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In these challenging economic times, where inflation is making headlines, managing finances has become more complex than ever. A recent article ( https://www.npr.org/2024/05/14/1251295805/credit-cards-debt-inflation ) sheds light on the increasing burden of credit card debt on American households. As a bankruptcy attorney, I see the impact of this burden on a daily basis, and it's essential to address this growing concern. Inflation has a domino effect on the economy, and one of the most immediate impacts is on purchasing power. As prices rise, consumers may turn to credit cards to bridge the gap between their income and expenses. While this may offer a temporary solution, it can lead to a cycle of debt that's difficult to escape. The article points out that credit card balances are rising at a rate not seen in years. This is a clear indicator that more and more people are relying on credit to manage their daily lives. However, with higher balances come higher interest rates and minimum payments, making it even harder for individuals to pay down their debt. As a bankruptcy lawyer, my role is to help clients understand their options when facing overwhelming debt. Bankruptcy can provide a fresh start for those who have exhausted all other avenues. It's a legal process designed to help individuals and businesses eliminate or repay their debts under the protection of the bankruptcy court. The decision to file for bankruptcy is difficult. It's important to consider all factors, including the effects on one's monthly cash flow and financial stability. However, despite the myths concerning what bankruptcy is and how it affects your credit and assets, it can be the most viable solution to regain control of your financial situation and escape the trap of the debt cycle. If you're struggling with credit card debt, it's crucial to seek professional advice. We at Atlas Law Firm can help you assess your financial position and guide you towards the best course of action. Remember, you're not alone in this, and there are legal solutions available to help you navigate through these inflationary times. Don’t settle for believing the myths. Talk to a professional who can tell you what the pros and cons of bankruptcy actually are for your situation. That way, you can make an informed decision on how best to resolve your financial problems. The process starts with a free consultation.

Prior to 2005, there were qualifications in place to qualify for a chapter 7 bankruptcy. Prior to 2005, the qualifications for chapter 7 were based on your monthly budget. The trustee would look at your income and expenses, and conduct a money in / money out analysis. This does not count the payments on any of the debts that you were making, because those are going to be discharged and you are no longer going to be making payments on them. If after you pay your monthly expenses, you are going to have a significant amount of money left over at the end of the month, that disposable income could lead to an objection to you discharging the debt in a chapter 7 bankruptcy. If the objection was successful, you would be required to do a chapter 13 payment plan. If you were required to file a chapter 13 payment plan, because it appeared that you had disposable income after you paid your monthly expenses, then the court would allow you to discharge the balance at the end of the chapter 13: after you had paid what you could afford over a three to five year period. So the monthly budget was the hurdle for qualifying for chapter 7. Unfortunately, a lot of credit card companies and banks were worried that people were fudging their budget figures to qualify for chapter 7. The credit card companies and the banks suspected that, in reality, there was more disposable income available and a lot of people could be moved into a chapter 13 – which would obviously mean more revenue coming into the credit card industry and the banks. In 2005, the credit card lobbyists were able to draft an amendment to the Bankruptcy Code and get Congress to pass it, which was called the Bankruptcy Abuse Prevention and Consumer Protection Act. A big feature of this amendment was the means test, which is an additional qualification hurdle for a chapter 7 bankruptcy. The means test is a mechanical calculation of the past six months of gross income, which is a six-month snapshot of your household income, not just your personal income. For example, if you are a married person and you are filing for bankruptcy separately from your spouse, who does not wish to file, the court will look at the entire household income, and your spouse’s income as well. They’ll take that six-month snapshot and divide it by 6 then multiply it by 12 to project your annual gross income. Once they have that annual gross projection, they will then weigh it against the median income for a household of your size. Note that median income figures vary by state. If your projected annual income is estimated to be less than the median income for a household of your size, then you pass the means test. If it is estimated to be higher, then you have to go through the second half of the means test. This second part involves netting out your expenses, just like you do with your budget, but the trick with the second half of the means test is that not all of those expenses are actual expenses. Some of them are, but some of them are actually standardized numbers based on IRS data of what a household of your size in your geographic region spends on things, such as food, clothing and utilities. So basically, what the