Don't Go Alone: A Bankruptcy Law Blog

5 Common Misconceptions about Bankruptcy: #1 I Should be Ashamed

2011-12-27T10:00:00.000-05:00

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy. In these 5 posts we will write about the most common misconceptions that we hear from clients in our office.

Common Misconception #1: I Should be Ashamed

"The Congress shall have power to…establish…uniform Laws on the subject of Bankruptcies throughout the United States"
-The Constitution of the United States, Article 1, Section 8, Clause 4

Bankruptcy is one of the oldest laws in the United States, and was included in the original 1787 draft of the U.S. Constitution. In fact, the originating language is older than the Bill of Rights. The Founding Fathers recognized that a system of laws was necessary to protect the “honest but unfortunate debtor”, and such laws were in the general interest of the country and its citizens.

Many people are proud to stand up for, and take advantage of, their constitutional protections – and they should be. From its original incarnation and its amendments over the years, such protections have become the cornerstone of our society, our government and our way of life.

So, should you be ashamed of filing for bankruptcy?

Well, are you are ashamed of your freedom of speech, or freedom from unwarranted searches and seizures, or freedom of self incrimination? Are you ashamed of your right to elect a president or legislative representatives? Why be ashamed of utilizing one constitutional protection, but not others?

Now, I am not suggesting that filing bankruptcy is somehow a patriotic thing to do. Actions have consequences, and the consequences to bankruptcy should certainly be considered whenever you are considering any debt resolution plan. Put another way, just because you can doesn’t always mean you should. But, if you ever find yourself in the position where you should be considering bankruptcy, know that you are in good company. Thomas Jefferson, Alexander Hamilton, and Benjamin Franklin, among others, would have supported your ability to do so.

If you’re not swayed by my flag-waiving, red, white and blue history lesson, ask yourself which is more shameful: Finding yourself and your family in a difficult financial situation and choosing to do nothing about it, or finding yourself in a difficult financial situation and using the law to improve your finances so that you can better provide for you and your family’s needs.

Kelsey & Trask, P.C.’s attorneys are here to help you find financial freedom no matter what mistakes you have made in the past. If you’ve made some questionable financial decisions in the past, admit your mistakes, correct your behaviors, and find a qualified attorney to help fix the problem.

After all, it’s your right to do so.

5 Common Misconceptions about Bankruptcy: #2 How do I get a Free House?

2011-12-22T10:00:00.000-05:00

Common Misconception #2: How do I get a Free House?

In our last post, we discussed the misconception that bankruptcy discharges all debts. There are some debts that you might still owe even after filing bankruptcy.

In addition, there are some debts which you can choose whether to still owe or not: Secured Debt. Secured Debt is debt that you have agreed to pledge some collateral for, and in the event you don't pay the debt then the creditor can take the collateral. Some common examples of secured debt are house mortgages or car loans.

In most cases secured debt can be discharged or kept, depending on whether you want to keep the collateral. However, you cannot keep the collateral and discharge the debt. There are no free houses and cars in bankruptcy. Although you may have exempt equity in a car or house, if you cannot pay the loan you do not get to keep the collateral.

5 Common Misconceptions about Bankruptcy: #3 Freedom from All Debts

2011-12-20T10:00:00.000-05:00

Common Misconception #3: Freedom from All Debts

Another common misconception about bankruptcy, is that once it is over you no long owe any money to anyone. In some cases this is true, but those cases are very rare.

Most people have some debts which are nondischargeable, which means they will still owe those debts, even after the bankruptcy is complete. You may still be responsible for most taxes and student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel or aircraft while intoxicated on alcohol or drugs.

Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

5 Common Misconceptions about Bankruptcy: #4 Filing is Free

2011-12-15T10:00:00.000-05:00

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy. In the next 5 posts we will write about the most common misconceptions that we hear from clients in our office.

Common Misconception #4: Filing is Free

Many people believe that filing for bankruptcy means you have reached a point where you have no money left. If you have no money left, then filing for bankruptcy must be free, right?

Actually, most people who file for bankruptcy have some assets and some income. They simply don't have enough income or assets to keep up with their debt.

And filing for bankruptcy is not free, but it is a bargain. The filing fee for filing a Chapter 7 Bankruptcy is $306 and for a Chapter 13 Bankruptcy is $281. In addition, our attorney's fees range from $999 to $3,500 for a consumer bankruptcy, depending on how complicated the case is. For clients who are concerned about paying a few thousand dollars to file for bankruptcy, we usually point out that this amount is much much smaller than the amount of debt being discharged in exchange. If someone told you that they would settle your $50,000 credit debt for $2,000 you would probably take them up on it.

For a more specific calculation of what a bankruptcy would cost in your case, visit our Bankruptcy Cost page.

5 Common Misconceptions about Bankruptcy: #5 Picking & Choosing

2011-12-13T10:00:00.000-05:00

Unlike other legal issues, unmanageable financial debt is a problem that many are too ashamed to discuss with their friends and family. This means that many people piece together their knowledge about bankruptcy from unreliable and confusing sources. The result is that there are a lot of misconceptions about bankruptcy. In the next 5 posts we will write about the most common misconceptions that we hear from clients in our office.

Common Misconception #5: Picking & Choosing

Many people believe that they get to pick which debts to "bankrupt." Some clients don't want to report a debt owed to a family member, because they don't want that person knowing about their bankruptcy. Other clients only want to "bankrupt" specific debts but not all of their debts. That is not how bankruptcy works.

Every debt you owe must be completely and accurately disclosed in the documents filed to commence your bankruptcy case. Bankruptcy is not a "pick and choose" proceeding. You cannot not put some debts in and leave other debts out. Intentionally omitting debts from your bankruptcy case may result in the non-dischargability of those debts, the dismissal of your bankruptcy case, fines, or imprisonment for bankruptcy fraud.

Visit the Office of the Future in the World of Tomorrow!

2011-12-11T14:19:00.001-05:00

Thanks to FirmFuture presenter Gabriel Cheong for inspiring us to make better use of our iPad in the office.

Now when you schedule an initial consultation we can use our iPad, displayed on the flat screen TV (pictured above), to show you:

how to calculate Child Support or Alimony online
how to create Parenting Plans online
how calculate the cost of Bankruptcy online
or evaluate the length of time a Bankruptcy will take online.

And if you want any of the information printed out so you can take it home, our new laser HP printer can print directly from the iPad right in our conference room, using WiFi magic.

These are just some of the ways that we are trying to design our new office, at 160 Speen St, Suite 202, Framingham, MA, to be as friendly, convenient and useful to current or potential clients. If you are interested in checking it out, give us a call at 508.655.5980 or set up an appointment online here.

Special Considerations When Surrendering Condominiums in Bankruptcy

2011-11-28T14:14:00.003-05:00

When you file for Chapter 7 Bankruptcy, and indicate on your bankruptcy schedules that you intend to surrender your real property and discharge the underlying mortgage debt, I often recommend to my clients that they stop paying the mortgage as soon as the decision to surrender is made. Upon discharge at the conclusion of the bankruptcy, the debtor’s ongoing contractual obligation to pay will be discharged by the Bankruptcy Court, meaning that the debtor no longer has to legally pay the mortgage. Of course, the bank now may move to foreclose on the property and re-take title to protect its secured interest in the now-discharged loan, but the lender will not incur any new legal liability to the bank. This applies even if months (or even years) pass between when the debtor filed his Chapter 7 case, and when the bank finally completes the foreclosure on the surrendered property.

You should pay special attention to situations where the property you are surrendering real property that is subject to an fee or assessment from a condominium association, homeowner’s association, or cooperative corporation. Under 11 U.S.C. § 523(a)(16), pre-petition fees and assessments are dischargeable in a debtor’s bankruptcy but all post-petition condo fees, association dues, or co-op charges are not dischargeable, “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in [the property]. This means that you are legally obligated to pay these fees (but not the mortgage) for as long as you own the property – up to and until the lender formally takes title to the property in foreclosure. Given that some lenders can take months (or even years) to foreclose on a property surrendered in a Chapter 7, 11 U.S.C. § 523(a)(16) places a significant financial burden on owners of condos, homeowner’s association members, and co-op tenants. The Automatic Stay will provide some relief to the debtor during the pendency of the bankruptcy, and the association cannot take any action to collect the fees while your case is before the court. However, the monthly charges will continue to accrue. If you do not pay the fees, the association may commence legal proceedings or make other appropriate efforts to collect the debt.

If you own property that is subject to such a fee or assessment, be sure your bankruptcy attorney is aware of these obligations. While there is no way to discharge the post-petition fees or assessments, it is possible to minimize the impact of 11 U.S.C. § 523(a)(16). Options include:

1. If possible, wait to file your bankruptcy case until after the foreclosure auction has taken place, thereby ensuring all fees are pre-petition debt.

2. If you are no longer residing in the property, consider renting out the property, and use the rental income to pay the association dues.

3. Don’t pay. However, if the debtor lives in a jurisdiction where foreclosure is taking years, the debtor risks exposure to a lawsuit for personal liability. Nevertheless, once the foreclosure is complete, the foreclosing lender must cure the deficient fees and assessments in order to pass clear title to the new buyer. This option involves a great deal of uncertainty, and risk to the debtor, but may be the only option in some circumstances.

4. Consider a short sale. Since your mortgage deficiency will be discharged (or was already discharged), a short sale can significantly shorten the amount of time the property is in your name, and can expedite the transfer of title.

New Median Income Figures Released for all Bankruptcy Cases Filed after November 1, 2011

2011-11-07T13:10:00.002-05:00

The United States Trustee Program has released new Census Bureau data which is used for means testing calculations regarding Chapter 7 bankruptcy petitions, and for calculating the plan commitment period for Chapter 13 cases. Due to the updated figures, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after November 1, 2011.

The new figures reflect a decrease in the median income, and will make it more difficult for individuals to file for Chapter 7 bankruptcy. Additionally, the decrease in the median income, coupled with amendments to the National and Local standards may require a longer commitment period for Chapter 13 cases.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,496
Family Size of 2: $64,174
Family Size of 3: $80,337
Family Size of 4: $99,067

In addition, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, as well the updated National Standards and Local Standards is provided here.

If your household income exceeds the median income for your state of residence, other factors are considered for means testing criteria. In addition to updated median income figures, the Department of Justice and Internal Revenue Service have also updated National Standards for Food Clothing & Other Items; National Standards for Out-of-Pocket Health Care Expenses; and Local Standards for Housing, Utilities and Transportation.

While the changes in the Median Income, National Standards and Local Standards have effectively "raised the bar" for new Chapter 7 cases, the changes are not so significant to place bankruptcy out of reach for most individuals and families requiring assistance. If you would like to know more about your options for finding financial freedom, contact Attorney Matthew P. Trask for a free initial debt-relief consultation, or call 508.655.5980.

5 Contributors to Your Credit Score [Infographic]

2011-11-01T10:00:00.000-04:00

Though credit scores play an integral role in our lives, few of us actually know which factors make up the numbers assigned to us and how they are weighted. The following credit score infographic sheds some light on this subject.

Courtesy of: Credit Card Education

Reprinted from: CreditCardEducation.com.

Kelsey & Trask, P.C. provides this graphic for informational purposes only. We do not endorse nor claim endorsement from the source site or organization. Kelsey & Trask, P.C. is not responsible for any information contained therein, unless indicated specifically on that site.

FAQ #30: I Received My Discharge, but Creditors are Still Calling Me. What Should I Do?

2011-10-26T10:00:00.001-04:00

Although you no longer owe any scheduled (and dischargeable) debts following your bankruptcy, it is important that you do not simply ignore a creditor’s efforts to collect a debt after discharge.

Call your attorney right away, and be sure to provide copies of any letters, bills or notices you received, or the name, business name and telephone number of the creditor or collection agency that has contacted you. Any creditor that received notice of your bankruptcy and was included on the creditor matrix cannot continue to collect any debt that was discharged. Any entity that does so is in contempt of an Order of the U.S. Bankruptcy Court.

Any efforts to attempt to collect a discharged debt are unlawful, and if the creditor’s actions are deemed to be a willful violation of the Court’s Order, the creditor can be forced to pay the debtor’s actual damages, and, in certain cases, punitive damages. As a practical matter, most cases of a creditor attempting to collect on a discharged debt can be resolved with a simple letter to the creditor, as well as a copy of the Discharge and Creditor Matrix. Additional bankruptcy litigation (and the costs associated with having to go to Court is usually not necessary.

FAQ #29: What happens if I forget to add a creditor to my bankruptcy?

2011-10-24T10:00:00.001-04:00

As we discussed in response to a previous question (Do I have to include all my bills when I file bankruptcy?), every debt you owe must be completely and accurately disclosed in the documents filed to commence your bankruptcy case. Bankruptcy is not a "pick and choose" proceeding. You cannot not put some debts in and leave other debts out. Intentionally omitting debts from your bankruptcy case may result in the non-dischargability of those debts, the dismissal of your bankruptcy case, fines, or imprisonment for bankruptcy fraud.

The bankruptcy court requires that you undertake an appropriate level of “due diligence” to determine your debts and your potential creditors. This means that you need to make a concerted effort to review supporting documentation, such as a credit report, account statements, collection notices, and other information pertaining to the existence of a debt or potential claim. When you sign your bankruptcy petition, and testify at the §341(a) Meeting of Creditors, you are indicating to the Court that your petition is “true, accurate and complete”. Bankruptcy will only discharge “scheduled” debts – meaning the creditor must receive notice of the bankruptcy – and any debt not listed in your creditor matrix may not be discharged.

So, then, what happens if you unintentionally omit a creditor?

In most cases, if the mistake was unintentional (i.e., you forgot about the debt, or did not know about the claim), and you have not yet received your discharge, it is possible to file an amended schedule of your debts to include the missing items. This involves preparing a new list of debts, and preparing a Motion for Leave to Amend Schedules, which is a formal request to the Court for permission to add the new creditors. The Court will almost always allow the motion, but there is a $26.00 filing fee for the Motion to Amend. Additionally, the Court will usually give your added creditors sufficient time to object to claimed exemptions or the dischargability of the new debt. The added time will delay your discharge. Still, it’s better to wait a little extra than to owe the debt following the bankruptcy.

If you have received your discharge and your case has been closed, the process is more complex. You must first request that the Court re-open your bankruptcy case. Cases can be re-opened for any number of reasons, including “to administer assets, to accord relief to the debtor, or for other cause” (See 11 U.S.C. § 530(b)). Courts have nearly universally held that re-opening a case to include an unintentionally-omitted creditor will “accord relief to the debtor”, and will allow the request. The Court will charge a filing fee of $260.00 to re-open a closed bankruptcy case, so be sure to conduct your “due diligence” and get things right the first time.

FAQ #28: Can I file Chapter 7 Bankruptcy Even if I Have Filed Before? How many times can I file bankruptcy?

2011-10-17T10:00:00.000-04:00

Whether or not you may re-file (and the amount of time that must pass before you may re-file bankruptcy) depends on whether or not you received a discharge under your most recent bankruptcy filing.

If you received a discharge under a Chapter 13 bankruptcy case, then you cannot file for relief under Chapter 7 unless:

1. Six (6) years have passed since the discharge in the Chapter 13 case; or
2. You paid at least 70 percent of your allowed unsecured claims in the Chapter 13 case, and your plan was proposed in good faith and represented your best effort to pay.

If you received a discharge under a Chapter 7 bankruptcy case, then you cannot file for relief under Chapter 7 unless eight (8) years have passed since the discharge in the previous Chapter 7 filing.

If you filed a Chapter 7 or Chapter 13 case that was dismissed because you failed to obey court orders or you voluntarily requested a dismissal and did not obtain a discharge, then you cannot file for relief under Chapter 7 unless 180 days have passed since the dismissal of the previous filing.

Assuming that you meet the above time restrictions for re-filing, there is no limit to the amount of times you can file bankruptcy.

FAQ #27: What happens to my tax refund when I file bankruptcy?

2011-10-13T10:00:00.001-04:00

Your tax refund is what the bankruptcy court would consider an “unliquidated asset”, and is treated by the bankruptcy court like other personal property. Any unissued tax refunds would need to be listed on your bankruptcy schedules as assets, and properly exempted if you want to prevent that property from being seized by the Trustee and applied to pay your creditors. If the tax refund is fully exempt or is abandoned by the trustee, you will not be required to turn it over to the bankruptcy Trustee.

FAQ #26: If I am not married, but living with my partner and he pays most of the bills, will that affect filing?

2011-10-11T10:00:00.001-04:00

Having other people in your household will not implicate your cohabitant(s), inasmuch as the bankruptcy will not affect their credit or discharge any of their debts. However, the means test (for Chapter 7 eligibility or Chapter 13 plan commitment purposes) looks at the debtor’s “total household income” when considering the income available to the debtor. Therefore, it may be necessary to disclose to the court your cohabitant’s income. Some trustees will accept the argument that, in cases where the cohabitants maintain sufficiently separate finances, the debtor’s total income is not available to the debtor. However, the debtor would need to disclose, as income, the portion of income made available for the debtor’s benefit, including any amount the cohabitant pays toward the debtor’s monthly expenses.

FAQ #25: After bankruptcy, what steps need to be taken to rebuild my credit?

2011-10-07T17:30:00.001-04:00

First and most importantly, time heals all wounds. Only time can fully repair the damage from a bankruptcy (and being significantly behind on a lot of credit card debt beforehand).

The best thing you can affirmatively do right now is to start developing a history of on-time payments to creditors that report to your credit bureaus. Pay your bills early, or at worst, pay them on time.

Because of the way the bankruptcy system works and the way creditors report reaffirmed debts, you will not get credit for on-time mortgage payments or car payments. Therefore, it is necessary to establish a new account that you can make solid, on-time payments on. We recommend applying for a secured credit card or gas card. Before you apply, take the time to confirm that the card management company reports to all three credit bureaus every month. If they don’t report every month, or if they do not report to all three, go elsewhere. Use the card, but pay it off early or on time, every month. Carrying a small balance (less than $100 is OK), but never utilize more than 50% of the available credit.

If you have a mortgage, then as soon as feasibly possible, refinance your mortgage. Paying off the current loan and keeping a new loan current will, once again, give you credit for on-time mortgage payments.

In addition, as soon as you feasibly can, refinance your car loan, or sell your car and purchase a new car. Again, the key is to obtain a new loan that will report to the credit bureaus. Post-bankruptcy, many current secured lenders will not report payments to the credit bureaus. Of course, be sure to keep that loan current.

