Robert S. Payne - My Utah Bankruptcy Blog.+Add.Feed Info1000FOLLOWERS
We are a West Jordan bankruptcy law firm. We have offices in West Jordan, West Valley City, and Provo. We file chapter 7 and chapter 13 bankruptcy to stop foreclosure and garnishment. We have a very extensive blog with standard bankruptcy questions, and content is added daily.
No, you don’t automatically lose it just because of the bankruptcy. You can pay for it and keep it, or give it up. The choice is yours.
When you file a chapter 7 case, you list your secured debts (like car loans, mortgages, financing/purchase contracts for furniture) in the bankruptcy, and then you state whether you want to surrender or retain the collateral. If you want to surrender it, then you stop making payments. Eventually they will repossess your car, and the balance is wiped out by the bk.
If you want to retain it, you list the loan in the bankruptcy, and then you check a box that states that you want to keep the car and keep making payments on it. This is called your Statement of Intention.
Normally, when you keep a car loan, you sign a reaffirmation agreement (after you file bankruptcy), which obligates you to the same payments, same interest rate, same balance, same everything. It is very unusual for a creditor to change any of the terms for you (like lowering the interest rate). Don’t hold your breath on changing any of the terms.
Don’t just take my word for it. The Utah Bankruptcy Court has a fairly clear description of reaffirmation agreements here:
A debtor in a bankruptcy case may decide to remain legally obligated to pay a debt that would otherwise be discharged in bankruptcy. This is called reaffirming a debt. Reaffirming a debt is voluntary; debtors are not required to reaffirm any debt.
The reaffirmation of a debt is governed by 11 U.S.C. § 524(c), (d), and (k). A Reaffirmation Agreement is enforceable only if it complies with these Bankruptcy Code provisions. For example, any agreement to reaffirm a dischargeable debt must be entered into before the debtor receives a discharge.
Instructions for filling out a Reaffirmation Agreement form are avaialble here.
Debtors who are NOT represented by an attorney MUST also file a Motion for Approval of Reaffirmation Agreement. Upon receipt of the motion for approval, a hearing will be set and notice of that hearing will be mailed to the debtor and the creditor. The Debtor MUST attend the hearing to have the reaffirmation agreement approved.
Now of course there are all kinds of potential pitfalls with keeping the car. You have have too much equity, or too little income, or other loans with the credit union which are cross-collateralized with the car. But this is a bit more complicated and you’ll need to work it over with your attorney.
(This is a creditor question, and I don’t represent creditors. I represent the people who need to seek bankruptcy protection from creditors, but I get asked the question enough that I thought it would be easier in the long run to have an answer on my blog).
I get the following email all of the time from creditors. I don’t represent them, and if they have any questions, they really should hire their own collection attorney. That being said, I can at least steer them in the right direction, and I usually do. Courtesy pays, and that karma thing is real.
This morning I received an email from a creditor that said:
We have an outstanding bill for water mitigation services performed by
XXXXX, who we represent, on Ms. XXXX’s home in May 2016 for
$2655.36. I am emailing to inquire where to send this bill to include it
in the bankruptcy, and to ask if XXXXX can expect to be paid as a part
of Chapter 13.
I responded and sent them to the bankruptcy court website here in Utah. If you are a creditor in a chapter 7 or a chapter 13, there is a chance that the debtor (person filing bankruptcy) will be paying out some money to his creditors. Sometimes, it is only pennies on the dollar. However, in some cases, the debtor has to pay our 100% of properly filed claims. The key phrase there is “properly filed.” If you don’t file a claim, you won’t get paid.
I filed a case a couple of years back for a collector for a large credit card company. She was in a 100% repayment plan with her chapter 13, and she owed about $15,000 on a credit card with her employer. Her employer (a solid collector), filed its claim 2 days late with the bk court, and that $15,000 claim was wiped out with a total repayment of $0.00. They were only 2 days late!
Sometimes a creditor may file a claim that may be improper (such as a 10 years old collection bill for a credit card where the statue of limitations was only 6 years), and those claims can be knocked out as well. However, it is guaranteed that the creditor will receive nothing if they don’t even try to file a claim.
To file a claim for a case in the District of Utah, complete a Proof of Claim form.
Do not include any personal identifiers on the form. In compliance with Fed. R. Bankr. P. 9037 a filing (any document or attachment to a document) made with the Court must not contain certain information, including
an individual’s social security number,
a taxpayer identification number,
an individual’s birth date,
the name of a minor, or
a financial account number.
