Effects of Social Security Benefits in a Chapter 7 Bankruptcy

In Colorado, and elsewhere, social security benefits are exempt in a bankruptcy proceeding. This means the Chapter 7 bankruptcy trustee cannot grab the payments or benefits and make them part of the bankruptcy estate. Further, they are not considered income to be included in the means test. The means test is used in part to determine if the debtor’s annual income exceeds the median annual income for the state of Colorado and whether you should be in a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. Hence, there will be instances where a debtor qualifies for a Chapter 7 and is not forced into a Chapter 13 because the social security income is not counted in the means test.

However, monthly social security income is included in Schedule I (current monthly income), of the bankruptcy Voluntary Petition. Schedule I, Line 8.e. specifically requires the debtor to list monthly social security income. Where Schedule I is the list of monthly income, Schedule J in the bankruptcy Voluntary Petition is the list of current monthly expenses. The Chapter 7 Trustee and the U.S. Trustee’s office will compare Schedules I & J to see if the monthly income exceeds the monthly expenses. If there is sufficient monthly income remaining after monthly expenses then the U.S. Trustee, a creditor, or the Chapter 7 Trustee may move to dismiss the bankruptcy.

Effects of Social Security Benefits in a Chapter 13 Bankruptcy

A Chapter 13 can be beneficial in certain instances, and preferable to a Chapter7. Chapter 13 allows you to keep the assets you wish to keep and make monthly payments to the Chapter 13 Trustee. Chapter 13 requires regular income as one of the qualifications. Social Security benefits are considered regular income and may allow you to qualify for a Chapter 13 bankruptcy.

In Chapter 13, the means test is used in part to determine if you will be subject to a 60-month plan or a 36-month plan. If the means test annual income is less than your state’s median annual income, you can propose a 36-month plan. You can also use your actual monthly expenses in determining your disposable income, and the monthly Plan payment.

If the means test annual income is more than your state’s median annual income for similar household size, you are required, with some exceptions, to propose a 60-month plan. In addition, the expenses you can claim will be mostly limited by national and local standards. Once again, then, the exclusion of social security income from the means test can result in substantial savings to the debtor.

Fortunately, in a Chapter 7 bankruptcy, you can almost always keep your car or truck if you are up to date on monthly car payments and the value of the vehicle is within the exemption amount. By contrast, in a Chapter 13 bankruptcy, you can also keep your vehicle even if you are behind in payments. Also, you may be able to get the bankruptcy court to order a reduction in the amount owed.

Keeping Your Car in a Chapter 7 Bankruptcy

The first item to consider is how many vehicles you own that you wish to keep. In Colorado, you can exempt up to two vehicles with a $7,500 total exemption. However, if the person or person’s spouse is 60 years of age or older, disabled, or the person’s dependent is disabled, the exemption is increased to a $12,500 total exemption. If filing jointly, the exemptions are doubled. So, if one person is filing bankruptcy and that person has two vehicles, one worth $5,000, and one worth $2,500, then you divide the exemption between the vehicles based on their values and keep them both. Similarly, if you own one vehicle worth $20,000 and owe $12,500 on it, you apply the $7,500 exemption and may keep the vehicle so long as you are current on payments and continue to be so. In many cases, there is no equity in the vehicle. In that case, you merely keep making the payments on the car or truck.

If there is significant equity beyond the vehicle exemption amount, I direct clients to obtain an estimated auction value from a local auctioneer. I then review it before filing for bankruptcy. The auctioneer usually charges 15% of the auction price. I may offer to pay the bankruptcy trustee the amount that may be realized in an auction, less auction costs and loan payoff. Most trustees will accept a reasonable payment plan.

What if you are upside down on a car? In many cases, a debtor can pay the lender the value of the vehicle, and nothing beyond. This is known as redeeming, or redemption of, the vehicle.

Keeping Your Car in a Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, there are even more options available to keep your vehicle. In Chapter 13 you do not have to be current on your car payments at the time you file. So long as the vehicle has not been repossessed, you can take the past due payments, the arrearage, and pay it over time through the Chapter 13 Plan. However, you must also timely pay future monthly payments during the Chapter 13 Plan.

In addition, in Chapter 13 you may be able to reduce the amount owed on a vehicle to its market value and use the Chapter 13 Plan to pay off the vehicle at the reduced amount. This is known as a cramdown. One of the cramdown requirements is the security interest on the vehicle was not incurred within 910 days (about two and a half years) prior to the bankruptcy filing.

