Each week, bankruptcy attorney Elizabeth Domenico spends time educating the community about their debt resolution options. This week, bankruptcy attorney Jen Koss took some time to answer your questions.
Debt Resolution Fridays is dedicated to answering your debt questions. See what Coloradans asked on July 17, 2020. (A transcript of the event is available below.)
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Good morning! Welcome back to debt resolution Fridays, my name is Jen Koss and I’m one of our bankruptcy attorneys here at Robinson and Henry, along with my colleague Liz Domenico. We’ve got some great questions that you guys have asked about bankruptcy. So I’m gonna take some time today to answer those for you. Please also be sure to submit your questions if you have any, and we’ll be sure to answer them either today or next Friday. You can also look at past weekly videos in our archives that Liz has done, to see what other bankruptcy questions have been answered, and yours might be there. We’re here as a reminder every Friday at 11 am to answer your questions. And also remember that we do offer free 30 minute case assessments here at Robinson and Henry, with both myself and Liz. And you can schedule those consultations on our website at www.Robinsonandhenry.com, or you can call 303-688-0944. Alrighty, let’s go right ahead and jump into these questions that we received for this week’s video.
Will a bankruptcy affect my disability benefits?
First question, I receive disability benefits from the VA, will my bankruptcy affect my benefits? First, filing a bankruptcy should not stop or harm your VA benefits. Actually, thanks to the Haven act, VA disability benefits are actually not even counted as income anymore, when determining chapter seven eligibility in a bankruptcy. They’re now being treated similarly to Social Security benefits in this way. And this is because in a chapter seven bankruptcy, first and foremost, you need to qualify based upon income. So this is great news. We’ve been able to have more clients qualify for the chapter seven bankruptcy because of the Haven act. I actually recently had a client, two clients, they were married, and they were looking to file a joint chapter seven bankruptcy. One spouse was a W two wage earner, and the other spouse received VA disability income. Without the Haven Act, they would have made too much money to qualify for the chapter seven. But now with the Haven act, we were able to file a Chapter seven and they were able to qualify, which ultimately was a more inexpensive and quicker process for them. So that was great for them.
Can you tell me more about the clawback payments?
All right, second question. I read that some people may be able to get back payments that they made to creditors if they filed for bankruptcy. Can you tell me more about the so called clawback payments? So first and foremost, when you file your bankruptcy, we have to disclose any payments to creditors, over the amount of $600 ,in the 90 days prior to your bankruptcy by providing this information because the trustee can actually go back to these creditors, usually on secured creditors, and collect debt paid over $600 in the 90 days prior to filing money and then disperse it to the other creditors in your bankruptcy, which means that money could get paid to a taxing authority In similar, this is important this comes up quite often, people ask this, similarly, a trustee can collect debts that were made to family members, prior to friends and family are insiders that get preferential to you the debtor. Generally, the court knows that you would perhaps borrowed money from a friend or family member, and then actually paid them back in the last year. I recently had a client who had borrowed about five grand from his father, and actually paid back all five grand about 10 months ago. So we raised strategically on the timing of his bankruptcy to make sure he was held 12 month window before filing the bankruptcy, so that the father would not get sued by the trustee to get back that five grand.
Can the debt from private loans used to pay for school,be included in bankruptcy?
All right, next question. If you took out a private student loan to help pay for college, can this debt be included in your bankruptcy? It was not a federal loan. Alright, so first and foremost when you file a bankruptcy, any and all debt that you have on the date of filing is listed in your bankruptcy. We don’t get to pick and choose what debts are listed. But that doesn’t mean that all debts that do get listed get discharged. Federal and private student loans, both are usually unfortunately, non dischargeable. So we usually tell clients to prepare to be responsible for student loan debts still. There are very rare circumstances where you might be able to get student loan debt discharge, you would wanna speak with a bankruptcy attorney that specializes specifically in that type of discharge. Also, I like to point out, because some people call us and say, hey, I’m being garnished for my student loans, how can I make it stop? Filing a bankruptcy will stop a student loan garnishment so bankruptcy could work with you strategically to do that, and talk about what that might mean for other debts that you have, for your student loans, and other assets moving forward. It’s important to also note that student loans do go into forbearance when you file for bankruptcy, but interest is still accruing.
How do creditors find out about the automatic stay of the bankruptcy?
