Keep Your Bankruptcy Attorney Updated!

Whether it is a Chapter 7 or Chapter 13 bankruptcy, your interactions with your bankruptcy attorney can range from a few months to five (or more) years. A lot can happen during that time that can affect your case, so it is important to keep your bankruptcy attorney in the loop of recent developments. Here is a list of some of the most important things to keep your attorney appraised of during your case:

• Your employment. If you lose your job, or take a new job, especially one with a large increase or decrease in pay, it can greatly affect your bankruptcy. An increase in pay may mean you need to do a Chapter 13 repayment, while a decrease may allow you to file a Chapter 7 bankruptcy. A change of employment could also affect your wage attachment in a Chapter 13 bankruptcy, so let your attorney know as soon as possible (with your new employer's contact information) so the wage attachment can be amended promptly.
• Your address. Moving may mean the court, or your attorney, will be mailing important notices or paperwork to the wrong address. Ideally, you will let your attorney know about any moves beforehand. Always make sure your attorney can reach you by phone and mail. A change in address may also involve a change in expenses, so make sure to update your bankruptcy attorney if that is the case as well.
• If you inherit money, or receive money from a lawsuit or insurance. This money should be disclosed to your bankruptcy attorney for up to six months AFTER your case is discharged. Lawsuit, insurance, or inheritance money is considered property of the "bankruptcy estate" which must be exempted from liquidation by creditors. A competent bankruptcy attorney should ask about and know about these potential situations before filing, but, if you inherit money while going through the bankruptcy process, for instance, inform your attorney immediately. It could have significant consequences.
• Lawsuits filed against you. If you are served with a lawsuit while preparing to file a bankruptcy, let your attorney know right away. All creditors must be informed of the bankruptcy filing in order for you to enjoy the protections afforded under bankruptcy law, so it is very important to give your attorney the opportunity to contact anyone suing you. Lawsuits can also lead to deadlines for repossessions and foreclosures, so time may be of the essence.
• New credit or transferring property. If you wish to take out new credit or transfer a major piece of property while preparing to file a bankruptcy, contact your attorney immediately. Doing either could result in your case being delayed or possibly prevent you from filing entirely, so make sure you speak with your bankruptcy attorney BEFORE doing either!

Bankruptcy is a process with multiple steps, make sure your attorney is informed all the way through. If there is any bankruptcy information you would like to learn more about, contact us to set up a free consultation.

What is Equity in Bankruptcy?

"Equity" has many meanings in law and business. It is an important issue in bankruptcy law, so it is worth discussion. The most general meaning of equity in a legal context relates to legal doctrines and usage of law to promote fairness over rigid adherence to the rules. The law of equity seeks to set things straight, and put litigants back to where they started before the legal problem began.

This is a very important usage of the law, but it rarely applies in bankruptcy law. When your bankruptcy lawyer speaks of equity, he or she is almost always referring to your home or real estate. Equity in real estate is a very important matter in bankruptcy law.

The Merriam-Webster dictionary defines equity (among other definitions) as, "the money value of a property or an interest in a property in excess of claims or liens against it." That sounds more daunting than it really is. Equity for bankruptcy purposes is simply the value of your property minus what you owe, including mortgages, tax liens, and lawsuits.

So, let's say your home is worth $100,000.00. You have a mortgage for $60,000.00, a home equity loan of $15,000.00, and a secured tax lien of $5,000.00. That means you have $20,000.00 in equity. (100-60-15-5=20) Equity is a fancy sounding legal term, but it is really that simple. It is just the value of your home, minus what is owed on it (to the mortgage company, taxing agencies, etc.)

You'll sometimes hear of a home being "under water". This just means you have negative equity, or you owe more than the home is worth. This is pretty frequently the case when a home is first purchased and payments are going primarily towards interest. It also occurs when housing values crash. Individuals with multiple liens, including home equity loans, often face negative equity, as well. This is not really a problem in bankruptcy, as should become clear below.