Have your financial situation and the myriad ways to keep your car considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court. Call or contact Martin Long of LONG & LONGnow at 303-832-2655, or www.denverbankruptcylawyer.net.

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Who Qualifies as a Chapter 12 Family Farmer?

Chapter 12 of the Bankruptcy Code is not just for farmers and includes both family farmers and family fishermen. For our purposes, we will deal with qualifying as a family farmer. A “family farmer” with regular annual income may file a Chapter 12. The regular annual income requirement is broad and generally not a stumbling block to qualifying for a Chapter 12. You just need enough income to make Chapter 12 plan payments.

Also, Chapter 12 is not limited to an individual. An individual’s spouse, partnerships, and corporations may be deemed a family farmer. There are different eligibility requirements for individuals and spouses, than there are for corporations and partnerships. This article deals with individuals and spouses. Corporations and partnerships eligibility will be considered in a future blog.

Individuals and spouses must pass a four-part test to qualify as a family farmer for Chapter 12. Those four parts are:

Engaged in a Farming Operation

The first requirement is that the individual or individual and spouse must be engaged in a farming operation. The Bankruptcy Code definition of a farming operation includes farming, soil tillage, dairy farming, ranching, producing or raising crops, livestock, and poultry. Other agricultural type operations may or may not qualify.

No More Than $10,000,000 in Debt

The second prong to satisfy is the amount of debt. As of this writing, the aggregate debts must not exceed $10,000,000.

Mostly Farm Debt

The third requirement is the debt must be mostly farm debt.This test requires that not less than 50 percent of the farmer’s noncontingent, liquidated debts on the date the case is filed (excluding a debt for the principal residence of the debtor unless such debt arises out of the farming operation) must arise out of a farming operation owned or operated by the farmer or the farmer and spouse. Hence, to include the homestead mortgage in the debt calculation you must show it arises out of the farming operation.

Mostly Farm Income

The fourth and final prong to satisfy is based on recent farm income at the time of filing. At the time the Chapter bankruptcy case is filed, the farmer must have received at least 50 percent of his or her gross farm income from the farming operation during the first tax year immediately preceding the tax year the case is filed, or during each of the second and third tax years preceding the tax year the case is filed. So, if the farmer stopped farming during the prior year he or she may still qualify. Timing the filing may be critical in some situations.

This summarizes the individual qualifications, and each case must be carefully analyzed. The good news is that Congress has carved out special bankruptcy relief to qualifying farmers.

Why not have your financial situation considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court? Call or contact Martin Long at LONG & LONGnow at 303-832-2655, or www.denverbankruptcylawyer.net.

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Until now it has been extremely difficult to get rid of student loans in bankruptcy for most debtors. In most cases the debtor in bankruptcy must prove “undue hardship” on the debtor or the debtor’s dependents in the event the debt is not discharged. Most courts rely on the Brunner test to interpret undue hardship. Under the Brunner test the debtor must prove three prongs. The first prong to prove is that the debtor and the debtor’s dependents cannot maintain a minimal standard of living if the student debt is not discharged. The second prong is to prove that this financial condition is likely to persist for a significant portion of the repayment period. The third and final prong is proving the debtor has made a good faith effort to repay the student loan.

Disabled Veterans Can Get Their Student Loans Discharged By the Federal Government

Without filing bankruptcy, totally and permanently disabled veterans may get their student loans discharged by the federal government. On August 21, 2019 President Trump issued an executive memorandum making it, “the policy of the Federal Government to facilitate…the discharge of Federal student loan debt for totally and permanently disabled veterans.” The Presidential Memorandum can be found the link below:

https://www.whitehouse.gov/presidential-actions/presidential-memorandum-discharging-federal-student-loan-debt-totally-permanently-disabled-veterans/?utm_source=link

Trump Administration Considering Plans to Eliminate Student Debt in Bankruptcy

The Trump administration is currently looking at refinancing loans at lower interest rates, and most importantly, eliminating student debt through bankruptcy. The Wall Street Article can be found at the link below:

https://www.wsj.com/articles/trump-administration-weighs-plans-to-reduce-student-debt-11576713378

So, debtors with student loan debt may finally be getting relief in bankruptcy. Questions? With over 35 yearsof experience and a former Trustee for the U.S. Bankruptcy Court call LONG & LONG now at 303-832-2655, or visit www.denverbankruptcyattorney.net.