All right, next question. How would your creditors find out about the automatic stay of the bankruptcy? Do I have to call them and how do they know that I filed a bankruptcy? So once you file a bankruptcy, just to back up a little bit, if you’re unfamiliar with what the automatic state is, when you file a bankruptcy, you’re protected under law by what’s called the automatics today. And that means the creditors cannot collect from you, they cannot garnish bank accounts in wages, they can’t report on your credit, or attempt to collect with harassing phone calls and emails and texts. Here at our firm when you hire, we run your credit report and we’ll directly import all of those debts on your credit report, which will include their mailing addresses for the creditors. And that’ll go right into your bankruptcy under what’s called your schedule of creditors. We also give you a copy of that credit report and say, hey, take a look at this, see if any debts are missing. So oftentimes, medical bills, or debts that you might owe to a friend or family member, are often not on your credit report. So we’ll ask you to either send us an old bill or just to tell us what that debt is, and we’ll manually add them to your list of creditors. If we need to look up a mailing address, we’ll gladly do that as well. So we do as much as possible for you to make sure all of your creditors receive notice, because once your case is actually filed, the court is then going to mail out notice to all of your creditors. So your creditors are gonna be alerted of your bankruptcy, and they’re gonna be alerted of the date, time and location of your meeting of creditors. Which I think we’re gonna chat about shortly, I saw a question about that later on. Additionally, if for some reason we file your case, and there was a bad address for that creditor, or administratively, it’s just not catching up to them quick enough, that’s when we as your bankruptcy attorneys can step in to help. We will personally reach out to any creditor that’s still contacting you after you file a bankruptcy, and say, hey, here’s a copy of their notice of filing, you need to stop contacting them because you’re violating the automatic stay protection of the bankruptcy. So we’re here to help you to make sure you’re no longer harassed.
Do I need income to file bankruptcy?
Alright, this next question has to do with COVID. I lost my job due to COVID-19. Can I still file a bankruptcy or do I need income? So the short answer is yes, you can still file a bankruptcy if you don’t have income. Income is only required in the chapter 13 bankruptcy because you need to be able to demonstrate to the court that you can actually afford the monthly payment plan. However, in a chapter seven bankruptcy, no income is required. And there are of course, other factors to consider when filing a bankruptcy such as a chapter seven, what assets you might own, what your income looks like in the previous six months, even if you’re currently unemployed. Remember, it’s a six month look back on income to determine eligibility for a chapter seven bankruptcy. So really, the best way to determine if a chapter seven is best for you, especially if you’ve lost your job, is to speak with the bankruptcy attorneys so that they can properly do a case evaluation. And sometimes it comes down to needing to be strategic as far as timing goes, waiting a certain number of months to get filed due to your income, and of course we can help with being strategic with that.
Do you still owe taxes if you file bankruptcy?
All right, next question. Do you still owe taxes if you file bankruptcy? Can that taxes be worked into your chapter 13 payments? So it’s often really difficult to get tax debt discharged in a bankruptcy. There are a lot of nuances. There’s also a hard rule that any tax debt in the last three tax years is standard non dischargeable. And whether or not your tax debt gets paid in a bankruptcy, can depend on your chapter of bankruptcy that you have filed. Taxes in general are considered what they call a priority debt, meaning that they usually get paid first amongst your creditors, if creditors are paid in your bankruptcy. So let’s talk about both a seven and a 13 scenario. So if you’re a chapter seven case, and you’re what’s called an asset case, that means that assets have been liquidated in your case, or you have paid money to the trustee to be able to keep unprotected assets such as a firearm or an ATV, for example, and that money that’s collected or assets that are liquidated and sold and proceeds are gathered by the trustee, that money could be paid to someone like your taxing authorities, because again, they’re a priority creditor. Otherwise, in a chapter seven case, if you’re are a no asset case, meaning nothing has been liquidated and the trustee did not collect any money from you, or if he collected a very small amount such as $250 for a firearm so that you could keep your firearm, that small amount or that that little to no amount that might go to the IRS or the Department of Revenue, it could be applied to your back taxes but likely if you have a significant amount of tax debt, you’re still gonna owe them. Also, after you file a bankruptcy, a tax attorney can help contact the IRS or the Department of Revenue wherever you have that tax debt, to see what tax debt, if any still remains. And we have a great tax attorney here at our firm Lucas Fry, who’s fantastic and he also does consultations. All right, and also, let’s talk about the chapter 13 scenario. So in most cases, your tax debt is gonna be paid via your monthly bankruptcy payment plan. in a chapter 13 case. Again, taxing authorities are often the first creditor to get paid since they are considered a priority debt. However, certain portions of your tax debt, could be considered priority while others are not. And that’s something that we can help with as well, determining so we know the treatment of your payment plans to the court, because in a chapter 13, the bankruptcy wraps everything up into a nice, easy monthly payment plan, where the trustee then takes your payment and disperses that money to your creditors, and does that work for you?
