A Tale of Two Timelines in Chapter 7 Bankruptcy Cases
There are two major timelines to be aware of in a Chapter 7 Bankruptcy:
1) the discharge timeline; and
2) the timeline a trustee has to administer assets.
A Chapter 7 bankruptcy discharge can happen as early as 60 days following the creditor’s meeting, provided a creditor hasn’t filed an objection to discharge. Thus, a typical bankruptcy discharge can occur just over 90 days of filing the case.
However, many debtors can be surprised to discover that the discharge has no bearing on the timeline involved with “asset” cases: when a debtor has assets in their bankruptcy estate that cannot be protected by using exemptions. “Pigs get fed, hogs get slaughtered,” the saying goes, as the bankruptcy code contemplates giving folks a “fresh start” rather than a “head start” and allowing a debtor to keep a fleet of Harley Davidson’s or that extra couple hundred acres of family land, just doesn’t seem fair in light of their ability to discharge thousands of dollars of debt.
The trustee may take several years to administer some assets, just as it would for anybody to sell a home, or a that used boat that’s been killing the lawn with the weathered “For Sale” sign on our neighbor’s property. Each asset case is different and there is no way of telling how long it may take for a trustee to administer an asset of the estate. Once the assets are sold, the US Trustee, who oversees the performance of the bankruptcy trustee, must review the trustee’s report and final account before the asset case can be finally closed.
Numbers a-keep On Changin’
Two important numbers are scheduled to change around November 1, 2011: 1) The average median income used to complete the means test for new bankruptcy filings; and 2) the costs for bankruptcy filing fees.
Median Income for Future Bankruptcy Filings
In 2005,BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) was passed, which requires that most people will have to apply a “means test” to determine if they are eligible to file a Chapter 7 case. I never recommend you use an online calculator to fill these out because the laws change and the calculator can’t give you the specific advice and first-hand experience in completing the means test. Accuracy on the means test can translate to a difference of thousands of dollars, when calculating how much you would have to pay your unsecured creditors back in a Chapter 13 case, and determines the length of your Chapter 13 plan. There are times when a means test can overstate your income, denying you the opportunity to pay your unsecured creditors nothing in a Chapter 7 case. Thus, if you “pass” the means test, you have the option of filing a Chapter 7 case.1
One of the most pivotal numbers used for determining whether you pass the means is the average median income for your household size in your state. If your household income (calculated by averaging most sources of income over the last 6 months) is above the average median household income, you’ll need to roll up your sleeves and pay special attention to the means test to see if you still qualify to file a Chapter 7. If your household income is lower than the average median household income, your means test is very easy to complete.
Bad News: as the economy continues to flatten or downturn, the average median household income continues to decline. Thus, the threshold to “pass” the means test is getting lower (and therefore harder) to pass.
I’ll post the new numbers once the US Trustee announces them. These numbers have changed twice a year (around March and November.)
So if your income is close, or even above the median household income for your county, visit a bankruptcy attorney. Our bankruptcy office in Wausau, Wisconsin has the data and experience to guide you through the means test if you plan on filing bankruptcy in Wisconsin (or in limited cases, Colorado.)
Bankruptcy Filing Fees Increase by Seven Bucks
Effective November 1, 2011, the bankruptcy filing fees will increase by $7 dollars.
Therefore, a Chapter 7 filing fee will cost $306 and a Chapter 13 filing fee will cost $281.
Can you discharge social security overpayments?
I’ll tell you something you probably know: government is big, and sometimes, difficult to communicate with. I won’t pick on certain departments, but we will briefly discuss the SSA and the issues that commonly arise when dealing with SSDI benefits and bankruptcy.
Does this sound familiar to you? The SSA kept sending you the disability checks even after you notified them of your new job. Several months later you get a letter in the mail explaining that they will pursue you for the overpayments. One rising question my office receives is whether these social security overpayments can be discharged in bankruptcy.
Bottom line: Yes, absent fraud or other conduct prohibited by 523(a)(2)(A)*, and it is best to have a paper trail that shows that you attempted to inform the SSA of your change of circumstances prior to cashing the checks. Neavear v. Schweiker, 674 F.2d 1201 (7th Cir., 1982)
*You cannot discharge debt: “(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by— (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; (B) use of a statement in writing— (i) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive.”
Can they recoup my benefits after I file bankruptcy to recover the overpayments?
A “recoupment’ is a very specific legal term that allows a creditor to “recoup” payments accidentally made that arise out of the same contract. In re Photo Mechanical Services, Inc., 179 B.R. 604, (Bkrtcy.D.Minn 1995). The SSA would violate the automatic stay if they attempted to offset your benefits during your Chapter 13 plan. However, the SSA may “recoup” the overpayments if you will receive SSDI benefits anytime after your discharge, by deducting the overpayments from future benefits.
The preceding analysis is very similar for unemployment benefit overpayments. Bankruptcy best helps those that have overpayments that are no longer eligible for those benefits in the foreseeable future, provided the benefits were not obtained by false pretenses or fraud. It is always best to notify your benefit providers of a change in circumstance to avoid receiving the overpayments, if possible. However, there are plenty of cases out there that deal with this issue which reminds us that our government agencies sometimes can’t keep up with change, even when we inform them otherwise.
FAQ: Can I sell my property after a Chapter 7 bankruptcy petition is filed?