Such information must be removed or edited. The document shall only contain:
The last four digits of the social security number and taxpayer-identification number
The year of the individual’s birth
The minor’s initials
The last four digits of the financial account number
The party filing a document is responsible for redaction. The Clerk’s Office does not review documents filed with the court for compliance with this rule
United States Bankruptcy Court District of Utah
350 South Main St.
Suite 301 Salt Lake City, UT 84101
*If claim filers wish to have a conformed copy; please include an extra copy and a self-addressed stamped envelope.
It is fairly simple, and you should be able to prepare and file the proof of claim on your own. However, it may be a good idea to consult with a collections attorney to make sure you do it right. Because, if you mess up on your proof of claim, you will most likely receive nothing.
It’s complicated. Plan on losing all but $1,000 of it for the next 3-5 years.
And don’t forget, when you pay this tax refund money into your chapter 13 case, it does NOT pay off your plan early. It goes into a pool to pay your unsecured creditors a little bit more. So it does NOT shorten your bk plan at all.
In a chapter 13, we normally propose that you keep the first $1,000 of your tax refund each year (and maybe the first $2,000 if you get the EIC or ATC). The chapter 13 plan language reads like this:
For the next three tax years of xxxxxxxxxx for below median cases and the next five tax years xxxxxxxxxx for above median creditors, the Debtors shall pay into the Plan yearly state and federal tax refunds that, when combined, exceed $1,000 or $2000 in the event the refunds are a result of receiving the Earned Income Credit (“EIC”) and the Additional Child Tax Credit (“ACTC”) or either, then the excess of $2,000 shall be contributed to the Plan.
This means that in most cases if your income is below the median income figures, that you will lost a part of your refunds for the next 3 years. If your income is high, then you will lose a portion of your refund for the next 5 years.
There is also a more complex option that goes like this:
The following tax years are proposed to be contributed [xxxxxxxxxx]. On or before April 30 of each applicable year, debtors shall provide the Trustee with a copy of the first two pages of filed state and federal tax returns. Any required tax refund contributions shall be paid to the Trustee no later than June 30 of the year the applicable return is filed.
For the first tax year contribution xxxx, debtors shall contribute to the Chapter 13 Trustee the pro rata portion of the tax refund that would be contributed in a chapter 7 case. This amount shall be used to satisfy the 11 USC § 1325(a)(4) requirement and shall be disbursed to unsecured creditors in Class 3, Class 4 and Class 6 as listed in Local Rule 2083-2(e) as soon as possible. In the event of conversion to a chapter 7 case, tax refunds on hand will be submitted to a chapter 7 trustee as an asset of the bankruptcy estate.
For the second and third tax year contribution, debtors are authorized to retain any Earned Income Credit and/or Additional Child Tax Credit. Debtors shall contribute any refund attributable to over-withholding of income tax that exceeds $500. However, debtors are not obligated to pay tax overpayments that have been properly offset by a taxing authority. Tax refunds paid into the plan may reduce the plan term to no less than the Applicable Commitment Period, but in no event shall the amount paid into the Plan be less than thirty-six (36) Plan Payments plus all annual tax refunds required to be paid into the plan.
In this scenario, you may pay more from your first year tax refunds and then may pay less on your next two years.
As I said, it’s complicated. Just plan on losing part of your tax refunds for 3-5 years.
You will normally only lose one tax refund to the bk trustee, and if you do it right, then you won’t lose any refund money at all.
When we file bankruptcy, the Chapter 7 trustee has a duty to take your non-exempt assets (unprotected assets) like your unspent tax refund, and then he uses that to pay a small portion to your creditors. If we time the bankruptcy correctly, you will file, receive, and then spend your tax refund before we file the actual chapter 7. At that point, there is no refund to lose.
Then the bk trustee gets to do a little guesswork to see if next year’s tax refund is worth going after. He is entitled to a portion of your next refund, depending on when you filed bk. Let’s say you filed on April 1, well he can go after January/February/March’s portion of next year’s refund, or about 1/4th. If you file on July 1st, he can go after 1/2 of next year’s refund, October 1st 3/4th of the refund, etc. Generally, the bk trustee won’t keep a case open long enough to take next year’s refund unless it looks like he will receive at least $2,000 to pay out to creditors.
So, if you’re someone who gets a $12,000 refund each year, then he will keep the case open almost a year to see if he can hit that $2,000 threshhold. If your refund is small each year ($3,000 or less), then it’s generally not worth his time.
So normally, you are only in danger of losing this upcoming refund, which is why you want to file and spend that refund money before you file bk.
The bk trustee will NOT keep your case open year after year in order to go after your tax refund (at least in a Chapter 7).