Obtain copies of your credit reports approximately 90 days after receiving your discharge. Ensure every debt is reported as “Discharged in Bankruptcy” or something similar. If they are not, send a letter to the creditor and the credit bureau requesting that information be reflected accurately. Remember, your credit report is a list of your “debts”, and right now, you have no debts aside from your house and car (and any non-dischargeable debts). Make sure your credit reports accurately show that, although you had debts discharged in bankruptcy you should not currently owe any money to dischargeable creditors.

Besides paying the above-described loans on time there are also a number of things you should avoid doing:

1. Avoid opening credit accounts with co-signers, if possible. Having a co-signer on an account indicates you are a greater credit risk.

2. Avoid financing with finance companies or sub-prime lenders, if possible. Doing business with these companies can actually lower your credit score.

3. Avoid future financial risk. Bulk up your savings account. Develop a budget, and stick to it. That way, when emergencies or unexpected expenses come up, you can pay in cash, rather than increasing your debt.

4. Some industry experts recommend that you obtain a small personal loan, and use the funds to open a CD account. Pay the loan on time, and when the loan is paid off, you will have some funds in savings, which you can take out once the CD matures. Of course, this only works if you can fit these payments into your budget. Setting up a workable budget should be your first priority.

FAQ #24: If my partner is listed as an authorized user on my credit cards, will his credit be hurt?

2011-10-05T10:00:00.001-04:00

This is an interesting question, and the answer often depends on how the information is reflected on a credit report. An “authorized user” is someone who is merely authorized to make purchases on an account, but bears no legal responsibility to repay the debt. Some credit bureaus (TransUnion in particular) often do not report credit accounts to the individual who is an authorized user only; but others sometimes do (such as Experian).

Additionally, not all credit card companies report authorized users to the credit bureaus. If you are an authorized user on a credit account, and that account is discharged, there may be a notation in your credit profile that indicates your prior access to an account, and the fact of that accounts discharge in bankruptcy. While an intelligent loan officer should understand the distinction when making a credit decision, it is important to obtain a copy of your credit report if the primary cardholder files bankruptcy in order to understand how that debt is reporting, and contact the credit bureau in writing to correct any errors.

FAQ #23: Why would I choose bankruptcy over debt consolidation or settlement?

2011-10-03T10:00:00.001-04:00

Debt consolidation involves getting one loan to pay off multiple smaller loans. The advantages are that the debts are paid off in full, often at little to no damage to credit, and the new loan may have more favorable terms over the old loan, such as a reduced monthly payment, a larger monthly payment (that will insure the loan is paid off quickly) or a lower interest rate.

Consolidating loans takes the logistical hassle in making sure that multiple loans are paid on time and ensures that the debtor only has to make one payment, and gives the debtor the ability to “shop around” for the best deal. However, since debt consolidation requires a new loan, someone with excessive or past-due debt may not be able to obtain a consolidation loan. Additionally, depending on the debtor’s situation, debt consolidation may not provide enough relief, especially if the borrow cannot afford the payments on the new loan.

Debt settlement is the process of attempting to pay your existing debts for less than you owe. No creditor is required to settle a debt, but for financial and practical purposes many companies will compromise the amount owed. If your creditors agree to accept less than you owe, you must usually make a lump-sum payment, which may be difficult. Also, paying a debt for less than you owe has tax consequences – the “forgiven” portion of the debt is considered to be income by the IRS, and, with certain exceptions, you will be required to pay taxes on that income.

Bankruptcy, on the other hand, ultimately involves the discharge of the obligations, meaning that you are not required to pay them back. Bankruptcy also provides other legal protections that may be beneficial to someone needing financial assistance. For example, the automatic stay in bankruptcy is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as halting collection efforts, collection calls and lawsuits filed by your creditors. Click here for more information on chapter 7 and chapter 13 bankruptcy.

FAQ #22: If I get married after filing for bankruptcy will it affect my spouse?

2011-09-29T10:00:00.001-04:00

If you get married after filing bankruptcy, the “taint” of bankruptcy on your credit report will not affect your spouse’s credit. However, a bankruptcy on one spouse’s credit may make it difficult to obtain joint credit accounts, which are often necessary for large purchases, such as cars or home mortgages. This is because the lender will consider the total credit risk of all parties to the note, not just the one with the good credit. While you still may qualify for a loan, a poor credit rating may exclude you from certain FHA loans, and you may be required to pay a higher interest rate over the course of the loan.

FAQ #21: Is there any way to have a bankruptcy removed from my credit report?

2011-09-27T10:00:00.000-04:00

The fact that you filed for bankruptcy will appear as a “public records” entry on your credit report for up to 10 years, and individual debts that were discharged in bankruptcy will remain on your credit report for 7 years after discharge. Remember that in a Chapter 7 case, your discharge is granted approximately 5 months after filing; in a Chapter 13 case, your discharge is granted between 3 and 5 years after filing, depending on your plan terms. Despite the negative effect bankruptcy can have on your credit, it is not necessarily a good idea to attempt to make no mention of your prior bankruptcy. In some cases, the fact that a debt is reflected on your credit report as being discharged in bankruptcy is evidence to a prospective lender that you no longer owe that debt, and are more able to repay a future loan. Additionally, some prospective employers would consider a bankruptcy filing evidence of a proactive attitude toward resolving a poor financial situation, as opposed to having a credit report populated with debts that have been “written off” (but still legally owed), as opposed to debts “discharged in bankruptcy.”

FAQ #20: What assets can I keep (house, car, property)?

2011-09-23T10:00:00.000-04:00

When filing bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans. Click here to view a table of the maximum exemptions as of April 14, 2011 in categories where the state and federal exemptions differ significantly. On April 7, 2011 a new Massachusetts law went into effect significantly increasing the personal property of Massachusetts residents that is protected from seizure by creditors. Please note that these figures are subject to change and you should consult with an attorney to obtain the most current figures and to decide which option you should choose.

In addition certain types of income may also be exempt from the bankruptcy estate. You should consult with an attorney to obtain further information.

U.S. Bank v. Ibanez And Beyond: Massachusetts Courts Leading The Way In the Foreclosure Crisis(Guest Post by Richard D. Vetstein, Esq.)

2011-09-21T11:12:00.010-04:00

Bankruptcy and foreclosure are two subjects that often go hand-in-hand. Some recent court decisions have had a major impact on how foreclosures are handled in Massachusetts. To provide some insight on these decisions, we are pleased to present a guest post from Richard D. Vetstein, Esq. of Vetstein Law Group, P.C. Richard's firm runs a very popular real estate blog: The Massachusetts Real Estate Law Blog.

U.S. Bank v. Ibanez And Beyond: Massachusetts Courts Leading The Way In the Foreclosure Crisis

I’m honored to be guest blogging regarding recent Massachusetts foreclosure and mortgage crisis court rulings. Although not as impacted by foreclosures as Florida or California, Massachusetts has been a hotbed for controversial and landmark rulings in this ever-changing area. And there will be more to come as our Supreme Judicial Court will decide several more important cases in the upcoming months. Here’s a summary of what’s happened in the last year and what’s on the upcoming docket.

U.S. Bank v. Ibanez

In January 2011, the Massachusetts Supreme Judicial Court’s U.S. Bank v. Ibanez decision quickly became a huge national story. CNN-Money called it a “beat down” of the big banks. Reuters said it’s a “catastrophe risk” for banks. The ruling spooked investors, as bank stocks were down in reaction to the ruling.

Ibanez was the first state supreme court ruling to weigh in on the legal ramifications of widespread irregularities and paperwork snafus in the residential securitized mortgage industry. The high court ruled that two foreclosures of sub-prime mortgages were null and void where the lenders could not establish the chain of ownership within the securitized mortgage back securitized pools.

The Ibanez case has been attributable for the recent slowdown in foreclosure activity in Massachusetts, however, as of August the numbers are starting to pick back up as lenders are getting their acts together. It’s important for you and your bankruptcy attorney to verify whether your mortgage lenders has complied with the Ibanez case by recording the proper mortgage assignment paperwork.

Bevilacqua v. Rodriguez

We should find out any day now the SJC’s opinion in the next case in the U.S. Bank v. Ibanez saga: Bevilacqua v. Rodriguez. This case will consider whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner, after the U.S. Bank v. Ibanez ruling in January. This case, which national legal experts are watching closely, may determine the rights of potentially thousands of innocent purchasers who bought property at foreclosure sales that have been rendered invalid after the Ibanez ruling. “The Massachusetts case will have significant repercussions in many states that allow nonjudicial foreclosure,” Alan White, a law professor, commented to BusinessWeek. “The decision in Bevilacqua will not only determine the fate of past foreclosure sale deeds, but hopefully provide guidance so that lenders and their lawyers can get it right going forward.”

Eaton v. Fannie Mae

In a rare “sua sponte” (on their own) direct appellate review, the Massachusetts Supreme Judicial Court has agreed to hear an appeal in Eaton v. Fannie Mae, considering the controversial “produce the note” defense in foreclosure cases and whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Based on arguments asserted by the lender, the court may also consider the circumstances by which a mortgage granted to Mortgage Electronic Registration System (MERS) can be effectively foreclosed in Massachusetts. This could be a very important decision — potentially as important as the landmark U.S. Bank v. Ibanez. A ruling against the lenders could expose a gaping and fatal legal black hole with many foreclosure-bound mortgages that were hastily bundled and sold to Wall Street during the real estate boom years. A rejection of the borrower’s arguments as recently made by a bankruptcy judge in Worcester, however, could significantly reduce some MERS induced anxiety and heartburn presently being experienced by lenders and foreclosure attorneys.

Bank of NY v. Bailey

In the closely watched case of Bank of New York v. Bailey, the Massachusetts Supreme Judicial Court ruled on August 4, 2011 that the Housing Court may hear a homeowner’s challenge that a foreclosing lender failed to conduct a foreclosure sale in accordance with state law and under the now seminal U.S. Bank v. Ibanez decision. Previous to this decision, foreclosing lenders and their attorneys were quite successful in evicting homeowners even where there were defects in the foreclosures. Watch for the Housing Court to be on the front lines of foreclosure defense now.

Suffice to say, Massachusetts courts have been very busy with foreclosure and mortgage crisis rulings. I’ve been following these cases for a while and there is definitely a marked trend by the courts to a more balanced, pro-consumer approach in these cases. Judges are human beings and no doubt, they are not oblivious to the news and widespread financial distress going on in Massachusetts and the country today.

Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure or title dispute.

FAQ #19: Will I still be able to keep my checking account? If I choose to switch banks will they give me a checking account?

2011-09-21T10:00:00.000-04:00

You will be able to keep your checking account, provided the balance in the account is below the maximum exemption limits. If you have a checking account that is associated with an overdraft account, or a credit card issued by the same bank and file bankruptcy, the bank cannot seize money from your checking account to cover the other debts. Banks are private institutions, so they can decide that they no longer want to do business with you. However, this does not mean that they can keep your money.

If your account is ever closed by your institution, you must be given the funds in the account by bank check. Some financial institutions will make inquiries into your credit history when opening a new account, although these inquiries are usually for the purposes of extending lines of credit or an overdraft account. In addition some institutions may review your check-writing through a service like TeleCheck to determine if you are a risk of passing insufficient checks.

FAQ #18: Will I be able to rent an apartment after filing?

2011-09-19T10:00:00.001-04:00

Yes, but you may have to shop around a bit. Each landlord has the discretion to rent to a particular tenant based on a number of legal factors, including the landlord’s determination of a tenant’s ability to pay the mortgage each month.

The landlord’s ultimate decision may depend on the circumstances that led up to the bankruptcy and a number of other factors, such as recommendations from previous landlords or other personal references. Most landlords will evaluate whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility.

As a practical matter, the ability to rent an apartment in the future should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your chances, even if you don't file bankruptcy. In that sense, not filing for bankruptcy may make you more of a financial risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility.

Honesty is often the best policy. If you know your prospective landlord will be running a credit check, be up-front and honest about what your credit contains, and the reason for your past financial difficulty. While you may need to provide more information to convince a prospective landlord, there are still many landlords who are willing to rent to tenants with a bankruptcy in their past.

FAQ #17: Would I be able to refinance my home after filing?

2011-09-15T10:00:00.000-04:00

Yes, and in many cases, you should. If you keep your home during the bankruptcy and do not reaffirm the debt, any later on-time payments will not be reflected on your credit report. This is due to a technical issue regarding the severability of mortgages and the note, and how debts are reported to the credit reporting agencies. However, paying off the existing mortgage and refinancing will have a much greater effect in rebuilding your credit.

Because bankruptcy (and often, the financial difficulties which gave rise to a bankruptcy filing) will make it difficult to obtain credit, many people will find it difficult to refinance immediately after bankruptcy. However, taking steps to repair credit (such as establishing a good repayment history on other reaffirmed debts or a secured credit card, maintaining a cash reserve, paying debts on time, and borrowing and repaying a small personal loan) can accelerate credit repair. If you take the proper steps to rebuild your credit following bankruptcy, you may be able to qualify for a refinance loan in as little as 2 years after your discharge.

FAQ #16: Who will know about my bankruptcy?

2011-09-12T10:00:00.002-04:00

The bankruptcy code requires that you disclose all debts owed, and those creditors will be sent Notice of the bankruptcy filing. Therefore, anyone that you owe money to will learn about your bankruptcy.

Additionally, many bankruptcies are filed to discharge un-liquidated or contingent claims – claims arising from a lawsuit, for example – so the adverse party in the lawsuit will be aware of your filing.

Co-debtors must also be disclosed and will receive notice of filing; as will anyone that holds a leasehold interest with the debtor, such as a landlord or tenant, regardless of whether the rent is up to date.

In addition, bankruptcy is a court case. The existence of a court filing in any court is a matter of public record, so there will be a public record of a bankruptcy filing. However, this does not necessarily mean that the information will be easily obtainable by the general public. For example, in order to view bankruptcy case documents, one must either go to the Federal Courthouse in the district where the case was filed, or have the requisite credentials to obtain a PACER account (on-line access to Federal Court records). Third-party agencies can also determine that a case was filed through various public records search engines. Credit reporting agencies (Equifax, TransUnion and Experian) are able to obtain similar information. This means that anyone authorized to review your credit report will see your bankruptcy, such as prospective employers conducting an authorized background check or loan officers acting on a credit application.

FAQ #15: What is the difference between secured and unsecured debt?

2011-09-09T10:00:00.000-04:00

Secured debts are those debts in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan. In the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower. An example of this is repossession of a car or foreclosure of a home. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

Unsecured debt refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower. In other words, in the event that the borrower fails to pay the debt, there is no collateral that the lender may recover to mitigate its financial losses resulting from the debtor’s failure to pay without suing in court.

FAQ #14: Do I have to go to court?

2011-09-07T10:00:00.002-04:00

Whether you will need to go in front of a Judge largely depends on how complex your case is. In every bankruptcy case, though, you must attend the Meeting of Your Creditors (often referred to as a §341(a) Creditor's Meeting, in reference to the section of the Bankruptcy Code requiring such a meeting) about 30 to 45 days after your bankruptcy petition is filed.

The court-appointed Chapter 7 trustee will preside over this meeting. At the meeting, you will be asked to testify under oath as to the accuracy of the statements in your petition. However, most of your creditors will not appear at the meeting, and you will not be before a judge. The meeting is very informal, and in most cases will last no more than 10 minutes. If you do not attend the meeting, your case will be dismissed.

If the trustee or your creditors file objections to your claimed exemptions, or other issues are raised by a creditor or interested party, a hearing will be held in front of the Bankruptcy Court Judge, and you may be required to attend.

FAQ #13: What debts will bankruptcy not erase?

2011-09-05T10:00:00.000-04:00

Even if you receive a general discharge, some particular debts are not discharged under the law. You may still be responsible for most taxes and student loans; domestic support and divorce settlement obligations; most fines, penalties, forfeitures and criminal restitution obligations; debts which are not properly listed in your bankruptcy filing; and debts for death or personal injury caused by operating a motor vehicle, vessel or aircraft while intoxicated on alcohol or drugs. Debts incurred to pay non-dischargeable debts will themselves be non-dischargeable as well. In simpler terms this means that you cannot, for instance, use a credit card to pay your student loans and then discharge the credit card.

Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

FAQ #12: What is the difference between a Chapter 7 and a Chapter 13 Bankruptcy?

2011-09-01T10:00:00.000-04:00

Chapter 7 Bankruptcy, sometimes referred to as "liquidation" or “straight bankruptcy”, is designed for people who do not have the ability to pay their existing debts. To prove that you cannot pay your debts, you are subject to a "means test" designed to determine whether the case should be permitted to proceed under Chapter 7. The means test generally looks at the debtor’s gross income from all sources over the past six months, and if it is over the median income for your state, then you cannot file Chapter 7 bankruptcy because the formula has determined you have enough excess income to pay your debts over time. There are some exceptions to the “means test” so you should consult with an attorney to be sure.

At the end of a Chapter 7 Bankruptcy (usually about 6 months) you receive a discharge of your debts and you no longer owe those debts (except for some debts like student loans which cannot be discharged).

Chapter 13 Bankruptcy involves the repayment of all or part of your debts with your excess monthly income. Chapter 13 is designed for individuals with regular income who can pay at least some of their debts in installments over a period of time.

Under Chapter 13, you must file with the Bankruptcy Court a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be three (3) to five (5) years, depending on your income and other factors. The court must approve your plan before it can take effect.

Provided that you have complied with the plan and made all payments required under the plan, at the end of a Chapter 13 repayment plan (3-5 years) you will receive a discharge of the unpaid portion of your debts (except for some debts like student loans which cannot be discharged).

Because a Chapter 13 requires some payments of your debt, it is not usually a person’s first choice. However there are some good reasons to file Chapter 13:

A Chapter 13 is often filed:

1. To stop foreclosure and cure mortgage arrears, allowing someone to keep a house they might lose in a Chapter 7 case;

2. If the debtor is over the means test limit for a Chapter 7 case, but still wants a fresh start debt after 3-5 years;

3. To pay tax debt over time;

4. To protect property from creditors and avoid a Chapter 7 liquidation of assets;

5. To sell property to maximize price, rather than let it go to Chapter 7 auction; and

6. To avoid dischargability problems with creditors that might occur in a Chapter 7 (although the 2005 changes to the Bankruptcy Code have reduced Chapter 13 filing's ability to avoid dischargability problems).

FAQ #11: Do I have to tell the Bankruptcy Court about cash?