means test requires is for you to standardize your expenses to a degree, at least, so you can’t claim that you have high expenses (without sufficient proof) in order to qualify for chapter 7. If you can get through the second half of the means test and it nets out enough expenses to show that you don’t have the “means” to do a chapter 13, then you would pass the second half of the means test. If not, you’ll actually go to the third part of the means test where if you don’t have the means to pay a certain percentage of your debt or to estimate that the number’s low enough where you’d only be paying a very small amount into a chapter 13 plan, the court will actually let you go into a chapter 7 as well. A good rule of thumb is if you’re more than $10,000 over the median income, you probably can’t get past the second half of the means test. It doesn’t mean it’s impossible, but it’s a lot more difficult. Some things that can help you on the second half of the means test are secured debts, like mortgage payments, auto loan payments and, if you’ve got kids, daycare expenses. Those kinds of things you’re allowed to take actual expenses on in the second half of the means test. Obviously, those are pretty big expenses that can affect an individual’s pocketbook quite a bit and can make it more likely to pass the second part of the means test. The means test is really putting into place this mechanical calculation to qualify for a chapter 7, and that’s why we need six months of paystubs from our clients when we move forward with bankruptcy. With the means test, the banking industry thought a lot more people would be put into chapter 13 as opposed to chapter 7. However, the suspicion of the banking industry was completely unfounded: people were not fudging the numbers and making up expenses as a rule, and there certainly didn’t need to be this mechanical qualification test grafted onto the Bankruptcy Code. Unfortunately, what it did do, was make a lot more work for the attorneys. If you filed bankruptcy before 2005 and are looking at filing for bankruptcy now, you’re going to notice a big difference in the legal fees because it’s a lot more time and effort on your attorney’s part, at least, to get you past the means test. But it doesn’t mean it’s prohibitively expensive, but you will find that it’s not as cheap as it used to be. In chapter 13, you still do the means test, which plays two roles. First, if you are calculated to be over the median income for a household of your size, you have to do a five-year plan. If you’re under the median income in a chapter 13, you have the option of doing a three- or five-year plan if you want. Sometimes it doesn’t make sense to do less than a five-year plan, and this varies case-by-case; but if you are under the median, you, at least, have the option of doing as little as a three-year plan. When the means test was originally put into the Bankruptcy Code, it was conceived that it would spit out a number in chapter 13s which would dictate what the monthly payment was. Unfortunately, that caused a lot of problems because, obviously, those standardized expenses aren’t true in every single household, so a lot of people were spending more on utilities and necessary living expenses than what the standardized number was. In 2010, the United States Supreme Court in Hamilton v. Lanning held that in a chapter 13, the payment should be based on projected monthly expenses, not necessarily on the expenses that are listed in the chapter 13 means test. For more information on Means Test In Minnesota, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today. 

“Heads in beds” refers to a method of how to calculate the size of the household for means test purposes. The first obvious household determinant would be, how many dependents you are claiming on your tax returns. For example, a married couple with two children would be a household of four. Now ideally, in a very simple world, they will be claiming both of those children, as dependents, on their tax returns. But let’s say in a variation of the example that this married couple is a second marriage, and each spouse is bringing a kid from a previous marriage, and they’ve got an agreement with their ex, that every other year, they are going to trade claiming that child as a dependent on their income taxes. You can run into a situation where even if you’re caring for the child, the child is living in your house, you are paying utilities, food and expenses and you have an ex who is contributing as well, but the child is not claimed on your tax returns that particular year as a dependent, the court will allow what’s called “heads in beds.” If the person is in your house at least 50% of the time approximately and you are contributing to that person’s welfare, even though you technically don’t claim that person as a dependent on your tax forms, you can claim that person as a member of your household for purposes of the means test. This can even be extended to a roommate who wouldn’t be your dependent for tax purposes; but if you are living with somebody in the same household and are sharing expenses with them, you can claim them as a member of the household. The flipside of that coin is that you must also claim any contributions that they are making to the household income. For example, let’s say two roommates in an apartment split everything down the middle: they split rent, utilities and food. You could list both of them as members of the household, but then you’d also have to include the roommate’s household contribution for half of the expenses as income for the other roommate filing for