Massachusetts Bankruptcy Lawyer

Frequently, bankruptcy debtors find themselves in the position of spending more than the amount of their earnings. Such situations are not unusual in a Chapter 7 liquidation case and are in fact the reason the debtor must file bankruptcy, because they cannot afford a repayment plan for the amount they owe. However, even in these no-asset cases debtors often purchase property with financing but wish to retain the collateral securing their debt. These debtors would be allowed to file for bankruptcy relief and receive a discharge of unsecured debt while reaffirming the secured loans. Reaffirmation agreements for these debts would usually be allowed by the bankruptcy court but cases of debtors whose expenses exceed their income receive special scrutiny. The court might hold a hearing and wish to hear from the debtor that in fact they are prepared to make continued payments in spite of the “presumption of undue hardship.”

Disclaimer: This does not constitute legal advice. Please contact a bankruptcy attorney in your jurisdiction for question specific to your situation.

Bankruptcy is a viable option for dealing with many types of debt, including the massive amount financed for a home purchase, with a few exceptions, the most prominent being student loan debt. Other debts that are nondischargeable in bankruptcy include taxes and other payments owed to the government and domestic support obligations arising from court order. A recent news article highlights the danger of failing to make a prompt repayment of student loan debt. While this may be an extreme case, students taking out loans to finance their higher education should be aware of the importance of prioritizing such debts above all others for which alternative relief, such as bankruptcy, may be available. After graduation, these individuals may be thinking they only need to eventually, when they have the chance to, pay off the “amount borrowed” for their studies rather than the actual amount owed per the loan terms including forbearance interest and late payment penalties.

Disclaimer: This does not constitute legal advice. Please contact a qualified bankruptcy attorney in your jurisdiction if you have questions about your particular situation.

Could handing over the deed and thereby avoiding foreclosure be the answer for homeowners considering walking away from their property? Citigroup seems to think so, as today it announced a pilot program called “Foreclosure Alternatives” that would provide their company with the deed to the house without having to go through the legal process of foreclosure and allow the homeowner to remain in their residence for six months. This program will be launched on a limited scale in Texas, Florida, Illinois, Michigan, New Jersey and Ohio for approximately 1,000 homeowners. Traditionally, homeowners owing significantly more on their house than it is worth and not confident about an increase in home values would consider walking away from their property rather than continuing mortgage payments that seemed fruitless. Mortgage companies like Citigroup seem to have recognized this and in order to save themselves additional work to foreclose on properties, have offered an alternative “deed in lieu of foreclosure” for homeowners not qualifying for mortgage modifications or short sales. By avoiding foreclosure, the homeowner also avoids damaging their credit. However, this relief is only helpful if the homeowner intends to pay off any amounts still owing on the mortgage and mortgage companies can explain the programs they offer to their qualified account holders. If not, bankruptcy may offer the ultimate relief for such situations.

Disclaimer: This does not constitute legal advice. Please contact a Bankruptcy attorney in your jurisdiction to discuss your particular situation.

Debtors concerned about their ability to pay off debts often wish to add as many accounts as possible to their bankruptcy petition. They believe that they have to do so if they do not have the financial means to pay off the total balances owed. However, there is a viable option on debts that are secured by property, known as collateral. Usually, mortgages and car loans that are reaffirmed need to continue being paid on their original terms. However, other secured lien holders, like furniture stores, may be willing to reduce the total balance owed and enter into a redemption or reaffirmation agreement with the debtor. The debtor gets to keep what they bought while paying the store a reduced amount they are better able to afford. A qualified bankruptcy practitioner in your jurisdiction can communicate with such creditors on the debtor’s behalf in order to achieve a solution where all parties come away with something.

While pension and other retirement accounts are exempted by 11 U.S.C. s. 522(d)(12), debtors should be aware that the money they have in such accounts can be used to satisfy any amounts they may have to pay to their creditors after the trustee’s investigation. As long as the debtor is able to take this money out, these funds might relieve penalties for prepetition transfers or other property alleged to be in the debtor’s estate. And of course, freeing up part of the funds available in a retirement account does not completely halt the debtor’s retirement savings planning. Be sure to consult with a qualified bankruptcy practitioner in your jurisdiction as regards the ability of a pension or retirement account to qualify for an exemption under the appropriate federal or state law.