In a Chapter 13, it’s a little different. Here in Utah, if your income is below median, you’ll turn over part of your tax refund for the next 3 years of your case. If your income is above median, then you’ll turn over part of your tax refund for the next 5 years. The portion amount, above median/below median numbers, and the calculations are a little complicated, so I’ll save that for another day.
However, if you miss one of those filing fee payments, the court may dismiss the case immediately, or may issue an Order to Show Cause accelerating all of your filing fee payments to be due in the next 2 weeks. If the case is dismissed, your creditors can start calling you right away, they can start garnishment, and yes, they can come repossess your financed cars.
If you are lucky, you only have to face the Order to Show Cause. But now, you’ve got to pay the remaining filing fees as a lump sum. Your installment plan over the next 2 months is gone.
Yes, it is possible to reinstate your case and vacate (take back) the dismissal, but it takes at least a month of no bankruptcy protection and a complex motion that your attorney will probably charge you to prepare and file.
Even worse, if you try to file a new bk case, you owe new filing fees plus you still owe those prior filing fees to the court. Your old bankruptcy case does report to your credit, because it was filed (even if it did not go all of the way through).
Some people may even think that it’s a good idea to quickly crank out a bankruptcy case to stop a foreclosure or garnishment and then let it simply dismiss out when they fail to make that first installment fee payment. This is a bad idea. Now you have a bk on your credit for the next 10 years (because you DID file), and if you try to file again. the automatic stay (bankruptcy court protection) may be gone on subsequent cases. And yes, you still owe those filing fees to the court.
You lose it unless you receive it and spend it first.
In other words, if you are contemplating bankruptcy, you should probably figure out how much of a refund you’ll be getting before you pull the trigger on any bankruptcy filing. That doesn’t mean that you should drag your feet on getting the bankruptcy prepared. You should still call today, meet with a bankruptcy attorney (like me), fill out the paperwork, take the online class, and be ready to file. But, you won’t file until after you’ve received and spent that refund.
And yes, you can definitely use that refund to pay your attorney’s fees for the bankruptcy.
Here is a rehash of my post on this same issue last year (and the year before):
What happens to my 2016 tax refund when I file bankruptcy?
You lose it unless you’ve already spent it.
Simply put: If you file bankruptcy before you receive and spend your tax refund, you will lose the entire thing to the bankruptcy trustee.
It’s that time of year again where I have to answer the phone and tell people that I don’t want their money until February or later because of tax refund season. It makes a lean December/January in our household, but it’s the only way to protect my clients.
(I am cutting and pasting from earlier posts, so please forgive the repeat information).
So let’s say you get your refund February 1, 2016. What do you do?
Better said, what don’t you do:
1. Don’t go buy a new toy like a dirt bike or a tv.
2. Don’t pay off any friends or family. This is a preferential transfer, to an insider no less, and it results in Mom and Dad being sued by the trustee.
So what do you do:
1. Spend it on exempt items under Utah Law. This basically means food, clothing, washer, dryer, fridge, freezer, stove.
(Did you see a computer on the list? No. Don’t ask me if that’s okay. It’s not).
2. And use the rest to pay me.
So let’s say you spend the tax refund on food storage March 1st and keep all of your receipts. When can you file? March 2nd.
(C) provisions sufficient for 12 months actually provided for individual or family use;
(D) all wearing apparel of every individual and dependent, not including jewelry or furs; and
(E) all beds and bedding for every individual or dependent;
There are other items you can spend the money on, and this is by no means comprehensive, but this should give you a good idea on how to spend it. If you have questions on what to use it for, ask your attorney; that’s what he’s there for.
When you file your chapter 7 case, you are seeking a discharge of your debts. In most cases, you file the case, meet with the bk trustee a month later, take the second online class (the Debtor Education class), and then you get your discharge at the end of month 3.
However, getting your discharge does NOT mean that your case automatically closes.
Your case will not officially close out until the trustee files a final report in your case. Generally, your case will close out that same month that you get your discharge. If you have assets worth collecting on (like an upcoming tax refund or too much equity in your home/car), then the bk trustee may keep the case open while he sells off the asset, sends a letter to your creditors, pays them off, and then files a report to close out the case.
So you case should close out within a month of your discharge if you are a no asset case, but if you have assets for the bk trustee to sell off, it may stay open for up to 2 years.
