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Protecting Your Pandemic Relief Payment from Creditors

Posted by Kevin on July 4, 2020 under Bankruptcy Blog | Comments are off for this article

 Most are aware that the average America received  $1,200 in pandemic relief payments. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.

But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.

There are two classes of creditors at play:

1)      Setoffs by your own bank or credit union for a debt you owe to it

2)      Garnishment by other creditors which have a judgment against you

In our next blog, we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.

Judgments and Garnishment Orders

Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment.

Do You have a Garnishment Order on Your Bank/Credit Union Account?

This question is not necessarily so easy to answer, for a number of reasons.

First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail.  It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.

Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.

Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account.  You are wrong.

Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state.   So what you may have heard in one situation may not apply at all to you regarding these relief payments.

Finding Out If You Have a Bank Garnishment Order

Some common sense questions you should ask yourself. Have you:

  • ever received lawsuit papers and then did not fully resolve the debt?
  • had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
  • had anything repossessed, especially a vehicle, where you may still owe a balance?
  • gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
  • moved from another state and thought you left unresolved debts behind?

In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.

Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.

A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.

 What To Do If You Do Have a Garnishment Order

First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.

Second, you may want to consider some other tactical steps:

  • If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
  • Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
  • Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)

Third, a number of states are issuing orders to prevent garnishments of bank accounts including California, Illinois, Indiana, Massachusetts, Nebraska, New York, Oregon, Texas, Virginia and Washington.  I do not see NJ on that list.

This IS Complicated

Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.

Plan for Success

Posted by Kevin on August 5, 2017 under Bankruptcy Blog | Be the First to Comment

Although the Great Recession started in December, 2007 and ended technically in June, 2009, economic growth has been sluggish through the 2016 election and even to this day.  Participation in the work place went from 66.4% in January, 2007 down to 62.5% in October, 2015.  That means that people lost their jobs and withdrew from the work force for extended periods of time for a myriad of reasons.

In July, 2017, the Department of Labor indicated that US employers added 209,000 jobs.  More importantly, wages are going up.  This is bringing many people back into the work force.

It is not surprising that many of the people who had been sitting on the sidelines for extended periods of time have accumulated significant debt over the past few years.  In the past, I would receive a steady stream of calls from people who were outsourced (or otherwise laid off) or downsized concerning lawsuits or threatened lawsuits, and garnishments from their creditors.  In the last few years, however, I get less such calls.  That does not mean that people have not accumulated debt.  It probably reflects certain policy decisions made by creditors about the viability of suing people when they are out of work and, therefore, judgment proof.

Once you get a job, however, you may not be judgment proof.  Granted, if you go from unemployment to a minimum wage job, you may not be subject to creditor harassment.  But, what if you were unemployed for a year or more because your job was outsourced.  You have education and skills that in the right job market, could translate into a sizeable salary.  In that case, if you get back into your field, it is only a matter of time before debt collectors will be in touch with you.

So what do you do?  Wait for the telephone call?  Or the summons and complaint to be delivered by the sheriff?   Probably, it would be better to be proactive.  At the least you should do a personal financial audit.  How much debt do you have?  Is it unsecured like credit cards or medical bills, or secured (collateral involved).  Is it student loan debt that may not be dischargeable in bankruptcy?  How much are you going to have from each paycheck after your monthly expenses to pay those back debts?  Are there areas where you can cut back?

When we deal with prospective clients, we try to tailor our advice to their specific economic situation.  Some may have defenses to creditor action so fighting a collection action in State court may be the way to go.  Others may find negotiation with specific creditors can get a payment plan or settlement at a reduced amount.  Some are better served by engaging a reputable creditor counseling agency.  Others may need the protection afforded by the Bankruptcy Code.

Congratulations.  The economy is getting better and you are back in the job market.  But, if you have accumulated debt over the last few years, have a plan to deal with it.


Automatic and Immediate Protection from Your Creditors

Posted by Kevin on June 9, 2017 under Bankruptcy Blog | Comments are off for this article

How does bankruptcy stop garnishments, foreclosures, and repossessions?