2011-08-31T10:00:00.001-04:00

Yes. In order to file for bankruptcy, all assets must be discharged. This includes cash, accounts receivable, promises to pay, the contents of a safe deposit box, etc. Bankruptcy is not a "pick and choose" proceeding. You cannot not disclose some assets and fail to disclose others. Intentionally omitting assets from your bankruptcy case may result in the denial of your bankruptcy discharge, the dismissal of your bankruptcy case, fines, or imprisonment for bankruptcy fraud.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #10: Do I have to include all my bills when I file bankruptcy?

2011-08-29T10:00:00.001-04:00

Yes. Every debt you owe must be completely and accurately disclosed in the documents filed to commence your bankruptcy case. Bankruptcy is not a "pick and choose" proceeding. You cannot not put some debts in and leave other debts out. Intentionally omitting debts from your bankruptcy case may result in the nondischargability of those debts, the dismissal of your bankruptcy case, fines, or imprisonment for bankruptcy fraud.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #9: Will My Name Appear in the Newspaper if I file bankruptcy?

2011-08-26T10:00:00.001-04:00

No. While bankruptcy is a matter of public record, your name will not be published in the paper. Certain redacted records are available at the bankruptcy court, but can only be obtained in person. However, certain issues which commonly arise in the context of bankruptcy, such as foreclosure, do require the publication of a legal notice, often in the local newspaper serving the debtor’s residence.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #8: How much debt do I have to have to file?

2011-08-24T10:08:00.001-04:00

The bankruptcy code places no minimum amount of debt required to file for Chapter 7 or Chapter 13 bankruptcy. When considering whether or not to file it is important not to pay attention only to the total debt figures, but also consider the debtor’s ability to repay the debt versus the potential benefits of bankruptcy, such as the automatic stay (which can prevent further collection action, stops lawsuits, halts foreclosure and can prevent repossession). In addition, in some cases, bankruptcy may successfully protect someone who owes unliquidated or contested debts – even if those debts have not been ultimately reduced to a dollar figure.

Chapter 13 places certain restrictions on the amount of debt that can be discharged. Under the current limits, a Chapter 13 bankruptcy will be dismissed if the debtor has unsecured debt greater than $360,474 and/or secured debt greater than $1,081,400 (as of April 1, 2010).

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #7: Will bankruptcy show up on a background check for a job or security clearance?

2011-08-22T10:00:00.001-04:00

A bankruptcy filing creates a court case in the Bankruptcy Division of the Federal District Court. The existence of a court filing in any court is a matter of public record, so there will be a public record of a bankruptcy filing. However, this does not necessarily mean that the information will be easily obtainable by the general public. For example, in order to view bankruptcy case documents, one must either go to the Federal Bankruptcy Courthouse in the district where the case was filed, or have the requisite credentials to obtain a PACER account (on-line access to Federal Court records).

Third-party agencies can determine that a case was filed through various public records search engines. Credit reporting agencies (Equifax, TransUnion and Experian) are able to obtain similar information. However, the technologies to obtain wide-reaching searches for court filings (including bankruptcy) are not readily available to the general public because of their cost. Therefore, whether or not a bankruptcy will “appear” on a background check largely depends on the type and thoroughness of the background check.

Many employers simply run a criminal offender records check (commonly called a CORI check in Massachusetts), and the CORI report will not make mention of a bankruptcy. However, more involved background checks may require the evaluation of a credit report, which, if so, would mean that the bankruptcy would be visible during a background check. Background checks for compartmentalized security clearance requests (for DOD or Law Enforcement employment) will also contain financial information, including bankruptcy.

Just because a bankruptcy is visible on a background check doesn’t necessarily mean it will have an affect on the employer’s decision, especially if you have disclosed this to them already. For example, many employers, including the U.S. Military do not view bankruptcy as a basis for the automatic withholding of a security clearance.

The status of a security clearance (or the ability to obtain a clearance) can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and the recommendations provided by supervisors, co-workers, and professional references.

The employer should evaluate whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. As a practical matter, a security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don't file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. (Source: U.S. Air Force Judge Advocate)

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #6: Can I buy a house, car or get credit cards after I file bankruptcy?

2011-08-19T10:00:00.001-04:00

Once your bankruptcy case is concluded, there are no restrictions on property that you may own or purchase. Any property that is acquired during the bankruptcy proceeding (the period between filing and the closing of the case) must be disclosed to the bankruptcy court by amending the bankruptcy schedules, but after the discharge these limitations cease.

Similarly, you may incur new debt, however, any debt that is obtained after the date of filing is not included in the discharge. As a general rule, it is advisable to not incur any new debt or acquire any new assets until you receive your discharge from the bankruptcy court.

Once you have your discharge, just because you may borrow money or purchase assets, does not mean it will be easy. Bankruptcy filing makes it difficult to obtain the credit required to purchase these items, for some time. Because bankruptcy (and often, the financial difficulties which gave rise to a bankruptcy filing) will make it difficult to obtain credit, many people will be unable to purchase a new home or car, or obtain a credit card for a period of time after bankruptcy.

Taking steps to repair credit (such as establishing a good repayment history on reaffirmed debts or a secured credit card, maintaining a cash reserve, paying debts on time, and borrowing and repaying a small personal loan) can accelerate credit repair. If you take the proper steps to rebuild your credit following bankruptcy, you may be able to qualify for an unsecured credit card, car loan or mortgage in as little as 2 years after your discharge. Eventually, if you budget correctly and manage your credit after your bankruptcy better than before, you will be able to purchase a new home and/or car.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #5: Can I file bankruptcy without an attorney?

2011-08-17T10:00:00.001-04:00

Yes. If you decide to seek bankruptcy relief, you can represent yourself in all matters connected with the bankruptcy, or you may hire an attorney to represent you. Additionally, you may hire a bankruptcy petition preparer who is not an attorney. However, a paid bankruptcy preparer may only assist you in preparing the appropriate bankruptcy forms, petitions, schedules and disclosures, and may not represent you in bankruptcy court.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #4: What does it cost to file for bankruptcy?

2011-08-15T10:00:00.002-04:00

Court filing fees (the fees for filing your petition) for bankruptcy vary depending on the chapter you are filing under, but initially plan on $274.00 for Chapter 13 and $299.00 for Chapter 7. If you need to change your petition after it is a filed, there is an additional $26.00 filing fee.

In addition to court fees, there will be legal fees, i.e. what you pay to your Bankruptcy Attorney to analyze your case, review your purchase history to avoid non-dischargability issues (meaning you still owe money to a creditor after bankruptcy), make recommendations regarding when you should file and under which chapter, preparing your petition, schedules and disclosures, and representing you at the §341(a) Creditor’s Meeting. Each attorney offers slightly different services, and charges different amounts. You should speak with your attorney to understand his or her fee structure, and always get the fee agreement in writing.

At Kelsey & Trask, P.C. our fees are calculated based on how complicated the case is and we have provided a simple online calculator for you to easily determine the flat fee for your case.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #3: Will bankruptcy hurt my chances of co-signing for my children’s student loans?

2011-08-12T10:00:00.001-04:00

Generally, any time a loan is applied for, the lender will evaluate the creditworthiness of both guarantors. An adverse credit history of one co-signer may result in the denial of the loan. However, the ability of a parent to co-sign their children’s loans (including student loans) largely depends on the lender and the type of loan.

For example, a parent may be able to co-sign for Stafford Loans (federally guaranteed student loans) shortly after bankruptcy, but will have difficulty co-signing a PLUS loan if less than 5 years have passed since discharge. These requirements are built into the lending structure for student loans, and reflect the individual requirements for each financing option. In other words, it depends on the loan and you should consult with a college financial aid expert or an attorney.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #2: If I have a co-signer, will their credit be affected?

2011-08-10T10:00:00.000-04:00

A co-signer is an individual who is promising to repay a loan in the event the primary borrower defaults. If the primary borrower defaults (or files bankruptcy), the co-signer will be required to pay the loan back. As long as the co-signer repays the loan pursuant to the terms of the agreement, their credit will not be affected. However, many loans include an acceleration clause, meaning that if one of the borrowers files bankruptcy, the entire balance of the loan is due. If the lender exercises their right to accelerate the loan, the co-signer may not be able to make regular monthly payments.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

FAQ #1: How will filing bankruptcy affect my credit?

2011-08-08T10:00:00.000-04:00

Over the next few months we are going to post on this site the questions that our clients and potential clients ask.

Bankruptcy can be a confusing and scary process. But it doesn't have to be! At Kelsey & Trask, P.C. we work hard to makes sure our clients understand the process so they can stop the collection calls and move on with their life. If you want to move on with your life too, then take charge and get your questions answered. Check back often to find answers to the 25 most common questions that we receive, presented in no particular order:

FAQ #1: How will filing bankruptcy affect my credit?

Put simply: filing bankruptcy will hurt your credit. According to the credit reporting service freecreditreport.com, your credit score (FICO Score) will decrease between 85 and 105 points if your credit is poor, and between 140 and 160 points if your credit is good or excellent. While this seems significant, for most consumers, this is not significantly worse than a missed credit card payment, which, even if it happens once, can lower your score between 60 and 80 points for poor credit, and 90 to 110 points if your credit is good.

The fact that you filed for bankruptcy will appear as a “public records” entry on your credit report for up to 10 years, and individual debts that were discharged in bankruptcy will remain on your credit report for 7 years after discharge. The discharge date is different depending on the type of bankruptcy you file. In a Chapter 7 case, your discharge is granted approximately 5-6 months after filing; in a Chapter 13 case, your discharge is granted between 3 and 5 years after filing, depending on your plan terms.

However, if you take the proper steps to rebuild your credit following bankruptcy, you may be able to qualify for an unsecured credit card, car loan or mortgage in as little as 2 years after your discharge.

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

Do I have to report loans that I Co-signed for in a Bankruptcy?

2011-08-03T11:26:00.003-04:00

In bankruptcy you are required to disclose all of your assets and liabilities. A loan that you co-signed for is a liability. Even though you may never be asked to pay the loan, if the primary borrower makes all necessary payments, you are still liable for the loan and must report it.

When you file for bankruptcy you are required to disclose if any of your debts have co-debtors, as well. A co-debtor is someone who also agreed to pay that debt, in this case the primary borrower. Even if the debtor is discharged of their obligation for a debt, the primary borrower will still owe the debt.

In many cases, the filing of bankruptcy of one of the borrowers, even a co-signor, will constitute a default on the loan and the creditor can then accelerate the loan against the primary borrower if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the primary borrower continues to make timely payments.

If you are a primary borrower on a loan and the co-signer is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the co-signer intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.

Chipping Away at the Defense of Marriage Act: Is a Joint Petition for Bankruptcy on the Way in Massachusetts for Same-Sex Married Couples?

2011-07-12T10:40:00.002-04:00

The Defense of Marriage Act (DOMA) dictates how federal law treats same-sex marriages, by defining marriage as between one man and one woman. DOMA does not forbid states from allowing same-sex couples from marrying, but does limit same-sex married couples from accessing the same federal benefits afforded their opposite-sex counterparts.

There are over eleven hundred federal statutory provisions in which marital status is a factor in determining or receiving benefits from the federal government. For example, DOMA prohibits a same-sex married couple from filing a joint federal income tax return.

In the field of bankruptcy, DOMA not only forbids a same-sex married couple from filing a joint petition (thereby saving hundreds of dollars in filing fees, as well as losing some of the ease of joint financial planning by dealing with joint debts together), but it also prevents a spouse's or former spouse's claim against the petitioner from being given priority (basically, a debt held by a spouse or former spouse in an opposite-sex marriage is treated as a more important creditor to be paid off, where a same-sex spouse or former spouse is treated as a less-important creditor to be paid off).

In California, a same-sex married couple tried to file a joint Chapter 13 petition for bankruptcy. When the bankruptcy trustee moved to dismiss their petition because of their marriage, they appealed, and the Bankruptcy Court for the Central Division of California ruled that denying the couples' petition violated their equal protection rights guaranteed by the Fifth Amendment. Interestingly, the opinion was signed by twenty of the twenty-four judges in the Central District of California, although the case was heard only by Judge Thomas B. Donovan, sending the message that the bankruptcy judges in the Central District of California believe (well, most of them at least) that the application of DOMA to prevent a same-sex couple from filing for bankruptcy is unconstitutional.

This does not mean that other states will have to follow suit. However, a case in New York was decided along the same lines, and one can only assume that other states will begin to address the issue. Massachusetts has not yet dealt specifically with the issue of same-sex married couples filing a joint petition for bankruptcy, although two separate cases in Massachusetts federal court have ruled that DOMA is unconstitutional.

Kelsey & Trask, P.C. understands that not everyone wants to be a constitutional test case, and for some, operating within the restraints of the law, no matter how unfair, is better in the short term than changing the legal thinking of an entire system. We recognize the limitations and restrictions presented by DOMA. While we cannot extend all benefits of a joint filing, we do recognize and support the same-sex community.

If you need assistance in the bankruptcy court, we will not charge you as separate clients; rather, we will charge the same fee as we would any married couple. We will also do our best to ensure your cases are presented to the same trustee, and remain in front of the same Judge, by filing them simultaneously (giving them the best chance to be in front of the same trustee and Judge).

Joint filings were created in order to protect the family unit and allow for collective financial planning. While federal law currently chooses to deny same-sex married couples from such federal benefits, we have chosen to treat same-sex married couples with the same dignity and treatment as their heterosexual counterparts. It is not a perfect solution, but if it helps your family to get a fresh start, we don’t want you to go alone.

Calm Down for a Second: My $.02 on the Casey Anthony Verdict

2011-07-08T11:09:00.005-04:00

Please allow me to go off topic for a minute. It’s Friday, after all.

This week, the jury in the Casey Anthony trial decided that the prosecution did not meet its burden in establishing, beyond a reasonable doubt, that Casey Anthony was responsible for the death of Caylee Anthony. I am not going to provide my own insights as to why the jury decided the way they did, or whether the prosecution or the defense presented their cases in an effective and appropriate manner. The jury has rendered its verdict, and the judicial system has functioned as designed.

The fallout of the jury’s verdict has been as varied as the issues raised at trial. Some have come out in support of the defense and Casey Anthony, others have criticized the prosecution for their inability to secure a guilty verdict on the murder and/or manslaughter charges. Cable news pundits will continue to discuss the implications of this case for days or weeks to come, and the ratings bare out the ongoing interest in this case. Whether you agree with the jury and the outcome, or believe you would have voted differently if you were one of the twelve, there is plenty of room for analysis and reflection. Discourse and discussion are healthy and should be encouraged.

However, I have heard and read growing criticism of “the legal system” from the many people that believe the jury “got it wrong”. Some of the more disturbing comments have been along the lines of death threats, calls for sterilization, or calls for others to kill or injure the accused. Some people are going so far as to levy threats and calls for harassment against the jurors themselves.

More unsettling are calls for a complete overhaul of the legal system to eliminate the “beyond a reasonable doubt” standard required for criminal convictions on a case-by-case basis. Essentially, such calls would allow the government to arbitrarily reduce the standard required to convict someone accused of a particularly reprehensible crime.

I understand that people are angry, and these calls for reform will undoubtedly gather no legislative traction. However, I believe that we all need to take a step back and recognize that our system, although imperfect, is designed to place a burden on the government to prove their claims before we are stripped of any of our individual freedoms. Calling for a reduced standard, or advocating for the death or injury of the acquitted undermines the concept of “innocent until proven guilty” that has been the cornerstone of our criminal justice system since the Bill of Rights was ratified in 1791. In the words of one of our founding fathers:

“They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety” – Benjamin Franklin

Free Debt Relief Clinics - with Attorney Matthew P. Trask

2011-07-05T15:52:00.000-04:00

Kelsey & Trask, P.C. is pleased to announce our free summer series of debt relief workshops:

Every Friday from 2:00 P.M. to 5:00 P.M. at our offices located at 160 Speen St. Suite 202, Framingham, MA 01701, we will be hosting a free clinic open to the public.

No appointment is necessary.

Navigating the debt relief landscape can be a daunting and confusing process. Attorney Matthew P. Trask will answer any debt relief questions you may have, including questions about bankruptcy, debt settlement and your options for preventing foreclosure and protecting your home. Refreshments will be provided.

To learn more visit our main site or our mobile site.

Staying out of Financial Trouble: Let the Joneses Do Their Own Thing

2011-07-01T11:21:00.004-04:00

This planet has — or rather had — a problem, which was this: most of the people living on it were unhappy for pretty much all of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy. - The Hitchhiker's Guide to the Galaxy

Everyone has heard the expression "Keeping up with the Joneses". Many of us consciously or subconsciously compare ourselves to our peers, and use the transfer of wealth (i.e., buying the things that impress others or help us fit into a particular social circle) to keep us happy in our own peer group.

As you are considering a financial reorganization through a debt payment plan or bankruptcy, it is important to identify the risks that will derail your efforts, or worse yet, put you back in the same place you were in prior to bankruptcy or debt relief. One hidden trap is pressure to "keep up with the Joneses" or engage in "retail therapy". While it may be difficult to completely curtail your spending in some of these areas, a recent Bankrate.com article "Are Your Friends Making You Broke" discusses some ways to identify harmful spending habits and suggests some useful alternatives.

Some suggestions:

1. Remember your true friends want what's best for you. Discuss your financial goals with them to alleviate some of the social pressures.

2. Consider the long-term costs and expenses of that expensive new item you have your eye on.

3. Suggest less-expensive alternatives when asked to participate in an activity you cannot truly afford.

4. Consider alternative products and technology that will give you the convenience and functionality, but at a fraction of the price. Sure, GPS-enabled smartphones are great, but asking for directions or a trusty map will get you there too.

Getting and staying out of debt isn't easy, but it can done if you stick to a plan. If you need help working out a plan, the debt relief attorneys at Kelsey & Trask, P.C. are always ready to help.

Paying for Debt That isn't Yours: Facts and Figures on Identity Theft

2011-06-28T14:28:00.002-04:00

Somewhere between 9 and 11 million Americans are victims of some type of identity theft every year, with total losses over $50 billion. These victims are not just the result of sloppy online habits; even standard day-to-day practices like paying by check, mailing documents or improperly disposing of financial documents creates the risk of identity theft.

According to a recent NakedLaw by Avvo report, the threat of identity theft (and the financial risk associated with such theft can be mitigated by simple practices, such as password protection for electronic information, shredding personal documents, and keeping an eye on your credit report regularly.

For the whole story, please read the full NakedLaw article: Is the Threat of Identity Theft Overblown?

Whenever you are working to clean up your financial future, you always must be proactive about avoiding future risks, in addition to correcting past mistakes.

We're Moving!