bankruptcy. This would obviously increase the projected annual gross. But more often than not, it’s not going to increase it enough to get the filer over the median income for a household of two: obviously, this varies case-by-case. So it’s a bit of a trade-off. The marital adjustment deduction comes into play if only one spouse is filing for bankruptcy but the other spouse’s income is included on the means test to the extent it contributes to the household. So typically, what this means is that for purposes of deductions from the paycheck, such as withholding taxes, life insurance, disability insurance, medical insurance and things of that nature, the marital deduction is basically netting out those expenses and only putting in the portion of the spouse’s income that is actually being paid for expenses, like mortgage, utilities and food. So the marital adjustment deduction is a way for the court to be fair when it comes to those paycheck deductions, but actually, if your spouse is paying child support or has debts in his or her name that aren’t benefiting the person filing bankruptcy, you can actually increase the marital adjustment deduction by that amount because the argument could be made that it’s not benefiting the person filing for bankruptcy. Additional Information On the 341 Meeting Of Creditors And Means Test In Minnesota We’ve been talking about trustees, and I suppose it makes sense to talk about the designation between a panel trustee and the United States trustee. So when we talked about the trustee whom you meet with at the 341 meeting, that’s actually the panel trustee. The panel trustee is part of the panel of designated lawyers who are allowed to be trustees in either a chapter 7 or a chapter 13 case. In Hennepin County, there are seven that the cases are rotated between, and the panel trustees’ focus in chapter 7 is really just on the assets and in chapter 13 more so on the monthly budget. Then there is the US trustee’s office, which is part of the Department of Justice. These trustees are tasked with the qualifications for chapter 7 and verifying the information on the means test. So every time a case is filed, the US trustee’s office looks at the means test; and if they feel that it’s a very close call, they may follow up with what’s called a 707(b) investigation. In a 707(b) investigation, the US Trustee’s office obtains verification of the income information that you used to complete the means test and monthly budget. This usually comes up in cases in which passing the means test was close, so they verify that the paystubs are accurate and there have been no mistakes made. Sometimes, when we talk about the marital adjustment deduction, I’ve had cases where we’ve had to provide documents to justify, to the US trustee’s office, the deductions that were used, and the expenses of the non-filing spouse and the reasonable and necessary nature of those expenses. Those don’t come up all the time, but they do come up, and that’s why it’s important that you have a qualified, experienced lawyer who knows what they’re doing because, when you are hiring a lawyer, you are not just paying for somebody to fill out the forms. You are paying somebody to do legal analysis for you, somebody who knows the law, can look at your circumstances and situation and get you the best outcome possible. For more information on “Heads In Beds” In A Means Test, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today. 

There Are 3 Ways to Keep Secured Debt Through a Bankruptcy. Reaffirmation A reaffirmation is an official way to “reobligate” yourself on the loan. This involves the lender sending us a reaffirmation contract to be signed by you. Once reviewed and signed, the reaffirmation must be approved by a judge. The judge looks at a number of factors when determining whether s/he will approve or deny the reaffirmation. These factors include: equity in the vehicle; interest rate of the loan; your monthly budget (i.e, can you afford the payment); and whether the judge considers the vehicle to be “reasonable.” If the mortgage or loan does not fit into your budget, there is a presumption of undue hardship and the judge will require you to attend a hearing to explain why a reaffirmation is in your best interest and does not force an undue hardship on your and your family. Judges will not grant reaffimations on luxury vehicles such as Harleys and BMWs. For home mortgages, the only factor to be considered is whether the monthly payment fits into your budget, but even if it doesn’t, the court will often grant the reaffirmation as the home mortgage is so important to obtain a fresh start. If there are a number of factors weighing against a reaffirmation, you may consider a ridethru or redemption loan to keep the vehicle. Ridethru A ride thru is the unofficial way to keep a vehicle after buy. The buy wipes out the unsecured portion of the debt, but does not remove the lien on the collateral. While .the reaffirmation is a contract that reobligates you on the unsecured portion of the debt, keeping the loan going, a ride thru does not reobligate you on the loan, but is instead an understanding between you and the lender that as long as you keep making your monthly payments, they will not exercise their repossession rights. Redemption Loan A redemption loan is costly and almost never done. It involves obtaining refinancing for the car loan during the bky and because your credit is taking a hit, the interest rates are burdensome. I don’t recommend a redemption loan. Some creditors require reaffirmations to be filed with the court or they will repossess the vehicle. 

