Published Monday, January 25, 2010 @ 8:41 am

Part of understanding bankruptcy is knowing who the professionals are that you will meet and deal with along the way. From your attorney to even your creditors, it helps provide a solid foundation of comfort to actually understand the role of those who are playing a role in your financial future.

One of those individuals is the case Trustee, the most prominent member of the bankruptcy process. And, the involvement you have with the case trustee depends on which chapter of bankruptcy you are filing.

As you may know, the 2 main “chapters” are 7 and 13. Well over 95% of all bankruptcy cases filed are filed under Chapter 7 or Chapter 13.

Let’s start by talking about the Chapter 7 trustee.

In every district in the country, there are 1 or more attorneys who have been appointed to act as a Chapter 7 Trustee. These Trustees are also sometimes called panel Trustees. When you file a Chapter 7 bankruptcy, one of these panel Trustees is assigned to your case.

The best way to think of this person is as an intermediary between you and the Court, an attorney whose job it is to make sure you have told the truth, the truth and nothing but the truth, to make sure that you have disclosed everything you are legally obligated to disclose, and to find and sell any ‘assets above exemptions’.

Fortunately, in our experience, in about 98% of Chapter 7 cases filed, there are no ‘assets above exemptions’ to sell. What does this mean for you? Just that if you file Chapter 7, there is very little chance you will lose any property you don’t want to lose.

As long as you have told the truth, disclosed everything, cooperate, and have no assets that cannot be protected by available ‘exemptions’, your contact with the Trustee should be a positive one.

However, the best approach is to assume that the Trustee assigned to your case is not your friend, so that you stay cautious and alert.

In most cases, you are first introduced to the trustee at your 341 meeting, also known as the “Meeting of Creditors”. Technically speaking, this meeting is held to provide your creditor an opportunity (in most cases, one last opportunity) to ask you questions. However, most of the time, none of the creditors show up, and then, it’s just you, your attorney and the Trustee. At this meeting the Trustee will ask you questions necessary to get to know you and your case better and necessary for the Trustee to carry out his or her duties. (There a number of posts here on the blog about this meeting. Take a look.)

Let’s say you are unlucky enough that your case falls in the approximately 2% of cases with more assets than can be protected. In this case, it is important that you understand that it is the Trustee’s duty to sell or dispose of those assets ‘above exemptions’, and to then distribute the proceeds to your creditors. Basically, anything not considered exempt property must be seized and sold by the trustee.

The type and amount of exemptions are, for the most part, set by the law of the State where you live. There are exceptions. Being set by State law, exemptions vary greatly. However, since in 98% of bankruptcy cases filed, there are no assets not covered by available exemptions, the exemptions statutes are, for the most part, fairly generous. However, make no assumptions in this regard. Always, always seek the help of an experienced, full time bankruptcy attorney. Such an attorney will be an expert in what exemptions are available in your State and how best to apply them. Such an attorney will also be able to tell you what is not protected.

The Chapter 7 Trustee is also responsible for tracking down any gifts you made just before filing, whether or not they were made in an attempt to hide assets or not. For example, if your nephew got a few thousand from you for his birthday the week before you filed bankruptcy, rest assured that your Trustee will be looking to get this money back. And, it’s not even safe to pay back relatives or friends prior to filing. These people are generally considered “insiders”, and, subject to certain exceptions, paying back insiders during the 12 months before filing bankruptcy is a “no no”, which will result in your Trustee being forced to try to get the money back.

Chapter 7 trustees are paid by a commission based on the amount of money they recover, so it stands to reason they’ll work hard to find and sell what property they can.

Now, let’s talk about Chapter 13.

The Chapter 13 Trustee, aka the Standing Trustee, is also first introduced to you at the 341 meeting. However, their role is more about ensuring your income is sufficient to pay your monthly Chapter 13 plan payment and that your proposed Chapter 13 plan is properly calculated. Assuming all goes well, it is then this Trustee’s job to collect from you your plan payment and to distribute it to your creditors.

Like the Panel Trustee, the Standing Trustee is paid a commission. However, unlike a Chapter 7 Trustee, the Chapter 13 Trustee gets his commission not from what he takes and sells, but rather out of the money you send in each month. Chapter 13 Trustees do not sell things. That’s just not his job.

