COVID-19 UPDATE - HEARINGS AND MEETING CANCELLATIONS

In an attempt to keep my clients informed as to bankruptcy meetings and conciliations, I will update my blog as information becomes available.

The Chapter 13 Trustee’s office is effectively closed for the near future (and obviously, possibly longer). The following conciliation and meeting of creditors dates have been POSTPONED (to be rescheduled by later court hearing):

March 19th, Pittsburgh POSTPONED

March 20th, Johnstown POSTPONED

March 24th, Erie (meetings to occur telephonically)

March 26th, Pittsburgh POSTPONED

March 30th, Pittsburgh, POSTPONED

I am keeping very limited office hours for the foreseeable future, but will remain completely available by phone (412-414-9366) or via email at attorneymatthewbrennan@gmail.com

Stay safe.

Income Tax Refunds and Bankruptcy

Many Americans rely on their Federal Income Tax refunds as a source of savings and a means for paying debts and expenses. Depending on their deductions and dependents, some individuals can receive thousands of dollars. If you are on a tight budget, this is an important source of money.

Fortunately, tax refunds can generally be protected in bankruptcy. Tax refunds (or prospective refunds, if the taxes have not been filed) must be listed in Schedule B of the bankruptcy petition. However, they can then be exempted in Schedule C using the bankruptcy exemptions, which allow you to protect most, if not all, of your personal possessions.

For this reason, at this time of year when taxes are filed and refunds are received, it is important for individuals in the midst of bankruptcy to file their taxes as early as possible. The bankruptcy exemptions are not unlimited, so it may be necessary to determine if the bankruptcy can be filed immediately after receiving the refund, or not. I tell my clients this time of year to file as soon as they get their W2s and 1099s so I can then run the refund past the available exemptions.

When anticipating filing bankruptcy, it is also important to be clear what you can, and cannot, do with your refund. You can pay your attorney, pay for repairs for your home or car, or pay for other necessary household expenses. On the other hand, you should not pay back friends or family members, make frivolous purchases, or pay off someone else’s debts.

A side note… if you regularly receive a large refund, you should consider having your employer withhold less. When you get a large refund, you are essentially giving Uncle Sam a yearlong interest-free loan! It’s better to have that money throughout the year (though some of my clients have told me it works as a way of “forced savings”, so to each his own.)

If you are considering filing for bankruptcy during tax season and you are not sure what you can or cannot do with your refund, contact us to set up a free consultation to discuss your situation!

The Importance of Being Thorough in Bankruptcy

The bankruptcy process can get fairly complicated at times. There is a bankruptcy petition that must be completed accurately and submitted. It can sometimes be more than 60 pages long. There are also document requirements that can be quite extensive. You will need to provide taxes, paystubs, proof of retirement accounts and life insurance, among other documents. Everything must be submitted in the proper form before any deadlines expire. Given these requirements and the complexity involved, it is very important to be thorough while preparing your bankruptcy file.

The bankruptcy petition is filed under federal law, under the penalty of perjury. That means, if you lie on your petition, you could go to jail. But, there is no reason to lie, and this should not be a concern. I always tell my clients, "if you are thorough and honest, there will not be any problems in bankruptcy." I can be confident about this because, as long as you tell me everything, I can anticipate any problems that might arise. If there are any problems, we will wait to file your case until the problems are solved, or look at an alternative to filing. As long as I have all the information as your attorney, I can guide you in what to do.

So, what does being thorough mean in the context of filing bankruptcy? It is very important to tell your attorney about any sources of income, or any real estate or vehicles you own. Income is important because it may determine what type of bankruptcy you can file. Income has a broad definition in bankruptcy, so you will need to tell your attorney about unemployment compensation, Social Security or other government benefits, part-time work and bonuses, and even child support and alimony. If in doubt as to whether some source of money is relevant, tell your attorney. If you have money coming in to you in any form, consider it "income".

Listing all of your assets is also extremely important. Once again, bankruptcy has a very broad definition of "assets." I will review this list with you in Schedule B of your bankruptcy petition. The most important asset to be clear (and thorough) about is any real estate for which you have an interest. This will obviously include your home, but it will also include rental properties, burial plots, campgrounds, mobile homes, and trailers. You must also disclose any fractional interest you have in real estate. For instance, if you have a 1/8th interest with seven cousins on a campground... let your bankruptcy attorney know. If there is one thing that can ruin a bankruptcy case, it is leaving out real estate that you own on your petition.

The same is true for automobiles (including motorcycles) and bank accounts. If you are on a title, deed, or account, let your attorney know. 

It is also important to be thorough in preparing your bankruptcy petition with your attorney because it will save you money. If you leave something out, and your attorney needs to subsequently amend your case, that could cost hundreds of dollars. So, review your credit report closely to make sure none of your creditors is missing. Make sure you provide your bankruptcy attorney with a list of all of your savings and retirement accounts, and life insurance. The more information you provide, the better.

