What happens to my Chapter 13 Bankruptcy Payments if my case is dismissed?

       The answer to the above question used to depend on how far along a person was in their bankruptcy plan.  The law was well settled that if a case was dismissed prior to the Court issuing an order of a debtor's plan, then the plan payments held by the trustee would go back to the debtor subject to only administration costs.

       Prior to just a couple of weeks ago, here in Middle Tennessee, if a case was dismissed after the plan had been confirmed any funds held by the trustee at that time were sent to the creditors in accordance with the plan since those payments were received by the Trustee when the case, and therefore the plan, was still alive. However, that was the custom.  The Middle Tennessee Bankruptcy Court just recently issued an opinion stating that any funds being held by the trustee when the case is dismissed will go back to the debtor, subject to any objections after parties have been given notice to file applications for that money. 

       Now, any funds received by the Trustee after the case was dismissed, because funds were in the mail or sent prior to an employer receiving notice of the dismissal, are sent back to the debtor.  That stills holds true.  The change in the disbursement of funds was limited only to funds received prior to dismissal, but not yet disbursed.  Good news for debtors, bad for creditors.

Can I Discharge my Traffic Tickets in Bankruptcy?

One of the questions we receive quite often is whether or not traffic tickets and other court costs are dischargeable in bankruptcy?  Many debts are not dischargeable such as some income taxes, child support, and most student loans.  For traffic tickets we have to look at the Bankruptcy in detail.

 

Section 523(a)(7) of the bankruptcy code states:

 

"a discharge under section 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual from any debt – to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty."

 

In a Chapter 7 case, government fines are not dischargeable, including criminal fines.  A Chapter 13 debtor, however, who completes his case and receives a discharge may be able to discharge certain non-criminal government fines.  Section 1328(a)(3) of the bankruptcy code states that a Chapter 13 debtor who completes all payments under the Plan receives a discharge "of all debts provided for by the plan or disallowed under section 502 of this title, except any debt – for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime."

 

Therefore, if your fine is for a criminal act determined by state law, it is not dischargeable in Chapter 7 or Chapter 13. If the fine is considered a civil penalty, it is not dischargeable in Chapter 7, but  it is dischargeable in your Chapter 13 case.

 

 

5 Tips to Avoid Foreclosure

1.      Prioritize!

 

 

In order to keep  your home out of foreclosure, you need to make your house the number priority.  We see many cases where a person’s obligations exceed his income, and it is the mortgage that does not get paid.  Instead of missing the mortgage: cancel your cable, quit eating out, and take the bus.   Do you want to keep your house or ESPN?  Want to keep your house or your iPhone?  Instead of paying your credit card bill, pay the mortgage.  But the credit card has a 20% interest rate and late fee!  Well, being late on your house equals losing your home!  Therefore, making the house your top priority ahead of your other creditors and daily luxuries can keep you in your home.

 

 

 2.      Savings!

 

 

This tip is two fold.  First, just as Dave Ramsey preaches, you should always have an emergency fund.  Dave says when you are cleaning up your debt to put $1,000 in an emergency fund for when disaster hits.  I personally prefer to have at least the $1,000 but if your mortgage payment is $1,200 then make the fund $1,200.  That way you always have at least one month of a mortgage payment ready just in case you will not be able to make it with your current checking account.  

 

 

Second part of savings.  If you fall behind on your mortgage payments, almost every bank out there will not accept any payments to catch back up unless it is the full amount including late fees, interest, etc.  Therefore, if you are $3,000 behind, and have $1,500 ready to give to the bank, but they won’t accept it, do not keep it in your checking account.  Otherwise you will see your account with an extra $1,500 and it will be used at the grocery, gas, other bills, etc.  Instead, open up a separate savings account, and place that $1,500 in there.  And then when the next month begins and you will owe another mortgage payment, which will not be accepted, pay yourself the mortgage payment in the savings account.  Therefore, you can catch yourself back up and be ready to pay the bank in full. 

 

3.      Watch out for scams!

 

 

There are a plethora of scammers waiting to pounce on desperate homeowners.  Since the home is almost everyone’s prized possession, we are willing to spend lots of money on the hope of a solution.  A lot of people offer services that will stop a foreclosure, but they end up with the money instead of the bank, and instead of you.  Please be careful.  If you choose to go through a third party to work with the bank on stopping the foreclosure, instead of through bankruptcy, use only HUD approved housing counselors:  http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

 

 

 4.      Communication!

 

 

Be sure to open all mail you receive from your bank and respond to everything.  The lender might be offering modifications, loan restructuring or other relief options to help you keep your home.  You need to know your rights and options and you cannot do that unless you open all of your mail.  Also, be sure to respond to all of it as well.  Keep a record of all communications.  Also, when speaking to a bank representative or customer service, keep a record of the phone calls such as date, time, person, phone number, and notes of the conversation.  These records can help you in the long run with a future cause of action if the bank does not do what they promised you, so you are not going only from memory and “he said, she said.”

 

5.      Bankruptcy

 

 

Bankruptcy is a last resort option, but filing a bankruptcy will stop a foreclosure and allow you to repay the bank over a three to five year period to get caught back up.  Bankruptcy is a legal way to force your bank to listen to you instead of just ignoring you.  Bankruptcy is not for everyone and you must contact a local attorney to see if your situation warrants filing Bankruptcy.  This is something we have much experience and do regularly.   

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.