The best way to think of your Chapter 13 Trustee is as the Chief Financial Officer in charge of your Chapter 13 plan. He runs the business of your Chapter 13 case. He figures out what is needed, and then accounts for and distributes the money you send in each month.

Your relationship with your Chapter 13 Trustee will be vastly different than the one you would have with a Chapter 7 Trustee. Chapter 7 Trustees live, for lack of a better way of saying it, for what they can “kill and eat”. Chapter 13 Trustee do not. Chapter 13 Trustees live off a percentage of what you send in each month. The Chapter 13 Trustee only succeeds in getting paid, if you succeed in making your payments. Therefore, as a general rule, Chapter 13 Trustees, at least those who recognize, so to speak, which “side their bread is buttered”, will go everything in their power to help you make a go of it in Chapter 13.

In most cases, as long as you make your required Chapter 13 plan payment, you can think of the Chapter 13 Trustee as more of a friend than adversary. He or she still has to do the job, but doing the job includes doing the best that can be done to make sure you do yours and that you get the full benefit of bankruptcy, all the way to the desired “discharge”.

If all of this is confusing and scary, we understand. Bankruptcy law is complicated and complex, to say the least. Need an expert? In North Carolina, there are many, good, experienced bankruptcy attorneys.

One is the Law Offices of John T. Orcutt, serving 30 counties in middle and eastern North Carolina. John Orcutt offers a Free initial consultation at 4 different locations: Raleigh, Durham, Fayetteville and Wilson. Call toll free to 1-800-899-1414 or visit his website for tons of info on bankruptcy: www.billsbillsb.com .

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Published Monday, January 18, 2010 @ 6:43 pm

Is there any way to lower your car payments in bankruptcy? The answer, which may surprise you, is maybe. While Congress recently rejected attempts to pass a law that would allow bankruptcy judges to ‘cramdown’ mortgages, there do exist some limited possibilities for revising auto loans.

Basically, debtors who owe more than their car is worth – and who doesn’t, especially if you bought it new? – may be eligible to eliminate the portion of the debt that exceeds the value. In a Chapter 13 bankruptcy, the debt would be divided into ’secured’ debt (the value of the car) and ‘unsecured’ debt (the excess money on the loan), and the car loan would be revised to repay only the secured portion.

However, this option is generally only available for people whose car loans originated more than 910 days before they declared bankruptcy. Some courts have allowed, in limited form, for the portion of a car loan that was ‘rolled over’ from a previous car loan, to be treated as unsecured debt even in a more recently originated loan. However, note that a recent decision by the US Court of Appeals for the Fourth Circuit – whose jurisdiction includes North Carolina – has determined that this portion of a car loan is included as secured.

On the other hand, some attorneys report that some lenders are willing to renegotiate the loan, even if it originated in the last 910 days. While the law doesn’t require them to renegotiate, it doesn’t prevent them from doing so either. It’s at least worth asking, before you take up your other options.

If your loan originated less than 910 days ago, and your lender refuses to renegotiate, what are your other options as you go through bankruptcy? You can simply surrender the car. Lenders don’t like this option, but if you’re filing bankruptcy, they have no choice. They will take back the car and then sell it at auction. The difference between what you owe and what they sell it for will be entered against you as a deficiency balance. However, even in a Chapter 13, there is little chance the creditor will receive any return on its deficiency balance.

You can also reaffirm the loan. In this case, you agree to continue making the payments on the car even after you file for bankruptcy. Note carefully, though, if you choose this option and then default on the loan, you will be responsible for the deficiency balance, and the lender can sue you for it. Reaffirming your car loan has some advantages though: you get to keep your car, which means you don’t have to look for a new car loan with a recent bankruptcy on your record. Making these payments on time is also a good way to rebuild your credit – just make sure the lender is reporting them to the credit agencies.

As always, remember that the best way to negotiate this maze is with the help of a good bankruptcy attorney.

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Published Tuesday, January 5, 2010 @ 8:35 am

Last month, the Supreme Court heard arguments in an interesting case about bankruptcy attorneys and free speech. The new bankruptcy law passed in 2005 contains a provision that prohibits bankruptcy attorneys from advising their clients to take on new debt before filing bankruptcy. In United States vs Milavetz, a 73-year old attorney from Minnesota is challenging that law.

