Massachusetts Bankruptcy Lawyer

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.

Last week’s Massachusetts Lawyers Weekly has as a front-page story an article about a recent decision out of the Eastern District of New York, Weiss v. Zwicker & Associates. The judge found the defendant debt collection firm violated the Fair Debt Collection Practices Act by sending a letter to a debtor on behalf of American Express that did not clearly state the amount of money owed. The letter at issue was sent on March 26, 2008 unsigned indicating an amount owed. The letter further stated that the creditor had hired its firm for the Plaintiff’s “failure to respond to previous collection attempts.” According to the letter, the balance “may include additional charges including delinquency charges, as applied at direction of [AMEX], if said charges are permissible in accordance with the terms of your agreement.” U.S. District Court Judge Arthur D. Spatt found that a consumer could possibly interpret that the total balance included additional charges which were not adequately disclosed.

This case made me think of some of the more outrageous debt collections letters I have seen in bankruptcy practice. One that comes to mind is a letter to the debtor’s employer to terminate a wage garnishment on the employee’s earnings that included the debtor’s Social Security number. This SSN would be in full view of both parties receiving the letter, the employer and me as debtor’s attorney and seems unnecessary as employer would presumably otherwise adequately identify the debtor as its employee with a wage garnishment in place on their paycheck.

Lawyers defending firms against the Fair Debt Collections Practices Act seem to feel that the federal statute is interpreted very differently from one jurisdiction to another. Regardless of this, a debtor receiving a debt collection letter with language that seems questionable should not hesitate to contact an attorney in their jurisdiction specializing in this type of litigation to determine whether they may have a cause of action and if not but they need to deal with such debts through bankruptcy to contact a qualified bankruptcy practitioner in their jurisdiction to determine whether they might qualify for discharge relief from such debts.

Self-employed debtors filing for bankruptcy can supplement the Schedule I reporting of their monthly income with a monthly self-employed business report, filed with the court as a cash flow statement. This accounting would allow the debtor to total receipts from the business; itemize expenditures including the actual cost of inventory purchased, business mortgages/rent and utilities paid, equipment lease payments, insurances, supplies, transportation, payroll and taxes and arrive at an ending balance in the debtor’s business account. Gross income for the debtor’s business can be calculated this way. The cash flow statement available would vary from one district to another, so a qualified bankruptcy practitioner in your jurisdiction would be able to help you comply with the requirements for reporting business income on the bankruptcy petition as well as completing required additional disclosures on the Statement of Financial Affairs as relate to the debtor’s business.

People seeking a discharge of their debts through Chapter 7 bankruptcy are allowed a homestead exemption for their personal residence, but frequently clients find themselves in the situation of owning a second property used for rental income. While such homeowners would not be able to keep the second property after a “no asset” Chapter 7 filing, if the second property is close to foreclosure, the owner may wish to file bankruptcy and get a discharge from the second property mortgage as well as other debts. Such a debtor could retain their residence and continue paying the mortgage. Bankruptcy is an answer to assist those in such foreclosure situations unable to make mortgage payments on the second property even after rental income is factored in. While rental income would be factored into the debtor’s household income, so long as their total income falls below the recently readjusted median levels and debtor’s share of household expenses are at a proportionate level, such individuals can still qualify for Chapter 7 relief. Be sure to check with a qualified bankruptcy practitioner in your jurisdiction as the amounts allowed for personal residence homestead exemptions would vary considerably from state to state.

Debtors filing bankruptcy may be confused about what does and does not constitute personal property in their estate. Schedule B of the bankruptcy petition allows the debtor to list any personal property in their possession. However, there are also listings for property not presently (at the time of filing) in the debtor’s possession but in which the debtor might have an interest. For example, personal injury claims, personal loans owed to the debtor and inheritances expected by the debtor are all considered property even without a present ownership interest subject to seizure. Debtors might have inherited from a small estate in the recent past and seen their windfall gone just as quickly after distributions to interested parties and payments to update debts not to be discharged through bankruptcy. Keeping in mind such circumstances will allow debtors to at least explain transfers of over $1,000 to insiders (friends and family members) within the three years prior to filing and payments to a single creditor over $600 within the ninety days prior to filing on the Statement of Financial Affairs.

Another consideration for debtors is a recent divorce. Often, a separation agreement may provide for division of marital assets in such a way that property might appear to have been transferred out of the debtor’s estate. An assumption of responsibility for the marital home by the spouse without an explicit buy-out provision is one such example. Such a termination of debtor’s interest in property through divorce may be explained in the bankruptcy case as one of the above possibilities, an insider transfer or creditor payment. A debtor may not consider themselves to have an interest in such property and thereby omit an asset that could be used to pay creditors.

Debtors are required to provide a statement of their current earnings on Schedule I of the bankruptcy petition. Schedule I does allow for in addition to regular pay regularly received overtime and bonuses or commissions. Debtors might not, however, regard as part of their earnings a sign-on bonus from recently starting a new position or a generous holiday/special occasion bonus payment. Such payments might in fact cause a debtor’s regular earnings to fall over the median household income level.

Keeping in mind these considerations of property in a bankruptcy case will allow debtors to provide more accurate information to their counsel. Often, a statement in writing from the personal injury or probate counsel might provide helpful guidance in assessing the value of such property. Because the family laws allowing for division of marital property after divorce vary so considerably from one state to another, debtors would be well advised to consult with their divorce counsel even before filing bankruptcy and ensure that their bankruptcy counsel, if not the same, has been made aware of any division of assets that could be considered as insider transfers or creditor payments. The human resources office of debtor’s employer can also be helpful in assessing the level of the debtor’s compensation anticipated over a regular paycheck. Employers need not know the reason for such an inquiry beyond an assessment of the debtor’s financial affairs. As always, the best person to provide a determination whether a certain financial transaction would constitute property of or a transfer from the debtor’s estate would be a qualified bankruptcy attorney in the debtor’s jurisdiction.