Filing a bankruptcy case gets immediate protection for you, for your paycheck, for your home, and for all your possessions. This “automatic stay” provides this kind of protection for you and your property the moment either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” case is filed. Virtually all efforts by all your creditors against you or anything you own comes to an immediate stop.

“Automatic Stay” = Immediate Stop

“Stay” is simply a legal word meaning “stop” or “freeze.”

“Automatic” means that this “stay” goes into effect immediately upon the filing of your bankruptcy petition. That filing itself, according to the federal Bankruptcy Code, “operates as a stay” of virtually all creditors’ actions to pursue a debt or take possession of collateral. Since the filing of your case itself imposes the stay, there is no delay or doubt about whether a judge will sign an order to impose the “stay” against your creditors.

Creditors Need to Be Informed, Sometimes Directly

Although the protection of the “automatic stay” is imposed instantaneous, practically speaking your creditors need to be informed about the filing of your case so that they are made aware that they must comply with it. If your creditors are all listed in your bankruptcy case documents, they should all get informed by the bankruptcy court within about a week or so after your case is filed. This doesn’t take any additional action by either you or your attorney (beyond making sure all of your creditors are listed in the schedule of creditors filed at the bankruptcy court). If you have no reason to expect any action against you by any of your creditors before that, just letting them all be informed by the court is usually all that’s needed.

However, if you are expecting some action by any of your creditors quicker than a week or so after filing the case, be sure to talk with your attorney about it. That way any such creditor can be directly informed by about your bankruptcy filing to stop whatever collection action it was contemplating. Make sure you and your attorney are clear which of you is informing that creditor and in what way.

Creditor Action Taken Unexpectedly

But what if a creditor has not yet been informed of your bankruptcy filing when it takes some action against you or your property in the days after your bankruptcy filing but before it finds out about it?

If this happens, the “automatic stay” is so powerful that in most circumstances such a creditor must undo whatever action it took against you after your bankruptcy was filed, even if this creditor honestly did not yet know about your filing. For example, if after your bankruptcy is filed a creditor files a lawsuit against you or gets a judgment on a lawsuit that it had filed earlier, the creditor must dismiss (throw out) its lawsuit or vacate (erase) the judgment.


Appreciating the Awesome “Automatic Stay”

Posted by on June 20, 2016 under Bankruptcy Blog | Be the First to Comment

The automatic stay goes into effect simultaneous with the filing of your bankruptcy petition. The “petition” is the document “commencing a case under [the Bankruptcy Code].” Sections 101(42) and 301(a). So the very act of filing the petition itself “operates as a stay.” Section 362(a).

The instantaneous effect of the automatic stay is amazing especially in comparison to most other court procedures. Most take weeks, or even in the case of emergencies at least days or hours. Usually some kind of request or motion needs to be filed to get the court’s attention, the other side is given some opportunity to respond, and then there may be a hearing of some sort, before finally a judge makes a decision.

But the automatic stay skips all that. It is, at least at the beginning, completely one-sided, in your favor. You “win” an immediate court order, without the creditors having any immediate say about it, without involving a judge at all.

So the automatic stay gives you an immediate breathing spell, freezing all collection efforts against you, whether your creditors like it or not.  

Awesomely Broad Protection

This break from your creditors covers “any act to collect, assess, or recover” a debt—just about anything a creditor could do to.

Besides stopping all collection phone calls and bills, the automatic stay stops all court and administrative proceedings against you from starting, or from continuing. If your bankruptcy is filed right before a lawsuit is to be filed at court against you, the lawsuit can’t be filed. Same with a home foreclosure. A prior judgment against you can’t result in your paycheck or bank account being garnished. If you’re behind on your vehicle loan payments, the repo man can’t come looking for your vehicle. If you owe back income taxes to the IRS, it can’t record a tax lien against your home and vehicle.

The automatic stay is powerful stuff.