The plaintiffs argue that the case represents a clear violation of attorney’s freedom of speech. Constitutional lawyers think this argument has merit: how can it be legal to interfere with a lawyer’s ability to advise his clients? There are legitimate reasons that people thinking about filing bankruptcy might need to take on new debt. In those cases, an attorney’s in a difficult position: does he violate federal law or does he fail in his ethical responsibility to his client?

For example, a debtor who is about to file for Chapter 13 bankruptcy might benefit by refinancing his mortgage, securing a lower rate before he files – in this case, since he’ll be paying less on his mortgage, there will actually be more money to contribute to his Chapter 13 plan. Or the debtor facing bankruptcy might purchase a new, reliable car to insure that he or she can get to work on time. What about an emergency medical situation? There are many situations in which taking on debt might actually be the responsible thing to do – but attorneys are prohibited from pointing these things out.

In oral arguments in the Supreme Court case, the government didn’t deny that there may indeed be circumstances in which someone about to file for bankruptcy could or should take on new debt. The law states that it’s prohibited to advise someone “to incur more debt in contemplation of such a person filing” for bankruptcy. The government argued that, in this case, ‘in contemplation of’ actually means ‘actions taken with an intent to abuse the protections of the bankruptcy system’. The restriction is not, they argue, against lawyers giving appropriate advice; it applies only to helping clients run up huge new debts that will never be repaid.

Really? That’s what ‘in contemplation of’ means? Wouldn’t most people – even most lawyers – read ‘in contemplation of (filing bankruptcy)’ as ’someone who’s thinking about filing bankruptcy’?

Also, it’s important to remember that running up debts you have no intention of paying is illegal: it’s civil fraud for sure, and maybe even criminal theft. All lawyers are already prohibited from advising their clients to do something illegal! Many lawyers feel that the provision was inserted into the bankruptcy bill as part of a whole host of punitive measures against consumers filing bankruptcy and their lawyers.

Of course, this is a very small part of bankruptcy law and doesn’t affect most of the interactions between attorney and client. An experienced bankruptcy attorney is able to give their clients the best advice even if, when it comes to the area of additional debt, they have to be creative about it. Some lawyers, for example, will set out the law in detail for their clients, without actually saying ‘this is what you should do.’ Still, it’s not right – and shouldn’t be legal – for the government to interfere with the attorney-client relationship like this.

Will the Supreme Court overturn the provision? Many observers think so. Others suggest that the court will decide that the provision only prohibits advice that was already illegal. Obviously, we all have to wait and see until the Court announces their decision this spring.

Need to consider filing bankruptcy. In North Carolina, keep the Law Offices of John T. Orcutt in mind. They offer a totally FREE initial consultation out of 4 different offices: Raleigh, Durham, Fayetteville and Wilson. Just call toll free to 1-800-899-1414 or check out their website at www.billsbills.com .

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Published Friday, January 1, 2010 @ 3:07 pm

To supposedly keep bankruptcy filings from getting out of hand the federal government passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, more commonly known as the Bankruptcy Abuse Reform Act (or BARF). BARF was supposed to help keep people that truly do not need to, from filing?

Unfortunately, BARF was passed upon the assumption that a lot of people were abusing the bankruptcy system. It was only more unfortunate that this assumption was thereafter proved to be totally incorrect.

Fortunately, BARF, as written, although adding lots of ‘red tape’ to the system, did not, for the most part, make unobtainable the kind of help that only filing bankruptcy can provide…given proper planning “pre-filing”.

BARF did erect substantial obstacles to filing, and these must be dealt with.

The biggest obstacle arose from the implementation of what is known as the “Means Test”. The idea was to filter out those people who would want to file bankruptcy, but who could really afford to keep paying.

As it turns out, most of the people who need to file really can’t afford to keep paying. Still, however, the Means Test does remain a substantial obstacle to filing. And to make things worse, this test is extremely complicated to understand and absolutely full of landmines for the unaware.

For example, a high income in the last 6 months could make it too expensive to file, especially if you don’t even have that income anymore. In this case, waiting to file for a number of months could be critical.

And, that’s where a good bankruptcy attorney comes in.