2011-06-03T10:27:00.001-04:00

On Thursday, June 9, 2011 and Friday, June 10, 2011 the offices of Kelsey & Trask, P.C. will be closed while we relocate to our new office. On Monday, June, 13, 2011 Kelsey & Trask, P.C. will open its doors at a new location conveniently located on the Framingham/Natick border near the Mass Pike (Exit 13), Rt. 30, Rt. 9, Rt. 27 and Rt. 126.

Kelsey & Trask, P.C.'s new address is: 160 Speen Street, Suite 202, Framingham, MA 01701.

Our telephone, (508) 655-5980, and fax number, (508) 655-5981, will not be changing.

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What hurts your Credit Score and should you care?

2011-06-01T22:00:00.002-04:00

The Infographic provided below is helpful, at a glance, in understanding the ways that certain negative events can affect your credit score. This information is most useful for those people who already have good scores, because it tells you what to avoid to keep your score high.

But what if your score is already damaged by missed payments and other issues (foreclosure, debt settlement, etc.)? Should you care about your score?

NO

That answer may surprise you, but in our experience people are more concerned with their credit score than with more immediate present issues. Your credit score is important in that it can affect your ability to obtain loans, mortgages, credit cards, and other financing. But if you are already missing payments on your current debt, then this is not the time to worry about future financing. In other words, your credit score isn't as important as the information on your credit report. Fixing the problems on your report will lead to a good score.

So before you can worry about your score in the future, you must first get your house in order. What we tell our potential clients, in our free 1-hour consultation, is that they need to set a realistic budget, whether or not they decide to file for bankruptcy. Even when you have significant debt but believe you can work your way out, you will need a realistic budget to make that happen. Until you can manage your current debt, you should not be worried about borrowing more.

Similarly, if you file for bankruptcy, you need to take steps to make sure you don't end up back in a position where you can't pay your debt. As you would expect bankruptcy is one of the worst things that can happen to your credit score. But if you are in a position to go bankrupt, your score has most likely already been significantly affected by your existing debt.

DISCLAIMER: This infographic is provided by freescore.com as an advertisement. We have reproduced it here because it contains useful and interesting information, however we do not endorse or claim any knowledge of freescore.com. We recommend that all of our clients and potential clients obtain their credit report as soon as possible. While you may choose to purchase a credit monitoring service (freescore.com, freecreditreport.com, etc.), you can obtain your credit report, once every 12 months, at annualcreditreport.com without any cost, trial membership or other enrollment. You also have a right to obtain your credit report directly from each of the three credit bureaus by writing to them directly.

[Via: FreeScore.com credit score]

What happens in a Bankruptcy to the property that is not exempt?

2011-05-27T15:55:00.000-04:00

The Bankruptcy property exemptions in Massachusetts recently changed to protect considerably more property of individuals from their creditors. When filing for Chapter 7 Bankruptcy this "exempt" property of the debtor is not included in the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts. In simpler language, exempt property is property you get to keep.

But what happens to property that isn't exempt?

If you file for bankruptcy and property that you own exceeds the exemptions then you have technically surrendered that property to the Trustee upon filing. In other words, by asking the Bankruptcy Court to help you with your debts, you have agreed to give them your property as well. The property that is not exempt is considered part of the Bankruptcy Estate and in a Chapter 7 Bankruptcy this property will be used to pay your creditors proportionally to the amount of debt they are owed.

If the non-exempt property is liquid funds (such as a bank account) then you will be forced to pay these funds to the trustee who will then take a percentage for their fees and pay the rest to the creditors. If the non-exempt property is non-liquid, such as a car or jewelry or a house, then the trustee will auction the property and use the proceeds of the auction to pay their fees and pay the rest to the creditors.

Are Low Cost Bankruptcy Filings a Scam?

2011-05-20T12:41:00.000-04:00

A Chapter 7 and 13 Bankruptcy Blog recently posted an article entitled The Low Cost Bankruptcy Filing Scam Revealed, which describes the two types of scams behind lawyers who offer to file bankruptcies for $300 or less. Basically, the scams involve charging the client for other services that offset the small filing cost.

In one instance, the client is charged for "debt relief" services prior to the bankruptcy which inevitably fail because the client should have been told from the start that their best options was bankruptcy. In the other instance, the client is told the cost is $300 or less, but this is only for the skeletal filing, and the attorney then charges for the other necessary schedules individually.

Fortunately, these "scam" attorneys are the exception and not the rule. Most firms are upfront about what their fees are and what those fees cover. At Kelsey & Trask, P.C. we go so far as to publish this information on our website, and provide a Fee Calculator to help you figure out exactly what your total cost will be. Also, we provide the clients with a specific list of what services this cost includes and what it does not in our Retainer Agreement. Be wary of any attorney who will not provide you with this information at the initial consult.

My Ex Owes Support and is Filing for Bankruptcy: What Now?

2011-05-18T10:00:00.001-04:00

We previously wrote an article regarding the dischargeability of domestic support obligations, such as child support and alimony. But just knowing that the arrears are not dischargeable may not be enough. How do you collect them without violating bankruptcy law?

If you are owed child support, alimony, separate support or money or property pursuant to a divorce separation agreement, and the other party files for bankruptcy, it is important that you first know your rights regarding the dischargability (or non-dischargability) of those obligations. Each of the above are handled differently depending on the type of obligation (support versus a property settlement) and the type of bankruptcy (Chapter 7 or Chapter 13).

CHAPTER 7 CASES

In Chapter 7 Cases, the answer is simple: domestic support obligations and divorce property settlements are non-dischargeable. According to the bankruptcy code at 11 U.S.C. § 523(a):

“[a] discharge [in a Chapter 7 Case] does not discharge an individual debtor from any debt… (5) for a domestic support obligation; [or] (15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit."

So, if a payor owes you back child support, alimony or or property division payments pursuant to a divorce agreement you should file an objection to the discharge of those debts, and then pursue your rights in the Probate and Family Court to obtain payment.

CHAPTER 13 CASES

Debtors may use the bankruptcy protections of Chapter 13 to pay back child support arrears according to the chapter 13 plan and avoid a potential contempt in Probate and Family Court. Therefore, most issues regarding unpaid child support or alimony (and payment of support arrears) arise in Chapter 13 Bankruptcy Cases. However, while bankruptcy can provide some protection to the debtor to pay back support over the course of the plan, the debtor must meet all requirements of the Massachusetts Local Bankruptcy Rules and the U.S. Bankruptcy Code in order to ensure they receive their discharge upon the completion of their plan.

A discharge in a Chapter 13 Case does not discharge an individual debtor from any debt for a domestic support obligation, but may discharge other debts, including debts arising out of a divorce or separation agreement that are not dischargeable in a Chapter 7 case. See 11 U.S.C. § 1328(a).

In order to receive a discharge of other debts (but not domestic support obligations) in a Chapter 13 case, the debtor must successfully complete the repayment plan, and must file a Motion for Discharge, and certify that all obligations for child support, spousal maintenance and alimony due that were due on or before the date of the motion, including all payments due under the plan for amounts due before the petition was filed and any domestic support obligations that arose after the filing of the petition have been paid. The debtor must serve a copy of the motion and certification on the beneficiary of the domestic support obligation.

At that point, the beneficiary may object to the entry of the debtor’s discharge if there are outstanding obligations and a discharge will not be granted unless all obligations have been paid. See 11 U.S.C. § 1328(a). See also Massachusetts Local Bankruptcy Rule 13-22 and Official Local Form 12.

However, there is one exception: domestic support obligations that are assigned to a governmental unit (i.e., collected by the Department of Revenue and distributed to the beneficiary) may be paid less than 100% through the plan, but only if disposable income is dedicated to the plan for a full five years. In this case, the debtor would continue to owe any child support not paid at the completion of the plan and DOR would continue to be involved at the end of the bankruptcy case.

Finally, bankruptcy will not change the current support obligations following bankruptcy. At the conclusion of either a chapter 7 or chapter 13 bankruptcy, the debtor’s obligations to pay child support remain unchanged, and must pay any obligations unless and until amended by an order of the Probate & Family Court. If you want to know more about amending support orders in the Probate & Family Court in Massachusetts view our information on Modifications.

Infographic: All you Need to Know About Credit Scores

2011-05-09T15:06:00.003-04:00

click image to enlarge

Source:http://www.billshrink.com/blog/11628/all-you-need-to-know-about-credit-scores/

What happens at the end of successful Individual Chapter 7 Bankruptcy?

2011-05-05T07:43:00.001-04:00

When an individual files for Chapter 7 Bankruptcy, the debtor is essentially asking the bankruptcy trustee to manage the liquidation of any collectible assets and then requesting that the court discharge the remaining dischargeable debt.

The trustee will take any assets of value, which are not exempt, and distribute those assets to the creditors in order of priority. For more information about what types of assets are exempt visit our Exemptions page.

Any unsecured creditors that are left holding claims when the assets run out will be discharged unless they fall into a very limited list of non-dischargeable debts (such as student loans or most income tax debt).

If no objections are filed, then the debtor is issued a discharge, which is an order that prohibits discharged creditors from trying to collect their debts from the debtor. This is the typical end of a Chapter 7 Bankruptcy case, although there are certain objections or audits that can be filed later which could re-open or undo the discharge.

What happens at the end of successful Corporate Chapter 7 Bankruptcy?

2011-05-04T10:00:00.006-04:00

When a corporate entity files for Chapter 7 Bankruptcy (liquidation), the business is essentially asking the bankruptcy trustee to manage the liquidation of corporate assets. The trustee will take any assets of value and distribute those assets to the creditors in order of priority.

A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.

Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.

What if I lost my old Tax Returns?

2011-05-03T10:00:00.021-04:00

When filing for an individual bankruptcy it is required that your income tax returns be completed. Without complete tax returns you cannot accurately report all of your assets (if you have any refunds due) or your debts (if you have any unpaid taxes due).

Your bankruptcy attorney or the bankruptcy trustee may ask for copies of these returns to verify your income, any tax debt owed or refunds received and to verify that the returns have been filed. Pursuant to 11 U.S.C. s. 521(e)(2)(A)(i), 7 days prior to the 341 meeting of creditors you are required to provide your most recent tax return to the trustee, and under 11 U.S.C. s. 521 (f)(2) the trustee, the court or any creditor can ask for your last 3 year's returns.

If you have lost copies of your old tax returns you or your attorney can obtain them by using IRS Form 4506-T Request for Transcript of Tax Return. You can also request a copy of your tax return or tax account information online on the IRS website or by telephone at 1-800-908-9946. In some instances, practitioners can obtain expedited information through the Practitioner Priority Service (PPS) and Electronic Account Resolution (EAR) systems.

If your attorney needs to talk to the IRS to resolve tax issues you may also need to provide them with a Form 2848 Power of Attorney.

What happens to my Cosigner if I file for Bankruptcy?

2011-05-02T10:00:00.003-04:00

When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.

In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.

If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.

If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.

Will Bankruptcy affect our Child's College Financial Aid?

2011-04-28T10:00:00.007-04:00

Most Financial Aid packages include some loans and if you file for bankruptcy it may affect your child's eligibility for certain loans. The rules for federal loans and private loans are different.

Private student loans, like any other credit after bankruptcy, will depend greatly on the circumstances that surround the bankruptcy. If the student did not file bankruptcy their applications for private loans should not be affected, unless the parent is required as a co-signor. If the parent is required as a co-signor and they filed for bankruptcy they should discuss the circumstances of the bankruptcy with the potential lender. Many private loans will exclude co-signors or borrowers who have filed for bankruptcy within the last seven years no matter what the circumstances. There are no laws that require private companies to loan money in these circumstances and each company will assess their own risk differently.

Federal student loans are governed by specific bankruptcy anti-discrimination rules. Under 11 USC 525(c), lenders backed by the federal student loan programs cannot deny a student a loan based on the student previously filing for bankruptcy. This means that Stafford Loans, which are federal student loans to the student directly, will not be affected by a bankruptcy of either the student or the parents (but can be affected if their are delinquencies or defaults on previous student loans).

PLUS loans, however, (which stands for Parent Loans for Undergraduate Students) can be denied based on negative credit history of the parents. A bankruptcy within the last five years would be considered adverse credit history. If parents apply for and are turned down for PLUS loans students may qualify for increased Stafford loans, which could help make up some of the difference.

For more information read this article on Bankruptcy and Financial Aid.

Thank you to Larry Dannenberg and College Solutions for pointing us to this information.

What is Bankruptcy Fraud, and How Can I Avoid Becoming Lenny Dykstra?

2011-04-27T12:27:00.001-04:00

Former major league slugger and touted stock picking guru Lenny Dykstra fell on hard financial times after a number of his business ventures began to fail. Like many entrepreneurs in the later half of the past decade, Lenny filed for bankruptcy.

For many individuals, filing bankruptcy allows for a "new start." Unfortunately for the former Met and Phillie, the trouble that plagued him during much of his playing and post-playing career also followed him into bankruptcy. The center fielder nicknamed "Nails" for his tough style of play was arrested on charges of bankruptcy fraud after his bankruptcy trustee's claim that Dykstra improperly removed, sold, and destroyed property that was part of his bankruptcy estate.

Bankruptcy fraud is when a debtor falsely claims bankruptcy, attempts to conceal his assets, launches petition mills (schemes that claim to help financially-strapped tenants from eviction), or files multiple claims in different states. It is a felony, and carries a sentence of up to $250,000 and/or five years in prison.

The lesson here is... well... don't do that. It is important to understand that bankruptcy trustees can, and often do, investigate into the truth of someone's bankruptcy petitions. If they find something that they believe was deceitful, your bankruptcy petition could be denied, and you could face criminal charges. Be sure to disclose everything to your bankruptcy attorney.

If you would like more information about how to best prepare for bankruptcy, contact Attorney Matthew Trask or call 508.655.5980 to schedule a free one-hour consultation.

What’s my car worth? Automotive Valuation for Bankruptcy Purposes

2011-04-17T10:19:00.004-04:00

The Bankruptcy Court has provided some guidance for valuing a car for the purpose of a Bankruptcy Petition:

“[A]djusting the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle by a reasonable amount in light of any additional evidence presented regarding the condition of the vehicle and any other relevant factors” is an appropriate means of reaching retail value. In re Morales, 387 B.R. at 45.

The court agrees that the Kelley Blue Book is an appropriate starting point for a valuation analysis. The values it supplies are based on actual transactions occurring in relevant regional markets. They are admissible under Federal Rule of Evidence 803(17). The Kelley Blue Book is objective, serves the interests of standardization and predictability, and is cost-effective, which benefits the parties.

But the Kelley Blue Book retail values cannot be the final word. Retail value under 11 U.S.C. § 506(a)(2) and the Kelley Blue Book’s suggested retail value have slightly different meanings. Suggested retail value under the Kelley Blue Book “assumes that the vehicle has been fully reconditioned,” and only “represents dealers’ asking prices and... the starting point for negotiation” between a consumer and a dealer. Kelley Blue Book Auto Market Report 4 (May 2010)

By contrast, 11 U.S.C. § 506(a)(2) requires the retail value to mean “the price a retail merchant would charge for property of that kind considering the age and condition of the property.”

The Kelley Blue Book value therefore must be adjusted for two things. First, it must reflect the actual condition of the car if that condition is not optimal. Second, it must reflect the fact that the Kelley Blue Book value is the asking price for a retail sale, not the final price, as it is reasonable to believe that dealers do not sell vehicles frequently at the asking price."
(See In re Penny)

As a practice tip, consult both NADA and Kelley Blue Book private party value as a starting point, and then consider the actual condition to make appropriate adjustments.

An Act Regulating Debt Collection Takes Effect

2011-04-08T22:10:00.000-04:00

This past Thursday, April 7, 2011, An Act Further Regulating Debt Collection became effective. The Act significantly raises personal property exemptions in Massachusetts. These exemptions limit the property that creditors can take in the execution of a lawsuit or in a Chapter 7 bankruptcy liquidation.

In a Chapter 7 Bankruptcy debtors will still have the choice between using the Federal Exemptions and the State Exemptions. In Massachusetts, these exemptions include up to $500,000 in personal residence equity (so long as certain requirements are met). And in order to get that significant residence exemption, up until April 7, 2011, debtors had to choose a significantly lower amount of personal property exemptions.

But under this new law, the personal property exemptions are similar in both schemes. There are some categories where the Federal Exemptions are higher and some where the Massachusetts Exemptions are higher. To choose the best scheme for your situation, you should consult with an experienced bankruptcy counsel who can help you evaluate your options.

For more information about the specific property exemption changes in the new law, read our section by section evaluation: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

Free 2011 Massachusetts Bankruptcy Handbook

2011-03-30T10:00:00.002-04:00

To request your free 2011 Massachusetts Bankruptcy Handbook: A Consumer's Guide to Understanding Chapter 7 & Chapter 13 complete and Submit the Form here to send us an email request now.

Bankruptcy in the United States is permitted by the United States Constitution (Article 1, Section 8, Clause 4), which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." As such, Constitutional recognition of bankruptcy law is amongst the oldest in the United States, predating even the Bill of Rights. Even 224 years ago, the Founding Fathers and the draftsmen of this Country's earliest laws recognized that sometimes people got in over their heads as a result of insufficient planning or factors beyond their control. They understood that it was in the best interests of both debtors and the economy as a whole to provide people with a fresh start in the event someone found themselves with debts they were unable to pay.

Despite the fact that the Constitution specifically permits Congress to enact bankruptcy legislation, there is still a significant cost, both economic and emotional, in seeking the protection of the Bankruptcy Court. So, if you or someone you know is considering bankruptcy, request a free copy of the 2011 Massachusetts Bankruptcy Handbook, which will help you understand what the advantages and disadvantages of bankruptcy are, and whether or not you qualify.

The Emergency Chapter 13 – Skeletal Filings and What to Expect

2011-03-29T19:00:00.000-04:00

You’ve been working with your bank on a mortgage modification, short sale, or deed-in-lieu of foreclosure. For whatever reason, your preferred course of action doesn’t work out, and you receive a foreclosure notice. The worst thing you can do is ignore it, but what happens if you do?

A complete Chapter 13 filing can take your attorney some time to prepare, and is usually approximately 30-50 pages long, depending on the complexity of your case. However, you may not have that much time, especially if a foreclosure auction is only days away, or the IRS has started to levy your paycheck. If you find yourself facing a foreclosure auction and want to try to keep your home, an emergency Chapter 13 filing may allow you to keep your home, pay back mortgage arrears over a 5 year period, and get current on other non-dischargeable debts, such as taxes and student loans.

Your attorney will work with you on the following documents, which can be prepared within hours, and filed with the court.