Chapter 13 is essentially a payment plan that you organize through the court system. Think of it as a consolidation loan with teeth. One of the foundational features of a Chapter 13 is that even though you are working on a payment plan, you do not necessarily have to pay back one hundred percent of the debt. The formula we use in Chapter 13 to determine your payment is: A) monthly net income, minus B) monthly expenses equals, C) disposable income. Whatever that disposable income number is, is what the court wants you to pay each month to your creditors. Under Chapter 13 you can choose either a three year plan or the five year plan depending on what you qualify for. That qualification is tied to your income versus the median income. On the date you file for Chapter 13 the automatic stay goes into effect. You are protected from any collection action from all creditors. This includes foreclosures as well. You are proposing a plan to the court that allows you to cure any defaults you might have on secured debts such as car loans or home mortgages, and to bring those current over the three to five-year period and pay what you can on any unsecured debts. Whatever is left after paying on those unsecured debts at the end of your payment plan is discharged, just like it would in a Chapter 7. Another great thing you can do in a Chapter 13 is if you have tax debt, you can stop penalties and interest from accruing while you use the Chapter 13 to pay off those taxes. If the taxes do not meet the criteria to be dischargeable, then they have to be paid in full. But, if they are dischargeable, then you would just treat them as general unsecured debt where they get discharged at the end of your payment plan. Another great feature of a Chapter 13 is if you are underwater on your house and the value of your house is less than the balance of your first mortgage, but you also have a second mortgage or maybe even a third mortgage on your house, you can actually take off the second mortgage, and potentially a third mortgage, if you meet those criteria’s through your Chapter 13 bankruptcy. To do so, you need to prove to the court that the value of your house is less than the balance of the first mortgage. You must work out a payment plan that states what you can afford to pay over the next three to five years. That second mortgage is treated as unsecured debt. They get whatever you can pay to them through your Chapter 13 plan. At the end of the plan, the lien comes off of your house. You can actually exit a Chapter 13 in a better situation in terms of your home equity than you were when you first entered into a Chapter 13. The focus of the Chapter 13 is to help you to get back on your feet. But, because you are perceived as having a higher income as maybe someone who has qualified for Chapter 7, they want you to pay in what you can afford over the stretch of those three to five years. Some of the features of that payment plan, depending on your circumstances, may let you bring your house payments up to current status and you can save your house from foreclosure and eventually strip off that second mortgage. It can be a very powerful tool. Another thing you can do in Chapter 13 – at least at Atlas Law Firm – is to pay your attorney fees through the plan. The only amount clients have to pay upfront is the Chapter 13 court filing fee, which is only $310. The default fee for a five year plan is $3,500. That is a pretty standard charge. It is a great advantage to pay your attorney through the Chapter 13 plan and not have to pay upfront attorney fees. What a great benefit for our clients. For more information on Chapter 13 Bankruptcy in Minnesota, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today. 

A chapter 7 bankruptcy trustee is a lawyer hired by the court and appointed to chapter 7 bankruptcy cases that are filed in a particular county or jurisdictions. The role of the chapter 7 trustee is to review the documents filed by the debtor and in chapter 7 to make sure that the assets are properly listed and that the exemptions claims are appropriate under the circumstances. A chapter 7 trustee also looks at potential transactions such as sales of assets prior to filing or gifts that the debtor may have done prior to the bankruptcy case being filed, in which the chapter 7 trustee may be able to claw back some of the assets or funds received because of those transactions. In short, the chapter 7 trustee is a fiduciary for the creditors and that person represents the interest of the creditors in the bankruptcy case. How Is That Different From The Duties Of A Trustee In A Chapter 13 Bankruptcy Case? There are a lot of similarities, but there are some differences as well. In a chapter 7 bankruptcy, the trustee is really focused on assets, exemptions, and transfers. That’s because those are the most lucrative places for a chapter 7 trustee to potentially get money turned over to the creditors. Very often, we’re able to protect everything for our clients: all of their assets and make sure that there are no transfer issues prior to filing. The chapter 7 trustees very often don’t get anything for the creditors, but when they do, it’s from the areas of an improperly scheduled asset, an exemption that doesn’t apply or an inappropriate transfer. So that’s really the focus of a chapter 7 trustee. In a chapter 13 bankruptcy, while we still look at the assets and the exemptions, the chapter 13 trustee is more focused on income and monthly expenses. That’s because the format of a chapter 13 is a payment plan in which you are paying an amount to your creditors through the chapter 13. The amount that you pay depends upon your monthly income and your monthly expenses. Therefore, the chapter 13 trustee is focused on having you report all of your income and