THE SHORT ANSWER: not without approval from your trustee, or until the trustee releases his or her interest in the estate.
Many clients wonder if its okay to sell property after filing the bankruptcy petition. Remember that all of your assets and your debts become part of your bankruptcy estate after you file your petition. The Chapter 7 trustee administers, or controls, the estate. You retain possession of the property and can use it as you normally would, but your ability to transfer the property is limited because you are no longer the sole owner of the property.
Section 727(a)(2)(B) of the Bankruptcy Code states that the court shall grant the debtor a discharge, unless a creditor or trustee successfully demonstrates, by a preponderance of the evidence, that you transferred or concealed property of the bankruptcy estate with the intent to hinder, delay, or defraud the creditor after the filing of the bankruptcy petition.
Another consideration is if the property you intend to sell is exempt (which means you are entitled to keep it because of its classification and value.)
Your best course of action is to talk to your bankruptcy lawyer about the specific transaction you wish to make. Many times, the approval of the trustee can be obtained quickly provided he or she is presented with all the facts surrounding the proposed sale of the asset. The worst thing you can do is sell the item without consulting your attorney or the trustee.
When in doubt, wait until the trustee has issued a statement whereby he releases his or her interest in the estate (usually after the 341 meeting.)
Cleaning up the Credit Report
This web page from the FTC is an excellent resource for cleaning up any credit errors on your credit report. It is advisable to pull a credit report after your bankruptcy to make certain that the debts are reported as discharged.
Cancellation of Debt Income & Bankruptcy
Cancellation of Debt Income
It’s that time of year again and I’ve had more than a few questions from existing clients and potential clients regarding the receipt of a 1099(c) form that asserts income from cancellation of debt (COD income.) I advise you speak with your accountant for your specific situation, and this article provides a general overview of what COD income it, how to except it and how bankruptcy eliminates it.
COD income is taxable income under Internal Revenue Code (IRC) § 61(a)(12). The COD income, or forgiveness of debt, is income to the individual, unless an exception applies. Many of the exceptions are enumerated in § 108 of the IRC, which excludes COD income if the debtor is insolvent: the debtor has more liabilities than the fair market value of their assets, immediately before cancellation of the debt. Generally, you have no COD income if your liabilities exceed the fair market value of what you own.
COD Income & Bankruptcy
One of the more frequent tax events that may occur after filing bankruptcy is the receipt of a 1099(c) from a creditor who is reporting income for the cancellation of your debt. The Internal Revenue Code (section 108) specifically excludes debt discharged from bankruptcy from the definition of ‘debt income’ that is canceled. Another means to prove that canceled debt should not be considered as income, outside of bankruptcy, is to show that you are insolvent.
The Internal Revenue Code §108 excludes the discharge of debt in bankruptcy from its definition of COD income. Bankruptcy debtor’s may file a Form 982 to inform the IRS that the COD income on the 1099 should be excluded from your income.
Consult an accountant if you have more complicated tax issues. For those who are more curious, or have trouble sleeping at night, you may learn more about bankruptcy and taxation by reviewing IRS Publication 908.
Get a FRESH Start
The law allows you a fresh start, and relief from your debt. Why? One of the reasons is to have you contribute to your local economy and increase consumer spending, instead of paying on ‘dead’ debt. Don’t waste your new chance, however. Our office can give you advice on how to maximize your bankruptcy relief and refer you to local professionals that can help you develop savings. There are steps you can take to clean up your credit reports to offset the negative impact of your bankruptcy filing. Sadly, there are vultures on the other side of the rainbow that may offer you ‘credit repair.’ Consult a bankruptcy attorney to get ideas on how to brighten your fresh start, and avoid common pitfalls that may create repeat bankruptcy filings.
Explore Your Options
To file, or not to file?
We understand the difficulty of the decision. Speak with a bankruptcy attorney to assess whether or not you should file. Before you decide, you need to know your options. There are alternatives to filing bankruptcy but most of them are best suited for those who can afford to pay off their debt in three to five years. Is bankruptcy right for you? Which chapter of bankruptcy should you consider? What types of debts will be discharged? Each situation is unique, which requires careful attention to your situation by an experienced bankruptcy attorney to help you decide.
Stop Garnishments
We help people who are getting their wages garnished. Bankruptcy can wipe out your garnishment for good. Filing a bankruptcy prevents creditors from garnishing your wages. If you are garnished $600 or more within the 90 days before filing bankruptcy, you can get it all back. Call our office to stop your garnishment and we’ll analyze your entire financial situation and assess how you can best handle your garnishment. In some cases, you may use a “Wisconsin 128″ to prevent wage garnishment in the same way a bankruptcy does.
LEARN MORE ABOUT HOW BANKRUPTCY STOPS GARNISHMENT
LEARN MORE ABOUT HOW A WISCONSIN 128 STOPS GARNISHMENT
Halt Foreclosures
Filing bankruptcy stops a foreclosure case in it’s tracks and gives you time to assess your mortgage. A Chapter 13 bankruptcy might help you reorganize your mortgage arrears over a 3 or 5 year period. If you are moving on from your home, a bankruptcy can buy you more time to find a new place. Filing bankruptcy during your foreclosure may close the door on any negative tax implications for forgiveness of debt income. Filing bankruptcy during a foreclosure also relieves you of any personal liability for the note secured by your mortgage.