1. Ensure all tax filings are current.
2. Take pre-petition financial management course on-line.
3. Prepare and file voluntary petition.
4. Prepare and file Statement of Social Security Numbers.
5. Prepare and file Declaration of Electronic Filing.
6. Prepare and file Chapter 13 Agreement between Debtor and Debtor’s Attorney.
7. Prepare and file Joint Certification of Section 522(q) Obligations.

Once the above are filed, the Automatic Stay in bankruptcy will prevent further collection actions by your creditors. Foreclosure auctions will be postponed, lawsuits and other collection actions will be stayed, and garnishments will cease.

Immediately begin preparing all documents your attorney tells you to prepare the remainder of your bankruptcy case. The Court will issue an Order to Update regarding the missing filings. Generally, the order will require that you file all deficient (missing) documents in a period of time set by the court. This is a typical timeline for these filings:

1. In one week: File the Creditor Matrix (a list of all individuals and corporations you owe money to).

2. In two weeks: File all Schedules (outlining Real Property, Personal Property, Property Claimed Exempt, Creditors Holding Secured Claims, Creditors Holding Unsecured Priority Claims, Creditors Holding Unsecured Non-Priority Claims, Executory Contracts and Unexpired Leases, Co-Debtors, Current Income of Debtors, and Current Expenses of Debtors), Declaration Concerning Schedules, Statement of Financial Affairs, Statements of Intention, B22C Statement of Current Monthly and Disposable income with Calculation of Plan Duration, the Chapter 13 Plan, Evidence of Current and Sufficient Liability and Property Insurance, and the Disclosure of Compensation of Attorney.

Requests for more time must be made by motion, and the court will often grant a 2-week extension.
In any case, the most important thing you can do is immediately prepare your financial records, and provide them to your attorney. If this is not done immediately after filing the skeletal petition, then you may not meet these court deadlines. The Bankruptcy Court’s deadlines are very strict, and missing one or more may be grounds for having your case dismissed. If your case is dismissed you'll be back to square one and may not be able to file again.

One thing Facebook is not good for: Collecting Debts!

2011-03-25T17:24:00.000-04:00

Facebook, Twitter and social networks have grown well beyond their initial intentions. Like many online tools, businesses have found ways to use these networks to their advantage, whether through traditional straightforward advertising, or guerrilla marketing strategies. In some ways the possibilities are endless. But, a debt collection agency in Florida recently discovered one of the limitations on using these networks.

According to a recent article on The Washington Post online, a Florida judge ordered Mark One Financial LLC of Jacksonville, Fla., a debt collection agency, to not use Facebook or any other social media site in an attempt to locate a woman over a $362 unpaid car loan. The Judge also prohibited the company from contacting the woman's Facebook friends.

The Judge felt, and I can understand why, that contacting the debtor on a public forum such as Facebook was a violation of the debtor's privacy. But just because they can't contact you, doesn't mean debt collectors aren't still using social networks and online resources to find out information about you. Remember that anything you post online is now out there and available for your creditors to find.

For more information about Massachusetts law relating to Debt Collection and fair practices visit the Massachusetts Trial Court Law Libraries page here.

Bankruptcy and Taxes: Does a Bankruptcy affect Cancellation of Debt Income?

2011-03-11T11:48:00.002-05:00

With the housing market collapse and the rise in short sales and foreclosures, many former homeowners are faced with the consequences of left-over debt from their mortgage. While deficiency judgments will force many into bankruptcy, there are also problems when the debt is forgiven in the form of cancellation of debt income.

What is cancellation of debt income? Generally, debt that is forgiven by a lender creates tax consequences for the debtor – the lender issues a 1099-C on the cancelled debt, and the IRS considers the cancelled debt as income to the debtor. However, there are exceptions to this rule, and, depending on the circumstances, cancelled debt may not create any tax liability, even if the debtor is no longer required to pay the debt. This (rather lengthy) article discusses the impact of bankruptcy on cancelled debt. (Note: The IRS Code has other exemptions that may apply and eliminate some or all tax liability on cancelled debt, such as The Mortgage Forgiveness Debt Relief Act or the insolvency exception to cancelled debt income. These exceptions are beyond the scope of this article, and will be addressed separately in future posts.)

Scenario 1: You file for bankruptcy, and receive a discharge of your dischargeable consumer debts. Are you required to pay taxes on the debt that was discharged in the bankruptcy?

Answer: No. According to 26 U.S.C. § 108(a)(1)(A):

Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—

(A) the discharge occurs in a title 11 case [i.e., Bankruptcy],
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness,
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or
(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2013.

Therefore, as long as the debt was properly discharged in bankruptcy, the cancelled debt will not create any taxable events for the debtor.

Scenario 2: You have your house listed in a short sale, which the bank approves. Unfortunately, other factors ultimately require that you file bankruptcy. After you file (or after you receive your discharge), the mortgage lender sends you a 1099-C for the cancelled debt income of the forgiven balance of the mortgage. Do you have to pay taxes on the cancelled debt income?

Answer: No. As above, since the discharge of the underlying debt (the first mortgage, in the example above) occurs in a bankruptcy case, 26 U.S.C. § 108(a) applies. In this case, the code requires that the amount of the debt, although “forgiven” by the mortgage lender, was discharged in bankruptcy, and therefore, excluded from the debtor’s gross income.

Scenario 3: You are attempting to avoid bankruptcy, and have your house listed in a short sale. The bank approves the short sale, and you are hoping that your real estate attorney will be able to convince your lender to “forgive” the deficiency. The lender does in fact forgive the deficiency, and sends you a 1099-C for the cancelled debt income of the forgiven balance of the mortgage. Unfortunately, other factors (such as a second mortgage that will not be “forgiven” or credit card debt) ultimately require that you file bankruptcy. Do you have to pay taxes on the cancelled debt income?

Answer: Scenario 3 creates a question of timing. Here, the difference between this example and the example above is that the lender “forgave” the debt and issued a 1099-C before the debtor filed a bankruptcy case. This raises the question as to whether the debt was legally cancelled by the lender, and therefore could not have been discharged in bankruptcy.

So, then, the question becomes: “Can a bankruptcy filing discharge debt that has already been forgiven, in order to avoid the tax consequences of cancellation of debt income?”

The mere fact that a creditor has issued a 1099-C is not, in and of itself, an admission by the creditor that it has released the debt and can no longer pursue collection, nor does a 1099-C legally discharge the debtor from liability of the debt that is described on Form 1099-C. See In re: Zilka, 407 B.R. 684, 688-689 (2009).

Zilka was not the first time the Court was required to address this issue, and specifically stated in its ruling:

The Internal Revenue Service, which regulatory agency is the one that promulgated 26 C.F.R. § 1.6050P-1, and whose interpretation of the same is thus entitled to great deference (citation omitted), does not view a Form 1099-C as an admission by the creditor that it has discharged the debt and can no longer pursue collection [thereon]. See 2005 WL 3561135 at 689 (Dec. 30, 2005).
***
Forms 1099-C, as a matter of law, do not themselves operate to legally discharge debtors from liability on those claims that are described in such Forms 1099-C. See Owens v. Commissioner, 67 Fed.Appx 253, ___, 2003 WL 21196200 at 3 (5th Cir.2003) (issuance and filing of Form 1099-C does not constitute actual cancellation of the loan).
***
Form 1099-C…only serves to report (strictly for tax purposes) information regarding an event that has already happened, which reporting of information cannot possibly be stretched or strained to also constitute a present contractual agreement not to sue, or a present contractual renunciation of rights against, a debtor. See Leonard v. Old National Bank Corp., 837 N.E.2d 543, 545-546 (Ind.Ct.App.2005) (filing a Form 1099-C is merely an informational filing with the I.R.S., done to report an event that has already happened, and thus does not operate to cancel debt itself).

See In re: Zilka, 407 B.R. 684, 688-689 (2009). See also IRS Publication 4681.

Based on the above precedent, even if a lender issues a 1099-C prior to a bankruptcy filing, the issuance of the 1099-C does not serve to legally discharge the debt. If that debtor then files bankruptcy, they should then include that debt on their bankruptcy schedules to ensure that it is discharged. And as long as the debtor included the underlying debt in the debtor’s bankruptcy case (and ultimately received a discharge of that debt), 26 U.S.C. § 108 applies, and the mere issuance of the 1099-C prior to the bankruptcy case, the cancelled debt will not create any taxable events for the debtor.

Finally, when a lender issues 1099-C, even if no tax is due, the debtor should discuss this issue with a CPA to ensure that his tax returns are properly filed to exempt the 1099-C income from the debtor’s gross income.

If you have any questions regarding the tax consequences of bankruptcy, contact Attorney Matthew P. Trask to schedule a free initial one-hour consultation. Attorney Trask would like to thank Kathryn Collins, Esq. and Jason Cooper, CPA for their assistance in preparing this article, and would also like to thank Mark Tanney, Esq., a Maryland Bankruptcy Attorney, for his insights which inspired this article.

Sharing is Caring - Tumblr and QR Codes

2011-02-18T16:36:00.002-05:00

At Kelsey & Trask, P.C. we try to use the latest technology to stay current on the newest laws, to help our clients communicate with us more efficiently and to stay connected with our friends, other professionals and our clients. You probably already know how to find us on Facebook, LinkedIn and Twitter, and to download our iPhone Apps.

And now we've added two more ways to connect with us faster: QR Codes and a Tumblr page.

QR Codes:

A QR Code is a two-dimensional barcode readable on any smart phone with a camera. Just download a QR Code Reader (I use Neo Reader, which is free) and you can use the camera in your phone to read the Code. For example, if you scan the Code to the right you would be taken to our mobile News & Media webpage.

We've also incorporated QR Codes into our latest business cards (pictured below). If you scan the Codes on our business card you will be taken to our mobile contact page. From there you can get directions to our office, call us, or download our contact information straight to your phone's contacts (via VCard downloadable on most phones).

For some other examples of how business are integrating QR Codes into their business cards check out dzineblog's 20 QR Code Business Cards Design Inspiration. To generate your own QR Codes for free online we use delivr's QR Code Generator.

Tumblr:

Tumblr is the latest in sharing online, allowing users to share blog posts, photos, videos, and links quickly and easily. You can follow other Tubmlrs and repost their content, just like on Twitter, but unlike Twitter you can share more than 140 characters.

To follow us on Tumblr visit kelseytrask.tumblr.com. If you have a tumblr login then click on follow in the upper right hand corner to have our content streamed right to your tumblr dashboard.

How do I Rebuild my Credit after Bankruptcy?

2011-02-14T10:00:00.000-05:00

A common question from our bankruptcy clients after they receive their discharge is: "How do I rebuild my credit?"

First and most importantly, time heals all wounds. Only time can fully repair the damage that bankruptcy (and being significantly behind on a lot of credit card debt beforehand) inflicted.

The best thing you can affirmatively do right now is to start developing a history of on-time payments to creditors that report to your credit bureaus. Pay your bills early, or if anything, pay them on time.

Because of the way the bankruptcy system works and the way creditors report reaffirmed debts, you will not get credit for on-time mortgage payments or car payments. Therefore, it is necessary to establish a new account that you can make solid, on-time payments on. We recommend applying for a secured credit card or gas card. Before you apply, take the time to confirm that the card management company reports to all three credit bureaus every month. If they don’t report every month, or if they do not report to all three, go elsewhere. Use the card, but pay it off on time, every month. Carrying a small balance (less than $100 is OK), but never utilize more than 50% of the available credit.

If you have a mortgage, then as soon as feasibly possible, refinance your mortgage. Paying off the current loan and keeping a new loan current will, once again, give you credit for on-time mortgage payments.

As soon as you feasibly can, refinance your car loan, or sell your car and purchase a new car. Again, the key is to obtain a new loan that will report to the credit bureaus. Post-bankruptcy, many current secured lenders will not report payments to the credit bureaus. Of course, be sure to keep that loan current.

Obtain copies of your credit reports approximately 90 days after receiving your discharge. Ensure every debt is reported as “Discharged in Bankruptcy” or something similar. If they are not, send a letter to the creditor and the credit bureau requesting that information be reflected accurately. Remember, your credit report is a list of your “debts”, and right now, you have no debts aside from your house and car. Make sure your credit reports accurately show that, although you had debts discharged in bankruptcy, you should not currently owe any money to dischargeable creditors.

Besides paying the above-described loans on time there are also a number of things you should avoid doing:

1. Avoid opening credit accounts with co-signers, if possible. Having a co-signer on an account indicates you are a greater credit risk.

2. Avoid financing with finance companies or sub-prime lenders, if possible. Doing business with these companies can actually lower your credit score.

3. Avoid future financial risk. Bulk up your savings account. Develop a budget, and stick to it. That way, when emergencies or unexpected expenses come up, you can pay in cash, rather than increasing your debt.

4. Some industry experts recommend that you obtain a small personal loan, and use the funds to open a CD account. Pay the loan on time, and when the loan is paid off, you will have some funds in savings, which you can take out once the CD matures. Of course, this only works if you can fit these payments into your budget. Setting up a workable budget should be your first priority.

What happens if I make a Mistake on my Bankruptcy Schedules?

2011-02-13T10:00:00.005-05:00

Despite the fact that some lawyers like to consider themselves infallible, the reality is that we all make mistakes. This is even true of our clients sometimes.

If you have made a mistake on your bankruptcy schedules, there is a general right to amend as allowed by the Federal Rules of Bankruptcy Rule 1009. The rule allows for amending of schedules any time before the case is closed so long as Notice is given to the trustee and any entity affected (usually meaning notice to all creditors).

In Massachusetts, there is also a local rule (Rule 1009-1), which requires that in some cases if your amendment involves adding a creditor or changing your exemptions, then you must file a Motion with the Court requesting approval of the amendment. As a practical matter, filing a Motion to Amend for any amendment may be the safest way to get the Court's approval quickly.

The most important thing to understand here is that if you discover a mistake on your schedules or petition, immediately file (or have your attorney file) an amendment to ensure that your case proceeds smoothly and you do not get accused of providing false information.

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #1: The Automatic Stay

2011-02-10T10:00:00.005-05:00

Immediately after a Bankruptcy Petition is filed, the court enters an Automatic Stay Order prohibiting the creditors from taking or continuing any collection or legal action against the debtor. The automatic stay is a useful tool in temporarily stopping foreclosure proceedings brought by mortgage holder(s), as well as collection efforts, collection calls and lawsuits filed by creditors.

The Automatic Stay also puts an immediate stop to some portions of a pending divorce, modification, or contempt proceedings. Specifically any actions relating to debts or the division of assets cannot be ruled on by the Divorce Court while the bankruptcy is pending, unless the Bankruptcy Court is first asked for permission by filing a Motion for Relief from the Automatic Stay. Even issues relating to the collection of child support or alimony may be stayed or considered under the jurisdiction of the Bankruptcy Court while a petition is pending.

The penalties for violating the Automatic Stay can be significant, including fines and attorneys fees and it is therefore very important to seek Relief from the Automatic Stay before attempting to move forward with any issues that may be in the jurisdiction of the bankruptcy court. In order to avoid costly mistakes for divorce clients, we encourage divorce practitioners to consult with bankruptcy counsel when there is the potential that one party in the divorce will file for bankruptcy.

Of course, issues relating to custody are not affected by the Automatic Stay and can continue, though this may require a bifurcation of the probate matter.

Click here to read the other 3 Facts:
Fact #4: Jurisdiction over your Assets
Fact #3: Jurisdiction over your Debts
Fact #2: Domestic Support Obligations.

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #2: Domestic Support Obligations

2011-02-09T10:00:00.010-05:00

U.S. Bankruptcy Code Title 11 Section 101 14(A) defines a "domestic support obligation" as:

"a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable non-bankruptcy law notwithstanding any other provision of this title, that is

(A) owed to or recoverable by
(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or
(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of--
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.”

Domestic Support Obligations are generally non-dischargeable debts (except in some cases in a Chapter 13 after partial payment). This means that even if a spouse or former spouse files for bankruptcy, the Divorce Court can still order them to pay alimony or child support, and can still make orders relating to the collection of alimony and child support. This information is very important because it often means that an ex-spouse filing for bankruptcy can actually be helpful when alimony or child support is owed. Since the debtors other debts are now stayed and likely dischargeable, the alimony and child support will be easier to pay.

In addition, our previous post highlighted one of the ways that the category of "domestic support obligation" can be used to avoid problems such as the discharge of joint debts by categorizing certain payments as alimony.

Understanding what is and what is not a "domestic support obligation" can be very important in drafting and enforcing Divorce Agreements. In order to avoid costly mistakes for divorce clients, we encourage divorce practitioners to consult with bankruptcy counsel when there is the potential that one party in the divorce will file for bankruptcy.

Click here to read Fact #1: The Automatic Stay.

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #3: Jurisdiction over Your Debts

2011-02-08T10:00:00.002-05:00

The Divorce Court has the power to divide not just assets, but also debts. Just as the Court can assign the property titled to one spouse to the other spouse if the equities require, the Court can also order one spouse to pay the debts of the other spouse. But the Bankruptcy Court has the power to discharge debts. So what happens if the Divorce Court orders a spouse to pay a joint credit card debt, but the Bankruptcy Court gives that same spouse a discharge of that debt.

For purposes of this example, let's assume that the Husband and Wife were each ordered to pay half of a joint credit card debt. The Wife then files for bankruptcy and the credit card debt is discharged. Both the Husband and Wife were liable for the whole debt to the credit card company, but now only the Husband is liable to the credit card company. If the payment ordered by the divorce court is not categorized as a domestic support obligation (discussed in our next post) then the Wife no longer owes the debt to the credit card company or the Husband, and the Husband is left having to pay the entire debt.

It is possible for Separation Agreements or Divorce Judgments to avoid this problem by using assets to pay (or offset) debts, instead of trying to reassign debts. If enough assets are not available to do this then payments such as alimony, which are domestic support obligations, can be used instead to accomplish this same goal and avoid the discharge problem.

This issue can be further complicated when the debt that is at issue is a mortgage or secured debt. In order to avoid costly mistakes for divorce clients, we encourage divorce practitioners to consult with bankruptcy counsel when there is the potential that one party in the divorce will file for bankruptcy.

Click here to read Fact #2: Domestic Support Obligations.

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #4: Jurisdiction over Your Assets

2011-02-07T10:00:00.004-05:00

Many attorneys specialize their practice in order to better serve their clients. While concentrating on a particular practice area can help attorneys focus on making themselves the best in their field, sometimes it causes them to lose sight of the bigger picture. Divorce cases do not occur in a vacuum. When divorcing spouses face financial troubles it is important to consider the possibility of a bankruptcy and how this could affect the different aspects of a divorce.