“Relief” from the Automatic Stay

Any creditor can ask the court to cancel the automatic stay so that the creditor can again take action against you, your assets, or the collateral in particular. The most common situation for this is a creditor asking for the right to take back the collateral securing the debt—to repossess a vehicle or to start or continue a home foreclosure. Whether or not the court will give it this right, or give “relief from stay” in any situation, depends on all the details of the case. It requires a careful analysis to be done by and discussed with your attorney.

Exceptions or Limitations to Automatic Stay

There are some, and we will address some of them in upcoming blog posts.

Help! I’ve Just Been Sued by a Creditor! What Do I Do Now?

Posted by Kevin on March 31, 2016 under Bankruptcy Blog | Be the First to Comment

Don’t react to getting lawsuit papers by avoiding them. React by helping yourself.  Get some competent legal advice about what this lawsuit really means, whether and how it can hurt you, and what you likely can do about it.

Lawsuits by most creditors aren’t “personal.” They’re just a business decision. The lawsuit papers you have in your hands tell you that the creditor has decided that suing you is a good bet.  It thinks that the lawsuit will help get the debt paid. The creditor likely even has in mind specifically how it expects to get paid.  It may well be targeting your bank account, your paycheck, your home, or some other income or asset.

The creditor is also making another easy bet—that in fact you won’t do anything about the lawsuit papers after getting them. At least not in time to prevent the lawsuit from turning into a judgment against you.  Most people don’t.

So the creditor is banking on you letting them get a “default judgment,” a court decision in favor of the creditor which happens automatically (or at least without a trial)  if you do not formally reply to the lawsuit on time.

Once armed with a judgment,  the creditor to start grabbing your money and your assets, through orders of the court, sometimes in ways you might not expect.

A Judgment against You is More than Just an Admission that You Owe the Debt

But even if the judgment does not result in giving a creditor a way to get money out of your right away, it has longer-term consequences.  For one,  judgments can be reported to credit agencies.  Affects your FICO score and, therefore, your ability down the line to get credit.   In addition, once the deadline to respond passes and a judgment is entered, you’ve give up on some important rights:

a) Your right to raise possible defenses. Creditors and collection agencies can be shockingly cavalier about whether the debts they are pursuing are legally valid. Think about it: since in the vast majority of the time consumers don’t respond to lawsuits and judgments are rubber stamped, there’s not much incentive for the creditors to get their paperwork right. You need to have an attorney review the lawsuit to find out if the statute of limitations on the debt has expired, or if you have any other defenses.  After the judgment is entered against you, it is extremely difficult, and a lot more expensive,  to raise any such defenses.

b) Your right to raise counterclaims. A counterclaim is your argument that the creditor did something wrong—in the way the debt was created or in how it was collected. Counterclaims say that you have been legally damaged, entitling you to compensation. A default judgment against you either waives your right to bring a counterclaim, or takes away the counterclaim’s leverage when it would do you the most good.

c) Your right to dispute facts. The debt could become more difficult to write off in bankruptcy after a judgment is entered, if certain facts are alleged in the lawsuit (and deemed admitted by your lack of a response).  This could put you at a serious disadvantage if you ever need to file bankruptcy.

That is not to say that you cannot, within a set period of time, come into court to set aside the default judgment and then raise those defenses. But, in NJ at least, you must file a motion and appear in court, and a judge makes the call.  It is difficult to do and expensive as opposed to filing your answer on time and putting forth your defenses as a matter of right.

If you do get sued, do not bury your head in the sand.  Consult and attorney.

Why You Should Not Allow a Creditor to Get a Default Judgment against You

Posted by on March 26, 2016 under Bankruptcy Blog | Be the First to Comment

Not responding to a lawsuit by a creditor can harm you in more ways than you think.


Three Different Sets of Reasons

Judgments can harm you in three distinct ways:

1) Give the creditor powerful collection tools against you to collect the debt.

2) Force you into filing bankruptcy when it’s not to your best advantage.

3) Makes it harder sometimes to discharge (write off) the debt later in bankruptcy.

Today’s blog addresses the first one of these. The other two will be covered in my next blogs.

