Debt Resolution Fridays- August 7, 2020

Each week, bankruptcy attorney Elizabeth Domenico spends time educating the community about their debt resolution options.

Debt Resolution Fridays is dedicated to answering your debt questions. See what Coloradans asked on August 7, 2020. (A transcript of the event is available below.)

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Good morning, and welcome back to debt resolution Fridays. Friday, August 7th, and we’re here to answer questions regarding bankruptcy and debt resolution. Just like for the past few months, we have made this weekly event whereby myself or my associate, Jen Cos, are available to answer questions live for anyone who does have inquiries about some debt problems or filing for bankruptcy. We want to remind you that any past due sorry, any past live events are gonna be archived on our Robinson and Henry website along with Facebook page. We do have the ability for you to answer or submit questions prior to these live events so that we can address those. Also, while we’re live, we have someone available on our site taking these questions if you want to ask them live and get them answered. If you’re not able to do either of those things, you can always submit them through our website or call the office and we’ll be happy to get those answered. The goal of this is to just get general information out while we’re going through the pandemic specifically, but just in general anyway, to let you know there are options and to answer specific questions. As a follow up to that, we do offer case assessments if you believe that you will be benefited by speaking to an attorney, we offer that service as a one half hour case assessment initially, you can just call our office at 3036880944 to get that schedule. You can also visit our website, robandhen.wpengine.com. We have offices all over the greater part of the Denver metro area as well as far south as Colorado Springs. So we will have the availability to help you out either virtually or in office. So, just like the format of all the prior ones that we have done for our live events, we are going to take these questions as they come in. Some of them may have been duplicated from prior sessions, but that probably means it’s a pretty common question or a hot topic going on right now just to make sure that whoever is viewing if they haven’t been able to see any prior answers, we get that information conveyed to you.

How does a surviving spouse handle their deceased spouse’s credit card debt if there was no money left in their estate?

All right, so first question we’ve got is, if there’s no money left in a deceased estate, how does their surviving spouse handle credit card debt the deceased spouse may have and can the credit card company try to come after the surviving spouse? So, if everything has this kind of gets into probate, a little bit as well as the debt issue. So, I wanna start with the question about how and what can a creditor do against the surviving spouse about debt. This specifically asked about credit card there are other types of debt, medical, mortgage, things like that. There is something that in Colorado is called the family use doctrine. And what happens is if there was a debt that was primarily incurred or happened, and it benefited the family, even if it was only in one person’s name, let’s say there’s a credit card for instance, and husband use it to purchase household goods and day to day living expenses and he is married, under that statute or legal theory in the event of the cardholder accountholder’s death, the credit card company could come after the surviving spouse, not minor children, usually not even other children. It’s usually just the spouse. I’ve never seen it with adult children, couldn’t say it’s not something they couldn’t legally do. We’ve never seen it happen. But certainly there is an avenue for that creditor to try to recover from the surviving spouse. So, that kind of tailors into the question of well, if there’s no money in the estate, and they do have an avenue against the spouse, well, what happens? Well, the spouse now has assets perhaps there was a piece of real estate or there was property that was given to the spouse even if it’s something that in the will went directly to them or passed through intestacy without a will, but they got some money, then the company could look to have that debt satisfied from the surviving spouse. Most of the time we generally only see this as it relates to medical bills where a lot of times the surviving spouse is after for payment from the treating hospital. I’ve had it where a nursing home where there was caregiving at the end of life for the person who passed, be seeking to try to get money for payment for that care from the surviving spouse upon death. And so it is something that you would want to look at speaking with a debt resolution or bankruptcy attorney about because they can legally come after the surviving spouse in some instances, but it has to be a specific type of debt and the debt has to have been clearly benefiting that surviving spouse by having been incurred.

When does the statue of limitations begin running on a past due debt?

All right, next question is when does the statute of limitations begin running on a past due debt and the date of the account became past due or when it went to collections. So, a lot of this has to do with collection attempts. So technically, when you are put in default from the original lender, what they’re gonna do is a statute of limitations is gonna begin from the date they last attempted to collect the debt. And the problem becomes in these situations where you have things bought and sold, even if you think the debt is written off, is that they can have between six and seven years to attempt to collect on the debt. And that statute, kind of tolls and rules over if there is somebody who takes over the debt or it’s assigned or bought by someone new, so can be a very long time in terms of actual collection. Now, there is a requirement for once a debt is written off, at least by a particular creditor who has owned it, they cannot after a six to seven year period report on your credit anymore, that’s gonna have to drop off but certainly collections can kind of go in to the future for a very long time, because it’s gonna be based upon the date of the last attempted collection date of that debt.