We have put together this list of four important facts that divorce attorneys should be aware of, to help them better assist their clients who may also be facing a bankruptcy (or have a spouse who may be forced to file for bankruptcy).

Fact #4: Jurisdiction over Your Assets

When a Debtor files for Bankruptcy, they submit their assets to the jurisdiction of the Bankruptcy Court. This means that when a Debtor files for bankruptcy during a divorce case, the assets that would normally be divided in a divorce case are first subject to the jurisdiction of the Bankruptcy Court. While some assets may be joint, the spouse is merely considered another creditor with rights to the joint property that may be subject to the rights of other creditors as well.

A Bankruptcy Judge may allow the Divorce Court to make decisions relating to the division of property, but this is at their discretion, and the Bankruptcy Judge also has the right to make these decisions directly. This power applies even if the divorce has already become final. The bankruptcy laws allow the trustee to take back any items which were transfered up to two years prior to the bankruptcy filing if the transfer was not for fair value (11 U.S.C. § 548(a)(1)) or up to one year prior to the bankruptcy filing if the transfer was to an insider (11 U.S.C. § 547(b)(4)(B)). This means that the Bankruptcy Court can undo a Separation Agreement or Judgment of Divorce in favor of transferring assets from the ex-spouse to other creditors.

Finally, it is important to understand that filing for bankruptcy means that a debtor gives up their rights to decide what happens to their non-exempt assets. The bankruptcy trustee stands in the shoes of the debtor. This means that they can settle a divorce case giving up any rights the debtor may have in their spouse's property. The duty of the trustee is to the creditors not to the debtor.

These are all important consequences of filing for bankruptcy that should be considered when a bankruptcy is filed during or after a divorce case. If you are in a divorce or were recently divorced make sure you discuss this with your bankruptcy attorney. If you are getting divorced and considering bankruptcy, make sure your divorce attorney understands the consequences of filing bankruptcy or consults with a bankruptcy attorney.

Click here to read Fact #3: Jurisdiction over Your Debts.

Should damage to my credit keep me from filing bankruptcy?

2011-02-01T23:35:00.000-05:00

Assuming your bankruptcy goes to discharge without objection, you will now find yourself with the daunting task of rebuilding your credit, post-bankruptcy. A Bankruptcy appears on your credit report and will negatively impact your credit score. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company.

But what is the alternative?

If you have a significant amount of debt and can't make the payments then your credit is already damaged. If you are making the payments but can only make the minimum payments, then you may be able to save your credit but only if you are able to find a way to pay down your debts.

A good guideline for deciding if you are a potential candidate for bankruptcy is to consider how long it will take you to pay down your debts. If you make a realistic budget of all of your income and expenses and pay all of your excess income towards your debts, how long will it take you to pay them off? If the answer is five or more years, then you may be a good candidate for bankruptcy and should consult with an attorney to find out more about your options.

As long as you cannot pay down your debts you won't be able to borrow or use your credit anyway, so filing bankruptcy may be a better alternative. This is especially true if you are only paying minimum payments and have no realistic chance of paying down your debts in the foreseeable future.

How filing (or not filing) affects your credit is only one factor in making a decision about whether or not to file a bankruptcy and you should consider how your credit might be affected by your debts regardless of whether or not you file a bankruptcy.

Supreme Court Decision: Not All Consumers can use Car Ownership Deduction

2011-01-15T10:00:00.000-05:00

The means test is a test required under the new bankruptcy law to determine a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size then you fail part A of the means test and must refer to part B.

In part B of the means test, you must take into consideration certain expenses as defined by the Bankruptcy Code and IRS relating to allowable housing expenses, utility expenses and other deductions, such as regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health insurance. If you are filing for Chapter 13 Bankruptcy, part B of the means test is also used to determine the amount of money left over in your budget for payment on a Chapter 13 Plan.

In either instance, there are two allowable deductions for owning a car: the "ownership" deduction and the "operating" deduction. If you own a car you can take the operating deduction in which the IRS standard estimates your cost for use of your car. If you owe money on your car then you can take the amount of your loan as an "ownership" deduction as well, and the court also provides an IRS standard estimate for the "ownership" deduction. But what if you don't owe any money on your car, or your lien expense is less than the standard "ownership" deduction?

This question was answered differently by a number of appeals courts in the U.S., and on Tuesday, January 11, 2011, the U.S. Supreme Court resolved the inconsistency by upholding a 9th Circuit decision on this issue. The Supreme Court in Ransom v. Fia Card Services (Judge Kagan's first decision on the high court), decided that a consumer who does not have a lien on their car in a Chapter 13 case cannot use the "ownership" deduction to reduce their payment. Although, not addressed directly by the Court, this decision would also presumably apply to use of this deduction to meet the Chapter 7 Part B Means Test.

The Court rejected the debtor's argument that this application of the law would result in unfair policies favoring people who owed money on their car (i.e. bought newer cars before filing bankruptcy), and based their decision primarily on the Court's interpretation of the use of the word "applicable" in the statute. Judge Scalia in his dissent points out the absurdity of this reading and the confusion it may create. Specifically, this ruling does not clarify whether the "ownership" deduction can be taken in whole when the lien payment is less. Although meeting the standard of being an "applicable" deduction, this result would not really make sense in light of the court's ruling.

Regardless of whether the ruling is completely consistent, it is now the law, and for Chapter 13 consumers that have paid off cars, this means they will be making higher payments to their creditors.

New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

2011-01-13T23:52:00.000-05:00

On Friday, January 7, 2011, the Massachusetts Governor signed a bill amending (and significantly increasing) the personal property of Massachusetts residents that is protected from seizure by creditors. These "exempt" assets cannot be reached by your creditors in an execution or sold in a bankruptcy proceeding. The changes go into affect on April 7, 2011.

More specifically in bankruptcy you can choose between the Federal exemptions and State Exemptions. The increases in the personal property state exemptions may have a significant impact on which option you choose. Below we have provided a comparison between the old and new exemptions along with our comments:

OLD Massachusetts Exemptions - Necessary wearing apparel, beds, bedding, and 1 heating unit.
NEW Massachusetts Exemptions - Necessary wearing apparel, beds, bedding, 1 heating unit, 1 stove, 1 refrigerator, 1 freezer, and 1 hot water heater.
Comments - It would appear that the Massachusetts' exemptions want you to list “fixtures” that would otherwise be included in the equity of your primary residence. Normally, we do not list fixture appliances separately, and the trustee has never taken issue with it. However, in order to maximize the exemptions you can take, you might consider listing these items and exempting them specifically.

OLD - The amount each month, not exceeding $75, reasonably necessary to pay for fuel, heat, water, hot water and light.
NEW - The amount each month, not exceeding $500, reasonably necessary to pay for fuel, heat, refrigeration, water, hot water and light.
Comments - An appropriate recognition of the increase in these expenses (at least to some extent).

OLD - Household furniture not exceeding $3,000.
NEW - Household furniture not exceeding $15,000.
Comments - Brings household goods and furnishings on par with the federal exemptions – a bit more generous, actually.

OLD - The bibles, school books and library, not exceeding $200.
NEW - The bibles, school books and library, not exceeding $500.
Comments - Not usually an issue, but maybe our clients are just not big readers.

OLD - 2 cows, 12 sheep, 2 swine and 4 tons of hay.
NEW - 2 cows, 12 sheep, 2 swine and 4 tons of hay.
Comments - No change. Good for farmers. Nobody else cares.

OLD - Tools for trade or business, not exceeding $500.
NEW - Tools for trade or business, not exceeding $5000.
Comments - A major and reasonable increase for tradesman, a more common issue then protecting your cows and swine.

OLD - Materials and stock for trade or business, not exceeding $500.
NEW - Materials and stock for trade or business, not exceeding $5000.
Comments - Ditto.

OLD - Provisions necessary for debtor or family, not exceeding $300.
NEW - Provisions necessary for debtor or family, not exceeding $600.
Comments - Normally, we do not list food on hand, and the trustee has never taken issue with this either. This suggests a greater level of detail may be expected in the future.

OLD - One pew in a house of public worship.
NEW - One pew in a house of public worship.
Comments - No change. Also hasn't been much of an issue for our past clients, maybe for the same reason they haven't been exempting their bibles.

OLD - Boats, fishing tackle and nets of fishermen actually used in their business, not exceeding $500.
NEW - Boats, fishing tackle and nets of fishermen actually used in their business, not exceeding $1,500.
Comments - Even tripling this deduction is not going to leave room for much of a boat. Looks like fisherman will not be left as well off as farmers after a bankruptcy.

OLD - The uniform of an officer or soldier in the militia and the arms and accoutrements required by law to be kept by him.
NEW - The uniform of an officer or soldier in the militia and the arms and accoutrements required by law to be kept by the officer or soldier.
Comments - A nice gender recognition update, but otherwise no change.

OLD - Rights of burial and tombs in use as repositories for the dead.
NEW - Rights of burial and tombs in use as repositories for the dead.
Comments - The words “in use” implies that the plot is only exempt if other family members are already buried there. If you purchase a plot, and no other family member is buried there prior to your petition date, this would mean it is non-exempt. It would still seem worth trying to exempt it, but we don’t know how that would turn out. In reality this doesn't seem like an asset the trustee is likely to auction for much.

OLD - One sewing machine, in actual use, not exceeding $200.
NEW - One sewing machine, one computer and one television, in actual use, not exceeding $300 each in resale value.
Comments - Even though a specific exemption has been added for a TV and a Computer, these items would also likely fit into the Household Furnishings exemptions. I'll also note that my mom, an avid quilter, would be happy about the sewing machine value increase (not that it matters to you, but maybe she'll be happy to get mentioned on our blog).

OLD - Share in Co-Ops, not exceeding $100.
NEW - Share in Co-Ops, not exceeding $100.
Comments - Also never needed this one. Not yet anyway.

OLD - Estates of homestead as defined in ch. 188 or, in lieu thereof, the amount of money each rental period, not exceeding $200 per month, necessary to pay the rent for the dwelling unit occupied by him and his family.
NEW - Estates of homestead as defined in ch. 188 or, in lieu thereof, the amount of money each rental period, not exceeding $2,500 per month, necessary to pay the rent for the dwelling unit occupied by him and his family.
Comments - Homestead exemption remains at $250,000. You get the full $500,000 if you’ve lived there for 3 years. In addition, the practical application of this section will be affected by the new MA Homestead Law.

OLD - Cash, savings, wages, not exceeding $125.
NEW - Cash or savings, not exceeding $2,500 (and wages equal to the greater of 85% of the debtor’s gross wages or 50 times the greater of the federal or the Massachusetts hourly minimum wage for each week or portion thereof).
Comments - The Trustee has opposed our characterization of accounts receivable as wages in the past, and required that they be considered an asset. These limitations should be considered if you are owed wages, and could perhaps affect the timing of your filing.

OLD - An automobile, not exceeding $700.
NEW - An automobile, not exceeding $7,500 (a handicapped person or a person 60 years of age or older shall be exempt up to $15,000 ).
Comments - This is a major increase, and is an issue in almost every case (because most people aren't riding their 2 cows to work). In fact, this increase is greater than the Federal Exemption ($3,225) and may play a big part in choosing the Massachusetts Exemptions in the future.

ADDITIONAL NEW SECTIONS- The debtor’s aggregate interest in any personal property, not to exceed $1,000 in value, plus up to $5,000 of any unused dollar amount of the aggregate exemptions provided under clauses Second (household furnishings), Fifth (tools) and Sixteenth (auto).
Comments - Again, this brings the Massachusetts Exemptions more in line with the Federal Exemptions (which contain a $1,075 catch-all).

ADDITIONAL NEW SECTIONS- The debtor’s aggregate interest in jewelry, not to exceed $1,225 in value.
Comments - Most often used for wedding rings (I guess people like to keep those if possible). $1,350 under Federal Exemptions.

Overall Comments - Many of these changes appear to be drafted with the intention of preventing or limiting wage garnishment or asset seizure in conjunction with collections cases. The bankruptcy code will allow them to be honored as exemptions, which, in many ways, are more generous than the federal exemptions. However, considering the frequency that the Massachusetts Exemptions are amended versus the frequency that the Federal Exemptions are amended, there will be a point where these figures will stagnate, and you will still be better served by the Federal Exemptions, which update often.

Click here to read the current Massachusetts Personal Property Exemptions (the Old Law) and here to read the New Law (effective on April 7, 2011).

What if my Bank tells me to Stop Paying my Mortgage?

2011-01-13T10:20:00.001-05:00

We get this question all the time from potential bankruptcy clients, and we always answer this question with a question: Do you have that in writing?

Unfortunately, more and more people are claiming they were told by bank customer service representatives that they should stop paying their mortgage payments. In many cases this is the "advice" given when requesting a refinancing or trying to convince a bank to accept a short sale. However, I have never had one of these homeowners tell me that they obtained this advice in writing.

The result is too often a foreclosure proceeding that the homeowner now wants to avoid. But if they can't cure the arrears they may not be able to keep the property at this point unless they can prove the advice that they were given. According to a recent ABA Journal article, even a Judge fell for this trap.

If you have a mortgage, it requires you to make regular payments or end up in default, which could lead to foreclosure. Don't take advice that says any different unless you get a written agreement from the bank to forgo payment. If you don't make your payments, and have no evidence that the bank advised you to do so, then you put yourself at risk of foreclosure.

How should I List My Car on the Bankruptcy Schedules?

2011-01-05T12:00:00.005-05:00

We recently posted about how the bankruptcy law affects your automobile, and whether or not you will be able to keep it if you file. One of the factors discussed in our previous post is how much equity is in your car (value minus loan balance). But what if the trustee disagrees about the value of your car?

In Schwab v. Reilly, 130 S.Ct. 2652 (2010), the Supreme Court decided that a trustee could auction an item of personal property (kitchen equipment in this case) and pay to the debtor any amount claimed exempt and distribute any excess received to the creditors.

As an example, if you list the value of your car to be $3,000 and claim a $3,000 exemption, then your car is fully exempt under the Federal Exemptions. However, under the Schwab case, if the trustee believes your car to have a value over $3,000, then the trustee can take the car, auction it, give you $3,000 and pay any extra received to the creditors. Considering that in this example you had further exemption available ($225 for a motor vehicle and up to $11,200 in "wild-card"), this result seems unfair, but is within the trustee's powers.

We generally recommend that clients obtain a fair market value for their car from kbb.com, nada.com or edumunds.com rather than guess or estimate the value.

In addition, in order to avoid the scenario in Schwab, when listing your car (or other personal property that is particularly important to you) in the bankruptcy schedules you should claim the exemption up to the maximum amount available by stating in the description of the item that "debtor intends to exempt 100% of fair market value." This is the language suggested by the Supreme Court in Schwab.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

New Homestead Exemption in Massachusetts

2011-01-04T12:00:00.003-05:00

Each state provides for a homestead exemption for debtors filing for bankruptcy. A homestead exemption allows for a debtor to protect the equity in his or her homestead, up to certain limits.

The law as it had been written left some questions unanswered, and two weeks ago an amended Homestead Law was signed (which will take effect in March, 2011) in Massachusetts that attempts to provide some guidance.

In figuring out what this means to you, it is important to know the nature of your ownership interest in your homestead. All individuals owning real estate used as their home shall have a homestead exemption in the amount of $125,000. If there are multiple owners of the real estate as joint tenants (a form of ownership where the real estate passes automatically to the surviving owner or owners upon the death of another owner) or as tenants by the entirety (joint tenants for married couples), each owner has a homestead exemption of $125,000, but the aggregate may not exceed $125,000. If the real estate is owned as tenants in common (the most common form of real estate holding, pun intended), the owners are allowed a homestead exemption in accordance with their percentage interest. For example, a twenty percent owner as a tenant in common would be entitled to a $25,000 homestead exemption (20% x $125,000).

The prior law left some ambiguity as to whether multiple owners filing a Declaration of Homestead would interfere with the homestead exemption. A Declaration of Homestead is what you need to file in order to claim a homestead exemption. Basically, it prevents a creditor of less than the amount of equity in your house from foreclosing on your house. The new law makes clear that multiple owners may claim a homestead in the same home. Additionally, trust beneficiaries may claim a homestead estate.

The new homestead law clarifies that two-to-four family homes, condominiums, co-operative housing and manufactured homes may be covered by a homestead declaration as well.

If you would like more information about how to prepare a Declaration of Homestead, contact Attorney Matthew Trask or call 508.655.5980 to schedule a free one-hour consultation.

What Will Happen to My Car if I File for Bankruptcy?

2011-01-03T14:36:00.005-05:00

When filing for Bankruptcy under Chapter 7 and Chapter 13, certain property of the debtor is exempt from the Bankruptcy estate, which means simply that the debtor can keep that property (and the trustee and creditors can't take it).

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes and many that are different.

As of April 14, 2009, the allowable exemption for motor vehicles was $3,225 under the Federal Exemptions and $700 under the Massachusetts Exemptions. This means that if you choose the Federal Exemptions you can keep your car so long as it has less than $3,225 in equity (value of the car minus balance of the loan).

In addition to the value of the motor vehicle exemptions, the Federal Exemptions also allow for some "wild-card" exemptions: $1,075 generally and $10,125 of unused homestead exemption. If you have few other assets besides your car you may be able to use these "wild-card" exemptions to exempt further equity in your car if it has equity over $3,225.

If your car is subject to a loan you will have to reaffirm said loan or the car will be surrendered to the lender or trustee for sale. For more information about available exemptions click here.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

Should I Reaffirm my Mortgage Debt? What about a Second Mortgage?

2010-12-30T16:49:00.004-05:00

Addressing mortgage debt is often a primary concern in many consumer bankruptcies. Debtors that decide to continue to pay the mortgage on their current house may be setting themselves up for future financial problems if they have difficulty paying the mortgage, post-bankruptcy. Alternatively, a debtor may be able to discharge the underlying mortgage and surrender the house back to the bank if the payments are not affordable, but is then faced with finding a new place to live. The decision of whether or not to re-affirm comes down to the specific facts of your case and what is a realistic future budget for your household.

Popular mortgage packages offered in the past ten years often featured “jumbo” financing: that is, financing of nearly one-hundred percent of the purchase price of the home. In many cases, this was done with a primary traditional mortgage, which financed approximately 80% of the purchase price, then a second mortgage or home equity line of credit that financed the balance.

Today, with the decline in home prices, many borrowers find themselves owing more on their homes than they are worth; in extreme cases, the second mortgage may be completely unsecured because the home is worth less than the balance of the first mortgage, without even adding in the balance of the second. In some cases, it is possible to “strip off” an unsecured second mortgage in bankruptcy, leaving the borrower with only one mortgage to pay. It is generally accepted that in Chapter 13 bankruptcy, a second mortgage can be avoided, and treated as unsecured debt.

