Why "Liquidaton" Is Not Always A Concern

A common fear expressed by new callers when asking about bankruptcy is that all of their property will be liquidated. Or sometimes they believe they will lose their home, their car, or retirement or savings accounts. In most cases, this could not be further from the truth.

The problem arises because individuals do a good thing… they look for information about their problem! But, in doing so, when researching bankruptcy law you will sometimes come across references for a “liquidation” bankruptcy in Chapter 7. Even bankruptcy attorneys will sometimes use this title in shorthand. However, this can cause great confusion and misunderstanding. The reality is that very few bankruptcy cases end up involving liquidation of assets.

The only time this occurs is when you have assets that are not exempt from your creditors. Under bankruptcy law, there are exemptions that are used to protect your personal property. These exemptions are not unlimited, but they are normally sufficient for most people looking to file bankruptcy. In some cases the exemptions actually ARE unlimited. Qualified retirement accounts have an unlimited exemption. Personal injury settlements that are needed to support the debtor are also unlimited. For most other types of property there are limitations. This includes the homestead exemption for your home, the vehicle exemption for your car, in the wildcard exemption that is normally used to protect cash or savings. In most cases, at least in Pennsylvania where the federal exemption are allowed, there is enough to protect everything. So, when people call me up and say, “I don’t want to file bankruptcy because I know I’ll lose my car”, in reality it is just not a problem. Liquidation bankruptcy is an issue that normally does not come in to play.

However, what happens when the exemptions are not sufficient to protect your property? In that case there are two options. One, you can allow the property to be liquidated. Oftentimes, unless the property is of significant value, it is not even worth the time of the trustee to liquidate the asset, and they will abandon it.

The second option is to file Chapter 13 Bankruptcy and pay back your unsecured creditors dollar-for-dollar for the unexempt amount. This sometimes occurs when a debtor has too much equity in a home. Whether or not this makes sense will depend on how much you owe to your creditors and how much you will need to repay. In some cases it will still save you tens of thousands of dollars .

Call me at 412-414-9366 if you have questions about whether or not your property will be fully exempt or will need to be liquidated. As discussed above, in many cases where debtors are concerned about liquidation, in reality they will not lose anything. I would be happy to discuss your situation with a free consultation! Don’t let the word “liquidation” scare you. It is rarely a result.

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.

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!

Bankruptcy and Valentine's Day

What do bankruptcy and Valentine's Day have in common!?

Absolutely nothing!

That being the case, here are a couple far-flung things to keep in mind:

• If you are preparing to file an individual bankruptcy, don't elope right before filing. The bankruptcy court will look at joint marital income in determining how much, if anything, you must repay your creditors. The amount is adjusted for household size, but a married couple may only earn $10,007.00 more than an individual (assuming it is a household of two). So, if your dear Valentine has a job, it could push you out of a Chapter 7 bankruptcy into a Chapter 13 bankruptcy, which would result in you repaying your creditors. On the other hand, if they do NOT have a job, it could get you below the threshold. Let true love (and the median income charts) be your guide!
• Large credit card purchases in the 90 days before filing bankruptcy can also cause a problem. A large Valentine's Day gift of over $500 may be an issue, and could prevent you from filing immediately. These purchases could be challenged as "abusive". If the generosity of true love cannot wait another moment, by all means... But, if it can wait, you should!
• Valentine's Day jewelry is exemptable under the Bankruptcy Code! There is a $1,600.00 Federal exemption per filer for jewelry, which should  cover all but the most lavish Valentine's Day gifts. Seeing as the value of jewelry drops quickly once purchased, and sentimental value is not taken into account, few gifts should present a problem.
• Cheaper, less thoughtful gifts are fully exempted! Cards, flowers, candy, edible arrangements, etc., are all worthless from a bankruptcy perspective... but not for your heart! Gift away!

Have a great Valentine's Day!

Don't Transfer Property Before Filing Bankruptcy!

A big mistake people can make before filing bankruptcy is to transfer property to a friend or relative for less than full value before a bankruptcy. This could potentially be viewed as a fraudulent transfer. If you are considering filing a bankruptcy, make sure not to transfer property before speaking with a bankruptcy attorney.

Why is this an issue? Bankruptcy law allows you to exempt or protect personal property when filing. The purpose of the bankruptcy exemptions is to allow a true fresh start by permitting the debtor to keep property necessary to make a living and get back on their feet. However, these exemptions are not unlimited. While the exemptions are sufficient to protect the value of most debtor property, sometimes they do not protect everything.

This is potentially a problem for debtors who own their home outright or owe very little. This is more often the case with older clients who have been paying down their home for decades. Individual debtors may only protect $23,675.00 in equity in their home (joint debtors up to $47,350.00). If your home exceeds these limits, you would need to repay money through a Chapter 13 bankruptcy, and Chapter 7 bankruptcy will no longer be an option.

Some individuals think a way around this is to transfer the property to a friend or family member before filing. The Bankruptcy Court will not allow this. In fact, if you filed a bankruptcy after such a transfer, the Court can actually un-do the transaction. Most Trustees will ask if you have transferred property in the last 4 years before filing, and you are required to answer truthfully under the penalty of perjury. Trustees may also do property searches and look back even further. The bankruptcy petition specifically asks if you have transferred property into a self-settled trust in the last 10 years. In any case, you do not want to attempt to hide such a transfer.

It's safest to avoid all transfers of property in the months (and even years) leading up to a bankruptcy, even small, innocuous transfers. If you have transferred property, it may be transferred back before filing. Or, a Chapter 13 bankruptcy can be filed on the property as if it had never been handed over in the first place. When in doubt, hold on to the property until speaking with a bankruptcy attorney. There are options if property has been transferred, but it could make things difficult.

Contact us to set up a free consultation and discuss how to properly protect your property..