Why Your Bankruptcy Attorney Needs To Know Your Home's Value

One of the first questions your bankruptcy attorney will ask you is, "what is the value of your home?" This often throws people off, because home values are not the first thing they are considering in the face of mounting bills and pressure from creditors. It seems like the first questions should be about your amount and types of debt. These are certainly important questions that will need to be discussed, but knowing the value of your home often determines more when considering whether or not to file bankruptcy.

The value of your home is so important because it is likely your most valuable piece of property, and it will need to be protected from your creditors. "Exemptions" under bankruptcy law protect your property from your creditors. However, these exemptions are not unlimited. If, for instance, your own a million dollar home, you cannot file for Chapter 7 bankruptcy, as you would have too much equity in your home. Now, I am sure you are saying, "...if I had a million dollar home, I would not be filing for bankruptcy." Which is true, but this is just an extreme example. An individual can in fact only exempt about $27,000 in equity in their home, a couple only double that amount. So, there will be many situations where the exemptions will be an issue, as this is often about how much equity someone has in a home.

"Equity" is the value of your home, minus what you owe on it. So, first thing that will be important to know is the value of your home (determining what you owe is simple... get a mortgage statement). The value the bankruptcy court will want to know is what the home would actually sell for, not its tax assessment value (they never use this value, as it is rarely accurate). The best value would be a recent purchase price. If you purchased your home last year for $100,000, it is probably still worth $100,000. If you purchased it five years ago, that purchase price may no longer be relevant, depending of the neighborhood. In general, recent purchase price is not useful if your home was purchased awhile back, but it may be a guide as to what it is worth.

The other fool-proof way to value your home is to get an appraisal from a third-party appraiser. The only downside to this method is that an appraisal usually costs several hundred dollars. This will not be necessary in most cases. If you clearly owe more than what your home is worth, you will not need a full appraisal. If your home can be reasonably valued using online comparable values, or recent sales in your neighborhood, you will not likely need to go through the expense.

However, there will be times when getting an appraisal is advisable. In situations where your home value is unclear, or where the exemptions may fully protect your home, or not, depending on the value, it should be strongly considered. An appraisal may save you thousands of dollars in bankruptcy, so a few hundred dollars would be well spent to get one. This will be something to discuss with your bankruptcy attorney.

If the value of your home is too great for the exemptions, all is not lost. You will still be allowed to file a Chapter 13 bankruptcy which lets you keep your home and repay your creditors over a five year period, with court protection. This is the subject of other posts, but even in these cases, providing the court with an accurate value of your home will be necessary.

So, if you are considering speaking to a bankruptcy attorney about your situation, and you own a home, you should first take a little time to consider what your home is worth. Contact us if you would like to schedule a free consultation to discuss your debt and how it relates to your home. We can discuss your situation in more detail and see if bankruptcy is an option for you.

Showing Your Income For Bankruptcy

Proof of income is an important part of the bankruptcy filing process. You must show the bankruptcy court exactly how much money you have made in the six months before filing. Your income is "means tested", which determines whether you have the ability to pay your creditors, based on your household size and income.

The means test amounts are set by the court, and are periodically updated. This is explained in greater detail elsewhere in this blog. The important issue for now is how do you show and calculate your income? If you have a regular employer who issues pay stubs, this should be quite simple. Gather up your last six months of pay stubs for your bankruptcy attorney (you may need to speak to your payroll department if you do not keep them). Your bankruptcy attorney should be able to quickly determine what you have earned.

However, calculating your means test income is a bit trickier if you are self-employed or engaged in non-traditional work. The most common recent example is ride sharing, such as Uber or Lyft. If you work as a ride sharing driver, you will probably not receive a traditional pay stub. Both of these companies provide summaries online, which you will need to forward to your bankruptcy attorney. However, these summaries do not include proof of taxes paid, which is done directly by the driver. They also do not disclose your expenses, such as gas and auto maintenance. You will need to separately provide your bankruptcy attorney with proof of taxes paid, or other expenses.

