THE PRIVATE PANEL OF TRUSTEES
When you file a chapter 7 bankruptcy, the United States Trustee (which is a part of the Department of Justice that oversees bankruptcy cases) appoints a person whose title is “trustee”. The US Trustee will invariably select someone for “the private panel of trustees” — a list of people who are pre-qualified to serve. Technically your creditors could elect a different person at the first meeting of creditors, but I have never seen that happen. By the way, what I am saying here is about trustees in a chapter 7 case. In other chapters there are trustees, but they function very differently. The job of a chapter 7 trustee is to interview you (currently by Zoom or phone) and to locate and sell assets to pay your creditors. The trustee will look at the paperwork you file with the court, and will ask questions at the trustee meeting. I would say that there are three basic types of questions: a) you have little or no equity in your home, so you can use the federal exemptions. The trustee’s questions are going to be pretty basic. b) you have a lot of equity in your home — over $27000 or so for an individual or $55,000 for a couple. In that case you are likely to use the state exemptions, and the trustee will probe to see if you have things that cannot be protected by the state exemptions, such as guns, boats, tax refunds, etc. This is because the trustee can take those items from you and sell them, although a trustee will ordinarily negotiate with us about selling them back to you. c) you have a complicated farm or business; the trustee will spend a fair amount of time asking you about individual assets. In any of these three types of questions, the trustee will also ask if you have given something valuable to a relative or paid an unsecured creditor. The reason is that if you have done so, the trustee is likely going to be able to go to the person who got the gift, or whom you paid, and try to get the money back from them. For conducting this interview the trustee gets $60 (paid from the $338 filing fee paid to the court. There is a separate fund that sometimes pays trustees a little more.) However, the trustee also gets a commission on the money he earns from collecting assets and selling them. The commission rate is 25% of the first $5,000.00; 10% of the next $45,000; 5% of the next $950,000; and 3% of anything over $1,000,000.00. In addition, trustees frequently hire themselves to act as attorney at a rate of $350 an hour or so. Frankly, in a huge majority of the cases the trustee gets $60 and nothing more; but if the trustee sees that you have non-exempt assets you can expect them to bore in on you. That’s why we meet and talk about your case; that’s why we put together detailed lists of what you own. If you are accurate in telling me what you own and what it is worth, we can usually predict very closely what a trustee will and won’t go after. As always, each case is a little different. Feel free to call me at (320) 252-4473 to discuss your particular situation.
DON’T LOSE YOUR CONTRACT FOR DEED HOUSE
A prior post talked about the situation where you are the buyer on a contract for deed, are current, and the seller files bankruptcy. (Basically the message is: You’re okay for the term of the contract). But what if you are behind on your contract for deed? Then the situation can be an emergency. The reason is this: In Minnesota a contract for deed can be canceled (terminated) by giving a particular notice which gives the buyer 60 days to catch up. (There are a few oddball situations where the timing would be different.) If you don’t catch up within that 60 days you lose your purchaser’s interest and all the payments you have made and any equity you have built up. You say to yourself “The Bankruptcy Code stops foreclosures, so I’ll file bankruptcy.” Well, it is true that bankruptcies can stop foreclosures, but once the notice of cancellation is correctly served, a “clock” is running. And bankruptcy won’t stop that clock from running. The Bankruptcy Code does give an automatic 60-days-from-filing extension on this “clock”, but Bankruptcy Judge Gregory Kishel wrote an opinion several years ago in which he said that the extension was in favor of the bankruptcy trustee, not the person who files the bankruptcy for themselves. I don’t know how widely that opinion is honored in real life – sellers often just want their money, not the property back– but it is certainly a concern. So, what’s the moral? If you are behind on your contract for deed, we should be talking about filing a chapter 13 bankruptcy BEFORE you are served with a notice of cancellation. If we file BEFORE the notice is served, then the “clock” isn’t running and we can catch up the missed payments through the chapter 13 plan while you make the current monthly payments directly. Or, if the financial hardship is temporary, we can file a chapter 7 to get rid of your other debts and you can catch up on the contract for deed yourself during or after the bankruptcy. As always, there are exceptions and exceptions to exceptions, so if this post applies to you, give me a call at (320) 252-4473
OH NO, MY CONTRACT FOR DEED SELLER FILED BANKRUPTCY
