Chapter 7 and Inheritances

What happens if, after you file for a Chapter 7 bankruptcy, a parent, spouse or other family dies leaving you some money or other items of significant value? Does this affect your bankruptcy? Are you entitled to keep the inheritance or must you turn it over to the Trustee or your creditors? The answer to these questions is, of course, it depends. What does it depend on? Let’s discuss.

You file for a Chapter 7 bankruptcy. You are a typical “no asset” case, meaning you don’t have any assets to be liquidated and distributed to your creditors. You may or may not own a home, but even if you do, the debt on it exceeded your equity or the equity in your home (and other assets) was within the exemption limits.

You filed your Petition. You may or may not have had your 341 Meeting (Meeting of Creditors) and you may or may not have received you discharge. Your bankruptcy may or may not have been closed by the Court. According to Section 541 of the Federal Bankruptcy Law (11 U.S.C. 541), if you receive or become entitled to receive an inheritance within 180 days of the filing of your bankruptcy petition, then the inheritance is part of you bankruptcy “estate.”

In practical terms, what that means is that is anything you inherit falls outside of any of your exemptions, the Trustee most likely will claim the inheritance and distribute it to your creditors.

The good news is that if your right to inherit is acquired 181 days or longer after you filed your bankruptcy petition or the amount of your inheritance is within your exemptions, you may be able to keep everything you inherited. As always, you should contact a bankruptcy lawyer in your area for specific advice tailored to your individual circumstances.

I can’t file for bankruptcy – I’ll lose my house (car, boat, etc.)!

 

This has got to be the #1 misconception I hear on an almost daily basis from people. They often refuse to consider filing for bankruptcy relief because they believe, often incorrectly, that they will lose their home or car. This is not necessarily true and one should not refuse to consider bankruptcy as an option under the (oft-mistaken) belief that it always is true.  Let me explain.

For the purposes of this discussion, I am going to focus on the more frequently used chapter of bankruptcy law – Chapter 7. This is the chapter under which you get rid of your dischargeable debts (typically).  When you file for relief under Chapter 7 of the Bankruptcy Code, you (referred to as the ‘debtor’), are asking the Court to wipe out your unsecured debts and perhaps some or all of your secured debts as well.

Since the economy has taken such a big downturn, so many home mortgages that once were secured by the property no longer are secured, at least in part. For example, a home that used to be worth $400,000 that had an outstanding mortgage of $300,000 had a completely secured loan. There was $100,000 in equity in the house. The entire amount of the mortgage owed to the lender was secured by the value of the property. But….

Fast forward to 2011 . That same home now is worth only $200,000, yet the debtor still owes $250,000. That debt is partially unsecured since the debt exceeds the value of the property by $50,000 and there is no equity in the house. In fact, there is what is sometimes referred to as ‘negative equity’ or the house being ‘underwater.’ Essentially, you owe more than the house is worth. The difference between those 2 values is the amount by which your house is underwater.

Either way, if the equity in your home is less than the exemption amount you are entitled to use in your jurisdiction and you can afford to get and keep your house payments current, you likely get to wipe out your dischargeable debts AND keep your house. Isn’t that a relief?

Can I keep my tax refund if I file for bankruptcy?

Yes…. maybe. If you are planning to file for bankruptcy and have gotten (or expect to get) a tax refund, you should plan carefully so you can keep all or part of that refund.

If possible, you should file your tax return and get and spend your refund on permissible purposes prior to filing. Your refund is an asset, whether it’s cash in hand or you have the right to receive it in the future. If you wait until after filing for bankruptcy to file your return, or do not get your refund until after filing for bankruptcy, the Trustee appointed by the Bankruptcy Court may be able to take all or part of that refund to pay your creditors.

All is not necessarily lost, though. If the amount of your refund can be claimed in whole or in part as an exempt asset under the bankruptcy laws, you still could be able to keep the portion of that refund that is exempt.