Positive equity in your home is so important to bankruptcy law because the exemptions used to protect that equity is usually limited. The Federal Homestead Exemption, which is typically used in Pennsylvania to protect equity in your primary residence, is currently $23,675.00, per spouse (the number is routinely adjusted). Equity in a jointly owned marital home can not exceed $47,350.00. If it does, you will need to repay unsecured creditors dollar-for-dollar for unexempt equity. This could result in thousands of dollars of repayments.

Without going into too much detail about these circumstances, you can probably see why equity is so important to determine. The amount of your liens (mortgage, home equity, etc.) are pretty easy to prove. You just get a statement from the mortgage company or the taxing body. However, the value of your home can sometimes be a subjective task. If you recently purchased your home, the Court will often use that purchase price. The Court will also let you estimate based on other homes in your neighborhood and for what they have recently sold.

If the value is less clear, and it will potentially determine how much money you need to repay creditors, it may become necessary to get an appraisal. Real estate appraisals will usually cost several hundred dollars, but it is money well spent, as it will prevent your case from objections and unnecessary scrutiny. They should only be necessary in situations where the equity is not clear. It is the only sure-fire way to prove the value of your home to the Court.

So, when you speak with your bankruptcy attorney, and equity is the first major issue he or she asks about, it should now be clear why. If you are having credit issues and you are having trouble determining equity in your home, contact us to set up a free consultation. 

Tax Refunds and Bankruptcy

It is the middle of March, and tax season is in full swing. With only a month left to file, it's an annoyance, in the least. I'm not sure anyone enjoys preparing taxes. However, the positive side is that many of you could be receiving a tax refund. People use their refunds for different things, from splurging, to paying for repairs on their home or car, to saving for another rainy Pittsburgh day. If you are preparing to file a bankruptcy, you should keep a few things in mind this time of year.

First, if you are currently filing a Chapter 7 bankruptcy, you will need to exempt your tax refund. This is because your tax refund is considered an "asset". Under bankruptcy law, it is your property. This is confusing for some of my clients, because most people think of "property" as cars or homes or TVs. But, under the broad definition of property in the bankruptcy code, a prospective tax refund counts as well. In most case, you will have more than enough exemptions to protect your entire refund (the "wildcard" exemption is usually sufficient), but you should still let your bankruptcy attorney know. This is especially the case when you have large deductions and expect a big return.

Another important thing to remember when filing a bankruptcy during tax season is that you should NOT spend the refund until you speak with your attorney. The bankruptcy trustee could question and challenge many expenditures of your refund, especially if it is a large, discretionary purchase (electronics, TVs, etc.). Also, anything you purchase would need to be exempted. So, if you receive a return of any significance, speak with your attorney first.

If you are in a Chapter 13 bankruptcy, you should let your attorney know if you receive any return larger than a few thousand dollars. The bankruptcy trustee will probably not be interested in your return, but keep your attorney appraised just the same. Once again, the refund is an asset of your bankruptcy estate that must be accounted for.

One final note about tax refunds... they can be used to file attorney fees. If a payment plan is unfeasible for you, this may be the best time of year to file bankruptcy. My filings normally peak during this time of year. It is money well spent if it wipes out tens-of-thousands of dollars of debt, or a lawsuit. It is completely permissible to use a refund, take advantage of this option if your debt is overwhelming.

Contact us if you have any questions about your tax refund and bankruptcy.

What You'll Need To Complete Your Credit Counseling Course

The Bankruptcy Code requires you to complete a credit counseling course before filing your petition. Don't worry, you won't need to go to a classroom and listen to an instructor. I will order this for you and provide you the information on how to access the course online or over the phone. The course usually takes about an hour and a half to complete. So, what will you need to know?

First of all, you will need an email address. I cannot order the courses if you do not have one. I have had a few clients who did not have an email address, but I will be happy to help you set up one if necessary. If you do not have internet access, you can complete the course by phone.