Reopening Bankruptcy Cases to Claim Personal Injury Exemptions

The 10 ^th Circuit Bankruptcy Appellate Panel recently considered when debtors could reopen closed cases in order to amend their schedules. See In re Mendoza, 595 B.R. 849 (B.A.P. 10 ^th Cir., 2019). The Court looked at two cases where the debtors wanted to reopen their closed bankruptcy case in order to amend their schedules. In both cases the debtors failed to properly list their personal injury claims in their bankruptcy schedules. They received a bankruptcy discharge and their bankruptcy cases were closed. Later, they moved to reopen their cases so they could amend their schedules to list the personal injury claim as an asset and claim an exemption to the asset.

The Dollman case

Ms. Dolman suffered a personal injury in 2013 at a Walmart parking lot when she tripped over a shopping cart corral in disrepair. Later in 2013, her and her husband filed a Chapter 7 bankruptcy. They did not disclose the personal injury claim in the bankruptcy schedules. She received a bankruptcy discharge the same year. Two years later she filed a complaint against Walmart. Walmart’s attorney sought the dismissal of the complaint claiming Mrs. Dolman was not the holder of the personal injury claim. Walmart asserted the bankruptcy trustee was the holder because it was an asset of the bankruptcy estate.

The Mendoza case

Ms. Mendoza suffered a personal injury in 2014 as a result of being rear-ended in an automobile accident. In 2016 her and her husband filed a Chapter 7 bankruptcy. Like the case above, they did not disclose the personal injury claim in the bankruptcy schedules. She received a bankruptcy discharge the same year and her case was closed. Later the same year Ms. Mendoza received a settlement on her personal injury claim and disclosed it to her attorney, who disclosed it to the Chapter 7 Trustee. The Chapter 7 Trustee claimed the settlement was an asset of the bankruptcy estate.

The Result

The Court ruled the closing of the bankruptcy case did not preclude the debtors from later reopening their cases to amend their schedules to list the personal injury claim and claim the exemption. The case may be viewed at the following link:

https://public.fastcase.com/ppbqSQpNDaJE%2F8PlIk0b…

Are you considering bankruptcy? With over 35 years of experience and a former Trustee for the U.S. Bankruptcy Court call LONG & LONG now at 303-832-2655, or visit www.denverbankruptcyattorney.net.

Debtor Wishes to File a Chapter 7 Bankruptcy

Under the United States Bankruptcy Code, the debtor must wait more than eight (8) years from the date of a previously filed and discharged chapter 7 before the debtor is eligible to file a new chapter 7 bankruptcy. For a previously discharged chapter 13 bankruptcy more than six (6) years must elapse from the filing date before the debtor is eligible to file a new chapter 7. An exception to the six (6) year requirement is when the debtor paid 100% of the allowed unsecured claims in the prior chapter 13, or 70% of such claims and the plan was proposed in good faith and was the debtors best effort.

In addition, the debtor must not have been a debtor in a prior bankruptcy case that was dismissed within the preceding 180 days because (1) the debtor failed to abide by an order of court or to appear before the court, or (2) the debtor requested dismissal after a creditor filed a motion for relief from the automatic stay.

Debtor Wishes to File a Chapter 13 Bankruptcy

The debtor must wait more than four (4) years since the filing of a discharged chapter 7 bankruptcy or chapter 11 bankruptcy before the debtor is eligible to file a new chapter 13 bankruptcy. For a previously discharged chapter 13 bankruptcy more than two (2) years must elapse from the filing date of the previously discharged chapter 13 before the debtor is eligible to file a new chapter 13.

In addition, the debtor must not have been a debtor in a prior bankruptcy case that was dismissed by the debtor within the preceding 180 days.

We can determine eligibility and when to file using our U. S. Bankruptcy Court database. With over 35 years of experience and a former Trustee for the U.S. Bankruptcy Court call LONG & LONG now at 303-832-2655, or visit www.denverbankruptcyattorney.net

Transfers or Obligations Incurred Within Two Years of Filing Chapter 7 or Chapter 13 Bankruptcy

Under Section 548 of the Bankruptcy Code, the bankruptcy trustee may avoid any transfer of an interest of the debtor in property made within two years before the filing of the bankruptcy. The bankruptcy trustee may also avoid any obligation incurred by the debtor that was incurred within two years before the filing of the bankruptcy.