After the 2005 changes in bankruptcy law, many potential debtors have been concerned about not qualifying for a Chapter 7 discharge because of a high level of household income. While the median household income levels are an initial hurdle to be overcome in the process of discharging debts, means testing is an available option for families to avoid the presumption of abuse that would otherwise exist. Part V of the Chapter 7 statement of current monthly income and means-test calculation is the calculation of deductions from income and is the primary way for the higher-income debtor to qualify for discharge. Subpart A under this section are allowable federal tax deductions. These include national standards for food, clothing and other items and health care based on age seniority. The local standards under the tax deductions would include housing and utilities and non-mortgage, mortgage and rent expenses; transportation and vehicle operation/public transportation expense and transportation ownership/lease expenses for all vehicles operated by debtors. Even if you don’t pay a car loan, you would still have transportation expenses for gas, maintenance and insurance. The other necessary expenses under this subpart would be taxes; involuntary deduction for employment; life insurance; court-ordered payments; education for employment or for a physically or mentally challenged child; childcare; health care and telecommunication services. The last category would only be telephone or internet to the extent necessary for your health or welfare or that of your dependents. Subpart B of additional living expense deductions would include health insurance, disability insurance and health savings account expenses; continued contributions to the care of household or family members; protection against family violence; home energy costs; education expenses for dependent children less than 18; additional food and clothing expenses and continued charitable contributions while Subpart C of deductions for debt payment would include future payments on secured claims, other payments on secured claims and payments on prepetition priority claims. The last category includes the domestic support obligations of child support and alimony trustees usually ask debtors about at the creditors’ meeting. The total deductions from income in Subpart D allows the debtor to overcome the presumption of abuse even with an over-median level household income. Particularly when it comes to the median household income levels in your area as well as the local standards used for tax deductions, consulting with a qualified bankruptcy practitioner in your jurisdiction is vital.

It is easy to take stock of what we have at home and place a value on it. But it requires more thought to consider property we may have – including inheritances for estates not yet probated and money owed to us for claims. Inheritances are liquidated as we know the amount out of the estate we expect to receive. It is more difficult to place a value on the contingent unliquidated claims, to use the language on Schedule B of personal property. Rarely do claims for personal injury arising from accidents, for example, settle quickly and often there is a wide disparity between what a client expects to receive and what the claimant’s attorney actually anticipates the case to be worth. The estate’s probate lawyer or the personal injury attorney can best provide the valuation of such intangible property in the debtor’s estate. But only a qualified bankruptcy practitioner can ensure that the debtor’s interest in this property is protected to the extent possible, using the applicable exemptions in their jurisdiction.

The new bankruptcy law encourages potential filers to consider alternatives to bankruptcy. Debtors often do try out private credit consolidation before failing and seeking bankruptcy relief. Under the current law, debtors whose income is too high above the median level for their household size to qualify for a discharge of their debts would have to file a Chapter 13 petition for reorganization if they seek bankruptcy relief. A Chapter 13 petition allows the debtor to keep any assets but provides for repayment to creditors through a court-ordered payment plan based on the difference between the debtor’s income and expenses. This is in one sense similar to private credit consolidation, in which a third-party agent negotiates repayment terms with all creditors while accepting a lump sum monthly payment, including their agency fee, from the debtor. Such payments are often automatically deducted from the debtor’s bank account in order to ensure receipt. Debtors need to affirmatively indicate to the credit consolidation company their desire to terminate such payments, as when they are ready to file bankruptcy. Credit consolidation might temporarily halt an increase in interest and penalties, but these would be permanently eliminated by the Chapter 13 plan, which allows the debtor to pay the total balance owed at the time of filing. Definitely consult with an experienced Chapter 13 practitioner in your jurisdiction in order to determine whether your over-median household income might be a reason to consider Chapter 13 bankruptcy rather than credit consolidation.

A recent 1st U.S. Circuit Court of Appeals decision allows late payment penalties imposed on untimely alimony payments to not qualify as a domestic support obligation and therefore be dischargeable. The decision in In Re: Smith, Nelson J. (Docket No. 09-9005), an appeal from the Bankruptcy Appellate Panel for the 1st Circuit, found that “the late fee was intended to encourage payment of alimony and was not itself alimony . . . Since (obligee) had no expectation of this payment unless and until (obligor) was late, it follows that the only way this contingent payment could be considered alimony is if it was meant to compensate (obligee) for the time during which she was waiting for her alimony payment.” This late payment penalty was a fixed fee and “had the parties provided for an interest-bearing fee, contingent on the amount of alimony outstanding, (obligee) would have a stronger argument.” In fact, the penalty was also separate from the costs of a contempt action as “legal fees incurred in enforcing the agreement, a provision not always contemplated in such contracts, were clearly provided for in this instance.” While this decision is only applicable to cases filed within the 1st Circuit’s jurisdiction, a qualified bankruptcy practitioner in your area can clarify for you whether or not a particular debt owed would be considered a domestic support obligation for the purposes of dischargeability.

Bankruptcy filers should pay careful attention to the new requirements imposed by Fed. R. Bankr. P. 9037. This rule mandates the redaction of sensitive personal information, including Social Security or tax identifications numbers, dates of birth, names of minor children and financial account numbers. The only place on the bankruptcy petition where the Social Security number should be listed in full is the separately-filed Statement of Social Security Number, a confirmation by the debtor. Business tax identification numbers can now be listed on the Statement of Financial Affairs using only the last four digits. The age and gender of dependents is reported on Schedule I of income, but not dates of birth or names of minor children. The most significant change would be for financial account numbers. Bank and other financial accounts listed on Schedule B of personal property can be reported by institution and type of account without listing the account number. The accounts for which a discharge is sought listed on Schedule F of unsecured nonpriority debts would still be reported using their full numbers for the purposes of creditor identification. A qualified bankruptcy practitioner in your jurisdiction can guide bankruptcy filers through these changes as well as any other requirements applicable in their area.