Jeffrey M. Lewis

What is the “Estate in Bankruptcy”?

Jeffrey Lewis — Mon, 12 Mar 2012 04:14:04 +0000

This is the term that is given to the amount of your property that is available for creditors.
Anything in the Estate in Bankruptcy that is not cash will be liquidated, that is, sold and turned into cash by the bankruptcy trustee, and the cash will be distributed to your creditors. This is done on a proportional basis, usually in an amount that is pennies on the dollar. The trustee is an attorney who reviews bankruptcy petitions for the court. The trustee’s primary responsibilities are assuring the accuracy and legal sufficiency of the petition, and distributing liquidated assets to creditors under Chapter 7.

Does everything I own go into the Estate in Bankruptcy?

Jeffrey Lewis — Sun, 11 Mar 2012 04:23:31 +0000

No. The bankruptcy law provides for exemptions for certain categories of property, as well as an overall exemption. These categories include household items such as furniture, appliances, clothing, cars, work tools, jewelry, electronics, books and collectibles. Many retirement plans are exempt as well. There are monetary limits for each exemption category. There are limits specified in the federal bankruptcy statute, and each state has its own exemption limits. You can generally choose which set of exemptions to use. However, if you live in Virginia or Maryland and have done so for two years, you will have to use the Virginia state exemptions. Most people who file for Chapter 7 protection and many people who file a Chapter 13 repayment plan will be within the limits. While amounts in individual categories vary from state to state, the total exemption amount is roughly $25,000-$30,000, not including your home if you’re buying rather than renting.

How will I be able to exempt all the things I’ve accumulated over the years and stay within the limits set by the statute?

Jeffrey Lewis — Sat, 10 Mar 2012 04:25:16 +0000

In preparing the bankruptcy petition, you will have to assign a monetary value to everything you own. The value that you place on any given item is not resale, it is not wholesale. It is what is termed “salvage value” or “garage sale value.” That is, it’s the amount that you would expect to pay for that item if you were considering buying it at a neighbor’s garage sale. For instance, if you bought a sofa at Sears six years ago for $800, you might value it now at $50. For most people eligible for Chapter 7, everything you own will be exempted out of the Estate, and you will get to keep it. During our initial interview I will be giving you further guidelines on valuation.

What is the difference between secured and unsecured creditors?

Jeffrey Lewis — Fri, 09 Mar 2012 04:28:03 +0000

A secured creditor is one that has loaned or advanced you money for an item and maintains what is called a security interest in that item. The most common form of secured creditor is the bank that loans you money to buy a car or a house. If you default on the loan, you are expected to surrender the house to the bank (foreclosure) or the car to the lender (repossession). Other, not-so-obvious forms of secured creditors are the stores such as Sears or Best Buy who issue their own credit cards. If, for instance, you buy a refrigerator or other big-ticket item from Sears using a Sears credit card, Sears retains a security interest in the refrigerator until the payments on it are completed. In other words, you don’t fully own the item until it’s completely paid off. Think of it as a mortgage in miniature. So, if you stop paying Sears, they can repossess your fridge. You probably didn’t realize this, but it’s in the fine print of your credit card agreement that none of us reads.

An unsecured creditor is one who has loaned or advanced money to you without asking for collateral that can be taken if you fail to pay back the money. The most familiar example is the bank that issued your credit card. Using a credit card is in effect having the bank lend you the money for your purchase until you repay the money. If you file for bankruptcy protection, the issuing bank is listed as an unsecured creditor because the bank has no security interest in anything you buy using its card.

How are secured and unsecured creditors treated differently when I file for bankruptcy protection?

Jeffrey Lewis — Thu, 08 Mar 2012 04:29:16 +0000

If you file under Chapter 7, unsecured creditors will usually not be paid anything if your exemptions leave nothing in the Estate in Bankruptcy. You have choices as to how to deal with property that is subject to a secured creditor’s interest. If you want to keep the item (your car, for instance), you can reaffirm the debt. This involves entering into a new contract called a reaffirmation agreement. This can, but doesn’t always, result in a new, more manageable, payment schedule. You can also surrender it to the creditor and not have to make any more payments. A third, less common option, is to redeem the item, which means that you pay the remaining amount in a lump sum and erase the debt.