There are many ways to work around this ill-conceived test, but only a seasoned bankruptcy will know what they are and how to successfully apply them.

If you are thinking of trying to circumvent the Means Test on your own, beware. Even mediocre bankruptcy attorneys screw this up, and tactics gone too far will either make it impossible to file or leave you with a bankruptcy plan payment you cannot afford, or worse, result in your case getting dismissed out of court.

If you believe you need to file bankruptcy, you most definitely want to be in the hands of a good bankruptcy attorney. A good bankruptcy attorney will know what to do, but also how far is too far.

If you want a bomb defused, you want an expert at defusing bombs. It’s exactly the same in terms of defusing the “Means Test”. You want an expert. Your financial life is riding on it.

The Law Offices of John T. Orcutt give you access to 7 good bankruptcy attorneys, with an 8th in training.

Need to make sure you get the help you need. Attorney John Orcutt offers a totally FREE initial consultation, and has offices located in Raleigh, Durham, Fayetteville and Wilson, North Carolina.

Just call toll free to 1-800-899-1414 during normal business hours, or visit their website at www.billsbills.com

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Published Sunday, December 13, 2009 @ 8:01 am

If you’re considering a Chapter 7 bankruptcy, chances are you’ve already heard about the Means Test—the test that determines whether or not you qualify for a Chapter 7.

If you make less than the median income for your state, you don’t even have to worry about the means test!  (To find out what your state’s median income is, you can go to http://www.justice.gov/ust/eo/bapcpa/20091101/bci_data/median_income_table.htm).

If you make more than your state’s median income you may still be able to pass the means test by deducting certain expenses from your gross income.  You’re going to want to talk to a qualified bankruptcy attorney about this one, though—the means test is notoriously complicated!  Your attorney has the knowledge and experience to determine what amounts of your income have to be applied to the means test as well as what expenses may be deducted.

Like a tax return, the means test involves calculating your income and from that income, deducting your qualified expenses.  Like a good accountant, a good bankruptcy attorney can help you maximize your deductions!  With your attorney’s help, you’ll be able to deduct the allowable amounts for living expenses like groceries, clothing, housekeeping supplies and housing expenses to include rent, property tax, home maintenance, HOA dues, and utilities.  You’ll also be able to deduct certain amounts for transportation expenses like your car note, vehicle insurance, gas, and registration fees and other necessary expenses like taxes, health care and health insurance, childcare, and court-ordered payments like child support.  Finally, you’ll be able to deduct some of your debt payments: your mortgage, your home equity loan, and past due amounts on your mortgage or car note.

If your surplus income—the amount that’s left over after you subtract your deductions from your income—is not enough to repay a significant amount of your debts over the course of five years, you’ll probably qualify for a Chapter 7 bankruptcy.

See if you will pass the Means Test and qualify for Chapter 7 bankruptcy by contacting one of the qualified, experienced bankruptcy attorneys at the Law Offices of John T. Orcutt.  You can even schedule your appointment online at www.billsbills.com or you can call us at 1-800-899-1414.

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Published Tuesday, November 10, 2009 @ 11:16 am

The number of people filing bankruptcy due to medical bills has been rising every year. A recent study in the American Journal of Medicine shows that more than 62% of people filing for bankruptcy do so at least partly because of medical bills they can’t pay. Many filers have insurance – often they’ve ‘capped out’ their insurance and the insurance company refuses to pay any more bills, leaving them tens or even hundreds of thousands of dollars in debt. In other cases, illness has forced people to lose or leave their jobs, meaning that not only do they have no money coming in to pay their bills, but their insurance coverage has often lapsed as well.

A bill recently introduced in Congress – by Carol Shea-Porter (D-NH) in the House and Sheldon Whitehouse (D-RI) in the Senate – hopes to make filing bankruptcy easier for people in this situation. People who owed either 10% of their income or $10,000, or who had been out of work for more than 4 weeks in the last year due to illness, would qualify as medical debtors. The bill would exempt these filers from the requirement to take credit counseling. More importantly, they would no longer be subject to the means test – all medical debtors would be allowed to file Chapter 7. And the homestead exemption – the amount of equity they could keep in their home after filing bankruptcy – would rise to $250,000 for medical debtors.