Since mortgage rates seem to be on their way up, we may run into more folks buying their home on a contract for deed. In case you don’t know, a contract for deed is a device under which you agree to pay the purchase price to the owner of the house over time instead of getting a mortgage and paying the seller with that loan. (Some states refer to this as an installment land contract.) Contracts for deed often have relatively small down payments, monthly payments that are largely interest only, and must be paid off in (balloon) in three to five years. So, let’s say you bought your home that way. And today you got a “Notice of Official Proceeding in Bankruptcy Court” in the mail. You open the letter, wondering what’s up, and find out that the person who sold you the house filed their own bankruptcy. In the words of Douglas Adams: “DON’T PANIC”. If you live in the property, and if you stay current on the contract for deed (payments, insurance, taxes, etc.) then your contract for deed cannot be terminated by the seller just because he or she filed bankruptcy. (Bankruptcy Code Section 365(i) ) Now, the person to whom you owe the money may change because your seller may “lose” the contract to their bankruptcy trustee. That means that the trustee will collect the payments instead of your seller, and if so the trustee merely has to deliver title when the contract for deed is paid off. This may open up a chance for you to get a discount on your contract for deed. If it runs several more years, and if you can get a mortgage, you can negotiate with the trustee to pay off the $100,000 balance for, say, $90,000 or less. Since a trustee has to liquidate things fairly quickly, the trustee might take a reduced payoff to be able to close the case. So, the important thing for you as a contract for deed buyer is to stay current. Then, as a bankruptcy attorney, I suggest you consult an attorney (!) to figure out what the heck is happening. NOTE: This is a situation where the seller files bankruptcy. This is not discussing what happens when the buyer is in default and the seller has served a notice of termination. As with most things legal, there are nuances here. That’s why I am happy to talk to you about your particular situation. Give me a call at (320) 252-4473
WHAT WILL I LOSE IN BANKRUPTCY?
Most people file a chapter 7 bankruptcy. In a chapter 7 bankruptcy the trustee may claim some of your stuff. There are two sets of exemption we can use in “state” and “federal”. The “state exemptions” protect (generally) $450,000 of equity in your home; $5000 of equity in one car; $11,250 of household goods; $3,062.50 in wedding rings exchanged at the ceremony; tools of trade of $12,500 ($13,000 for farmers); three-fourths of wages due but not paid; Social Security benefits; and (in a bankruptcy context) $1,512,350 of 401(k) or IRA accounts. There are some other exemptions that aren’t as common. The homestead exemption is single or joint; the others are per person. The “federal exemptions” protect $27,900 of equity in your house, $4450.00 in a car; $14,875 of household goods ($700.00 per item); $1875.00 of jewelry; $1,512,350 of 401(k) or IRA accounts; Social Security benefits; and a wild card of up to $15,425,00. And like the state exemptions, there are some other exemptions that aren’t as common. These exemptions are per person. What we do is match up what you own against this list (we can’t pick and choose — we need to use one list or the other) and see what doesn’t fit into each little bucket. The trustee gets what “doesn’t fit”. Many people — maybe most people — who don’t have a lot of equity in their home will be able to fit all their assets into the federal exemptions., Now, the trustee can’t just take your “excess stuff”; he has to turn it into cash. And to do that he has to sell it to someone. You are the logical target market. So if you have “excess stuff” we can sometimes haggle with the trustee and buy it back at a discount. As always, this is at least mildly complicated; that’s why we meet in person or by Zoom and discuss and work these things out. Feel free to call me at (320) 252 4473 .
GET CHEAPER INTERNET
I came across a program that will help some people save money on their monthly internet bill. Internet access seems like a necessity these days, but what with inflation hitting all of us, it sometimes seems out of reach. The “Affordable Connectivity Program” will cover $30 of your internet bill (higher on tribal lands). I happen to have Spectrum internet at home, and everytime I log on there is a banner at the top saying that I might qualify for a monthly discount. Briefly, if your household income is less than a certain amount, you likely qualify for the program. For a single person the amount is $27,180; for a household of two it is $36,620.00; for a household of four it is $55,500.00, and so on. But in addition to the income qualification, if someone in your household gets government assistance, you also qualify. “Government assistance” includes SNAP, WIC, SSI, reduced school lunch and, I believe, Medical Assistance. You can get more information and see if you qualify by going to this link: Home – ACP – Universal Service Administrative Company (affordableconnectivity.gov). And by the way, there is another program for telephone service, called Lifeline, that may help with the cost of phone service. The income limits are a little lower for that program. Here is the link for that program: Get Started – Universal Service Administrative Company (lifelinesupport.org)
WHAT CAN YOU DO ABOUT JUDGMENTS?