What kinds of debts cannot be discharged in bankruptcy?

Jeffrey Lewis — Wed, 07 Mar 2012 04:31:17 +0000

Some forms of debt cannot be discharged in bankruptcy, and you will have to pay them. Here are a few of the most common forms of non-dischargeable debts:

Taxes–If you owe back taxes, you will have to pay them. There is a small exception to this, however. Past due taxes are dischargeable IF (1) the amount became due more than three years before you file the bankruptcy petition (the due date is considered to be April 15) and (2) you timely filed a tax return for that year and (3) no action was taken by the government to collect the past-due taxes. There are some wrinkles and refinements to this, but we would address those issues in a detailed personal interview if your situation is applicable. Also, you cannot discharge a loan taken out to pay taxes that are otherwise nondischargeable.

Student Loans–There used to be a distinction between the dischargeability of private student loans and those made by the government. The bankruptcy law revisions of 2005 did away with that. Pretty much the only way to discharge a student loan is to make a showing of “undue hardship.” This means that you have to convince the Bankruptcy judge or trustee that you will never be able to get a job that will allow you to repay the loan. This, in turn, would likely have to involve some disaster that renders you physically unable to work.

Domestic Support Obligations–This includes all court-ordered child support and spousal support (alimony).
Certain Consumer Debts–You cannot discharge credit card purchases for luxury goods in the amount of more than $600 to a single creditor if the purchase was made within 90 days of the filing of the bankruptcy petition. Nor can you discharge more than $875 in cash advances made within 70 days of filing.

Fines and Forfeitures –This includes criminal fines, and covers any incident or transaction that occurred more than three years before the filing of the petition. It also includes judgments against you for death or personal injury resulting from operating a motor vehicle, boat or airplane while under the influence of alcohol or drugs. Restitution ordered by Federal court in a criminal case is not dischargeable.

What is the Means Test?

Jeffrey Lewis — Tue, 06 Mar 2012 04:33:07 +0000

The Means Test was instituted in the 2005 revamping of the Bankruptcy Law to make it more difficult for debtors to utilize Chapter 7 liquidation. The median income in each state for families of a given size is used as what is essentially a starting point for further scrutiny to determine Chapter 7 eligibility. For example, the median income in Maryland for a family of three is $84,151. If your own family of three has an annual income of $80,000, the means test inquiry ends there. If, however, your family of three has an annual income of $91,000, you will have to list your monthly expenses, which are also compared to national and state medians. Subtracting your expenses (under these formulations) from your income will determine your repayment capacity, that is, the amount that you have available every month to repay your debts. The Means Test factors in the amount of unsecured debt that you have and compares it to your repayment capacity.

If, according to the formula, your repayment capacity is greater than the amount of unsecured debt, your petition under Chapter 7 will be denied on grounds of “abuse.” Of course, since we would be working all these figures out ahead of time, I wouldn’t file a Chapter 7 petition for you. In this situation, the law presumes that you can afford to repay your debts over time under Chapter 13. It is possible to avoid dismissal for abuse by proving “special circumstances.” There is no set definition or standard for what those circumstances might be–it will depend on the facts of your individual case.

If your income is below the state median for your family’s size, then you will be able to file under Chapter 7 and the Means Test inquiry stops there. If you file under Chapter 13, then there is a whole new set of hoops of fire to jump through. From your monthly income you will deduct your expenses in order to determine how much per month you will be able to contribute to the repayment plan. Sometimes this results in problems, since Chapter 13 requires that you use the average of your monthly income for the previous six months. Injustice can happen here if, for example you are still working but have recently had to take a major reduction in pay. You may then be held to a higher standard of repayment than you can actually afford. The Eastern District of Virginia has considered this and resolved the issue against the debtor.