Although, most attorneys believed that this could be done in a Chapter 7 case, an Eastern District of New York bankruptcy case may suggest otherwise. Here, the Debtors owned a house, where the fair market value was less than the balance of the first mortgage, leaving the second mortgage unsecured. After filing bankruptcy, the bank requested for permission to foreclose on the second mortgage the debtors opposed; arguing that the bank could not foreclose because the second mortgage should be avoided as wholly unsecured and not treated as secured debt.
The Court agreed.

The bank was not permitted to foreclose, and the lien was permanently voided. Judge Eisenberg explained that the well-recognized holdings in Chapter 13 clearly demonstrate that under the Bankruptcy Code it is appropriate to distinguish partially secured liens from wholly unsecured liens, and that there is no reason why in a Chapter 7 context the same language in the Bankruptcy Code should not void the lien of a wholly unsecured claim.

Of course, this is the outcome of a single New York case, and the bankruptcy Judges in Massachusetts are not obligated to follow this outcome. However, given the proper circumstances, it may be an option to consider. If you would like

Kelsey & Trask, P.C. would like to thank Dan Press, Esq., a Maryland Bankruptcy Attorney, for inspiring this article.

Will I Lose my Professional License if I file for Bankruptcy?

2010-12-30T10:00:00.000-05:00

Pursuant to section 525(a) of the bankruptcy code a government agency cannot deny, revoke, suspend or refuse to renew a license to a person who has filed for bankruptcy, solely due to their filing for bankruptcy. This means that you will not lose your license to practice your profession due to filing, but it does not mean that you won't lose your license for related reasons if you have violated the standards of your profession.

For example, an attorney in Texas lost his license to practice law based on his failure to comply with a debt management plan and eventual bankruptcy. The Court relied on the questions his poor debt management raised about whether he could demonstrate that "he was a person of good moral character." The decision was not solely due to his bankruptcy, but the "good moral character" standard used by the Court was so vague as to give the bar great leeway in denying a license.

Regardless of whether you are forced to file bankruptcy, you should refer to the specific standards and requirements of your profession and ensure that you comply with those standards and requirements to avoid a similar fate.

Can I Lose my Job for Filing Bankruptcy?

2010-12-29T08:50:00.005-05:00

It is prohibited by the Bankruptcy Code for an employer to fire you solely because you filed for bankruptcy.

Section 525(a) of the bankruptcy code states that a governmental unit may not

"deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act."

Similarly, Section 525(b) prohibits private employers from terminating the employment or discriminating with respect to employment of a person who is or has been a debtor under all the same circumstances quoted above.

It is important to note, though, that the same standards may not apply to hiring discrimination. Recently, the Third Circuit Court of Appeals held in Rea v. Federated Investors that the omission of the words "deny employment to" in subsection (b) meant that private employers could discriminate against a potential employee because that person had filed for bankruptcy. The Court decided that the inclusion of the words "deny employment to" in subsection (a) was a significant difference in the obligations of governmental employers and private employers.

Special thanks to the Lawffice Space Blog for bringing this recent case to our attention.

Don't Go Alone Word Cloud

2010-12-22T17:06:00.003-05:00

Wondering what we've been writing about. Below is a word cloud generated by Wordle displaying our most written about subjects:

What will happen at your Section 341 Creditor's Meeting?

2010-12-14T22:14:00.000-05:00

After a bankruptcy petition is filed under Chapter 7 or 13, each "petitioner" must sit through their section 341 meeting of creditors, usually scheduled approximately 30 days after the filing date. Many of our bankruptcy clients feel anxious leading up to their 341 meeting as they are unsure as to what to expect, but if you are prepared there is nothing to worry about.

The majority of 341 meetings only last five to ten minutes. You are required to bring your social security card and driver's license for identification. The trustee will review your identification, swear you in and ask you a few basic questions after reviewing your petition, for example your current living arrangements, whether you own any businesses, and whether you are the beneficiary of any trusts. If anything on your petition sticks out to the trustee, he or she might ask a few follow-up questions. Usually, if there is something that will stick out to the trustee, your attorney will have already asked you the same questions that the trustee will ask.

Generally, creditors do not attend the 341 meeting, although they have the right to be there and may be given the opportunity to ask you some basic questions. If you owe the IRS taxes, they will often attend the creditors meeting and ask questions relating to the petition. Again, your attorney should prepare you for the potential questions that might be asked if a creditor does decide to attend the meeting.

If you would like more information about how to prepare for your creditor's meeting, contact Attorney Matthew Trask or call 508.655.5980 to schedule a free one-hour consultation.

How do I decide when to file for Bankruptcy?

2010-12-07T11:51:00.001-05:00

There are numerous factors that dictate the best time to file your bankruptcy. Sometimes these are in your control, such as having your taxes filed, and sometime they are not, such as needing the automatic stay to delay a foreclosure proceeding.

Factors regarding the need to obtain an automatic stay will likely be dictated by your creditors, not you. The automatic stay is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as collection efforts, collection calls and lawsuits filed by your creditors, if any. This foreclosure and debt collection process generally takes a few months, not a few days, and the benefit of the automatic stay can create some additional time for the debtor to deal with logistical issues associated with preparing the bankruptcy petition, appraising assets, selling real property or finding new housing, if necessary.

In order to file for bankruptcy under any section of the Bankruptcy code (Chapter 7, 11, or 13), your federal income taxes must be filed up to the current year (2008). Other documents are necessary for preparing the bankruptcy petition and schedules, such as a credit report, current credit card statements, bank statements, and income information. If this information is not immediately available, it will take some time to collect and review. If you believe a bankruptcy filing is on the horizon, your best bet is to contact an attorney for a bankruptcy planning consultation, then begin preparing the information needed to file.

Equally important in deciding when to file is a debtor's own ability to handle the current situation, balanced against their need to make immediate changes. Some debtors will need time to prepare for relocation to an apartment or smaller home, whereas others will be anxious to take action to save their house or get a fresh start. These factors are unique to each case, and should be discussed with an attorney before filing your bankruptcy petition.

2 cows, 12 sheep, 2 swine and 4 tons of hay.

2010-12-03T23:07:00.001-05:00

Are you overwhelmed with debt, but worried about your sheep? Bankruptcy might be the answer to your problems.

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans.

There is one significant difference between the Massachusetts and Federal exemptions, though: under the Massachusetts' exemptions you can exclude from the bankruptcy 2 cows, 12 sheep, 2 swine and 4 tons of hay (M.G.L. c. 235 s. 34)

There is also one other significant difference worth mentioning between the Federal and Massachusetts exemptions: the equity in a residence is exempt under the Massachusetts exemptions up to $500,000 but only $20,200 in the Federal exemptions. Of course, who needs a home so long as you have your flock.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

I am the Trustee of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

2010-11-05T12:00:00.001-04:00

If a debtor is a trustee of a trust, 11 U.S.C. § 541(a) provides that the bankruptcy estate includes the trustee’s powers granted under the trust instrument. The bankruptcy trustee has the power to step into the trustee’s shoes and exercise the trustee’s powers with respect to the trust, but this does not mean that the assets of the trust automatically become assets of the bankruptcy estate; rather, the assets in the trust remain separate from the bankruptcy estate.

However, depending on the terms of the trust, the trustee may have the power to revoke or terminate a trust, the power to amend the trust, or the power to direct distributions of funds of the trust. Therefore, these powers could allow the bankruptcy trustee (acting in place of the original trustee) to obtain access to the trust assets, particularly if the trust assets could be made available to the debtor. Additionally, when the trustee and beneficiary are the same person (and are the debtor in a bankruptcy case), the legal protections of the trust are “merged” into the sole trustee and beneficiary, making the debtor the sole beneficial "owner" for purposes of the bankruptcy code.

I am the Beneficiary of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

2010-11-04T11:35:00.001-04:00

A beneficiary’s interest in a trust may be property of the bankruptcy estate. However, any trust containing spendthrift provisions that make the beneficiary’s interest in the trust non-transferable are protected from the beneficiary’s creditors. 11 U.S.C. 541(c) honors state spendthrift clauses. Therefore, if the trust is properly created under Massachusetts law pertaining to trusts, the bankruptcy code will honor the settelor’s intentions and keep the debtor-beneficiary’s interest in the trust from becoming property of the bankruptcy estate.

Trust beneficiaries should be careful, however. If the settler and beneficiaries are the same, the trust is self-settled, rendering spendthrift provisions unenforceable. Further, if the doctrine of merger applies (described above), the trust will cease to exist and negates the spendthrift protection.

Can I Use My Credit Cards Before Filing for Bankruptcy?

2010-11-01T20:06:00.000-04:00

The U.S. Bankruptcy Code at 11 U.S.C. § 523(C) sets forth evidentiary presumptions allowing the bankruptcy trustee or an individual creditor to automatically presume a particular credit card purchase or cash advance is non-dischargeable. If the presumption applies and is not rebutted with evidence introduced by the debtor, the debtor [you] will continue to owe that particular debt.

Specifically, the code states that a debtor’s discharge will specifically exempt from the discharge:

(I) consumer debts owed to a single creditor and aggregating more than $600 (as of April 1, 2010) for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and

(II) cash advances aggregating more than $875 (as of April 1, 2010) that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.

As a result of 11 U.S.C. § 523(C), debtors are advised to make no purchases on credit cards in the three months (90 days) prior to their bankruptcy filing in order to ensure that the above presumption does not attach, and significantly reduces the likelihood that the trustee or a creditor will object to the discharge of a particular debt.

Unfortunately, sometimes it is not possible to wait the full 90 days. Some debtors need to seek the protection of the Bankruptcy Court to prevent foreclosure, to stop a pending lawsuit, or prevent repossession of a particular secured asset. In these cases, many debtors will have made recent purchases within the 90-Day period. It is important to discuss these purchases with your bankruptcy attorney, as things like travel, vacations, electronics or computer purchases may all be deemed “luxury” under the statute.

At the §341(a) meeting, nearly all Chapter 7 Trustees in Massachusetts will ask whether a creditor has “used any credit card in the past 30 days prior to filing bankruptcy”. The trustee is attempting to evaluate the likelihood that an 11 U.S.C. § 523(C) Complaint to Object to Discharge will be filed. While use of credit cards in the 30 days prior to filing is not proof of abuse (and grounds for nondischargability), it would raise the trustees suspicions that further investigation is warranted. As such, at Kelsey & Trask, P.C., we recommend that all creditors do not use any credit card or create any new debt in the 30 days prior to filing a Chapter 7 Bankruptcy case.

What’s With My Credit Score? - Infographic

2010-10-15T22:53:00.001-04:00

Reprinted from Free Credit Score – CreditSesame.com

New Median Income Figures Released for all Bankruptcy Cases Filed after November 1, 2010

2010-10-14T22:37:00.003-04:00

The United States Trustee Program has released new Census Bureau data which is used for means testing calculations regarding Chapter 7 and Chapter 13 bankruptcy petitions. Due to the updated figures, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after November 1, 2010.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $54,161
Family Size of 2: $67,142
Family Size of 3: $82,385
Family Size of 4: $100,462

In addition, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, a complete list is provided here.

In addition, the Kelsey & Trask, P.C. bankruptcy website has been updated to reflect the new figures, including updates to the Kelsey & Trask P.C. Means Test Calculator, and also our Mobile Means Test Calculator, optimized for use on smartphones. We will also be making the same updates to our Means Test Calculator iPhone App in the near future, so be sure to update your App.

Small Claims Redefined - Up to $7,000

2010-10-12T17:39:00.000-04:00

As part of AN ACT RELATIVE TO ECONOMIC DEVELOPMENT REORGANIZATION on August 5, 2010, the Massachusetts legislature raised the amount in dispute that may be heard in small claims court from $2,000 to $7,000. SECTION 156 of said Act states:

Section 21 of chapter 218 of the General Laws, as so appearing, is hereby amended by striking out, lines 6 and 35, the following words, "two thousand dollars" and inserting in place thereof, in each instance, the following figure:- $7,000.

There is no doubt that this will increase the number of small claims cases, with the hope that it will also decrease the caseload on the district court process. This change may also increase the overall number of claims, however, by making it easier for potential creditors to seek judicial relief from debtors.

Small claims court is operated slightly differently from ordinary district court. The process is streamlined so that disputes are heard quicker than in the district courts. Instead of a judge and jury hearing the case, a court magistrate will preside and make a judgment.

Small claims court was designed to create a user-friendly environment for resolving disputes over an amount of money that was too small to justify hiring an attorney or having lengthy discovery and trials. Because of the expanded jurisdiction of small claims court to hear controversies over larger sums of money, there is more an incentive to hire representation since there is more at stake. The process can still be cheaper than district court, though, because of the simpler and quicker procedure.

For more information and frequently asked questions regarding small claims court procedure in Massachusetts, visit the Massachusetts Small Claims website or our new Small Claims page.

If you are owed money that you have not been successful in collecting on your own, or if you have had a small claims suit filed against you (called a "Statement of Claim and Notice of Trial") and wish to speak with an attorney regarding representation, contact Attorney Matthew Trask or call 508.655.5980 to schedule a FREE One-Hour Initial Consultation.

Bankruptcy Filings Starting at $999 plus Filing Fee

2010-09-30T15:08:00.000-04:00

At Kelsey & Trask, P.C. we file for bankruptcy relief on behalf of our clients for a flat fee. We are a debt relief agency. We help people file bankruptcy relief under the Bankruptcy Code. Assuming you qualify for filing bankruptcy we have created a calculator that displays how we determine the fee we will charge.

Our bankruptcy fees start at $999 and go up depending on the complexity of your case. Each of the questions in the calculator help us determine how complicated your case will be. To estimate your likely attorneys fees complete the form located here.

The form is also available in a mobile web-app:

New Ban on Texting While Driving Goes Into Effect in Massachusetts Today

2010-09-30T13:25:00.000-04:00

We don't typically handle many moving violations at Kelsey & Trask, but a new law in Massachusetts goes into effect today, banning text messaging while driving. As a public service announcement to our readers, the text of the statute that applies to drivers over the age of 18 (M.G.L. 90 § c. 12A) is reproduced below:

Section 12A. (a) No operator of a vehicle or vessel used in public transportation, including a train, passenger bus, school bus or other vehicle used to transport pupils, passenger ferry boat, water shuttle or other equipment used in public transportation owned by, or operated under the authority of the Massachusetts Bay Transportation Authority, the Woods Hole, Martha's Vineyard and Nantucket Steamship Authority, Massachusetts Port Authority, or the Massachusetts Department of Transportation, shall use a mobile telephone, hands-free mobile telephone or other mobile electronic device while operating such vehicle or vessel; provided, however that this section shall not apply to the operator of a vehicle or vessel used in public transportation using a mobile telephone, hands-free mobile telephone or mobile electronic device in the performance of the operator's official duties; provided, however, that in order for the use of any such device to be made "in the performance of the operator's official duties,'' such use must have been made in conformance with applicable written guidelines issued by a public entity listed in this paragraph relative to circumstances when operators are permitted to use said devices in the performance of their official duties or pursuant to directives from federal authorities having regulatory jurisdiction over such public entity's operations.

Whoever violates this section shall be punished by a fine of $500. A violation of this section shall not be a moving violation for purposes of the safe driver insurance plan under section 113B of chapter 175.

(b) It shall be an affirmative defense for an operator under this section to produce evidence that the use of a mobile telephone that is the basis of the alleged violation was in the case of an emergency. For the purpose of this paragraph, an emergency shall mean that the operator needed to communicate with another to report any of the following: (1) that the vehicle or vessel was disabled; (2) that medical attention or assistance was required on the vehicle or vessel; (3) that police intervention, fire department or other emergency services was necessary for the personal safety of a passenger or to otherwise ensure the safety of the passengers; or (4) that a disabled vehicle or an accident was present on a roadway.

The statute that applies specifically to drivers under the age of 18 (M.G.L. c. 90 § 8M) is as follows:

Section 8M. No person under 18 years of age shall use a mobile telephone, hands-free mobile telephone or mobile electronic device while operating a motor vehicle on any public way. For the purposes of this section, a junior operator shall not be considered to be operating a motor vehicle if the vehicle is stationary and not located in a part of the public way intended for travel.

A junior operator who violates the preceding paragraph shall be punished by a fine of $100 and shall have his license or permit suspended for 60 days for a first offense and shall not be eligible for license reinstatement until he also completes a program selected by the registrar that encourages attitudinal changes in young drivers; for a second offense by a fine of $250 and shall have his license or permit suspended for 180 days; and for a third or subsequent offense by a fine of $500 and shall have his license or permit suspended for 1 year.

It shall be an affirmative defense for a junior operator to produce evidence that the use of a mobile telephone, hands-free mobile telephone or mobile electronic device that is the basis of the alleged violation was for emergency purposes. For the purpose of this section, an emergency shall mean that the junior operator used the hands-free mobile telephone or mobile electronic device to communicate with another to report any of the following: (i) that the motor vehicle was disabled; (ii) that medical attention or assistance was required; (iii) that police intervention, fire department or other emergency service was necessary for the personal safety of the operator or a passenger; or (iv) that a disabled vehicle or an accident was present in the public way.

A penalty under this subsection shall not be a surchargeable offense under section 113B of chapter 175.

Inconvenient Convenience Accounts: What happens to a Joint Bank Account in Bankruptcy?

2010-09-27T17:48:00.000-04:00

What is the effect of having your name on a joint bank account if you later file for bankruptcy?

Sometimes it just makes sense to give a trusted friend or family member access to our bank accounts. Commonly referred to as "convenience accounts," this often happens when parents wish to give their adult children the authority to take care of their affairs as they age by putting their child's name on their bank accounts. If that child later files for bankruptcy, a bankruptcy trustee might view the account as being the child's property, meaning that all or a portion of it may be at risk of being seized in bankruptcy proceedings.

In determining whether a convenience account is an asset which may be seized in a bankruptcy proceeding, courts will look at whether the original account holder intended to make a gift of access to the account or rather for their own convenience (so that an additional person could merely write checks to pay for the original account holder's bills), and the extent to which the additional person exercised ownership of the account (in other words, did he or she use the funds from the account for personal expenses, or was his or her use consistent with the original account holder's intent?). The law presumes that adding another person onto a bank account is a gift, which means that it can be difficult to convince a court that the additional person was added to the account for convenience, and the account should not be considered an asset to be seized in a bankruptcy proceeding.