You have an outstanding bill. Or you have a bunch of outstanding bills. But you don’t have enough money to pay, and the creditor has turned it over to collection. You ask to set up a payment plan, but the collector refuses. What happens next? Generally, after a several months of collection calls and letters, you get a letter from an attorney that says something like “We are ABC Lawyers. We have been hired by Discover Card to collect an account you owe them. They tell us you owe $5,315.00. If we do not hear from you within 30 days we will assume that this is valid.” This letter is sometimes called the mini-Miranda letter (like the Miranda warning in police shows (You do not have to say anything…). If you have a genuine dispute with the debt, now is the time to write and dispute the debt. A phone call probably won’t do the trick. But if the debt is legitimate, the next thing is that someone will knock on your door and say “You’ve been served.” This is the summons and complaint, and you have twenty days after the date of service to send a formal response to the law firm. If you don’t do, you will be in “default” and the creditor will be able to have the court enter a judgment against you. What can the creditor do then? Well, they can serve a garnishment on your employer and take one-fourth of your take-home paycheck (with a threshold of $413). Or they can seize your bank account and you will have to show the court that the funds in the account are exempt. This can go on and on, until the debt is paid. However, if you file bankruptcy the collections of ordinary debts must stop! In some cases we can get back any money you have lost in the prior 90 days. And the bankruptcy will generally discharge the debt, meaning that the creditor can no longer try to take your money. If you are in financial trouble, or just want to discuss your options, feel free to call me to discuss your options. You can reach me at: (320) -252 4473.
INCREASED EXEMPTION NUMBERS
In a small piece of good news for people who need to file bankruptcy, the value of items you can claim as exempt in bankruptcy under the federal exemptions increased as of April 1, 2022. The new numbers include the following: Equity in your homestead: $27,900.00Equity in one car: $4,450.Household goods per item; $700.00Household goods total: $14,8875.00Wild card exemption: $1,475.00 plus up to one-half of the homestead exemption, if not used to cover the homestead.Retirement accounts: $1,512,350.00 The next scheduled increase will be April, 2025 As always, if you have questions about bankruptcy, give me a call at (320) 252-4473
DON’T “FORGET” WHAT YOU OWN
I recently came across another case that reinforces the importance of being accurate when you fill out your bankruptcy papers. For background, when you file bankruptcy, you must complete a list of assets, and give values. Then you must sign the papers “under penalty of perjury”. By doing so, you swear that everything in them is true, including that your forms are a complete listing of all of your property, income, and debts. The case I saw involved a person who had filed bankruptcy and listed his household contents as being worth $9,000.00. Several years later he had a fire which apparently was a total loss. He filed a claim with his insurance company for $300,000 of household contents (really!). The insurance company hauled out his bankruptcy papers and refused to pay the claim on the basis of “judicial estoppel”. “Judicial estoppel” is a situation in which you have two separate legal proceedings. In the first legal proceeding, you take a certain position — in the case, I am talking about, that the household contents were worth $9,000. But in a later case, you take a different position — that the household contents were worth over $300,000. The insurance company was able to convince the court that there was no way on earth that the person had $9000 and only a few years later had $300,000. The claimant tried to argue that he’s bought a lot of stuff after filing bankruptcy, but his income during the years was not enormous. So, the insurance company got out of paying the claim. Now, I think it is true that the Goodwill retail price of household goods is a lot slower than the replacement cost. As I was writing this I looked at the Goodwill site and saw that I could buy a “Global guitar” for $8.95; a similar one from the Walmart site was $99.95. But the jump from $9000 to $300,000 was just too much for the court to accept. Even worse than having an inaccurate value, however, is omitting something. There are lots of cases in which a person has a valid lawsuit claim and “forgets” to list the claim in their bankruptcy papers. The person against whom the lawsuit would be brought can often convince the court to say: “If you didn’t list the claim in bankruptcy, you can’t pursue it after bankruptcy.” And, if you deliberately hide property or omit assets or omit important information about your financial affairs, in a worst-case scenario you could be prosecuted criminally for bankruptcy fraud. The moral of this story: Try to be accurate when you estimate the value of the things you own when you are filling out your bankruptcy petition. That’s why we meet, in person, by phone or by Zoom, to discuss these issues. Feel free to call me at (320) 252-4473
CAN A DEBT SETTLEMENT COMPANY KEEP ME FROM BEING SUED?