The Temptation to Let a Lawsuit Turn into a Default Judgment

Most lawsuits filed by creditors and collection agencies to collect debts result in judgments against the people being sued. That’s because the main allegations in most of these lawsuits simple argue that the debt at issue is legally owed. And that’s usually not in dispute. So the people being sued understandably figure that there’s no point in responding to allegations that appear to be true.

Practically speaking, most of the time the people being sued are at the end of their financial rope. So they believe that they can’t afford to hire an attorney to find out what their options are, or the consequences of doing nothing.

What ARE the Consequences of Doing Nothing?

You may know that a judgment gives a creditor the right to garnish your wages and bank accounts. You may believe that you can prevent such garnishments from happening to you by keeping your money out of bank accounts and by being paid other than a regular wage or salary (although even those are not practical options for most people).  Perhaps, but the “judgment creditor” usually has other rights against you once it gets that judgment.

The laws differ state by state, but generally a judgment becomes a lien against any real estate you own, or will own in the future. Depending on the facts and applicable law, the creditor may then be able to foreclose on that real estate to get its debt paid. Think about not only property under only your own name, but also your rights to property held jointly with a spouse, parent, or through a trust or estate.

An aggressive creditor usually has other tools available. In most states it can get a judge to order you to go to court to answer questions under oath about what you own so that the creditor can find out what it can take from you. The creditor may be able to get a court order sending a sheriff’s deputy to your home or business to seize some of your possessions for payment of the debt. If someone owes you any money (or anything else), that person can be ordered to pay that debt to the creditor instead of to you.

Similarly, if you own a business, the creditor can force your customers to pay it instead of you. This can be devastating both to your cash flow and to your business reputation. Your business could even be subjected to a “till tap”: a sheriff’s deputy arriving at your place of business to take money directly out of the cash register to pay towards the judgment debt.

Will These Happen to You?

We don’t want to give the impression that these kinds of aggressive collection procedures are used in most cases, or will necessarily be used in yours. Some of these are unusual, taking a fair amount of extra work and fees for the creditor or its attorney, and so likely won’t happen in most simple collection cases. The point is that once creditors have a judgment against you, they have many powerful options against you. We meet all the time with distressed new clients who have been shocked at how creditors with judgments against them have been able to financially hurt them.

Why See an Attorney If You Have No Defense to the Debt?

Flying blind is scary and dangerous. Getting sued and not knowing the potential consequences of just letting the creditor win is like flying blind. Besides potentially finding out about possible defenses to the lawsuit, consulting an attorney gives you the opportunity to consider your broader financial situation, and your options for addressing it. A lawsuit by a creditor is usually a symptom of a broader problem. By consulting with a knowledgeable attorney, you may learn about potential solutions to both the lawsuit AND the rest of your financial problems.


Please visit our website again for the next two blogs about the other very important reasons why you should not allow a creditor to take a default judgment against you.


Hey, I Finally Got a Job

Posted by Kevin on November 28, 2014 under Bankruptcy Blog | Be the First to Comment

You were downsized or your company went out of business, or your department was outsourced to India.  You lost your job and collected for as long as you could.  But what you collected in unemployment was not enough to pay all your bills, so you got sued, and some creditors got judgments against you.

While you were unemployed, it really did not make a difference that a few doctors, AMEX and Discover got judgments against you.  They could not levy on your unemployment benefits.  But, now the economy has gotten better and you just got an offer in your field at about 90% of what you were earning when things went sideways.

Now is the time for you to start thinking about how you are going to deal with those judgments (and other debts that have not been reduced to judgment).  With money in your pocket and a few new credit cards, your activity on the credit reporting agencies will increase.  Creditors will put 2 + 2 together and figure you have a job.  Then, the garnishments will start coming in.  Great way to impress a new employer.

Bankruptcy may be the answer.  Debt consolidation through a reputable credit counseling company may also keep the wolves away.  You owe it to yourself and family to look into these options.  Be pro-active.