What is involved in the Chapter 7 process?

Jeffrey Lewis — Mon, 05 Mar 2012 04:34:59 +0000

Once you decide you want me to represent you, the first thing we will do is review your financial situation to be sure that whatever we decide is the best way to proceed. The most important step is that you take a complete inventory of all your assets and liabilities. Before you begin this step, it’s advisable to get your credit reports from all three credit reporting companies–TransUnion, Experian and Equifax. If you fail to include a creditor in the petition, that debt will still be payable after your other debts are discharged. When you’ve done that, you send me all the information so I can prepare the formal petition. During this time you will have to complete a credit counseling course. These are given online and on the phone. Most companies charge $40 for the course. There is no way to avoid this, as we have to submit a certificate of completion with the petition. I have a list of companies that provide this service.

When we have reviewed the petition and are satisfied that it is complete and accurate, I file it electronically with the Bankruptcy Court. When the filing is noted on the court docket, all creditor activity against you ceases. This is the “automatic stay of proceedings” that protects you from any further harassment by your creditors. Within a short time we will given a date and time for the Meeting of Creditors. That date usually three or four weeks from the date the petition is filed.

The meeting of Creditors (or Section 341 Meeting) is usually the only contact we have with anyone else involved in the case. Most often, the only other person present will be the trustee, who is the individual who has reviewed the petition. This meeting usually lasts five minutes or so. The trustee will ask you if you have reviewed the petition and if everything in it is correct and if there have been any changes in your situation since it was filed. If there are any questions the trustee has about the petition, he or she will ask you. Usually there will be no questions, but if there are, I will probably have anticipated them and we would have discussed them before the meeting.

Once the meeting is over, your creditors (who almost never show up) will have 60 days to object to the petition. Once that period is over, the trustee will forward the petition to the Bankruptcy Judge for his signature. Within a week or two after that, you will receive in the mail your discharge. You will feel the weight lifted from you!

What is involved in a Chapter 13 filing?

Jeffrey Lewis — Sun, 04 Mar 2012 04:36:19 +0000

Filing under Chapter 13 means that we will be proposing to the Bankruptcy Court a plan (known as “The Plan”) for repayment of your creditors over a period of either three or five years. This involves more complex formulas and calculations than a Chapter 7 petition. The purpose of these calculations is to determine how much you will be able to pay each month toward settling your debts. This amount is mailed to the Trustee each month, and the Trustee distributes this money to the creditors.

There are categories of creditors, each of which is treated differently and given a priority rank. The highest priority creditors will be paid first and most. The highest priority category consists of what are called, naturally enough, Priority Claims. The most common claims in this group are the Trustee’s fee (for administering the Plan for its duration), attorney fees beyond the retainer, and back taxes.

Next will be the secured creditors, such as the holders of your car note or the stores whose credit cards you used in order to buy durable, non-perishable items such as large appliances or furniture. These groups will be paid in full by the time the Plan has run its course. This allows you to keep the items you have been paying for, and will involve smaller payments per month than you would otherwise have been paying. After that come the unsecured creditors, such as the bank credit cards. They will divide among themselves whatever money remains in the Plan after the priority claims and secured creditors are paid.

I haven’t mentioned mortgage payments, even though your mortgage is probably the main reason you are filing under Chapter 13. This is because mortgage payments aren’t handled through the plan by the Trustee. You will continue to make mortgage payments directly to the lender. One qualification to this rule is that arrearages on the mortgage will be paid through the plan as priority claims.

Aside from your fee, what costs are associated with filing?

Jeffrey Lewis — Sat, 03 Mar 2012 04:37:18 +0000

The filing fee (which is paid to the court at the time we file the petition) for Chapter 7 is $306, and for Chapter 13 it’s $281. If you are filing in Virginia and it is necessary to file a Homestead Deed to protect your assets from liens, there is a fee of $21.