Will the Medical Fairness Act pass? It’s hard to say. To some extent, the debate seems to be falling along the same lines as the general health care debate: democrats for, republicans against. At a recent hearing in the Senate, Whitehouse brought in a number of debtors to make the emotional point that they lost everything, including in many cases their homes, due to unavoidable medical bills. Kerry Burns told the tragic story of her son, who died at the age of 4 after a long struggle with cystic fibrosis. She and her husband both took leaves from their jobs. They cashed in their 401K accounts, spent every penny in their bank accounts and had insurance– and all that wasn’t enough to pay their son’s medical bills, which came to over five million dollars.

Republican opponents, particularly Sen. Jeff Sessions (R-AL), seemed unmoved. Sessions seemed more concerned with the plight of the credit card companies, who will likely lose money if more people file Chapter 7. Sessions worried that people would qualify as medical debtors when the ‘real’ reason for their bankruptcy was due to overspending on their credit cards. He called experts who claimed that the study was flawed and the real role of medical bills in bankruptcy is much smaller. Others rebutted both arguments, pointing out that the number of medical debtors may be greater than the study shows, as many people put medical bills on their credit cards.

The Democrats have the votes in both the House and the Senate to pass this bill. But the credit card companies and the medical industrial complex spend an enormous amount of money on lobbyists to protect their interests. The Medical Bankruptcy Fairness Act is a common sense relief for people who’ve incurred enormous bills simply due to their medical problems. Whether or not it passes says more about politics than policy.

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Published Thursday, September 17, 2009 @ 7:27 am

Most people understand that wage garnishment is basically what happens when a court order requires your employer to withdraw a portion of your paycheck for the repayment of a debt. If you are already up to your ears in debt and barely able to make ends meet each month, one wage garnishment, be it by the IRS or another entity, can be the straw that breaks the camel’s back.

Although any kind of debt can eventually result in garnishment of wages, the most common types include back child support, unpaid court fines or judgments, defaulted student loans, and the biggie: delinquent taxes owed to the IRS or any state government.

The good news, which may come as a surprise to some, is that tax debts are dischargeable in bankruptcy (within certain parameters).

Just so you know, if a debt is “dischargeable”, that means you can get rid of it permanently by filing bankruptcy; and that means you never have to pay it back.

Six Rules to Discharge Income Tax Debts

If the income tax debt meets all six of these rules, then the income tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy cases.

Note: Each of these rules must be applied separately to each year’s tax debt.

1. First, the tax debt must be “income” tax debt. That is, the debt for which you are required to file an IRS 1040 form. Other types of tax debts, for example employer tax withholding and sales taxes, are never dischargeable.

2. The “due date” for filing your income tax return (for the particular tax involved) had to have been at least three years prior to the bankruptcy.

3. The tax return had to be actually filed at least two years prior to the bankruptcy.

4. The tax assessment must have occurred at least 240 days prior to the bankruptcy. “Assessment” basically means the date when the IRS billed you for the tax.

5. The tax return was not fraudulent.

6. You are not guilty of tax evasion.

The bottom line is that tons of income tax debt gets relieved as a result of filing bankruptcy.

Caveat: In some situations, you may have to pay back a part of even a discharged debt. For example, where the IRS has filed a “tax lien” for the debt in question, in which case some of your property ends up serving as collateral for the payment of the debt. As a practical matter, however, even though there may be a tax lien on file, that does not mean the IRS will. Certain types of property, like household goods for example, are protected. Certain types of property are not worth enough for the IRS to bother with. And certain types of property are untouchabable by the IRS, as a practical matter, for more or less political reasons. However, if there is a tax lien filed against you, you have to be careful. We suggest you check with a good bankruptcy attorney to find out what, if any, of your property is at risk.

Got a lot of older income tax debt? Got the IRS bugging you and trying to grab your income, your bank account or other stuff? You may be able to do something about it.

The one thing that trumps the IRS is the bankruptcy laws. You may want to check with a good bankruptcy attorney.

In North Carolina, you have one. The Law Offices of John T. Orcutt, with offices conveniently located in Raleigh, Durham, Fayetteville and Wilson. For a totally FREE, initial consultation, call toll free to: 1-800-899-1414.