Final word to the wise.  It is holiday season.  People are beating each other up at Macy’s all over the US today.  Maybe you are thinking that you can have one last fling and then take care of business after the New Year (if any of your credit cards still work).  Bad idea.  Why?  Because cash advances or purchase of luxury items over certain amounts within 70 to 90 days of filing can preclude a discharge of those debts.  In addition, it will make any bankruptcy more expensive.  So, play it straight.

Now is the time to speak with an experienced bankruptcy attorney.

Advantages of Being in Control of the Timing of Your Bankruptcy Filing

Posted by on October 13, 2013 under Bankruptcy Blog | Be the First to Comment

Don’t get rushed into filing bankruptcy when the timing’s not right. Filing at the right time could save you thousands of dollars.

Timing Does Not Always Matter Much, But It CAN Be Huge

Many laws about bankruptcy are time-sensitive. And those time-sensitive laws involve the most important issues—what debts can be discharged (written off), what assets you can keep, how much you pay to certain creditors, and even whether you file a Chapter 7 case or a Chapter 13 one.

It is possible that the timing of your bankruptcy filing does not matter in your particular circumstances. But given how many of the laws are affected by timing, that’s not very likely. It’s wiser to give yourself some flexibility about when your case will be filed. If you wait until you’ve lost that flexibility—because you have to stop a creditor’s garnishment or foreclosure—you could lose out on some significant advantages.

Today’s blog post covers the first one of those potential timing advantages.

Being Able to Choose between Chapter 7 and Chapter 13

Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” are two very different methods of solving your debt problems. There are dozens and dozens of differences. You want to be able to choose between them based on what’s best for you, not because of some chance timing event.

To be able to file a Chapter 7 requires you to pass the “means test.” This test largely turns on your income. If you have too much income—more than the published median income for your family size and state—you can be disqualified from doing the get-a-fresh-start-in-four-months Chapter 7 option and be forced instead into the pay-all-you-can-afford-for-three-to-five-years Chapter 13 one.

The “Means Test” Income Calculation

What’s critical here is that income for purposes of the means test has a very special, timing-based definition. It is money that you received from virtually all sources—not just from employment or operating a business—during the six full calendar months before your case is filed, and then doubling it to come up with an annual income amount. For example, if your bankruptcy case is filed on September 30 of this year, what is considered income for this purpose is money from all sources you received precisely from March 1 through August 31 of this year. Note that if you waited to file just one day later, on October 1, then the period of pertinent income shifts a month later to April 1 through September 30.

So if you received an unusual chunk of money on March 15, that would be counted in the means test calculations if you filed anytime in September, but not if you filed anytime in October. If that chunk of money pushed you over your applicable median income amount, you may be forced to file a Chapter 13 case if your bankruptcy case is filed in September. But not if you filed in October because that particular chunk of money arrived in the month before the 6-month income period applicable if you waited to file until October.


Being able to delay filing your bankruptcy in this situation—here literally by one day from September 30 to October 1—allows you to pass the means test and therefore very likely not be forced to file a Chapter 13 case. Being in a Chapter 13 case when it doesn’t benefit you otherwise would cost you many thousands of dollars in “plan” payments made over the course of the required three to five years. Clearly, filing your case at the tactically most opportune time can be critical.

The sooner you meet with a competent attorney who can figure out these and similar kinds of considerations, the sooner you will become aware of them and the more likely problems like the one outlined here can be avoided.

Help! Support Enforcement Just Garnished My Paycheck, and is Threatening to Do Worse

Posted by Kevin on September 11, 2013 under Bankruptcy Blog | Be the First to Comment

If you’re behind on child or spousal support, the support enforcement agency can be extremely aggressive. Chapter 7 doesn’t help much. Chapter 13 CAN.

In most states an ex-spouse—or the state’s support enforcement agency acting on his or her behalf—has extraordinary ways to collect on current and back support obligations.  These include not just ways of getting directly at your money, but also ways to hurt you with the intent of forcing you to pay.