Unfortunately, the answer is “NO, you can be sued even though you are in a debt settlement plan.” A “debt settlement company” is a company that promises to help you settle with your creditors. They are the companies that advertise on radio and television with ads that say “If you owe $15,000 you may qualify to settle your debt” or similar statements. Examples are Freedom Debt Relief, in Tempe Arizona, and National Debt Relief, in New York City. The basic plan for a debt settlement company is that they tell you to stop paying your bills– at least the ones they accept. Usually, they have you send them money each month. Some or all of that money is used for the fees of the debt settlement company. Once some money is accumulated they will contact the creditor and say something like: “He owes you $2,500.00. We’ll pay you $1,250.00 if you call the debt paid in full.” Sometimes the creditor will accept that settlement – it may be more likely if the original credit card company has charged off the account and sold it to a debt buyer because a debt buyer usually pays a fraction of the face amount of the debt. This is very common with credit card debts – the credit card company will “charge off” your account and sell it to, for example, LVNV or Portfolio Recovery for literally a few cents on the dollar. (By the way, you may get a 1099-C at the end of the year for the amount written off.) Frankly, I think you can do this yourself. If you can raise some cash, you can offer to settle a debt without paying someone in Tempe Arizona to do it for you. The problem, from your standpoint, is that a debt settlement company simply cannot stop a lawsuit. They are usually not lawyers; even if they are lawyers, they are likely not licensed to practice law in Minnesota and therefore according to court rules cannot represent you in court. Their only tactic is to tell the creditor: “Hey, we can get you some cash if you settle the debt”, but it is up to the creditor whether they will take less than full payment. What I usually see is that you have been paying their debt settlement company $300 a month for six months, but the creditors has not settled and now gets impatient and sics their lawyers on you. You call the debt settlement company in a panic and say “I’ve been sued” and the debt settlement company says: “You have to defend yourself”. If you are in a debt settlement plan and get sued anyway: a) You can try to settle the debt yourself. The problem is that the debt settlement company has your money! b) You can defend the suit. Once in a great while the suit is actually against the wrong person – maybe they sue Robert Anderson Jr. for a debt owed by Robert Anderson Sr. If you can show that the debt is owed by that other Robert Anderson you can beat the suit. Or perhaps the debt is too old to collect. c) You can file a bankruptcy. That’s where I come in. Very often filing bankruptcy is cheaper than continuing with the debt settlement company, immediately stops garnishments or other collection efforts, and because your debts are now behind you, you may be able to rebuild your credit score sooner. Bankruptcy is not for everyone, of course; but if you are curious if it will help you, I’d be happy to discuss it with you. Call me at 320-252-4473.
COLLECTION CALLS AND BANKRUPTCY
A major benefit of filing bankruptcy is that it can lift a load of stress off of you. Before you file you may worry about judgments, garnishments, and repossessions. Often you get call after call after call from collectors. The caller may tell you that you will be sued. That may be true, but no one is going to jail just because you didn’t pay a credit card debt. Calls should stop cold when your case is filed. This is because filing the bankruptcy creates what is call “the automatic stay”. This is, in effect, a court order which orders creditors to stop trying to collect their debt from you. Major creditors will get their notice of your filing electronically; small creditors will likely get their notice by mail, which means there is a lag of a few days between filing and the creditor getting the notice. If you are contacted in the first few days after your case is filed, you should politely tell the creditor that you filed bankruptcy, that your case number is such-and-such, and that that your attorney’s name is Sam Calvert, whose number is 320-252-4473 But after the first few days, you should not be contacted. If a debt collector keeps calling you after the case is filed, and if they know about the bankruptcy, you can actually take them to court for violating the automatic stay (or the discharge order, once that is filed at the conclusion of the case). If you get such a call, write down the name of the creditor, write down the date and time of the call, and the name whoever is calling you (that is, if they don’t hang up on you as soon as you start asking!). Now, there are exceptions, for instance, debts that are not discharged (recent taxes, student loans, etc.). And your mortgage company or car lender may keep sending you notice that you want—because you want to keep your house or your car. And there is an industry that buys up old debt and tries to collect it later. If one of those writes or calls you, they may say “If you filed bankruptcy, this is not an attempt to collect a debt.” Which of course it is, but the collector will pretend they didn’t know (and it’s possible they really don’t know, because they didn’t look for the information.) In that case follow the instruction above: Politely tell the creditor that you filed bankruptcy, that your case number is such-and-such, and that that your attorney’s name is Sam Calvert whose number is 320-252-4473 This possibility is another reason to periodically check your credit report (which you can get for free from annualcreditreport.com) to make sure that old debt does not reappear on your credit report – and if something does appear, dispute it with the credit reporting agency. If you are struggling with debt, feel free to call me at 320-252-4473 to talk about your options.