What taxes are dischargeable in chapter seven bankruptcy?

All right. Another question is what taxes are dischargeable in a chapter seven bankruptcy? Let’s get into kind of a nuanced question. It may not just be a chapter seven. So, general rule of thumb we have for dischargeability of debt, and this is gonna get a little bit into the weeds. So, this is why you probably wanna talk to a tax attorney or a bankruptcy attorney to get specific information on your specific circumstances. But generally, if the tax debt year is within the last three years, so whatever year protects period you’re in, so let’s just say 2020. We’re gonna have 2019, 2018 and 2017 taxes, those would be considered non dischargeable. So in any chapter bankruptcy, those are gonna be called priority tax debt and you’re not gonna be able to discharge them if they are within the three years of your bankruptcy case being filed, no matter the chapter. The other thing you look at is if the tax return was filed two years prior to the filing of the bankruptcy, and the tax that is over that three year old period, you could potentially discharge them. But we have one additional hurdle. It’s called the assessment rule. If there’s been any assessments on debt, even if it meets the over three year old rule and the tax returns filed over two years prior, you still could have it be non dischargeable if there’s any kind of assessment, which could be an audit or some other assessment from the IRS or Colorado in the last eight months, then it would become non dischargeable. So, there’s also some other things that say if even if you meet all of them those guidelines and if there is a lien placed on your property from the taxing authority, in a chapter seven, specifically, potentially even a 13, you may not be able to get rid of all of that debt, if they have a lien against your personal property, any value of assets that you have, whether it be a car, a house, a 401K, bank accounts, anything you list as an asset in the bankruptcy is securing that tax debt. So, it could end up being that even if it meant all of the legal requirements for dischargeability if there was a lien, it’s gonna survive. One other thing is that there is case law that says if you have what we call a substitute for return file, if you never filed a return or you filed it late and the IRS or Colorado filed a substitute for return because they had the tax information and they filed it for you. And it either precedes one you filed or you ever never actually filed one, then under the state court and federal court laws now about dischargeability of debt, that debt is never gonna be able to be discharged in bankruptcy. So, there’s a lot of things that are very specific to taxes and bankruptcy. I’m only talking about the 1040 and the 104 taxes. In relation to business, any personal obligation on state taxes for sales tax, 940 and 941 payroll tax, they’re gonna have a personal liability portion to those, especially with small business owners. Those are never gonna be able to be discharged in bankruptcy. Those are the types that are those trust fund taxes that the IRS is wanting paid back and there is a personal liability as to business owners if those are past due and delinquent, and those are never gonna be able to be discharged in any chapter or bankruptcy although you may be able to reorganize them and get interest and fees reduced in a chapter 13. So very specifically, if you have questions about taxes, it’s gonna be important to call and talk to either our tax attorney or myself or another bankruptcy practitioner, because you really need to look at your specific instance. And you may need to have tax transcripts run to look at history because that’s really the only way you’re gonna know what the IRS in Colorado have or have not done with relation to your specific taxes.

How can I verify a debt collector’s legitimacy?

Okay. Another question, very good one, what is the best way to verify a debt collector’s legitimacy? We all know there are scams out there, people calling around trying to get people to pay money that may not actually be owed. So, the best way to find out especially because if someone when you try to call back they won’t answer is to just google, I usually look at the Better Business Bureau to see if there’s anything out there about scam, any kind of consumer protection website. Also too if a lot of times you just have a phone number and you Google that, if people have had problems, there are a lot of people who will put that in there and say that they’re spam. Really just the internet is probably the quickest way to look at whether or not this is an actual debt collector.

Would a quitclaim deed be a good option to avoid foreclosure and bankruptcy?