So we’re not just talking about garnishing your wages and bank accounts, taking away income tax refunds, or putting liens on your real estate. We’re talking coercive action. Your driver’s license can be suspended. This includes your commercial driver’s license, so that you can’t work if you’re a truck driver or have any other job requiring that license. Your professional or occupational license could also be suspended, preventing you from legally working in your profession or business as a nurse, doctor, realtor, insurance agent, mortgage broker, lawyer, or even in some places athletic trainer or funeral director!

There’s more. Your hunting, fishing, boating and other recreational licenses could be revoked. You can even be denied a U.S. passport.

Chapter 7 Gives Very Limited Help

“Straight bankruptcy” under Chapter 7 unfortunately does not stop any of these collection methods. The “automatic stay” that stops just about all other collection efforts has an exception for child and spousal support. (See Section 362(b)(2)(B) of the Bankruptcy Code.) The only way that Chapter 7 can help is that it can often legally write off (“discharge”) all or most of your other debt so that you would have the money to pay your support. But that does not help deal with your financial emergency if you’re in the support enforcement’s crosshairs.

Chapter 13 CAN Help Where it Counts the Most

The filing of a Chapter 13—the three-to-five-year “adjustment of debts” kind of bankruptcy—DOES stop all these aggressive ways of collecting on support obligations. The “automatic stay” does apply in most respects to Chapter 13, as long as it affects the collection of your assets that did not exist at the time your case is filed, such as future income. But to make this protection last more than just a few days or weeks, you must rigorously meet a number of conditions:

  • Your Chapter 13 plan must show that you are going to catch up on all the back support during the life of the plan. And then you must make your monthly plan payments on time to show that your plan is feasible and that the back support will in fact be paid in full.
  • Your budget must show that you will be able to start (or continue) making the regular monthly divorce court ordered support payments, AND then you must actually pay those on time. And that starts with the first one that is legally due on whichever day it’s due immediately after your Chapter 13 is filed, and then every month thereafter.
  • At the end of your Chapter 13 case you must certify that you are current on your ongoing support payments, or else you cannot complete your case and get a discharge of your remaining debts.

On the positive side, Chapter 13 neutralizes most of the extremely dangerous firepower of your ex-spouse or the support enforcement agency, and gives you the opportunity to solve an otherwise very difficult problem. Chapter 13 is often a great tool for catching up on your back support, because you are allowed to favor that debt over just about every other one. You could end up paying very little if anything else to your other creditors, except those other ones that matter to you, such as your mortgage, vehicle loan, taxes and such.

But you must be financially able to meet the above conditions, and then strictly abide by them. If during the Chapter 13 case you miss one of your regular monthly support payments, or one of your plan payments, you can expect your ex-spouse or support enforcement to ask the bankruptcy judge for “relief from the automatic stay,” that is, for permission to resume or even intensify their earlier collection efforts. At that point the judges will tend not to be very sympathetic to you, since you are not complying with the conditions that you had agreed to at the beginning of your case.

$36 Billion in Student Loans Is Owed by Americans 60 Years Old and Older

Posted by Kevin on June 29, 2013 under Bankruptcy Blog | Be the First to Comment

This $36 billion is owed by 2 million older Americans.  Garnishment of their Social Security benefits to pay these student loans has skyrocketed.

Here are the facts:

  • You’ve likely heard that the total amount of student loan debt has surged beyond the amount of credit card and auto loan debt. The actual numbers as of a few months ago are:
    • Credit cards: $693 billion
    • Auto loans: $730 billion
    • Student loans: $870 billion
  • In addition to the student loan debt owed by 60+ year olds, nearly $100 billion is owed by 4.4 million 50 to 59 year olds, and $143 billion by 5.5 million 40-49 year olds. That’s nearly 12 million Americans 40 or older who still owe on student loans.
  • Among all Americans who owe student loans nearly one-third of them are 40 or older. More than one-sixth are 50 or older.
  • Through the Debt Collection Improvement Act of 1996, Congress centralized delinquent debt collection functions at the Department of Treasury, and authorized it to garnish borrowers’ Social Security payments to collect on federally insured student loans. (See p. 4 of this PDF of the Act, or 11 United States Code Section 3716(c)(3)(A)).
  • At the heart of this Act is the following language:

“Notwithstanding any other provision of law… all payments due to an individual under… the Social Security Act… shall be subject to an offset under this section.”