Other types of self-employment raise similar, sometimes even trickier, issues. If you are a self-employed contractor for instance, you may need to provide your attorney with 12 months of income and expense statements. Not only must you show your gross deposits, you must also show corresponding expenses for things such as materials. If you are involved in sales, your income may be irregular and dependent on commissions. You will need to provide this information. You will want to speak to an experienced bankruptcy attorney if you are self-employed, as this can be a complicated area of the law which you will need guided through.

If you are not employed, there are other types of "income" you must be prepared to show the bankruptcy court. Unemployment compensation is income for bankruptcy purposes, and therefore must be disclosed. The state unemployment website allows you to access a summary of all benefits paid. If you receive Social Security or pension income, you will want to find your yearly benefits letter as proof of income. If you receive a regular contribution towards your expenses from a spouse or loved one, you must be prepared to calculate exactly how much for your attorney. Regardless of what type of income you receive, it must be disclosed to the bankruptcy court.

One final point, you must also disclose the income of your spouse, if you are not separated. This is even true if they are not filing. So, everything from above will apply the same for your spouse. The means test is for household income, which will include spousal income (once again, assuming you are not legally separated).

Your bankruptcy attorney will discuss these issue in greater detail, but if you are considering whether or not to file, it would not hurt to gather up this information. It will be the first step towards determining your eligibility to file. Contact us if you would like to schedule a free, one-hour consultation to review your income and debts.

Updated Means Test Median Income

The bankruptcy median income means test has been updated on November 1st, 2017. This number, based on family household size, is used to determine whether or not you must repay unsecured creditors through Chapter 13 bankruptcy.

The new chart for annualized, gross income is as follows:

• Household of 1- $51,960
• Household of 2- $62,359
• Household of 3- $77,306
• Household of 4- $91,692
• Household of 5- $100,092
• Household of 6- $108,492
• Household of 7- $116,892
• Household of 8- $125,292

How do you make sense of this to determine where you fall? Well, for one thing, the means test is a 6 month look-back at ALL income (excluding Social Security). So, if you have no children or spouse, you would look at the allowable income for a household of 1. The number listed above is for GROSS (before tax) income, and it is annualized. If you are a household of 1, divide the allowable income by 2 (in this case $25,980). If you grossed more income in the 6 months before filing, you are above the means test baseline, and must then determine your "disposable monthly income."

If you are married, you must include all household income, even if your spouse is not filing. Income includes pensions, unemployment earnings, bonuses, and even lottery winnings. Legal dependents, usually children, will add to your household size (the rule of thumb is, if you have claimed a child as a dependent on your taxes, you can claim them in bankruptcy).

So, add up all gross income for the six months before filing, determine your household size, divide the threshold amount by 2, and you should have a pretty good idea if you will be required to repay your unsecured creditors.

There are some allowable deductions, such as taxes, alimony, insurance, and household expenses that could lower your income. The means test is fairly complicated. Contact us to set up a free consultation. I will be happy to review your income and expenses and determine whether or not you must repay your creditors. I am an experienced bankruptcy attorney who can walk your through the intricacies of bankruptcy law. I can help you to plan for the means test, and review every loophole (for instance, the means test does not apply if your debts are primarily business).

Determining Your Debt

The main purpose of bankruptcy is to discharge your debt and get a fresh start. The first step should always be determining what are your debts exactly. This sounds simple enough, and for the most part it is. However, it should not be overlooked. When you meet with an experienced bankruptcy attorney, you will want to have a firm grasp of your debt for a couple reasons.

First, your bankruptcy attorney will need to know what type of debt your have so that they can determine whether or not it can be discharged. Not all of your debts can be wiped out in bankruptcy. For instance, credit cards and medical bills can be discharged, but most student loans and taxes cannot. Your attorney will need to know all of your debts in order to advise you as to what can be included. Remember, your attorney will not know your debts, it's up to you to make sure they have the complete picture of your situation. 