Okay, question is would a quitclaim deed be a viable option to avoid foreclosure and bankruptcy. Unfortunately, no. Any quitclaim deed of the property isn’t going to transfer obligation on a defaulted mortgage. They would simply transfer title, they still would have to take that property subject to any mortgage. Transferring title does not extinguish anybody’s obligation on that note. So, if you transfer it to someone, and there’s still a no owed, that property can still be foreclosed upon. And in all honesty, if you’re looking at bankruptcy as a way to get rid of the arrears and try to save the property from a foreclosure, if you transfer it out of your name and you are the one then on the mortgage, you could have some issues with standing to bring bankruptcy action to try to save that property, when you’re not the title owner, or doesn’t match up with the mortgage and trying to create a way to get that property paid back through the bankruptcy process. So, quitclaim deed or any transfer property, really to try to avoid a debt being enforced against it, whether it be foreclosure or judicial lien or otherwise, is just a really bad idea. You also could run into fraud in Colorado, as well as in bankruptcy court. There is no fraud statute called the fraudulent transfers statute. And it basically says that if you know you owe a debt and you have an asset, and you within two years of either having a suit initiated, collection of the debt or a bankruptcy transfer that property out of your name, with the intent to avoid being subject to any kind of lien or enforcement of that debt against that property, you’re gonna run into fraud issues that could then turn around and become a non dischargeable debt and bankruptcy and could end up costing you a discharge. It’s never a good idea to transfer property out of your name to avoid it being taken by creditors or having any type of lien enforced against it.

I have business debt and I don’t wanna lose my house because of it, what are my options?

All right, common question. I guarantee debt for my business. I don’t wanna lose my house because of my business, what are my options? So, a lot of it depends on the amount of the debt you owe, what type of debt it is, who the creditor is and how much equity you have in your house. So for instance, if you have less than either $250,000 of equity in your home, as well as not a lot of other income potentially or other assets, you may be able to file a chapter seven bankruptcy. And 250,000 is what we call the homestead exemption to protect equity in your home assuming you are 60 or under or not have anyone who is disabled living in your home. If either of those instances apply, you get to protect 350,000 of equity. So, if your home has less than that, you could potentially look at filing a personal bankruptcy to get rid of that business debt obligation on the personal side as long as you’re not gonna continue to run that business so that you can get out of it. Now, if you have over that amount of equity, you may be eligible for a chapter 13 whereby you may have to pay some of the debt back. But it could keep the creditor at least on the business side from being able to sue and get a lien and judgment placed against the home, which most of them right now, we’re not doing foreclosures. But if they did get a judicial lien, they could initiate a foreclosure process. So, talking to us or any other bankruptcy attorney, would be a good idea so they can assess your specific options ’cause bankruptcy can be a way to get rid of personal obligation on business debt. If the creditor isn’t willing to work with you, you always have the option to try to go to the creditor and work something out and do a settlement where you are agreeing to make some payment and in lieu of that they hold off on initiating any sooner putting a lien on your property.

What can I do if I fall behind on my chapter 13 payments due to pandemic job loss?

All right, are there any special considerations for people who fall behind on their chapter 13 payments because of the pandemic job loss and what are our options. Very good question. That is something that we are dealing with a lot right now because not everybody is able to have gone back to work or even have maybe even maintain hours if they have been lucky enough to keep their job. So, Congress did carve out one specific thing for chapter 13 bankruptcy individuals. It only applies to people who had a plan confirmed prior to the kind of pandemic starting in the March timeframe. You are allowed to extend your bankruptcy payments out to up to 84 months. Previously, the longest you could be in a chapter 13 repayment plan was 16 months. So, they took it basically from five years and you can extend it out to seven years. Now, the thing you have to be aware of is that when you do that, it’s uncertain because this is so new whether or not if you were to recover income wise and start making more money, if you could then revert back to a shorter timeframe under your chapter 13 plan. The other thing too is, you have to be able to demonstrate that you have a direct immediate impact from the virus. So, there is some language that says indirect, it’s very hard because we don’t have a clear guideline from the courts as to what is direct, what may be indirect, so really evaluated on a case by case basis and there is a possibility if it’s not particularly tied to a job loss directly related to the virus, you may have some issues and the court could potentially deny it. But that’s really the only option to try to work it out. Especially if you have to be in a chapter 13 and you don’t have the possibility of looking at a conversion to a chapter seven. The only way to really lower those fixed payments, especially if it’s house equity versus income driven and your repayment is to look at extending it out to seven years with what we call a plan modification. Again, if you have counsel, you need to reach out to them. If you are a current client of ours, and you’re having that issue, please let us know. Because we don’t know it’s an issue unless you tell us or potentially get a motion to dismiss and at which point our options for timing at least are somewhat limited. So it’s always better to know on the front end, rather than wait until you’re six months with no payments to the court.