  • In 2000 six student loan borrowers had their Social Security payments garnished, in 2007 that number had shot up to 60,000 borrowers, and by last year 115,000 borrowers had their Social Security payments garnished.
  • The garnishments cannot exceed 15% of the Social Security payment, and must leave the borrower with at least $750 per monthly check.

Note: much of this information is from a recent report by the Federal Reserve Bank of New York, and the U.S. Treasury Department’s latest annual Report to the Congress on U.S. Government Receivables and Debt Collection Activities of Federal Agencies.

Bankruptcy Can Solve Your Debt Problems Even If You Can’t Write Off Every Debt

Posted by Kevin on April 3, 2013 under Bankruptcy Blog | Be the First to Comment

You owe the IRS a substantial amount of money for income taxes.   You have heard that bankruptcy doesn’t discharge (legally write off) income tax debts.   So you’re not seriously considering bankruptcy much less consulting with a bankruptcy attorney.

You may or may not be right about whether or not that income tax debt can be discharged now.  However, you may be able to discharge the income tax debt in the future .  But you will not know for sure unless you get some advice.  Here are six reasons why you should not be your own lawyer, and should consult with an experienced bankruptcy attorney:

1. Some debts, which you think can’t be discharged, actually can. Certain income taxes can be discharged in either a Chapter 7 or Chapter 13 case.  For the most part, it depends on when the tax obligation was incurred.   And even though alimony is not dischargeable,  there are some payments to an ex-spouse which are not considered nondischargeable alimony under the Bankruptcy Code.  It’s certainly worth finding out whether the debt you assume can’t be discharged actually can be discharged.

2. Some debts that can’t be discharged now may be able to be in the future. Almost all income taxes can be discharged after a series of conditions have been met. So your attorney can put together for you a game plan coordinating these tax timing rules with all the rest of what is going on in your financial life.

3. Even if you can’t discharge a debt, bankruptcy can permanently solve an aggressive collection problem. In many situations your primary problem is the devastating way a debt is being collected. For example, you may want to pay an obligation for back child support but the state support enforcement agency is about to suspend your driver’s and/or occupational license. A Chapter 13 case will stop these threats to your livelihood, and protect you from them while you catch up on the back support.

4. You have more control over the amount of the monthly payments on debts that cannot be discharged. Debts which the law does not allow to be discharged in bankruptcy also tend to be ones that give the creditors a lot of leverage against you. Chapter 13 takes some of this leverage away from them by allowing you to pay what your budget allows, not what these creditors would otherwise like to carve out of you.

5. Bankruptcy can stop the adding of interest, penalties, and other costs, allowing you to pay off a debt much faster. Unpaid income taxes and certain other kinds of debts are so much more difficult to pay off because a part of each payment goes to the ongoing interest and penalties. Some tax penalties in particular can be huge. Most of these ongoing add-ons are stopped by a Chapter 13 filing, allowing you to become debt-free sooner.

6. Bankruptcy allows you to focus on paying off the debt(s) that you can’t discharge by discharging those you can. You may have a debt or two that can’t be discharged and a bunch of debts that can be. Even if bankruptcy can’t solve your entire debt problem directly, discharging most of your debts would likely make that problem much more manageable. Under Chapter 7, you would be able to pay off those surviving debts much faster, which is especially important if they are accruing interest or other fees. And under Chapter 13 you would have the benefit of a predictable payment program, one that focuses your financial energies on those nondischargeable debts while protecting your assets and income from them.

So don’t let the fact that you believe that you have debts that can’t be discharged in bankruptcy stop you from getting legal advice.  What you find out may surprise you.

