MORTGAGES IN THE TIME OF COVID 19
These are incredibly unusual times, of course. If you are a homeowner, there may be some help available to you. If your mortgage is owned by one of the two very large “government sponsored enterprises” you may be able to get some relief. One of these two is Federal National Mortgage Association (FNMA), commonly known as Fannie Mae; the other is the Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac. These two companies own a large portion of all home mortgages. Basically, the help is that, if your income is hurt by the this pandemic, you may be able to defer some of your monthly payments. This means that the payments will be delayed, but not forgiven. Here is a clip from the FHFA.gov website: Help For HomeownersIf your ability to pay your mortgage is impacted, and your loan is owned by Fannie Mae or Freddie Mac (use the “loan lookup” tools: https://www.knowyouroptions.com/loanlookup for Fannie Mae or https://ww3.freddiemac.com/loanlookup/ for Freddie Mac to find out), you may be eligible to delay making your monthly mortgage payments for a temporary period, during which: You won’t incur late fees. Foreclosure and other legal proceedings will be suspended If you have trouble catching up at the end of this temporary relief period, additional assistance may be available. You can work with your servicer to resume making a mortgage payment. Or if you need additional assistance, you can work with your servicer on other foreclosure prevention options to keep your home. Contact your mortgage servicer (the company where you send your monthly payments) as soon as possible to let them know about your current circumstances. The telephone number and mailing address of your mortgage servicer should be listed on your monthly mortgage statement.
$1200 STIMULUS PAYMENTS
Back when Congress was about to pass the “Cares Act” — the response to the Covid 19 pandemic — I emailed a couple of US senators asking them to exclude the proposed $1200 per person payments from being swept up in bankruptcy cases.Unfortunately, the Congress seems to have ignored my suggestion. Humpph. Fortunately, however, the United State Trustee (which is an agency within the Department of Justice that oversees bankruptcy) has in effect told bankruptcy trustees: “Hands Off” by issuing the following notice: Regardless of whether the rebate is property of the estate, the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances, including: the modest amount of the recovery rebate; the applicability of state and federal exemptions; any interest of a non-debtor spouse in the recovery rebate; the cost to the estate of recovering and administering the recovery rebate, including litigation with debtors who may seek a judicial determination; and the extent to which recovering the recovery rebate will enable creditors to receive a meaningful distribution. In rare chapter 13 cases filed on or after March 27, 2020, the recovery rebate may be relevant to the confirmation standard contained in 11 U.S.C. § 1325(a)(4). For chapter 13 cases filed before March 27, 2020, the recovery rebate is excluded from that analysis because it would not have been available for payment to creditors in a chapter 7 case. Trustees are directed to notify the United States Trustee prior to taking any action to recover recovery rebates or objecting to a chapter 13 plan based on the treatment of recovery rebates. So this is moderately good news. I don’t know if Congress will give any more stimulus payments later, but if they do I hope that bankruptcy trustees will “ignore” the existing $1200 payments and any future payments. Sam Calvert, St. Cloud MN
MORE WAGES WILL BE PROTECTED FROM GARNISHMENT
The Minnesota Legislature recently passed a small but helpful change in the garnishment law. Formerly the amount which was protected from garnishment for regular debts (child support has different rules) was the larger of: a) 40 times the federal minimum wage; or b) three-fourths of the total wages minus amounts required by law to be withheld. Since the federal minimum wage is $7.25, that meant the first $290 per week was protected from garnishment. The change in the law is to make the amount protected the larger of: a) 40 times the federal minimum wage or the state minimum wage for large employers, whichever is more; or b) three-fourths of the total wages minus amounts required by law to be withheld (basically, your “take home wages” other than voluntary withholdings). Since the state minimum wage for large employers is $9.50 per hour, that means that the first $380 per week is protected from garnishment. An example: Under the old law, if your take home wages were $400 per week, the garnishing creditor could get $100 from your paycheck. Under the new law, if your take home wages are $400 per week, the garnishing creditor can get $20. This is not a earthshaking change, of course, but it will help a bit. The trade-off for this raise is that garnishments used to run for 70 days; they now run for 90 days. This law is effective August 1, 2020.