Is there ever a time when you can’t qualify for bankruptcy?
All right, next question. Is there ever time when someone does not qualify for some kind of bankruptcy, or do people always have some sort of option? All right, so most people qualify for at least a chapter seven or 13. However, there could be a scenario where someone qualifies for one, but maybe it’s not the best option for them in the present moment. So for example, if you’re unemployed, like I talked about earlier, a chapter 13 is not going to be an option for you, because you can’t demonstrate that you can afford a payment plan with the court. Now, what if that same person that’s unemployed, also has a house but they have over 250 grand in equity in their home? Remember, you get up to 250 grand in equity in your home, or else you risk losing it in a chapter seven. A chapter seven is not ideal for them either because they could lose their home. So ultimately, it’s rare that we find someone can’t fit. Sometimes it’s a it’s a matter of they might not ideally fit into either chapter of bankruptcy. So it could happen, even then we usually can be strategic in planning, as far as timing and asset goes. it doesn’t always mean it’s in your best interest just because you do qualify for a bankruptcy. Again, that’s something we can work with you, on timing and asset planning. So there’s a lot of different factors, and that’s why it’s important to chat with your bankruptcy attorney about why a certain chapter may or may not be a good option for you, or why right now versus maybe in three to six months might be better for you. We can provide asset planning advice, we can talk about how to spend down certain accounts or how to sell safely certain assets so that you don’t find yourself in trouble with the bankruptcy court. Because ultimately, it’s our goal to minimize the impact, particularly negative impact on you in your case.
How will filing bankruptcy affect my inheritance?
All right, next question. I expect to receive some inheritance from my grandmother this year. How will a bankruptcy affect my inheritance, if I owe? So inheritances can be tricky when it comes to bankruptcy. First, we have to disclose the receipt of any inheritance in your statement of financial affairs, which usually dates to the current year, and the two preceding years. Inheritances like that are usually a one off so we generally don’t wanna include them in your six month look back on income. Again, this matters if you’re trying to qualify for a chapter seven especially. However, there is a risk that the US trustees office, argues that an inheritance should count in your last six months income on that look back, so it is a risk. Again, this could be huge in a chapter seven case, if it potentially disqualifies you on the six month look back. A bankruptcy attorney can also work with you to be strategic about the timing of your filing, should you have gotten a recent inheritance. I also like to add when I talk about inheritances to clients, that money in a bank account that is from an inheritance is not a protected asset. It doesn’t get the 75% protection of a bank account, like most do, that hold your disposable earnings. So again, we can always chat with you to talk about how to strategically spend that money in a safe way, or if we wanna play with the timing of your filing. Another thing I like to add to people who asked about inheritances, is be prepared even if you don’t have that inheritance anymore, be prepared to explain how you spent any inheritance received in the last two years or so. Because the court is going to see that we listed in your statement of financial affairs, that you received an inheritance, and they wanna know how you spent that money. Because they’re trying to make sure that money is not being hidden, or that you didn’t gift a friend or family member that money just before filing. Another thing to note is that you do have to disclose to the trustee, any inheritances that you might get within six months of filing your case. So even if you don’t get the inheritance at the time that you file your case, you still could be required to turn over that inheritance to the trustee. So again, keeping the communication between you and your attorney, so that you can strategically plan your bankruptcy, so that there are no surprises is really important. One more thing I’d like to add regarding inheritances, if you happen to be the beneficiary of a trust, you’ll definitely wanna speak with a bankruptcy attorney about the details of that trust, because there are a lot of nuances that can impact a bankruptcy that are really fact specific when it comes to trust. So keep that in mind.
Can you keep your house if you file chapter 7 bankruptcy?