A transfer generally means the debtor parting with, or disposing of, his or her property or an interest in property. An example would be the debtor giving $50,000 to the debtor’s parents. In order to avoid the transfer or obligation the trustee must prove it was fraudulent. There are two ways the bankruptcy trustee can prove fraud under Section 548.

Actual Intent to Hinder, Delay, or Defraud Creditors

The first way the transfer or obligation can be avoided is by proving actual intent. Specifically, the transfer was made or the obligation incurred with the actual intent by the debtor to hinder, delay, or defraud any entity that the debtor was, or became, indebted. Using the example above, the trustee would need to show that the transfer of the debtor’s money to the parents was done with actual intent to keep it away from present or future creditors.

Proving actual intent to defraud is very fact-oriented and beyond the scope of this discussion. However, the trustee does not need to show actual intent if the following is proved.

Received Less Than a Reasonably Equivalent Value

If the debtor received less than reasonably equivalent value for the transfer or obligation it may be avoided under any of the following four conditions:

• The debtor was insolvent at the time or became insolvent as a result of the transfer or obligation,
• The debtor was engaged, or about to engage, in a business or transaction for which any property remaining with the debtor was unreasonably small capital,
• The debtor intended to incur, or believed the debtor would incur, debts that would be beyond the ability of the debtor to pay as those debts matured, or
• The debtor made the transfer or incurred the obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business. 11 U.S.C. §548(a)(1)(B).

What constitutes a fraudulent transfer or obligation prior to filing bankruptcy is a complex issue. All transfers must be disclosed to, and carefully considered by an experienced bankruptcy attorney. Call or contact LONG & LONG now at 303-832-2655.

The 5-3 decision was a victory for the $13 billion debt collection industry. In his written opinion, Justice Stephen G. Breyer said filing a proof of claim, even for time-barred debts, does not qualify as a deceptive, false, misleading, unconscionable or unfair practice under the Fair Debt Collection Practices Act (FDCPA). Chief Justice John Roberts, along with Justices Anthony Kennedy, Clarence Thomas and Samuel Alito, joined Breyer in the majority opinion.

Justice Sonia Sotomayor dissented, as did Justices Ruth Bader Ginsberg and Elena Kagan. Their dissenting opinion stated that the majority decision could create a “trap for the unwary,” and that common sense would dictate one should not be allowed to profit on another person’s “inadvertent inattention.”

A Reversal of the Decision By the Eleventh Circuit

The Eleventh Circuit of the U.S. Court of Appeals had previously ruled that debt collectors were in violation of the FDCPA if they filed proofs of claim on debts that were time-barred or uncollectable in any way due to time restrictions.

A proof of claim is a document filed in court stating the exact amount a debtor owes to a creditor. The FDCPA was written to prohibit collectors from using “false, deceptive or misleading representation” as a means of collecting debt.

In this recent case, the Supreme Court determined Midland Funding LLC’s claim was not deceptive or misleading, and that its proof of claim falls under the bankruptcy code’s definition of the term “claim” as being a “right to payment.” In analyzing the case, the court looked at state law in Alabama, where creditors have a right to payment of debts even after the expiration of the limitations period. According to the court, an “unenforceable claim” is still “a right to payment” and considered a “claim” as the code uses these terms. It is then up to the Chapter 13 trustee to object to the claim by raising the affirmative defense of the claim being time-barred.

Additionally, the qualification of a statement as being “misleading” must be made by taking the legal sophistication and knowledge of the intended audience into account. In this case, the audience was the Chapter 13 bankruptcy trustee, who is required to examine all proofs of claim and pose objections when appropriate. The trustee will have a more sophisticated knowledge of bankruptcy law than most other potential audiences.

Creditors and debt collectors generally view the recent decision as one that upholds the status quo and clarifies some confusion that has long existed on the issue. Pat Morris, CEO of ACA International, an agency representing grantors and collection agencies, said that a decision like this was needed for the industry after the Eleventh Circuit “called that longstanding and consistent interpretation into question.”

For more information on how the Supreme Court’s decision in this case could affect bankruptcy cases in the future, consult a skilled Denver bankruptcy attorney at Long & Long