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Published Thursday, April 23, 2009 @ 3:06 pm

Like so many others right now, you’re struggling to pay your bills, falling further and further behind, and wondering what you can do about it. Maybe you’ve heard about the benefits of bankruptcy: the ability to wipe out your unmanageable debts and save your home from foreclosure. But maybe you also think you don’t qualify for bankruptcy protection, because it just so happens that you’re not actually a U.S. citizen. Well, the good news is you can file bankruptcy, under certain circumstances.

To qualify as a “debtor” under the Bankruptcy Code, you only need to reside in the United States, or have a place of business or property in the country. There is no citizenship requirement for filing. Technically, you don’t even need to actually live in the United States. The courts vary in their interpretations of what constitutes “property in the United States.” But in some U.S. jurisdictions, it may be enough that you simply keep a bank account there. Others may require that you demonstrate an intent and ability to become a permanent resident in the future. This could mean you have to have a permanent visa or a “green card.” The key point is that you may be eligible to take advantage bankruptcy protection, regardless of your non-citizen status.

Keep in mind that while filing bankruptcy generally will not affect your immigration status or naturalization application, if you’re currently residing in the United States, the information you provide in connection with the case may affect your right to stay here. You are required to be truthful in your disclosures regarding your financial situation. This includes the income you’ve earned, the taxes you’ve paid, the specific debts you owe, and any transfers of money or property you’ve made in the months leading up to your filing. If you’ve been paid “under the table,” evaded income tax, used credit cards in other people’s names, or transferred property to hide it from creditors, this will inevitably come out in the bankruptcy filing process. The Immigration and Naturalization Service may consider these actions as crimes of “moral turpitude,” exposing you to potential deportation.

As long as you haven’t engaged in these sorts of actions (or been convicted of certain criminal offenses), and you approach bankruptcy with honest intentions, the bankruptcy filing should not create any immigration problems. If you’re a non-citizen struggling with unmanageable debts, and you live or work in the United States, call an experienced bankruptcy attorney in your area today, and learn how bankruptcy can help you fight back against debt.

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Published Wednesday, April 8, 2009 @ 5:47 pm

Wondering about the basics of Chapter 7 bankruptcy? Here they are, in a nutshell:

Chapter 7 bankruptcy (sometimes referred to as “liquidation bankruptcy)” is designed to allow you to wipe out all or most of your unsecured debts. These are things like credit card debt and medical bills, which are not secured by some sort of collateral. Getting rid of these debts is the biggest benefit of filing bankruptcy. Imagine how much money you’d have in your pocket if you weren’t throwing it away on monthly credit card payments?

Many people are under the impression that they must give up their property when they file for Chapter 7. This is not necessarily true. The property you get to keep is called “exempt” property. Bankruptcy exemptions are dollar amounts, and act to protect an individual’s assets. Depending on the state you live in, these dollar amounts are fairly generous. For example, in North Carolina, the real property exemption for a married couple is up to $37,000.00 of any home equity. Of course, there are various exemptions for different kinds of assets, including household goods, automobiles, etc. So long as the “yard sale” value of your assets do not exceed the exemption, you get to keep your assets. But even if they do exceed exemption limitations, another form of bankruptcy might still be an option. Talk to a knowledgeable attorney who can guide you through these issues.

What are the qualifications for a Chapter 7? The first eligibility requirement is usually easy enough: you have to be a resident of the United States. You also have to meet certain financial requirements. Your income over the last six months must have been equal to or less than the “median family income” (the median income of a family of your size in your state). If you made too much money to meet this test, you can still qualify under “the means test.” This is based upon the amount of your monthly “disposable” income (what’s left after you’ve paid all your bills). As long as the disposable income doesn’t exceed a certain amount, you probably qualify for a Chapter 7 bankruptcy.

While having filed for bankruptcy in the past won’t necessarily prevent you from doing so again, there are some time period limitations. You can file again so long as the last time you filed was more than six months ago and you have not received a discharge under Chapter 7 in the last eight years (or in the last six years under Chapter 13).

So, that’s it in a nutshell. The specifics will vary from case to case. If you’re having trouble managing your unsecured debts and want to know if Chapter 7 is right for you, it’s best to contact a bankruptcy attorney to discuss your specific situation.

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