All right, next question. Is there any way to keep your house if you file a Chapter Seven bankruptcy? Let’s see, the short answer is yes. However, it depends on how much equity you have in your house, or whether you’re current on your mortgage. So here in Colorado, you can have up to 250 grand in equity in your house, without risking losing that house in a chapter seven. This is called the homestead exemption. There’s also a heightened limit on the house equity for those over the age of 65, or if you’re disabled. If you’re filing a chapter seven, you also wanna keep in mind, if you have a house as well, that you wanna be current on that mortgage. And this is important because if you file a Chapter Seven bankruptcy, even if the case is already filed, if you’re behind on that mortgage, your lender is gonna seek permission from the court to lift the automatic state protection of the bankruptcy, which they can do, with permission from the court to them foreclose on your house. So there’s no catch up and this is because there’s no catch up in chapter seven like there is in the chapter 13. In a chapter seven, there’s no payment plan. In the chapter 13, you can catch up on those missed mortgage payments, through your payment plan. So super important to keep in mind if you’re wanting to file a Chapter Seven bankruptcy, that you’re current on the mortgage. And a lot of people also ask me, Well, how do I figure out how much equity I have in my house? You can figure out the equity by taking the fair market value of your house, and subtracting your mortgage balance from that first and second mortgage. That’s gonna give you your equity. As far as the fair market value of your house, a lot of people will use loose and nearby comp house sales, some people will use online tools such as Zillow or realtor.com, but honestly a lot of online sites, tend to be all over the place. So some people do just go and obtain a form of appraisal, and a bankruptcy attorney can help you figure out if it’s worth your time and money to pay for a formal appraisal on your house, especially if your equity might be borderline on that 250 grand. So we can definitely help with advising on that.
How involved do I have to be in the bankruptcy process?
All right, last question. How involved do I have to be in the bankruptcy process? For example, do I have to go to court or be part of a meeting of creditors? Yeah, so we get a lot of questions about what your role is as the client in the bankruptcy process. So let’s chat a little bit about that. Here at Robinson and Henry, we do as much work as possible for you. In the document and information collection stage, since you’re the only person with all of your personal information, we do work with you to obtain specifically requested documents and pieces of information. We’ll of course like I mentioned previously, we’ll run your credit report ourselves, and we’ll of course send it to you to review for any missing debts, like I mentioned, especially medical bills tend to not show up. So we’ll work with you to make sure we get all of your debts listed. And then here at the firm, your attorneys, we’re gonna go through all of your paperwork on our own. We’re gonna drop your case for you using that paperwork, if we have any questions while we’re crafting or need to fill in any gaps, we’ll reach out to you, but otherwise, we then at that point, we’ll move to your signing meeting, usually takes about an hour or so depending on the case. And at the signing meeting, we’re gonna work with you to make sure everything is 100% accurate, everything is as up to date as possible, and we’re gonna fill in any gaps that we might have in our drafting. So we’re gonna work together to make sure your case is as accurate and up to date as possible for your filing. And usually from there, about four to five weeks later, is when you have this meeting of creditors, which is also sometimes called a 341 hearing. It is required by the court that you attend your one mandatory meeting of creditors. We, of course, as your attorney will attend that with you. Right now with COVID-19 going on, all of the hearings are actually telephonic. We’ll of course, be on the line with you. But to kind of sum up the hearings, I know that a lot of people get nervous thinking about attending the hearing, and we always wanna put your mind at ease about this process. It is a very quick and informal hearing. There is no judge at the hearing. However, you are under oath because you are testifying and answering the questions on the record. So we don’t wanna undermine the importance of it, but we certainly don’t want people to be overly nervous for this hearing. It is an opportunity at this hearing for your creditors to ask you questions if they want to, because again, remember they’re gonna be mailed notice of your bankruptcy and of the meeting of creditors, they do have the opportunity to ask questions, but it is very rare to be honest, that we see creditors attend one of those hearings.
Here at Robinson and Henry, we’ll fully prepare you for that meeting of creditors, so that you know exactly what questions are going to be asked. We go to so many of these hearings every week, so that we’ve learned over time exactly what questions are asked. And this allows us to meet with you prior to your hearing, and fully prepare you for your hearing, so that there are no surprises and your nerves are at rest. Additionally, a little more responsibility in the chapter 13 bankruptcy, you’re of course also responsible for ensuring that you are making your monthly payment plans over the course of your three to five year bankruptcy payment plan. We’re very communicative here at our firm on our bankruptcy team, so we’d like to keep you informed every step of the way. After all, this is your case, and we do as much work for you as we can, only requesting your assistance when absolutely necessary.
Alrighty, that is all the time that we have this week. If you have any bankruptcy questions that didn’t get answered today, please do be sure to send those to us and we’ll get those answered next Friday, Friday at 11 am. As a reminder, we do offer free 30 minute case assessments here at our firm, so please give us a call at 303-688-0944 or visit www.Robinsonandhenry.com to schedule your case assessment, to see whether bankruptcy is the right option for you, or what chapter might be best for you, given your personal information. Thanks for your questions. We look forward to hearing from you and we will see you guys next Friday.