The easiest way to avoid this risk is to execute a Durable Power of Attorney. This still allows for another person to write checks from your bank account should the need arise, and doesn't risk a bankruptcy trustee seizing your personal savings if your child files for bankruptcy.

If you need help weighing your options, contact Attorney Matthew Trask or call 508.655.5980 to schedule a free one-hour consultation.

UPDATE! Reaffirmation of Mortgage Debt

2010-09-27T16:40:00.003-04:00

Last week, we addressed whether or not a debtor should consider reaffirming mortgage debt to ensure that their right to remain in their home, in the event the debtor does not reaffirm debt secured by real property. One open question is whether a the failure to reaffirm a debt creates a risk that the lender may foreclose on an otherwise current mortgage gives the lender the right to immediately foreclose on the mortgage. Many mortgages contain a term whereby the act of filing bankruptcy constitutes a default, even if payments are current, and the bank can recover its security interest securing the loan.

Prior to the 2005 Bankruptcy Abuse Protection Act (“BAPCPA”) reforms, debtors could retain personal property (mortgages, car loans, etc.), provided they remained current on the monthly payments, called "ride through". However, BAPCPA largely eliminated the so-called “ride through” option for security interests in personal property; the result of which is that now, in order to keep personal property securing a loan, the debtor and creditor would have to execute a reaffirmation agreement. In a reaffirmation agreement, the creditor would contractually exclude the debt from discharge in bankruptcy.

While the law was clear that BAPCPA imposed a reaffirmation requirement on personal property transactions, the law made no clear indication as to whether a debtor could retain a security interest in real property, absent a reaffirmation agreement. Recently, in In re Caraballo, the Connecticut Bankruptcy Court addressed this issue, and determined that debtor’s ongoing retention of real property does not require the execution of a reaffirmation agreement. 386 B.R. 398, 400 (Bankr. D. Conn. 2008). As such, bankruptcy petitions may keep their property during and after bankruptcy, as long as they remain current on their payments. Additionally, the “ride through” option preserves the previous terms of the loan or finance agreement, thereby preventing creditors from imposing harsher terms on debtors during the bankruptcy process.”

The Caraballo court, in reaching its conclusion, held that the mortgage holder could not foreclose on the debtor who did not reaffirm as long as payments continued on the mortgage, thereby providing an additional layer of protection to a debtor who has not reaffirmed his mortgage debt (either intentionally or at the lender’s refusal), and adds an additional layer of complexity when determining whether or not to reaffirm mortgage debt.

Protecting your Home: Reaffirmation of Mortgage Debt

2010-09-21T15:00:00.002-04:00

Upon filing for bankruptcy, the assisted debtor has the option of discharging mortgage debt, meaning that they are not obligated to continue to make a monthly mortgage payment. Of course, it is a near certainty that the secured creditor will foreclose on the mortgage and take the debtor’s house. Occasionally, during the course of a bankruptcy proceeding, a debtor will determine that it is in his or her best interest to keep their primary residence, and continue to pay the mortgage.

Reaffirmation is an undertaking not to be considered lightly. Once you receive a discharge under Chapter 7, you may not file bankruptcy again for 8 years. So, if you experience economic hardship after you have received your discharge and re-obligated yourself to pay the mortgage, you may be held personally liable for any deficiency in the event of a foreclosure. This could mean liens, wage garnishments and personal property attachments.

If you and your attorney believe it is in your best interest to reaffirm mortgage debt, you must execute a reaffirmation agreement: a contract between you and your creditor indicating that you wish to remain liable on a debt. The reaffirmation is complete when the creditor prepares the formal reaffirmation agreement, which the debtor reviews and signs, and is then filed with the bankruptcy court by the creditor.

Unfortunately, you cannot force a creditor to reaffirm a debt – you can only indicate your willingness to do so. A creditor’s refusal to reaffirm happens more often than you may think. Unlike personal property, the bankruptcy law does not require an executed reaffirmation agreement for a debtor to retain real property securing a debt. (Put another way, if your lender is unwilling to reaffirm your car loan, you can either pay off the loan in full or allow the lender to repossess the car. If your mortgage company refuses to reaffirm, there is no requirement that you must turn the house over to the bank unless the bank initiates a foreclosure). In the current market, lenders will rarely, if ever, attempt to foreclose on a loan if the creditor is current with the payments and remains current on the mortgage. Practically speaking, the lender wants to continue to earn interest on the loan and not inherit the burden and expense of foreclosing the mortgage and auctioning your property.

So, even if your lender refuses to reaffirm despite your intention to do so, if you stay current, you can keep the home. If the lender attempted to foreclose at a later date (say, when you had significant equity accumulated after paying down the principal), certain equitable remedies (e.g., latches) would provide you with a defense to a foreclosure action.

Often, the greatest impact of a bank’s refusal to reaffirm mortgage debt is that after discharge, subsequent “on time” payments will not be reflected on your credit report, thus hampering your ability to repair your credit post-discharge. To get 'credit' again, you may want to refinance, and you would start fresh with a new loan.

Can a Same-Sex Married Couple File for a Joint Bankruptcy?

2010-09-07T22:48:00.001-04:00

A recent article in The Boston Globe indicated that bankruptcy filings are at an all-time high in Massachusetts (since the 2005 changes to the bankruptcy law went into effect). The reasons are varied: overwhelming debt, bad mortgages, a loss of income, or an effort to avoid foreclosure. These economic realities are blind to the sexual orientation or familial relationships of debtors. A down economy affects us all, whether we are gay or straight.

The U.S. Bankruptcy laws are some of the oldest in our country, predating even the Bill of Rights and, are intended to protect honest people who have experienced difficult financial hardships. Your sexual orientation should not affect how this law protects you, but it does.

Why is the law different for same-sex married couples?

The U.S. Bankruptcy Code is a federal program and is overseen by the U.S. Department of Justice. Although it is administered at a state level and each state has the ability to specify its own procedural rules and an alternate exemption scheme, the Bankruptcy Court applies federal law. Since the Bankruptcy Code applies federal, not state, law, bankruptcy courts are required to follow the requirements of DOMA and refuse to recognize joint bankruptcy filings by same-sex married couples. DOMA, short for the Defense of Marriage Act, is a federal law passed in 1996 that bars federal recognition of same-sex marriage in federal programs.

How is the law different for same-sex married couples?

Under the bankruptcy code, a heterosexual married couple can petition for relief jointly. Debts that are owned by either spouse individually, and/or by both spouses jointly can be discharged under one proceeding. Both debtor-spouses proceed through the bankruptcy process together under the same case, meaning that all conferences and appearances are jointly held with both debtors, and both spouses can count on consistent relief from one bankruptcy court judge and one bankruptcy trustee.

There is also a financial savings to filing jointly. Joint debtors pay only one filing fee for the petition (ranging from $274 to $1,049, depending on the chapter) and usually attorney’s charge less fees for one joint filing then they would for two separate individual filings.

Finally, there is a significant benefit to filing jointly because of how exemptions are calculated. Exemptions, i.e. the amount of property that cannot be taken to pay your debts, doubles for a joint filing, making it possible to protect more assets, regardless of which spouse owns the property.

What is the current law in effect?

Over the years, the bankruptcy court has refused to extend the benefits of a joint filing to same-sex couples. Decisions such as In re Allen, 186 B.R. 769, 773 (Bankr. N.D. Ga. 1995) held that two debtors were ineligible to file a joint bankruptcy petition because they were not legally married. A different court reached a similar result in 2004 with In re Kandu, 315 B.R. 123, 148 (Bankr. W.D. Wash. 2004), where the bankruptcy court, citing DOMA, dismissed a joint chapter 7 petition filed by a lesbian couple validly married in Canada. Despite the fact that they were validly married under Canadian law, the court cited that DOMA restricted marriage to heterosexual couples in the eyes of federal law, including the bankruptcy code, and refused to extend the federal benefits of a joint filing for bankruptcy to the debtors.

What has changed?

In Commonwealth of Massachusetts v. Health and Human Services and Gill v. Office of Personnel Management, the Massachusetts Attorney General and same-sex spouses, respectively, sought relief from the U.S. Court for the District of Massachusetts, requesting that the Court find DOMA unconstitutional for prohibiting the extension of federal benefits to same-sex spouses. The Court concluded that DOMA’s definition of marriage, and its attempts to limit the benefits thereof to heterosexual couples did not constitute a legitimate government interest, and was therefore, unconstitutional. U.S. District Judge for the District of Massachusetts, Joseph Tauro, wrote in the Gill decision: “As irrational prejudice plainly never constitutes a legitimate government interest, this court must hold that Section 3 of DOMA as applied to Plaintiffs violates the equal protection principles embodied in the Fifth Amendment to the United States Constitution.”

Although neither of these cases dealt directly with the federal benefit of joint bankruptcy filing, the door is now open to argue that married same-sex joint debtors may rely on the Court’s decision in Gill, and obtain the same legal and practical benefits of a joint bankruptcy filing.

Despite the court’s recent decision, DOMA is still the law, and we would anticipate that a bankruptcy Trustee would likely move to dismiss any joint filing by a same-sex marriage until there is a case which deals specifically with this issue (or DOMA is repealed). However, given the rationale provided in Gill, we believe a debtor stands a reasonable chance of succeeding before the bankruptcy appellate panel or the U.S. District Court if that specific issue were presented on appeal.

How can we help?

Kelsey & Trask, P.C. understands that not everyone wants to be a constitutional test case, and for some, operating within the restraints of the law, no matter how unfair, is better in the short term than changing the legal thinking of an entire system. We recognize the limitations and restrictions presented by DOMA. While we cannot extend all benefits of a joint filing, we do recognize and support the same-sex community.

If you need assistance in the bankruptcy court, we will not charge you as separate clients; rather, we will charge the same fee as we would any married couple. We will also do our best to ensure your cases are presented to the same trustee, and remain in front of the same Judge, by filing them simultaneously (giving them the best chance to be in front of the same trustee and Judge).

Joint filings were created in order to protect the family unit and allow for collective financial planning. While federal law currently chooses to deny same-sex married couples from such federal benefits, we have chosen to treat same-sex married couples with the same dignity and treatment as their heterosexual counterparts. It is not a perfect solution, but if it helps your family to get a fresh start, we don’t want you to go alone.

What are the Costs of Bankruptcy?

2010-07-20T13:40:00.004-04:00

Bankruptcy in the United States is permitted by the United States Constitution (Article 1, Section 8, Clause 4) which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." As such, Constitutional recognition of bankruptcy law is amongst the oldest in the United States, predating even the bill of rights. Even 223 years ago, the Founding Fathers and the draftsmen of this Country’s earliest laws recognized that sometimes people got in over their heads as a result of insufficient planning or factors beyond their control. They understood that it was in the best interests of both debtors and the economy as a whole to provide people with a fresh start in the event someone found themselves with debts they were unable to pay.

Despite the fact that the Constitution specifically permits Congress to enact bankruptcy legislation, there is still a significant cost, both economic and emotional, to seeking the protection of the Bankruptcy Court. So, if you or someone you know is considering bankruptcy, let’s take a look at the undocumented costs of bankruptcy.

First, the most obvious: Court Fees.

Court filing fees (the fee for filing your petition) for bankruptcy vary depending on the chapter you are filing under, but initially plan on $274.00 for Chapter 13 and $299.00 for Chapter 7. If you need to change your petition after it is a filed, there is an additional $26.00 filing fee.

In addition to court fees, there will be Legal Fees, i.e. what you pay to your Bankruptcy Attorney to analyze your case, review your purchase history to avoid nondischargability issues (meaning you still owe money to a creditor after bankruptcy), make recommendations regarding when you should file and under which chapter, preparing your petition, schedules and disclosures, and representing you at the §341(a) Creditor’s Meeting. Each attorney offers slightly different services, and charges different amounts. You should speak with your attorney to understand his or her fee structure, and always get the fee agreement in writing.

Rebuilding Credit: Assuming your bankruptcy goes to discharge without objection and you receive your Order Discharging Debtor, debtors now finds themselves with the daunting task of rebuilding their credit, post-bankruptcy. The costs here are more difficult to identify specifically. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

For example, assume that the debtor has an old car and would like to trade it in for a new car, post-bankruptcy. The debtor may find themselves unable to qualify for a car loan for some time after discharge, thereby incurring the increased maintenance costs and fuel costs of an old, inefficient vehicle for longer than originally anticipated. When the debtor does qualify for a new car loan, the increased interest rate assessed to borrowers with negative marks on their credit score will cost the borrower more in interest over the term of the loan. Similarly, a borrower seeking to obtain a home loan may be required to pay “points” in addition to a higher interest rate, adding thousands of dollars in closing costs.

However, there are potential savings and benefits to a bankruptcy filing. The costs of bankruptcy should be weighed against the benefits. First, bankruptcy offers a debtor a fresh start, and a responsible debtor can begin repairing their credit immediately after discharge, and may qualify for a prime rate mortgage in as little as 3 years after filing. Since the debtor’s previous debts were discharged, the debtor no longer has the burden of making monthly installment payments on consumer credit cards or other non-retained property.

Finally, potential bankruptcy petitioners should be aware of the noneconomic costs of bankruptcy: A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, and more frequently, a job or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company. While many debtors are encouraged by a “light at the end of the tunnel” or feel as though a weight has been lifted from their shoulders upon discharge in bankruptcy, there may be the lingering feeling of personal failure or shame in filing for bankruptcy. To that, I recommend the debtor consider my opening remarks in this post, and make a decision about what is best for them and their family in the long term.

If you need help weighing your options and if bankruptcy can help you if you are in over your head, contact Attorney Matthew Trask at 508.655.5980 to schedule a free one-hour consultation.

I Just Filed My Chapter 13 Case - Now What?

2010-07-19T16:35:00.000-04:00

As you may have read in our similarly entitled post "I Just Filed My Chapter 7 Case - Now What?", our clients often ask us after the filing of a bankruptcy petition:

"So what happens next?"

Just like in a Chapter 7, what happens next is a flurry of deadlines and court control dates, some of which require the client's participation (such as responding to the Trustee's requests for additional information), some do not require the client's participation, and others may require the attorney's participation, depending on how the case progresses.

Often, the client is overwhelmed with the detail and the numerous dates, and simply wants to know where to send the plan payments. However, some clients with more complex cases appreciate the added detail, which is why we have added a convenient Chapter 13 Timeline to our website.

The new addition allows a client or prospective client to input their Chapter 13 Filing Date and Section 341(a) hearing date (if known), and will output a scaled timeline with the important dates. Links to the relevant portions of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure are also included for cross reference at the bottom of the timeline page.

For those of you reading this post on your smartphone, you can also check out our mobile version of the calculator.

We hope this tool will help clients, prospective clients and attorneys alike better understand and navigate the meticulous and often trap-ridden world of bankruptcy law.

If you have any questions regarding Kelsey & Trask, P.C.'s Chapter 13 Timeline, please contact Attorney Matthew Trask at 508.655.5980.

My house is in a trust. Is it protected in a Bankruptcy?

2010-07-01T15:15:00.007-04:00

Question of the week: My house is held in a nominee trust, primarily for estate planning purposes. If I were to file for bankruptcy, would my house be protected if I filed a Chapter 7 Bankruptcy?

Answer: There are a number of factors that all address whether or not a debtor's house is exempt from the bankruptcy estate, or whether the bankruptcy court could require the debtor to sell his property to pay some (or all) of his debts. For example, whether or not the debtor actually resides in the subject property or if it is held as an investment property; the total net equity in the property, including mortgages or other liens; and the debtor's exemption elections could all affect how a debtor can protect (or, conversely, risk) a house and your other various assets upon filing a Chapter 7 petition.

First, in Massachusetts, recall that there are two separate exemptions schemes which define what types of property you are allowed to retain, and cannot be sold by the Chapter 7 Trustee to be distributed to your creditors: Federal Exemptions and Massachusetts Exemptions. Generally speaking, the federal exemptions are better suited to protecting your tangible personal property, such as automobiles, bank accounts, etc., but cannot protect more than approximately $21,625.00 worth of equity in a homestead. In situations where you are seeking to protect more than $21,625 in home equity, the Massachusetts Exemptions can protect up to $500,000.00 in home equity, at the cost of significantly reduced exemptions for personal property (i.e., $700.00 equity in an automobile, for example). The caveat is that in order to benefit from the Massachusetts Exemptions, you must file and record a Massachusetts Declaration of Homestead.

Ownership of real property through a nominee trust creates a legal impediment to protecting your equity in your home, however, in certain circumstances, the court has essentially ignored this impediment.

In situations where a trust is the legal titleholder of the debtor's residence, and not the debtor, there is a legal question of whether the debtor is still permitted, by law, to file a Massachusetts Declaration of Homestead. A 2007 Massachusetts Bankruptcy Court case titled “In re: Edward R. Szwyd” decided that “property held in trust is not eligible for Homestead protection. Only individuals may claim a Homestead.” However, in Szwyd, the debtors nevertheless filed a homestead declaration and the Court allowed the Homestead to stand. In this case, the debtor was the sole trustee and beneficiary and no trust existed under Massachusetts law, because the legal protections of the trust merged into the sole trustee and beneficiary, making the debtor the sole beneficial “owner” for purposes of the bankruptcy code.

UPDATE: The law in this area has developed rapidly and swung widely on the issue since 1995. The most recent decision, and currently viewed to be the controlling law with respect to Massachusetts bankruptcy case, is In re Olga M. Rodrigues, 2010 WL 716192 (Bankr. D. Mass., 2010). The Rodriguez decision looked to the statutory language of the Massachusets Homestead Act, which permits a person who “rightfully possess[es] the premises and occup[ies] said home as a principal residence” to file a Declaration of Homestead on the property.

As long as the debtor resides in the house, the debtor may file a Declaration of Homestead to protect the debtor’s interest in the home, even if that interest is little more than a right to ownership upon revocation of the trust. Debtors should take the Rodriguez decision to mean that even in the case of a self-settled trust, nominee trust or merged trust (or any trust where the trustee has significant discretion regarding the trust assets) that trust may be breached by the trustee, and the assets included in the bankruptcy estate. However, the legal form of ownership of the debtor’s residence (including whether the property is held in trust) will no longer serve as a bar to the election of Homestead Act protection, and provides a means of exemption under the Massachusetts bankruptcy exemptions.

If you own property that is held in a trust, and are considering bankruptcy, it is important that you understand the trust which is the legal titleholder to your property as well as the nuances of the United States Bankruptcy Code. If you have questions regarding how to protect your assets through a Chapter 7 Bankruptcy, contact Kelsey & Trask, P.C. for a free one-hour consultation at 508-655-5980.