COMMON MISTAKES PEOPLE MAKE WHEN IN DEBT
Over the years, education loans, medical bills, and mortgage repayments can soon pile up, which can leave you saddled with debt. So to help you avoid making basic errors when dealing with insurmountable debt, Sam Calvert, Attorney at Law, has put together a list of the most common mistakes people make when in debt. 1. ProcrastinatingMany people in financial trouble often do nothing and hope it works out. If you are falling behind each month or using your Chase credit card to buy groceries, as a result of sending all your wages to Discover and MasterCard, stop for a moment and evaluate your situation. 2. Cash in 401(K) to pay credit card debtEarly withdrawals of your retirement fund will mean you lose out on a tax-saving instrument that is compounding over time. You may also face a federal tax bill, besides attracting a ten percent penalty on the withdrawn amount. 3. Pay your relatives debtIf you are filing for bankruptcy, then your spouse is not obligated to do the same. Also, don’t make the mistake of taking what few funds you have to help pay off a family debt, which could lead you into financial difficulty. 4. Take out a home equity loanUnlocking cash in your house may provide short term relief. However, keep in mind that interest rates fluctuate, which means further down the line, you may be in a worse situation. The moral is to keep up your house payments, rather than put your number one asset in danger. 5. Hire a debt settlement company The firm that you hire may not be able to settle all your debt. Also, many of your creditors may refuse to work with the company, which will have severe repercussions. It’s best to familiarise yourself with the bankruptcy code and approach a bankruptcy attorney that can assist you. On a final note, It’s imperative to address the reason you got into debt in the first place, so to avoid these mistakes and receive a free consultation, reach out to the experts at Sam Calvert, Attorney at Law. I have been practicing law in St. Cloud since 1978 and graduated from William Mitchell College of Law in St. Paul, Minnesota. I’m an expert in litigation and business bankruptcy, and can consult you on chapter seven, chapter eleven, and chapter thirteen bankruptcy. For a complete list of my services, please click here. If you have any questions about bankruptcy, I’d love to hear from you. Please contact me here.
SEASON’S GREETINGS FROM SAM CALVERT, ATTORNEY AT LAW
We wish you Merry Christmas and a Happy and Prosperous New Year! If you need any assistance from us during the holiday season, feel free to get in touch with us by clicking here.
SUBD. 26.HEALTH SAVINGS ACCOUNTS; MEDICAL SAVINGS ACCOUNTS.
In 2018 the Minnesota legislature added an exemption to state law to protect health savings accounts (“HSA”) and medical savings accounts (MSA) up to $25,000.00 from creditors, other than divorce court/child support orders. The new law, effective August 1, 2018 says that the following is exempt: Subd. 26.Health savings accounts; medical savings accounts. (a) All money held in a health savings account, as defined in the Internal Revenue Code of 1986, section 223(d), as amended, up to a present value of $25,000. (b) All money held in a medical savings account, as defined in the Internal Revenue Code of 1986, section 220(d)(1), as amended, up to a present value of $25,000. (c) The exemptions in paragraphs (a) and (b) do not apply pursuant to the division of marital assets under section 518.58, a surviving spouse benefit under section 518.581, and a support order under section 518A.53. So, what is an HSA or an MSA? To quote from the IRS definitions from Publication 969, which you can access at: www.irs.gov A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider. … To be an eligible individual and qualify for an HSA, you must meet the following requirements. You are covered under a high deductible health plan (HDHP), described later, on the first day of the month. You have no other health coverage except what is permitted under Other health coverage, later. You aren’t enrolled in Medicare. You can’t be claimed as a dependent on someone else’s 2017 tax return. Medical Savings Accounts an Archer MSA is a tax-exempt trust or custodial account that you set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. To qualify for an Archer MSA, you must be either of the following. An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. You can have no other health or Medicare coverage except what is permitted under Other health coverage, later. You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. If another taxpayer is entitled to claim an exemption for you, you can’t claim a deduction for an Archer MSA contribution. This is true even if the other person doesn’t actually claim your exemption. I do not see a lot of people with this type of account, but for those who do have one it can be significant, and previously Minnesota law did not protect these accounts. I am glad that law now protects these assets. This protection is not limited to bankruptcy cases; it is effective to protect these accounts, up to the dollar limit, whether or not you file bankruptcy. If you have questions about this, or if you have other questions about what assets are protected from the claims of creditors, feel free to set up a mutually convenient time to meet and discuss. You can reach my office at: (320) 252-4473.
JUDGE MICHAEL RIDGWAY RECENTLY ISSUED AN OPINION THAT SUMMARIZES HOW TO “AVOID” JUDGMENT LIENS IN BANKRUPTCY. THE CASE IS IN RE MUS, CASE NUMBER 17-42895.