No Asset Cases
In most cases, he’ll file a No Asset Report (or Report of No Distribution), which states that you have nothing worth selling off to pay creditors. Here is what it looks like:
Chapter 7 Trustee’s Report of No Distribution
Chapter 7 Trustee’s Report of No Distribution: having been appointed trustee of the estate of the above-named debtor(s), report that I have neither received any property nor paid any money on account of this estate; that I have made a diligent inquiry into the financial affairs of the debtor(s) and the location of the property belonging to the estate; and that there is no property available for distribution from the estate over and above that exempted by law. Pursuant to Fed R Bank P 5009, I hereby certify that the estate of the above-named debtor(s) has been fully administered. I request that I be discharged from any further duties as trustee. Key information about this case as reported in schedules filed by the debtor(s) or otherwise found in the case record: This case was pending for 5 months. Assets Abandoned (without deducting any secured claims): $ 2740.00, Assets Exempt: $ 5200.00, Claims Scheduled: $ 50347.00, Claims Asserted: Not Applicable, Claims scheduled to be discharged without payment (without deducting the value of collateral or debts excepted from discharge): $ 50347.00. (Hunt tr, Mary)
In these cases, you have something that the trustee wants to sell off and use to pay your creditors. These cases take longer because he needs to liquidate the asset, notify your creditors to file claims, review the claims, and file a report to pay them off and close out the case. This is a fairly complicated topic, and I’ll save it for another entry.
However, it may take up to 2 years for your case to close out in this scenario. Your credit still starts rebounding once you get your discharge, but the case takes much, much longer to close out.
For a teaser, here is an asset case where the Debtors received their discharge in September, but the case didn’t close out until December.
Order Approving Chapter 7 Trustee’s Final Report & Account for XXXXX tr, Trustee Chapter 7, Fees awarded: $ 297.00, expenses awarded: $ 0.00; Awarded on 12/12/2017 (avt) (EOD: 12/12/2017)
Pending Order (Other) related documents(s): 16 Trustee’s Final Report (TFR) Filed by: (XXXX) [Order# 343738] (EOD: 12/12/2017)
BNC Certificate of Service – Notice. (related document(s):Notice of Filing Trustee’s Final Report and Account Before Distribution). Notice Date 11/18/2017. (Admin.) (EOD: 11/18/2017)
Notice of Filing Trustee’s Final Report and Account Before Distribution (related document(s): Trustee’s Final Report (TFR)) filed by XXXX) (EOD: 11/15/2017)
Chapter 7 Trustee’s Final Report. Reviewed by United States Trustee Filed by the US Trustee for XXXX tr (XXXX (EOD: 11/09/2017)
Application for Compensation forXXXX tr, Trustee Chapter 7, fee: $297.11, expenses: $0.00. Filed by XXXX) (EOD: 11/07/2017)
Remark Re: Bill. No fees due at this time. (avt) (EOD: 10/30/2017)
Trustee’s Request for a Bill. XXXX) (EOD: 10/27/2017)
BNC Certificate of Service – Order of Discharge. (related document(s): Order Discharging Debtor(s)(auto)). Notice Date 09/15/2017. (Admin.) (EOD: 09/15/2017)
Order Discharging Debtor(s)(auto) (Admin.) (EOD: 09/13/2017)
Personal Financial Management Course Certificate for Joint DebtorXXXX Provided by 001 DebtorEdu LLC, 8006103920 (EOD: 09/05/2017)
Personal Financial Management Course Certificate for Debtor XXXX Provided by 001 DebtorEdu LLC, 8006103920 (EOD: 09/05/2017)
Most likely, we will take you off of the car loan and discharge that debt. Your ex-spouse is still on the hook for the full loan, and they will need to keep paying it or face repossession.
When we file a chapter 7 bankruptcy, we check a box that states whether we want to surrender a secured loan (like a car loan) or reaffirm and keep it. With you own car, it is normal to check the box to reaffirm the debt and keep making payments on it. With an ex-spouse, it is a bad idea to reaffirm that debt. You should simply wipe out your liability on it and move on. If they want to keep the vehicle, they’ll have to keep paying on it.
Now there are always exceptions. Let’s say that as part of the divorce decree, you were ordered to keep up payments on her minivan, then maybe you should reaffirm it. Or maybe you’re the only name on the loan, you still have a good relationship with her, and she is good at making the payments. You can still reaffirm and keep it (although most attorneys don’t like you to reaffirm on anything). But generally, we list it and wipe it out.
In a chapter 13, it’s just about the same. If you want to surrender your liability on the loan, you can do so. If she wants to keep it, she’ll need to keep paying for it. If you want to keep the loan yourself and keep paying on it, it may be a little more tricky. The chapter 13 trustee will want a very good reason for you to keep this secured debt for something you don’t even drive.
Ex-Spouse Assumes Car Loan
Now I often get asked if you can list the loan in your bankruptcy and have your ex-spouse assume the loan with the bank. This is a matter between them and the bank. I have never actually seen it work, since divorce wrecks your finances and credit (and hers too). It is possible, but very unlikely.