making sure that the monthly expenses you are claiming are reasonable and necessary as opposed to luxury expenses or unduly burdensome expenses to which the trustee could potentially object. In sum, there are a lot of similarities between the chapter 7 and the chapter 13 trustee, but their focus is slightly different in the different cases. Who Does The Bankruptcy Trustee Represent? How Are They Elected? The bankruptcy trustee represents the bankruptcy estate. When a case is filed, a bankruptcy estate is automatically created. That bankruptcy estate is populated by any assets that are non-exempt; that’s another way of saying they’re not protected, and any funds that the trustee is able to get back because of a fraudulent transfer or a preferential payment, for example, before the bankruptcy was filed. So that bankruptcy estate and the assets within it are what ultimately are liquidated on behalf of the creditors. The trustee has the fiduciary duty to the creditors to make sure that he or she is getting all available assets into the bankruptcy estate to then be turned over to the creditors. So the chapter 7 trustee represents the interests of the creditors. What Kind Of Communication Will I Have With The Bankruptcy Trustee? If you’ve hired an attorney, you won’t have any contact with the bankruptcy trustee (other than the 341 hearing which you attend with your attorney) because all the communications will go through your attorney. Communications from the trustee are actually pretty rare in a chapter 7. You’ll get communications from the court but those are not necessarily communications from the trustee. For example, on the date your case is filed, the court will issue a Notice of Case Filing and this will alert all of your creditors that you have filed for bankruptcy and they are not to attempt collections from you. The Notice also states that there is a 341 hearing that they can attend if they wish. So you as the filer (commonly referred to as the “debtor”) will receive a copy of that notice but that’s actually from the clerk of court, not from the trustee. Communications from the trustee are typically around clarification of assets. So for example, if you had scheduled a motorcycle on your petition as an asset and you gave a value of a particular amount, a trustee may very well state in a letter to your attorney, “I’ve done some research about this year, make and model of motorcycle and it appears that the value you’ve provided is much lower than what I’m finding for similar motorcycles online. Can you provide some pictures, some documentations, some evidence to support the value that you used,” and that communication would be addressed to your attorney and then obviously your attorney would provide that to you and ask for the supporting documentation. In the vast majority of cases, we’re able to protect all of our clients’ assets, so these communications are actually not that common at all. For more information on Bankruptcy Trustee In A Chapter 7, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today. 

There are 2 things you must do after your case is filed: (1) attend the meeting of creditors (aka the 341 hearing); and (2) complete a debtor’s education course via phone within 75 days from the date your case was filed. The 341 hearing is sometimes referred to as the meeting of creditors because your creditors can attend the meeting and ask you questions about the information contained in your petition. It is rare that any of your creditors attend the meeting. Typically, it is a meeting between you, your attorney, and the trustee. The trustee is the attorney hired by the court to oversee your case and determine if any of your assets are not protected under the laws. This is a very straight forward meeting. To determine the meeting location, see our areas of service page. There are 4 things you must bring to this meeting: (1) Drivers license – or other state identification; (2) Social security card – if you do not have your card, you must present a legal document with your full social security number on it. This includes your original W2 for the most recent tax year (the document you receive in the mail, NOT a copy of it), military papers, or you can get a social security number verification at your local social security administration office. Because ordering a new card can take up to 8 weeks, you likely will not receive a replacement card in time for your meeting of creditors, which occurs approximately 30 days after your case is filed. What does NOT work as an alternative to your social security card? Your birth certificate and your passport will NOT be accepted as neither includes your social security number. If you do not present sufficient proof of your social security number, the trustee will not hold the hearing and you must reschedule it; (3) A bank statement from each account that has your name on it – ALL of the bank accounts listed on schedule B of your petition, showing the balance as of the day we filed your bankruptcy (approx. 1 month prior to the date of the hearing). The statements can be online print offs, but must show the bank name, and the name on the account. Read this carefully, this is the number one trustee pet peeve. Bring a statement from every bank account with your name on it (don’t forget your savings account even if you never use it, don’t forget your child’s savings account if your name is on it.) Second, make sure that the statement or online print off shows the balance and/ or activity from the date your case was filed NOT the date of the hearing; and (4) Your most recent pay stub. If you are self-employed or unemployed, you do not have to bring a pay stub. I recommend getting to the meeting about 15 minutes early so that we can discuss the meeting before going on the record.