Finally, always remember to ask questions of your attorney. I have found that the vast majority of my clients want to be helpful and forthright. However, some misunderstand a question or requirement or document request. If you have hired an attorney, it is part of his or her job to make sure you understand the process, and your requirements and duties. So, don't be afraid to ask questions!

I go the extra mile to be thorough in preparing my bankruptcy petitions with my clients. Not only is it the right thing to do, it is good, efficient business. If you would like to discuss your situation and schedule a free consultation, contact us to set up an appointment.

Annual Means Test Update (April 2019)

The United States Bankruptcy Court requires all filers of bankruptcy to complete an income “means test”. Means testing is an objective way to determine eligibility to file bankruptcy by looking at an individual or couple’s recent income. While there are other factors that may prevent you from filing bankruptcy or may determine what type of bankruptcy you may file, the means test is the first step.

The means test is updated every year on April 1st to account for inflation and the increased cost of living. The increases are not dramatic, but usually hover around 2%. Nonetheless, if you are close to the threshold, a small change can be very important.

The means test for the Western District of Pennsylvania are the follow as of April 1, 2019 (note that it will vary by district):

• Household of one $55,117.

• Household of two $66,649

• Household of three $82,518

• Household of four $100,078

• Household of five $109,078

• Household of six $118,078

• Household of seven $127,078

• Household of eight $136,078

Each additional household member would allow an increase of $9,000.

A few important points. First, the amounts above relate to GROSS, BEFORE-TAX earnings. So, you can’t reduce the amount with deductions in your paycheck for taxes, retirement, and insurance. Most people think of their income in terms of the money left over after every paycheck, but that does not apply here. It’s all before tax.

Second, the numbers above are for your annual income, but the actual means test looks at the six months before filing. This can be confusing. The annualized numbers above are what is published, but you should actually divide them by two to determine what you can earn in the six months before filing. In other words, if you are a household of one, you can earn up to $27, 558.50 (gross) in the six months previous to filing.

Bankruptcy has a broad definition of “income”, so one-time bonuses and commissions may distort your income. Means test planning is an important part of bankruptcy law, so we may need to review your income closely.

One final issue may be what constitutes a “household member”? While I discuss this subject in more detail on this subject elsewhere in this blog, the short answer is “if they’re on the taxes, they are a household member”. If someone lives with you, but you cannot claim them as a dependent for the purposes of the IRS, you probably won’t be able to count them in bankruptcy.

Contact us if you have any questions about the bankruptcy means test, and whether you apply. I will be happy to review your income with you and see if the means test will limit your bankruptcy options.

Aggressive Collection Practices

I have seen a recent spike in aggressive collection practices. This isn’t surprising. In fact, it is something of an annual rite of passage. Collection firms tend to be more aggressive early in the year because they know debtors may be receiving Federal tax refunds. This makes it more likely debtors will have money to repay… or seize.

While this spike in creditor actions is not surprising, there has been a clear, abnormal increase in creditors taking the next step… going after property. This generally occurs in the following manner. The creditor will file an action at the magistrate level. When the debtor does not respond, the creditor gets a default judgment against them. The creditor then files a motion in the Court of Common Pleas to execute on the judgment from the lower court.

Once the Court of Common Pleas issues a judgment, the creditor may execute on the judgment. In short, this means “go after your property”. Recently, creditors have been executing by issuing interrogatories on debtors, or scheduling depositions for the creditor to testify. Interrogatories are formal demands for information regarding your property and its location. You will be asked to list bank accounts, real estate, cars, retirement accounts, investments, and other property.

Depositions are similar demands for information, except the information is taken in person, under oath. The purpose of both interrogatories and depositions is to gather information about your property in order to seize some of it to satisfy the judgment, for instance, by putting a lien on a home or freezing a bank account.

It is important to note that if you do not respond to these demands for information, you may be found in contempt of court. Unlike the initial lawsuit where a judgment is entered against you if you do not respond, but there are no other penalties, you can not ignore these demands. Even if you do not have an attorney, you should respond.

What should you do if you receive an interrogatory or deposition in aid of execution? Call an attorney. As an experienced bankruptcy attorney and debtor’s rights attorney, I may be able to discharge the underlying debt before you need to answer. In some cases, an arrangement can be made to satisfy the debt. It is actually best to speak with an attorney as soon as the original lawsuit is served on you, but it is not too late once you reach this stage. The sooner you contact an attorney, the sooner you will be protected.

Contact us if you are the target of aggressive collection practices such as these, or aggressive phone calls and notices. You don’t need to lose you property or be harassed. If the creditors get aggressive, you need to be prepared to be aggressive yourself!