The credit counseling course will ask about your assets, liabilities, income, and expenses. Assets are just a list of your personal property and real estate. You don't need to itemize everything you owe, far from it. But, you should make a list of any real estate, cars, retirement accounts, bank accounts, and insurance policies. This will also be helpful in filing out your petition, as I will need to enter this information when we meet. Keep your list. Assets are important in bankruptcy because they must be accounted for and exempted. As long as you disclose and exempt your assets, you will not lose anything in the bankruptcy.

Liabilities are your debts. I will run a bankruptcy credit report for you, but you don't need one to list your debts for this portion of the course. You will be asked about secured and unsecured debt. Secured debt is any debt "secured" by property, such as a car or a home. If you don't pay, the creditor can come and take the security (through repossession or foreclosure). Unsecured debt includes credit cards, medical bill, utilities, student loans, etc. When you don't your credit card, they can't just come and take what you bought. You will be asked to list each type of debt, so it is worthwhile to know the difference.

Once you have listed your assets (property) and liabilities (debt) , you will need to review your household income and expenses. You will basically submit a budget. For purposes of the course, you should try to determine monthly averages. For instance, your heating bills may fluctuate wildly depending on the season. It is best in these situations to try to figure out your yearly expenses, and divide that number by 12 to determine an average. The numbers will thus be estimations, but that will be sufficient. If you have set expenses (rent, car payments, etc.) determining the amount will be more simple and straightforward.

To determine your income, you should list all sources of money in the household. This includes regular and part-time work, self-employment, Social Security, child support, government assistance, unemployment, or even household contributions form those living with you. When in doubt, count it as income.

Contact us if you have any difficulty in completing your course. It should be pretty simple if you have the above-listed information.

Lottery Winnings and Bankruptcy

Bankruptcy law has a very broad definition of "income". It is very important to disclose income from all sources to the Bankruptcy Court, whether it is regular, steady income, such as a paycheck, or one-time payments such as bonuses or lottery winnings. It can effect your case in a couple ways.

All lottery and gambling winnings are considered income by the Internal Revenue Service, subject to taxation. This is regardless of whether the winnings are for $10 or $10,000,000. This income must be disclosed to the Bankruptcy Court, as well. The Statement of Financial Affairs in the bankruptcy petition requires filers to disclose "income other from employment or operation of business" for the past 3 years. This includes lottery winnings. You'll want to make sure you have total winnings calculated for all 3 years.

A form W2-G will be mailed to winners of significant lottery money. You will use this form to file your taxes, in the same way a W2 form is used to calculate your taxes. It is important to pay taxes on this money, as failure to do so may lead to a tax obligation that is not dischargeable in bankruptcy. You should also have a copy of the W2-G form for your bankruptcy attorney.

Lottery winnings are also important because they can effect your Means Test calculation. Without going into too much detail here, your Means Test calculation is a 6-month look-back at all sources of income before filing bankruptcy that determines if you must repay your creditors. Lottery winnings are considered income for this purpose, even though they are usually "one time" payments. This could result in you having to pay back creditors in a Chapter 13 bankruptcy. Therefore, it is very important use disclose recent lottery winnings with your attorney. You may be forced to wait to file (when the winnings are no longer in the look-back period), or if they winnings are very large, you may be able to file at all (at least without paying some money to your creditors).

One other important thing to note about lottery winnings... you must disclose any winnings after your case is filed. Yes, AFTER! Any lottery winnings within 6 months of filing should be disclosed to your attorney. It may seem unfair, but it is a part of bankruptcy law. So, I usually advise my clients to not play the lottery coming out of bankruptcy, as you may be required to pay winnings to your creditors.

Contact us if you are considering bankruptcy, but have recently won in the lottery. Your good luck doesn't need to end with filing bankruptcy, but it is important to have an experienced bankruptcy attorney walk you through the process.