Can you include a utility bill in your bankruptcy if the amount is really large?

All right, can you ever include a utility and a bankruptcy if the past two months is really large. So, this has come up in a couple of cases probably because people are behind on rent and possibly utilities, you can file a bankruptcy and get rid of past to utility charges. Basically what it does is it cuts off the old account, they cannot cut off your service once that happens. However, you get a new account started and most times the utility companies will require a deposit to be able to use them. And so you’ll have to come up with some money as a security almost like a rent security deposit, so that they know there’s some money in there in the event of default for payment to be taken out of. So yes, you can use a bankruptcy to get rid of past utilities. However, you have to continue paying them going forward, whenever those new amounts accrued are up, then you’re very likely going to have to put a deposit down, at least, I’m not sure depending upon the past due amount, the company would tell you how much you’d have to put down in order to open a new account with them.

What are the credit consequences of deferring debt?

All right, what are the credit consequences of deferring a debt? This is one that’s come up, quite interestingly, very recently. Typically, with mortgages right now which is going on and it’s big. The companies are saying they are not reporting negatively on your credit for a deferment. Same thing with student loans. However, if anyone’s read the news recently, especially with student loan lenders, we had a problem where they did actually negatively impact credit due to deferment. But typically, if they offer you and grant you that deferment, they are not going to be able to impact you negatively. However, they could put a note in your credit profile that says, on deferment, that is very common to see when you have that on student loans and potentially mortgage. So, watch your credit score card because they can put an internal notation on there. They should not be able to negatively impact your score from a deferment or a forbearance, if they do, they may be in violation of the Fair Credit Reporting Act depending upon the terms of that forbearance or deferment.

Under what circumstances should someone keep their house in a bankruptcy, who should just let the house go?

All right, we have time for one final question, and looks like it says, under what circumstances should someone keep their house, in a bankruptcy, who should just let the house go? Well, a lot of times that just depends on income and equity in the house and things as far as past to do. There are some times where rental properties specifically maybe burden to the person where they’re not getting enough money to pay for it on a monthly basis, cash flow wise and it really doesn’t have much if any equity, that might be a time to consider walking away. The other time is if someone is facing foreclosure, and they’ve tried to sell their property and they just cannot. When you have a foreclosure, we have what’s called a homestead waiver. So, normally in most instances and a non public trustee foreclosure, at least in Colorado, you’re entitled to get either the $250,000 homestead exemption or the $350,000 depending upon your age and medical conditions. If you have an actual foreclosure, they do not have to pay you that homestead exemption. So, sometimes if someone is facing an immediate foreclosure and we know that they may just need a little more time to sell a home and there’s equity that we don’t want them to lose, filing a bankruptcy and letting the trustee sell the house specifically in a chapter seven might make sense, because what would happen is, if there’s enough equity, the owner would be entitled to either that 250,000 homestead or the 350,000 before the trustee would take any money that’s after all the liens are paid on it, but at least they could preserve some equity in the property. And sometimes even if there is less equity than the homestead exemption to not lose the equity. The trustee could enter into a deal with the individual filing for a split of the proceeds. So, they at least get some money. So, a lot of times it depends on the amount of equity, how far down the chute of foreclosure you are. Some people don’t make enough money to do a chapter 13, whereby you pay the arrearage, especially if you’re on a fixed income and you have too much equity, that you cannot do a chapter 13 and chapter seven might be beneficial to sell the property versus just walking away from it. These are all really gonna be very specific and dependent upon everybody’s different financial circumstances and the specific issues regarding equity and payments on their home. So, that’s why it’s really important and they keep coming back to this is a good avenue to get you some general information.

In order to assess your specific circumstance, speaking to an attorney directly through an assessment is what you’re gonna wanna do, and again, our office offers those 30 minute case assessments, you can just call our office, 3036880944 and we’ll be happy to get you scheduled. You can also go on the website, robandhen.wpengine.com to schedule that as well. Also remember, feel free to ask questions during this live event. Also prior to or after, we can add it to next week’s or we can even send you something directly if it is time sensitive for you to get your question answered. Again, I’m Attorney Elizabeth Dominico. And this has been debt resolution Friday. We’ll look forward to seeing you guys next week and answering those pressing debt and bankruptcy questions. Enjoy the rest of your day.