FAQ - Baltimore Bankruptcy Lawyer

A common question in bankruptcy is can I keep my home if I file for bankruptcy

LPM Dev — Sun, 07 Aug 2016 07:21:36 +0000

The short answer to that question is maybe. It depends on it you have equity in your and if you’re behind in your mortgage. If there is no equity in your home, which means that the amount that you owe on the mortgage is more than the house is worth and you are current on that mortgage, you’re gonna be able to keep your house in bankruptcy as long as you can keep current on the payments. Now, if there is equity on the home, you may have more of a problem trying to keep it in bankruptcy because the trustee is going to think about selling the home so that he can take the proceeds and use them to pay creditors, so the trustee is going to decide if the amount that you owe on the house plus the exemptions you’re allowed to keep are less than the value of the house. If they are less, then the trustee is really going to think about selling your house and you may lose your home. In which case, you don’t want to go into a Chapter 7 bankruptcy, you want to consider a different approach to your financial problems. Maybe you don’t have a lot of equity in the house but you’re behind on your mortgage. Then, you can use a Chapter 13 case to catch up on the arrears on the amount of money that you owe the lender. You can typically do that over a 60‑month period. That’s one of the big advantages in a Chapter 13 case and sometimes why it’s better than a loan modification where you are uncertain about what the lender is going to do for a year or more.

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My car has been repossessed? Can I get it back if I file for bankruptcy?

LPM Dev — Sun, 07 Aug 2016 07:20:03 +0000

Well, the answer to that question is probably, yes. If the bank or some other lender repossesses your car, it’s because you’re behind in the payments, and they’ve exercised their remedies to take the car back, which is their right under the documents you signed. What you have to do then is before the car is sold at an auction or other private sale, you have to file a Chapter 13 bankruptcy, and at that point, the bankruptcy is still your property and property of what’s called the bankruptcy estate. At that point, you can demand that the car be turned back over to you, and you have to give adequate protection of the lender’s interest in the car, and then under your Chapter 13 plan, you need to repay the creditor the arrears and pay what you owe on the car. Sometimes, if everything is going your way or sometimes, depending upon how long you’ve owned your car and what the car is worth, you can restructure your debt payments on the car to make it more affordable for you, but that’s all part of the Chapter 13 process. The lender can’t sell the car once you file bankruptcy because that would be a violation of the automatic stay.

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Your bank account has been seized by a creditor who has a judgment against you. Can you stop him and get the money back?

LPM Dev — Sun, 07 Aug 2016 07:17:52 +0000

Well, the answer to that question is probably yes. You can file a bankruptcy, either Chapter 7 or Chapter 13, and stay that creditor from seizing the asset, which is called a confession of the asset in Maryland, and applying it to pay down the money that you owe them on the judgment. To do that you have to file bankruptcy before they finalize their rights to collect the money, and then you have to demand that the money be repaid to you, because when the account is ceased that creates a lien in favor of the judgment creditor, and that lien is a property interest that can be set aside in bankruptcy as a preference. Most times the creditor will voluntarily let go of that money and you’ll be able to keep it, but of course you can only keep it if it’s within the exemptions you’re allowed to maintain, but you can only keep it if it’s within the exempt property that you are allowed to retain under the applicable law, either the state law or if your state permits it under federal bankruptcy law.

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I owed somebody money and they wrote it off. Do I have to pay tax on the amount of money that they discharged?

LPM Dev — Sun, 07 Aug 2016 07:14:09 +0000

Well, the answer to that question is maybe. It depends on a few different circumstances. The income that you’re worried about is called discharge of indebtedness income, and under the Internal Revenue Code, that’s considered income to you, which can be taxed. Under the right circumstances though, you can get out from under that obligation. First, if you were insolvent at the time that your creditor wrote off that debt, then you won’t have to pay tax on it; and what you have to do is fill out a schedule with your tax return demonstrating to the IRS that your debts, including the debt that was written off, exceeded your assets at that time. But a much easier and straightforward way to avoid having discharge of indebtedness income is to do it in a bankruptcy case. The Internal Revenue Code says that debts that are discharged in bankruptcy do not lead to the inclusion of that income in your taxable income. That’s why sometimes strategically, you’ll want to file a bankruptcy to get rid of a significant debt rather than negotiate with a creditor to have them voluntarily release the debt, because in bankruptcy, you’ll never have to pay tax on the discharged indebtedness.

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Somebody owes me money in bankruptcy and I have a claim. Is my claim entitled to priority in the case?

LPM Dev — Sun, 07 Aug 2016 07:09:33 +0000

Well, that’s going to depend on the kind of claim you have. Priorities in bankruptcy mean that some claims are going to be paid out of the pot of money available to pay creditors before other claims. Classic priorities are domestic support obligations, or taxes, or employee claims within 180 days before the bankruptcy, or if you’re a creditor and you’ve shipped goods to the debtor within 20 days before the bankruptcy, and you haven’t been paid you’re going to get a priority for that, and there are certain other statutory priorities. The priorities that are set forth in the Bankruptcy Code, they don’t change based upon what happens in the case. Your claim will either fit into that priority or will not fit into that priority, and most claims, unfortunately for the creditor, don’t get priority status, but most claims in a bankruptcy case unfortunately for the creditor, will not be entitled to priority treatment in the bankruptcy case.

