than others, and asset values are matters of opinion: Therefore, do not be surprised if a trustee challenges the value that you assign to an asset.
Truth #6. It is crucial to be thorough in listing assets AND exemptions: Failing to be thorough in listing your assets in your bankruptcy documents can jeopardize your entire case, and in extreme cases even lead to criminal charges against you by the U.S. attorney. Also, failing to list an asset which would have been exempt can result in losing the right to claim that exemption later, and then losing that asset.
Truth #7. Just because you have an asset that’s worth more than the exempt amount, doesn’t necessarily mean the trustee will take it: Trustees can decide not to pursue an asset that is either partly or completely not exempt because 1) the asset is not worth enough to justify the trustee’s efforts to collect or liquidate it; 2) the trustee is not willing to bear the costs to collect or liquidate it (such as the attorney fees needed to pursue a claim of the debtor); or 3) the asset’s detriments arguably outweigh its benefits (such as a parcel of land polluted by hazardous waste).
Truth #8. If you have an asset that you want to keep that is not exempt, you can usually “buy it back” from the trustee as long as you have the money to do so within a few months: It may seem like a bad deal to have to pay a Chapter 7 trustee to keep something you already own (such as a vehicle). But if the alternative is doing without a vehicle, or risking getting an unreliable one, or filing a 3-to-5 year Chapter 13 case to save your vehicle, buying it back from the trustee could be by far the best way to go.
Truth #9: You don’t ALWAYS want to avoid having the trustee claim an asset: Sometimes you may actually want the trustee to take a particular non-exempt asset or two. You may not need them—such as the leftover assets of a closed business—and may appreciate handing the liquation hassles over to the trustee. This could especially be true if the trustee will be paying a significant part of the proceeds of sale to a debt you want paid, such as taxes or back child support.
Truth #10. The difference in exemptions under Chapter 7 and 13: Although the set of exemptions used in filing under both chapters is the same, the exemptions are used for a different purpose. In Chapter 7, the exemptions determine whether you have any non-exempt assets for the trustee to take from you, and distribute their proceeds to your creditors. In Chapter 13, the exemptions are applied in the same way but for the purpose of imagining whether there are any non-exempt assets that a hypothetical Chapter 7 trustee would have taken, and if so paying the estimated amount to the creditors over the life of the Chapter 13 plan.