Whether you should file for bankruptcy before or after filing your tax return or receiving your refund, what the “permissible purposes” you can spend your refund on and whether or not all or part of your refund is exempt depends on your particular facts and circumstances. You should speak with a bankruptcy attorney in your area for answers to these questions and more about your particular circumstances and how they impact your rights and obligations under the bankruptcy laws.

Can I file for bankruptcy and keep my house?

Maybe. That may seem like a typical lawyer answer, but it is the most accurate one. Most outcomes are dictated by a combination of the facts as they are applied to the law. This question is no different. Sometimes a person can file for bankruptcy and keep their home. Sometimes they cannot. The answer depends on a variety of facts that change from case to case. Some of the factors that determine that outcome are the following:

1. Do you have a mortgage?
2. Are you current in your mortgage?
3. Do you have any other mortgages, lines of credit or other liens against your home?
4. If you are not current on your first and any other mortgages or loans secured by your house, can you get current if you do not have to pay your other, unsecured debts?
5. Is your home in foreclosure? If so, has it already been sold at the Sheriff’s Sale / public auction?
6. How  much equity do you have in your home?
7. Do you own your home with someone else? If so, what is that person’s relationship to you?
8. Do you have all insurance required by the mortgage or installment contract?
9. Home loans that are not reaffirmed are no longer owed, but to keep the home the debt must be paid in a timely fashion.*

*Some states or lenders require reaffirmation of the loan to keep the vehicle. This removes the loan from the bankruptcy and the debt then survives the discharge.

The long and short of it is that if you are considering filing bankruptcy and own a home you want to keep, you should consult a knowledgeable bankruptcy lawyer in your area. It may require some pre-bankruptcy planning to accomplish your goals and preserve your home.

Local paper interviews Attorney Laura Mann

The West Milford Messenger interviewed me last week. The article came out in Friday’s (yesterday’s) paper. I think they did a great job on the article. What do you think? Check it out and let me know!

http://www.strausnews.com/articles/2010/08/20/west_milford_messenger/news/13.txt

Is there life after bankruptcy?

YES! At least there can be, as long as you see it for the opportunity it is and make the most of it.

Many people fear filing bankruptcy, thinking their lives are over if they do. They think they never can get another loan, never will be able to buy a car or a house and fear society will shun them. None of this has to be true.  On the contrary, bankruptcy can give you a fresh start and the freedom to move forward, turning your financial life completely around.

I recently heard a story from a business associate. He has a very good friend who found himself facing hard times. He was being crushed by overwhelming and debilitating debts and about to lose everything, at least all of his assets – house, car, money. He filed for bankruptcy and those debts were discharged. This freed him from his insurmountable debt, enabling him to focus on turning his life around and ensure he did not get into that same financial position again. Now he is a multi-millionaire who, if he manages his finances and investments well, always will be able to provide for himself and his family and have all the luxuries life has to offer, forever free from the fear and stress that comes with debts you can’t afford to repay.

Most people see bankruptcy as a disaster and feel their lives are ruined if they end up needing that relief. That is not so. Bankruptcy can provide you with relief from your debts, which can allow you to press the reset button on your finances and take back your future. It provides the opportunity for you to start over and build the life you and your family deserve.

Life Happened to Me

This is my first blog post ever. This post is not going to be particularly substantive. I wanted this to be more of an introduction and an explanation of why I started it and what I intend it to be about.

What does the title mean? Well, recently there have been lots of discussion about cause and effect, especially relative to our economy and more particularly, people’s individual circumstances.  So many people right now have so much debt, and they can’t pay it, for one reason or another.  People are getting divorced, who never thought they would. Broadly speaking, people find themselves in circumstances they never imagined they would be in – facing bankruptcy, repossession, foreclosure, divorce, in a physically or emotionally abusive relationship…

Many times, people cause the circumstances of their lives. But sometimes, life just happens to us.

That is the focus of this blog – those circumstances where, through no fault of our own, life just happens. More importantly, the bigger focus will be on the legal implications of when life happens, and what our legal options and remedies are in those circumstances.

I appreciate and welcome your input, feedback and suggestions. Thank you for reading.