Another firm’s client paid over $26,000 in a chapter 13 plan.  He was late a few payments.  But he got a new job and had some money.  Unfortunately, his former lawyer told the court that he had no defense to the Trustee’s motion to dismiss.  The chapter 13 trustee was so concerned that he sent the client to Lakelaw to try to help.  What can be done?

If a court enters an order, sometimes, it can be modified or even vacated.  You have to act fast.  Under Bankruptcy Rule 9023, you have only 14 days to ask the court to vacate an order which you think it should not have entered.

This can’t be done in every case.  You have to have a good reason. The main reasons for changing an order are:

• Serious mistake of fact
• Serious mistake of law
• Newly discovered evidence

There’s another Rule, Bankruptcy Rule 9024, which allows post-judgment relief.  But here, you would have to prove:

• Mistake, inadvertence, surprise or excusable neglect
• Newly discovered evidence which could not have been discovered within 14 days of the order
• Fraud, misrepresentation or misconduct by an opposing party
• The judgment is void
• The judgment is satisfied
• Any other reason which justifies relief

At Lakeaw, we want you to get things things right the first time.  But if things go wrong, don’t give up.  You may have hope.  Call us at Lakelaw today at 1 866 LAKELAW (5253529)

Share/Save

At Lakelaw, we ask all our clients to give us paystubs from their jobs for the six months prior to the date that they are filing their bankruptcy case.  It’s a pain in the neck.  We know.  Why do we ask?  Congress requires us to ask.

Under the “means test” you are considered to be abusing the bankruptcy system by filing a chapter 7 case – a straight bankruptcy – if your “current monthly income” is more than the national median.  What does that mean in plain English?

If you make more than 1/2 of the people in the country for a family your size, Congress thinks you should be filing a chapter 13 case, all things considered.

Just to be sure you are not noodling your numbers, Congress figures out what you are making now by averaging what you made over the past six months.  So even though the past six months does not reflect your present income, it does define your “current monthly income” for means test purposes.

If you make more than the median income for a family our size, we can sometimes qualify you for chapter 7 if you “overcome the presumptions” of abuse.  For this, we need to do a detailed means test analysis.  We charge you extra for this.  It takes us an hour or two to analyze your situation and decide the proper outcome for you.  We’ll explain more about this in a future post.

Share/Save

In bankruptcy, payments to family members within a year of bankruptcy can be a problem.  A trustee in bankruptcy can claw-back these payments by suing mom or dad.  The recovery is then divided equally among the creditors.

We just celebrated Mothers’ Day.  And of course, if our kids need help, they always feel like they can turn to Mom.  So it’s natural that when they can pay back Mom for a loan, the kids want to do what’s right.

In bankruptcy, Mom is an “insider”.  So is Dad.  So are Brother and Sister.  So are husband and wife.  So are children. And a lot of other family members.

Why do we care who’s an insider?

In bankruptcy, if you pay back an insider even for a legitimately owed debt within one year prior to bankruptcy, the trustee can sue your relative to recover the payment.  This is called recovery or claw-back of an insider preference.  We see a lot of this around tax refund time.  People recover their income tax refunds and use them to pay back mom or dad just before filing a bankruptcy case.  This is a problem.  If the trustee asks about it and finds out, the trustee will sue mom for the amount you paid her.  

So prior to bankruptcy, do contact us at Lakelaw.  We can advise you as to what you can do and what you can’t.

Share/Save

If you are buying something on credit, like a car or a house, this is called a secured debt.  In bankruptcy, you need to make choices about your secured debt.  There are three options and maybe a fourth one too.  These are called:

• Reaffirm or reaffirmation
• Surrender
• Redeem or redemption
• “Pay and Retain” or “Ride-Through” – the 2005 bankruptcy law tried to abolish this but was not completely successful

Here’s a brief explanation of each one:

Reaffirmation:  In this instance, you, the debtor, agree to continue to pay the debt to the secured creditor, like GMAC or Ford Motor Credit.  In exchange, you keep your car and keep paying  your monthly payments just as you did in the past.  Sometimes, your bankruptcy lawyer can help you negotiate a better deal with the lender in order to persuade you to reaffirm the debt.  Maybe the lender will agree to do this because it is better off with you paying than it is for the lender to sell the car at a loss at auction.  If you don’t reaffirm a debt secured by a vehicle, you run the risk of having the car repossessed or taken away from you outside of bankruptcy.  This will almost certainly happen in Illinois and is likely to happen in Wisconsin too.  Laws do vary in other states.

If you decide to reaffirm, your lawyer needs to certify that you can afford to do so.  That’s why we charge a little extra for each reaffirmation agreement – we need to be sure we can give this certification taking into account your economic situation after bankruptcy.  Otherwise, you’d have to go to court to explain to the judge why you can still afford this secured debt.