Mortgage modification is not part of bankruptcy. When we talk about mortgage modification, this is something that is relatively new. In general a mortgage modification is when your lender determines whether they will allow you to change the terms of your mortgage and modify it. This came to fruition with the economic recession, and the real estate crash of 2008-2009. Mortgage loan modifications were created because the federal government was putting pressure on major banks that handle large amounts of home mortgage lending, to try to work with homeowners to help people keep their homes. The unfortunate thing about it is there are no real teeth to the laws for mortgage loan modification. You may have heard of HAMP (Home Affordability Modification Program), and HARP which is the refinance program. The government tried to layout guidelines for major mortgage lenders to work with people. Nevertheless, there are no real teeth to these laws. What ends up happening are the national banks that have thousands and thousands of loans, but only have a small staff of people handling these modifications. These modification applications are from all over the country. Things are getting lost, there are large delays, and people cannot respond to your questions fast enough. Many people have frustrations when submitting documents and the bank employees are claiming documents were not received and requesting the same information repeatedly. Essentially, the application documents consist of two years of tax returns, pay stubs, and bank statements. They want a financial snapshot of your income and expense situation to determine whether you qualify for what they would deem their requirements for a modification. What they are looking for is a hardship case that justifies working out something with you. The best thing that you could hope for is if you are working on the modification process, is take the amount you are behind on, and put it on the end of your mortgage as a balloon payment, which comes due after you finish your regular monthly mortgage payments. They are going to cancel the foreclosure sale or agree not to move forward with the foreclosure sale at this point. Sometimes, they will reduce the monthly payment, but I have actually met with people who have gone through the modification process, and have had their payments increased because of a number of different circumstances. The fantasy that the mortgage lender is going to see that your house is not nearly worth what it was when you bought it, and so they are going to cut $30,000 off the principal is simply not going to happen. If anyone is going to take a haircut, it is going to be the homeowner, not the bank. Banks will take the amount of monthly mortgage payments that you missed and stick them on the end of your mortgage. You then will have to figure out how to make that balloon payment in fifteen plus years when it comes due. You can either re-finance and pay it off at that point, or just come up with the money. That is really what the modification process does. As we are removed from the economic recession, and the real estate market begins to recover, I see lenders doing this less and less. A mortgage modification is more of a Hail Mary pass at this point that you are A) going to qualify for what they deem their criteria to modify the mortgage and 2) you going to get something that does benefit you. A couple of years ago, Minnesota law put in place what is called Dual Tracking. People got behind on their mortgage and they submitted the application for the loan modification. While they were going through this loan modification process, the banks were also lining up all the foreclosure procedures that they needed to do and started sending out the notices. If they did not approve of the loan modification, then they could have everything ready to move forward on the foreclosure. It was really hurting people, because they were hearing one thing from the mortgage lender that the mortgage lender was looking into the modification and everything was fine. But if something fell apart or a document did not get submitted on time then the bank would just turn around and move forward with the foreclosure process. The state of Minnesota has now made that practice illegal. The mortgage lenders have to pursue one or the other, they cannot dual-track both alternatives at the same time. If the mortgage lender is considering a modification, it cannot also be putting things in place for a quick foreclosure sale. In terms of bankruptcy, the automatic stay is one of the key benefits of filing for bankruptcy. It applies in both chapter 7, and 13. That stay is going to stay, or stop any collection activities, on the date we file your case. Foreclosure sale, garnishments, bank levies, collection calls, collection letters, all of that stops. Unlike a modification, which is trying to work things out, negotiate an agreement between you and the mortgage lender to stop a potential foreclosure, an automatic stay is the backing of the federal government that prohibits the foreclosure under federal law. It is a much more powerful, reliable form of protection from foreclosure than the loan modification process. I am not saying that you should not attempt a loan modification if you think you might qualify, but I would certainly say, “Don’t hold your breath. Try to keep your expectations realistic.” If you begin that path, and you determine, “Hey, this really isn’t working out the way I hoped it would,” then you should certainly be looking at bankruptcy as a potential plan B. For more information on Mortgage Modification & Automatic Stay, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today. 