Second, all of your debts must be disclosed in order for them to be discharged. Debts not included in your bankruptcy petition will survive the filing. That means creditors can collect on these debts, even if they should have been discharged. Now, in most cases, your attorney will be able to amend your bankruptcy filing to included these debts. However, that will cost money and take time. It is better to have everything up front for your bankruptcy attorney to review.

So, how should you go about organizing all of your debt for your attorney? The first step in determining your debt should be running a credit report. These will give you a list of most creditors who claim you owe money, though sometimes not all, as I will discuss later. A good credit report should show all of your reported credit card debts, bank and car loans, and mortgages. It should also include old, closed out accounts. Review this credit report closely to make sure nothing is missing. You can order your free yearly credit report, or my office can order a bankruptcy specific report for a fee. It is worth the money and time.

Next, you will want to gather any bills that do not show up on your credit report. Credit reports agencies will not show debts that are not reported to them. Medical bills are often not reported, therefore you should make sure you gather up all medical statements. Medical bills can grow large, and fast, so make sure you find them all, even if you need to call and ask for a statement.

You should also gather any utility statements and payday loans, as these are also often not reported. If you don't have statements for everything the first time you meet your attorney, that's OK. But, make sure your attorney knows everything you know. He or she can determine if the information is important and relevant to bankruptcy. It is better to share too much than too little. I have had numerous clients, for instance, who have had far more medical debt that they initially assumed. Once they started looking for medical statements, they unearthed more and more.

Finally, take an expansive view of "debts" when you speak with a bankruptcy attorney. It is not just credit cards and medical bills. It can also be money owed to an old landlord, a family member, or an insurance company. It can include relatively new debt, or old debts from years ago. And there are sometimes exceptions for debts that are not normally discharged, such as school tuition and taxes. If in doubt, tell your bankruptcy attorney.

Contact us if you would like to set up a free consultation to review your debts. We can discuss whether or not your debts can be discharged, and look at all of your options.

Why Must All My Property Be Listed In My Bankruptcy?

My clients often become concerned when I tell them that we must list all of their property in the bankruptcy petition. The common fear is that they will lose their property. This is dangerous misconception, as it sometimes keeps people from filing when bankruptcy is their best option. The internet and bad information lead many scared individuals into my office.

To some degree, it is an understandable fear. If you are wiping out your debt, and in many cases not repaying any creditors, it may make sense to believe you must surrender property as a penalty. However, this could not be further from the truth. The Bankruptcy Code is designed to allow individuals a fresh start and the chance to get back on their feet.

Personal property and real estate are protected in bankruptcy with "exemptions". Exemptions, in short, "exempt" your property from your creditor's reach. These exemptions fall under state and federal law, and while they are usually not unlimited, they are normally sufficient to protect all of a bankruptcy filer's property. Exemptions can protect a wide range of property, from equity in a home, to personal items, cars, and retirement accounts. The categories are too broad to list. It suffices to say, if you own something, it can be exempted from your creditors.

However, in order to exempt and protect your property, you must first list it in detail. This is done in Schedule "B" of your bankruptcy petition. The detail required is not excessive... you do not need to list individual personal items. You don't need to catalog every last piece of silverware and every sock and t-shirt in your drawer. However, you must list large items (such as homes, cars, and retirement accounts) in some detail, and you must determine an estimated value.

The purpose of this list in Schedule "B" is NOT to provide your creditors a shopping list of things to go after. Quite the opposite, the purpose is to show what they CANNOT go after. This is because all of this listed property is exempted one schedule later in Schedule "C". In this way, your bankruptcy petition sets out what you get to keep, not what you must lose.

This all being said, the value of property owned by a debtor may sometimes exceed the exemptions, especially when it comes to the value of homes. In these case, Chapter 13 bankruptcy will still be an option. You will still be able to keep all of your property. You may, however, be required to make a repayment to some creditors. This can all be discussed in a free consultation. Contact us to set one up today.

I often tell my clients who are afraid they will lose something of value that, "I am not in the business of losing property of my clients." This is very true, but in order to be so, we need to list your property first. We list it so you can keep it!