Surrender:  Here, you decide that you can’t afford to keep a property securing the debt.  Maybe your car is too expensive, or not worth much compared to the loan.  Maybe it would pay you to give up the car and try to get another less expensive vehicle rather than keep paying on it.  In this case, you’d give up the car and be discharged from debt on the balance.  Surrender is often the right choice when you are deeply underwater or “upside-down” on your the mortgages on your house.

Redemption:  This is sometimes a good choice when you have a late model car which has substantially declined in value compared to the loan, especially when you have a high interest rate.  If you have the money, maybe from an IRA or even better, from a new loan, you can pay off the loan on your car for the present value of the car.  For example, if your car is worth $15,000 and the loan is $30,000, you can get a new loan for $15,000 and discharge the remaining $15,000 in your bankruptcy case.  This could result in a much lower payment for the balance of your loan.  Ask us about redemption.  We know how to do this – there’s an additional fee but in many cases, it’s worth it.

“Pay and Retain” or “Ride-Through” You can’t do this any more for personal property. However, we have found that you don’t have to reaffirm a debt secured by your house in order to keep paying it as normal.  This is a good option since you maintain your mortgage as normal, but no longer have personal liability in the event that you default in the future.  Ask us about this too.

Statement of Intention: One of the papers you’ll sign in your bankruptcy case is a “Statement of Intention”.  On this paper, you’ll tell your creditors whether you want to keep your property and keep paying on it, surrender the property and be discharged from the debt or redeem the property by paying the current balance.  Look this paper over carefully and make sure it’s correct

Some retail stores claim a security interest or lien in items like jewelry or computers.  If you have this situation, let us know.  We have some ideas which can help you.

Act on your intentions – Remember, you have to act on your intentions promptly, so when we send you a reaffirmation agreement, read it, make sure you agree with the terms, sign it and return it right away.  And call us if you have any questions about any aspect of a reaffirmation agreement.

Share/Save

When you file a bankruptcy case, you need to make some decisions about your secured loans.  These are loans secured by your house, your car or other personal property.

When you file your bankruptcy case, you must make a Statement of Intention for each of your secured loans.  The law offers three options.  These are:

• Reaffirmation
• Redemption
• Surrender

Reaffirmation means that you intend to continue paying the secured debt just as before.  More importantly, it means that you agree continued personal liability for the debt.  Normally, bankruptcy eliminates all personal liability on debts, including secured debt.

Redemption means that you will pay the secured debt by paying the creditor cash equal to the value of the property securing the debt.  For example, if your car is worth $10,000, you could pay $10,000 to satisfy that debt in full even though you owe much more.  Even if you don’t have the cash, you can redeem a late model car through a specialized lender.  We can help you with this.  

Surrender means that you don’t intend to pay the debt and are willing to give up the collateral.  This might be a good idea for a car worth $10,000 when you owe $25,000 on it.  It is also the typical choice when facing foreclosure on a house you can’t afford to keep.

Reaffirmation isn’t always a good idea.  You could continue to pay a mortgage debt on a house without reaffirming.  The lender has to accept payments as long as you aren’t in default.  If you default later, you won’t have personal liability.   Reaffirmation isn’t a good idea if you might not able to pay the loan in the future.

However if you don’t reaffirm, redeem or surrender in the case of a car loan, you’ll probably find that the car will be repossessed.  

You’d be surprised to find that items like jewelry, computers and electronic equipment often are security for payment of a debt.  When this happens, please tell us about it.  We have to deal with these situations on a case by case basis with the lenders.  

We charge you a little extra for reaffirmation agreements.  That’s because we have to certify to the court that you are able to pay without it being a substantial hardship.  We also try to negotiate better terms for you whenever possible.  Lakelaw wants to give you good value in all aspects of your bankruptcy case.  

This is a technical area of bankruptcy law.  This blog is not the place to describe all of the details.  But Lakelaw wants you to be informed and ask questions about how to proceed in your particular case.

Share/Save

You must take a credit counseling course before you file a bankruptcy case.  This is sometimes called the “ticket in” to bankruptcy.  Bankruptcy attorneys are supposed to check to be sure that you’ve done this before you file your case.  So this is not much of a problem any more.

However, you must also take a “personal financial management instructional course” – I call it a financial management course myself – before your case closes in order to get a discharge.  This is sometimes called the “ticket out” of bankruptcy.  We spend a lot of time telling our clients to do this.  We remind clients to take the financial management course when we file their case.  We write emails and letters to them asking them to take financial management training.  We tell our clients to take the financial management instructional course in our engagement letters.  Surprisingly, some clients still don’t do this.

Bad idea.  Their case is then closed without a discharge.   The client contacts us.  We have to move to reopen the case.  That costs $250 just for the filing fee.  We have to charge our client an attorneys’ fee for this additional work.  We don’t like having to do that and we know that the client doesn’t like that either.

So, take the course.  Personal Financial Management Instructional Courses are actually a bargain.  You spend just a few dollars on this course and you may get some ideas which will really help you in your financial affairs in the future.  This may actually be the one aspect of the “Bankruptcy Abuse Prevention Consumer Protection Act” which actually was a good idea.

Share/Save