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I Have A Little Extra Cash, Should I Make An IRA Contribution Before I File Bankruptcy?

LPM Dev — Wed, 11 May 2016 23:40:06 +0000

The answer to this question is not very clear, because there are many factors that go into whether or not making a contribution to your IRA on the eve of your bankruptcy case is a transaction that would be considered to have been done in good faith. Typically you are allowed to perform what’s called pre-bankruptcy planning before filing your bankruptcy case. This involves arranging your affairs so that you pay as little as possible to the trustee after you file bankruptcy. The concern when you make an IRA contribution is that you’re taking money that would have been available to pay creditors and putting it into a retirement account that is almost universally considered to be an exempt asset that the trustee and creditors can’t reach.

Nevertheless, this kind of planning is usually permitted by the bankruptcy court. However, if there’s a perception that a debtor has been too aggressive in spending their cash or rearranging their assets before they file bankruptcy, the court could find that the filing was in bad faith, or the exemption is denied, or in the worst scenario, that discharge will be denied because you transferred assets within a year before the bankruptcy, with an intent to hinder, defeat or delay your creditors. If that happens, it will likely be a problem without a solution. Proper pre-bankruptcy planning is a subtle and sensitive process, and if it’s not handled property the results could be disastrous.

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Is my paycheck income, or is it an asset?

LPM Dev — Wed, 11 May 2016 23:39:46 +0000

The answer to this question might surprise you. Because most paychecks are delivered into the employee’s hand a week after the end of the payment period, between the end of that period and the time the employee actually receives the paycheck that income to be received actually represents an account receivable for the employee. As a result, that paycheck should be included as an asset in their bankruptcy case. Most of the time it doesn’t matter because the debtor usually has enough room in their permitted exemptions to allow for that upcoming paycheck to be kept without having to give the money to creditors. Also, most trustees really don’t have the heart to force a debtor to turn over their paycheck when they’re struggling to make ends meet. However, some trustees do read these provisions literally and will consider that one paycheck to be an asset of the bankruptcy case that has to be collected from the debtor and paid to creditors. That’s why it’s important to keep a close eye on the exemptions that are available and the timing of the bankruptcy case.

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What happens in my Chapter 13 case when my plan is denied with leave to amend?

LPM Dev — Wed, 11 May 2016 23:39:33 +0000

In many Chapter 13 cases debtors don’t get the plan exactly right the first time around. That’s because creditors haven’t filed their proof of claim yet or the trustee has a different interpretation about the amount that the debtor actually makes and their net disposal income. For these and other reasons, it is a common occurrence that a plan needs to be amended during the course of a Chapter 13 case. When that happens the trustee and the debtor’s attorney agree that approval of the plan that has been filed will be denied but that the debtor and the attorney have leave to file an amended plan within a specific period of time. Sometimes, especially if the debtor is behind on their monthly Chapter 13 payments, the trustee will object to allowing leave to amend the plan and the debtor’s lawyer will have to ask the bankruptcy judge for permission to amend a Chapter 13 plan that can’t be confirmed.

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I Passed The Means Test Can I File Chapter 7 Bankruptcy In Maryland?

LPM Dev — Wed, 11 May 2016 23:36:32 +0000

Even though a debtor passes the means test the U.S. trustee, the case trustee, or even the creditors can review the bankruptcy case and argue that by the totality of the circumstances it would be abuse for this particular high income debtor to discharge all of their debts in Chapter 7. As a result the debtor may be forced into some other chapter of the bankruptcy code that requires some sort of payment to creditors.

Why? The way the means test is written debtors get complete credit for making payments on secured debt. So if the debtor has a primary residence, a vacation house, and expensive cars, then that debtor gets a dollar for dollar deduction for all of that secured debt from the amount of their gross income. If there are enough of those deductions the debtor would find themself under the amount of net income necessary to require them to be in Chapter 13 and that way they pass the means test.

Someone looking at that picture, at the schedules, at the debtor’s income and lifestyle might protest that it’s not fair for the debtor to be able to retain significant luxury items and not pay anything back to their creditors. Under those circumstances, unless the debtor can show some sort of extraordinary circumstances, Chapter 7 relief will be denied and they will have to file a Chapter 13 case.

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What Is Claims Estimation And How Does It Speed Up Maryland Chapter 11 Cases?

LPM Dev — Wed, 11 May 2016 23:36:12 +0000

There’s a procedure under the Bankruptcy Code that’s called claims estimation that’s used when litigation threatens to drag on for months or even years. before the amount of a claim that is owed to a creditor is actually liquidated and becomes a certain amount. That could be a problem because the debtor wants to file a plan of reorganization and circulate the plan to creditors, have the creditors vote (which is based upon the amount of money that the creditors are owed) and then have the plan confirmed so that the debtor can exit bankruptcy. But if one large claim is tied up in litigation, that can delay the process. What you can do under those circumstances is something called claims estimation, where the debtor or some other party can file a motion with the bankruptcy court and ask the judge to give an idea of how the litigation will end for the purpose of voting or for the purpose of an interim distribution. Essentially, the judge is going to estimate the amount of the claim based upon a best guess of how the litigation will turn out.

The claims estimation procedure is not a trial and is not binding on what’s going to happen later at a full evidentiary hearing on the claim, but it does give the litigants a useful idea. It gives them an idea about how the judge may rule later on and in any event it’s going to make life much easier towards confirming a plan in the case.

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