The chapter 7 trustee pays the creditors through a notification procedure. In a chapter 7, 98% of the time we’re able to protect all of our clients’ assets. When we file the petition, there is a box that we check if the debtor believes that there may be assets available to the creditors. Ninety-eight percent of the time we’re able to protect everything, so 98% of the time we check no: no funds available to the creditors. That information is included in that notice of case filing that goes out to all of the creditors at the beginning of the case, and so the creditors know that in a typical chapter 7, it’s very unlikely that they’re going to get anything. If later the chapter 7 trustee is able to determine that there are funds available to the creditors, either because there was a non-exempt asset or perhaps the trustee was able to get money back from a creditor because of a preferential payment, then the trustee will send a Notice of Assets aka Notice to File Claims to the creditors. Then the creditors are given a period of time to submit claims to the court for their amount of debt. The creditors have 90 days to provide the claim to the court (180 days for governmental creditors). Once the claims are filed, the trustee files a Notice of Final Report and Proposed Distribution with the court that proposes how to liquidate the assets and to pay the claims. The trustee also gets a portion of the funds for his or her work and gets to deduct the costs and expenses. As long as there are no objections to the trustee’s proposal within 21 days, then the trustee will execute the proposed distribution of funds and the money will be released to the creditors in a pro rata share in accordance with their claims. So the creditors who are owed the most money get the highest percentage of whatever is available to the bankruptcy estate. Can The Trustee Take Funds That Were Obtained As Part Of A Personal Injury Claim Or A Tax Refund? When conducting an asset analysis, we look at what is an asset as of the date the case will be filed. What legally is deemed an asset may be different from what a lot of people perceive as an asset. Most people think, “I don’t get my tax refund until maybe February, March, or April of the year when I submit my tax returns. So that refund is not an asset until I receive it.” However, your tax refund, for example, is “earned” throughout the year because the refund is comprised of the withholdings from your paycheck during that particular year. Even though you receive the tax refund sometime in the following year, after you file your tax returns, you “own” the asset (or at least a percentage of it) as of the date your file your case. It’s probably best to illustrate this by way of an example. For example, if I’ve filed a chapter 7 bankruptcy on December 20th, 2016 and my tax refund is basically the amount of money I had withheld from my paycheck minus whatever my actual tax payment is, then I have “earned” about 99% of my 2016 tax refund because I’ve been paying my tax withholding since January 1 and now we’re about 95% of the way through the year. Even though I might not see that tax refund until March 30th of 2017, I have earned that asset as of December 20th, the day I filed the bankruptcy. So if you have a good bankruptcy lawyer who understands these laws, then the bankruptcy lawyer is going to list in your schedules 99% of estimated 2016 tax refund. We have to then set a value for the asset. Let’s use the number $2,000 for ease. On schedule C, if this was applicable in your particular circumstance, using the wildcard exemption (11 U.S.C. § 522(d)(5)) for $2,000 to claim that amount exempt. What is likely going to happen at this time of the year is the trustee will require that after you complete your 2016 tax returns that you provide the trustee with the copy to verify that your estimate of the tax refund is accurate. The trustee wants to be sure you’re not going to get a $10,000 tax refund when you’re claiming the $2,000 tax refund. Another item to consider as an asset are settlements. So if you have a legal claim on the date your bankruptcy is filed, the right to that legal claim is considered an asset even if you haven’t met with an attorney or if you don’t know that you may bring that claim at some point in the future. For example, if you’re in a car accident 3 months before your bankruptcy is filed and you were injured and you’re considering possibly bringing up a personal injury claim, that right to bring the claim is considered an asset that existed on the date your case is filed: even though you may never file a lawsuit, even though you may never meet with an attorney, even though it might turn out not to be a really strong claim. You have to list that asset and disclose it and provide an estimation of value. If you receive a settlement years down the road, whatever amount of that settlement that you’re unable to exempt from the bankruptcy estate would be due to the bankruptcy estate and the trustee would be able to take those funds and distribute into the creditors. So one thing that we do for assets such as settlements where we know they exist but we really don’t know what the value is because if obviously they have a personal injury attorney, we try to get an estimation of value from the personal injury attorney as best they can provide and use that and exempt it as appropriate. Then if the value changes overtime, we have a duty to amend the value and the claim of exemption later on down the road. Those kinds of things can play out actually over a few years. The discussion I have with my clients who have personal injury claims is if you think this is going to be particularly lucrative, it may make sense to put the bankruptcy on hold until you’ve gone farther down the lawsuit/settlement road to make sure that you’re not at risk of losing tens of thousands of dollars, if not more. Oftentimes it’s a minor fender-bender and if there is a claim, it’s probably going to be $10,000 or less and oftentimes they’ll say, “If we can exempt the $10,000 for bodily injury, then let’s go with that because that’s the best estimate a personal injury attorney can provide. I don’t think it’s going to go north of that, so let’s go ahead and file and in the event that the settlement goes north, we’ll have to amend but in all likelihood, it’s not going to be more than $10,000.” For more information on Process Of Paying Creditors, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.