What is a Chapter 20 Bankruptcy?

       A Chapter 20 Bankruptcy is the situation where a debtor files for Chapter 7, and then immediately refiles another case under Chapter 13.  The purpose are a few reasons why a debtor would want to take this strategy.  The first purpose is to reduce the monthly payments that will be required in a Chapter 13 plan.  If a person has $50,000 of general unsecured consumer debt (such as medical bills and credit cards) and also has $50,000 of student loans, which is not dischargeable, then chapter 13 payments to pay everyone in full would be $1,666.67 per month for 60 months.  However, if the debtor first files Chapter 7 bankruptcy, then $50,000 of the consumer debt would be discharged. After the case is closed the debtor can immediately refile under Chapter 13 in order to pay the nondischarged student loans.  That monthly payment would be $833.33 for 60 months. 

       Another reason to file a chapter 20 is because the debtor exceeds the Chapter 13 debt limits.  Currently, a debtor cannot file a Chapter 13 bankruptcy if the unsecured debt exceeds $360,475.  Chapter 7 has no debt limits.  Thus, a debtor may have $400,000 in unsecured debt, which is mixed with dischargeable and nondischargeable debt, as well as secured debt of a house and car.  The debtor (if he qualifies for a chapter 7) file the chapter 7 first reduce the overall debt to be under the debt limit.  Then the debtor could file a Chapter 13 bankruptcy in order to cram-down the car loan or strip off a second mortgage on a house.

       Now, one thing to remember is that by filing a Chapter 7 first, the debtor will not be eligible for a second discharge in the Chapter 13 bankruptcy.  All of the consumer debt would've already been discharged in the Chapter 7, but the debtor would be liable for any deficiency if he later choose to surrender the house or car in the chapter 13 bankruptcy.  

What are the current Tennessee Estate Taxes?

      Now that is it 2013 the Tennessee inheritance tax exemptions have changed for the better of Tennessee residents. From 2006 through 2012 the estate tax exemption was One-million dollars( $1,000,000.00). In 2013, Tennessee estate tax emption moves up to One-million, two hundred fifty thousand dollars ($1,250,000.00).  That means if a resident of Tennessee dies, $1,250,000 of the person's estate will be transferred to the designees or heirs, without an estate tax.  In 2014, the exemption grows to Two million dollars ($2,000,000.00); in 2015 to five-million dollars ($5,000,000.00); and in 2016 the exemption will be unlimited. 

 

       Now, estate planners must still be wary despite the laxation of taxation for Tennessee residents because federal estate tax will still have to be paid.  Congress was able to act intime to avoid the fiscal cliff consequences for estate planning.  Instead of the $5.12 million exemption being reduced to $1 million the amount remained the same at $5.12 million, but the maximum rate increased from 35% to 40%.  Very importantly, portablility remained intact, so that if one spouse transfers all of his estate to his surviving wife, then the wife may use his and her exemptions when she finally dies, thus being able to have a maximum $10.24 million federal exemption.

 

      Given these changes if you think that your will needs to be redone call your attorney to setup an appointment to specifically talk about your situation.  If you do not have a will, then you should contact an attorney to discuss the legal consequences.

Bankruptcy Case Update: Student Loan Discharge

In a recent decision out of the Central District of Illinois, the Court held that while a debtor's prior, sporadic payments on her student loans were likely all that she could afford, given that she was unemployed, her unexplained failure to participate in the income contingent repayment plan (ICRP), along with her extreme hesitance to consider jobs outside her chosen field of study and admission that, after unsuccessfully applying for such jobs, she had effectively given up looking for work, precluded a finding that the debtor had made the requisite "good faith" effort to repay her student loans and prevented her from obtaining an "undue hardship" discharge of this debt. To find that the debtor had made a "good faith" effort to repay her student loans, based on the fact that the debtor had paid off one of these loans with proceeds of a divorce settlement and made sporadic payments on others, the bankruptcy court, at a minimum, had to correctly explain why the ICRP or a similar program was a bad deal for that particular debtor, and could not simply dismiss her admitted unwillingness to participate in the ICRP as "not dispositive."

Educational Credit Management Corp. v. Krieger

Estate Planning Is For Everyone

      There a giant misconception that estate planning is just for the rich. Growing up, before becoming an attorney I used to have a false belief of estate planning. When I heard “estate planning”, I envisioned some millionaire sitting down with an attorney coming up with ways of how to hide money in Island countries and writing five hundred page trust documents that keep his money out of the hands of the government forever while showering his family with wealth.

      I could not have been more wrong. Estate planning is making sure that not only are your assets distributed in the way you wish when you pass, but that the end of your life wishes are emphatically published to all so that there is no confusion, strife, or bickering among your family.

      The primary instruments that are used for estate planning are: Will, Power of Attorney, Power of Attorney for Health Care, and a Living Will.

       The Powers of Attorney give a person who you appoint the power to take care of your finances and health care decisions if you reach a state of mental incapacity, whether from illness or injury. You can put restrictions on your attorney-in-fact or give him free reign. Usually this power goes to a spouse or other family member.

     The Living Will, also known as an “affirmative directive”, authorizes, or does not authorize, the withholding of artificially provided food, water, or other nourishment or fluids if the patient reaches a terminal state with no reasonable medical expectation of recovery.

       All of these documents are affordable for everyone, but so many people do not have these drawn up either because of the misconception that “Estate Planning” is for the very wealthy, or do not like to dwell on the end of their life. Make the smart decision and call an estate planning to get these documents executed to prevent hassles and inter-family strife at the end of your life.

Student Loans and Hardship Test

Recent Case Updated from the 9th Circuit:
In re Jorgensen 2012 WL 3963339

       Under the Brunner “undue hardship” test, a debtor seeking discharge of student loan debt must prove that (1) she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if required to repay the loans, (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period, and (3) the debtor has made good faith efforts to repay the loans.

       The Court of Appeals held that the lower Bankruptcy court did not abuse its discretion by refusing to discharge $8,045.02 of Chapter 7 debtor's approximately $36,285 in student loan debt; the court refused to discharge $6,050 because debtor would not be paying rent during the five and one-half months that she was teaching abroad and she did not satisfactorily explain why the excess $6,050 was necessary to maintain a minimal standard of living, and the court refused to discharge $1,995.02 because debtor purchased a new vehicle prior to her trip and her car payment while abroad was not necessary to maintain a minimal standard of living.