A little background: Most real estate in Greater Minnesota is “abstract property”. In Hennepin and Ramsey much of the land is “Registered property”, a/k/a “Torrens property”. For this post I will ignore Torrens property. When a judgment is entered and docketed in District Court, the judgment becomes a lien on all abstract property in that county. The lien does not “attach” to property which is homestead property under state law; however, there is no way to determine if a piece of land is homestead or non-homestead. So, practically, a judgment is an apparent lien on any real estate you may own in that county. When you file bankruptcy the personal liability on the debt would be discharged. However, the judgment would remain of record and still look like a lien on your real estate. Generally we would simply discharge the judgment using the state court mechanism of Minn. Stat. 548.181. Alternatively, however, we could ask the bankruptcy court to “avoid” the lien. That means the bankruptcy court would issue an order saying that the lien have no effect on a particular piece of land. That is what Mr. Mus sought to do in his case. The Court quoted a law review article posing the question of whether “a bankruptcy debtor must have equity in the property to properly claim the homestead exemption, and in turn, avoid the lien? That is not the case. “The debtor does not need to have equity in the property, only an interest. If an exempt homestead is fully secured by a mortgage, the judicial lien can be avoided in its entirety, any appreciation or additional equity in the property is saved for the fresh start of the debtor. Since impairment is a mathematical test, the debtor can avoid any and all intervening judicial liens. On the other hand, if the debtor claims an exemption in property worth more than the total of consensual liens, the available exemptions and the judicial liens, the judicial liens my not be avoided. You ‘do the math.’” Timothy D. Moratzka, “_Do the Math! Avoidance of Judicial Liens Under § 522(f)_,” 21-JAN Am. Bankr. Inst. J. 12 (December/January 2003).” _Mus,_ page 5. Since the value of Mr. Mus’ property was less than the sum of his mortgage and his exemption, he was entitled to “avoid” the contract judgments. (There were some divorce court orders which were dealt with differently.) So, although the case as to ordinary judgments is not very novel as regards “ordinary judgments”, it is a handy summary of the procedure available through the bankruptcy court. If you have judgments that remain of record against you after you filed bankruptcy, feel free to contact our office to talk about getting them off the public record.
IS BANKRUPTCY A BAD THING?
You will often hear that “bankruptcy is bad”, or that “bankruptcy is a forever mistake”. It is likely that the people who say bankruptcy is bad don’t understand the process. Each bankruptcy case is a little different, and people chose bankruptcy for many different reasons, most of which are beyond their control. Certainly, filing bankruptcy is not something to take lightly, but Congress created the bankruptcy law to help people get a fresh start on their finances. Medical bills are often cited as causing a large percentage of bankruptcies. For many people, unexpectedly losing a job puts them into a financial tailspin. And in the current farming environment, with such low commodity prices, farmers are being pushed into bankruptcy by their lenders. And, unfortunately, marriages end in divorce, and the couple – who now have two apartments or houses on which to pay, with two utility bills, two of everything else, plus driving back and forth for visitation – cannot afford to pay their bills. It is true that bankruptcy will be on your credit record for up to ten years. However, I routinely see people who filed bankruptcy four years ago getting perfectly normal home loans to buy a house because they have been able to rebuild their credit. And, oddly enough, some creditors will offer you credit when you are just out of bankruptcy. They figure that since will you not be able to file bankruptcy again (there is an eight-year period between filing Chapter 7 cases, less for Chapter 13) that it is reasonable to take a chance on you. None of this means you should not pay your bills, if you are able to do so. But if you cannot pay, the law gives you a way to deal with overwhelming debt. Each person’s situation is different, which is why we sit down with you in person to discuss your options. We do not charge for a short initial visit. If you are in financial hot water, feel free to call for an appointment.
SEASON’S GREETINGS FROM SAM CALVERT, ATTORNEY AT LAW
Sam Calvert, Attorney at Law wishes you and your family a wonderful Holiday Season, and a happy, healthy, and peaceful New Year 2019! If you need any assistance from us during this time, feel free to get in touch with us by clicking here.
ANNOUNCING THE NEW WEBSITE
We are delighted to announce the launch of our new website! Our new website provides our existing and prospective clients a simple yet interactive view of our work and the services we offer. Stay tuned to our blog for new ideas! Sign up here so you never miss an update. For any enquiries and feedback, please write to us at calcloud@gmail.com or call us at (320) 252-4473.