Bankruptcy Stops Wage Garnishments Before They Can Hit You

Posted by Kevin on September 10, 2012 under Bankruptcy Blog | Be the First to Comment

Bankruptcy protects your paycheck because it’s more powerful than a creditor’s garnishment court order

A garnishment is effectively a court order which tells your employer to pay a portion of your paycheck to the creditor instead of to you. Except in rare circumstances, a creditor can’t get that garnishment order without first suing you and getting a judgment saying that you owe the debt. A judgment is the court’s decision that you do indeed owe the debt, how much you owe, and the amount of any additional costs. A judgment authorizes a creditor to use a variety of powerful ways to get money or property out of you to pay the debt, often (but not always) including through wage garnishment.

Bankruptcy stops wage garnishments at four stages of the process:

  • before the creditor files a lawsuit, by stopping that lawsuit from being filed in the first place
  • very shortly after a lawsuit is filed, by preventing that lawsuit from turning into a judgment
  • after a judgment is entered, by not allowing the creditor to get a garnishment order
  • after a garnishment order is signed by the court where the judgment was entered, by trumping the garnishment court order with a more powerful bankruptcy “automatic stay”

So your bankruptcy prevents most garnishments from happening. It stops future hits on your paycheck from a “continuous garnishment,” in which there is one garnishment order requiring money to be taken out of your paycheck until the debt is paid. And it also stops new garnishments on an old judgment, for example, when a creditor finds out about your new employer.

Bankruptcy Stops Some Wage Garnishments Only Temporarily

In preventing upcoming wage garnishments, bankruptcy USUALLY does so permanently. This happens when a debt is discharged (legally written off) in the bankruptcy case, as most debts are. Once a debt is discharged, under Section 524(a)(2) of the Bankruptcy Code an injunction is imposed against the collection of that debt every again, by any means including garnishment. So in those situations the bankruptcy filing stops the garnishment, forever.

So when are garnishments NOT stopped permanently? Garnishments are just temporarily stopped by your bankruptcy filing if the debt is NOT being discharged in the Chapter 7 case—such as certain taxes, most student loans, and a few other kinds of debts. The automatic stay preventing the garnishment is in effect only from the time the case is filed until the entry of the discharge about three months later.  So, for example, if the IRS was garnishing your wages before the filing of your bankruptcy to collect on a tax that is not being discharged, the IRS can resume doing so after the discharge is entered (unless in the meantime arrangements are made with the IRS to make monthly payments on that debt, which hopefully you would be able to do after the discharge of your other debts).

Bankruptcy Does Not at All Stop A Few Rare Kinds of Wage Garnishments

If you are filing a Chapter 7 case, the automatic stay does not protect you from wage garnishment to pay child and spousal support obligations, for either current or back support. This means that an ongoing garnishment for support will not be stopped by a bankruptcy filing. And if there had been no garnishment earlier, those garnishments could actually start during your bankruptcy case.

Fortunately, Chapter 13 DOES stop garnishments for support, and provides a way to catch up on back support while under the protection of the bankruptcy court.

Present and Past Wage Garnishments

We’ve covered the effect of bankruptcy on future garnishments, including those that would have gone into effect right after the bankruptcy filing. But what about garnishment orders that go into effect just before filing bankruptcy? For example, what if you’re racing to file bankruptcy after a judgment is entered, but your bankruptcy is filed and the automatic stay goes into effect a day or two after the garnishment order is signed but before any money comes out of your paycheck? And how about after the money has been paid by your employer to the creditor, days or even weeks before your bankruptcy filing? Under what circumstance could you possibly get that money back? The next two blogs will get into these questions about present and past garnishments.

Just got a Job, Think about Bankruptcy

Posted by Kevin on January 16, 2012 under Bankruptcy Blog | Be the First to Comment

Now, that my seem like a harsh title.  You may have spent an extended period on unemployment because of the prolonged economic downturn.  While you were on unemployment, you used up all your savings and went into debt.  You sent out hundreds of resumes and spent hours on the net looking for a job- even if it was for less than your prior jobs.  Things are now looking up.  You are back to work.  But, now is the time to be wary.

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