Tag: Exemptions

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Bankruptcy

Assets Seized? Exemptions Are Available Without Bankruptcy

Exemptions are available without bankruptcy

Sometimes clients need to delay fiiling bankruptcy. This delay may result for a number of reasons, including that you want to let certain taxes become dischargeable, you may want to wait until after the preference period has expired, or for some other timing reasons. Unfortunately, if judgment creditors are seizing assets clients feel exposed if they can’t file for bankruptcy. Is there any relief? Yes: exemptions are available under state law, even if you haven’t filed bankruptcy.

Exemptions are created by state legislatures. They represent the property that debtors are permitted to withhold from their creditors even if they’ve lost a lawsuit. Some states are more generous than others, and many states have additional exemptions that are available in bankruptcy. For example, in Maryland, debtors can keep $6,000 from their creditors, but in bankruptcy they’re allowed to keep another $6,000, known as the “wildcard” exemption. But you don’t have to file bankruptcy to claim exemptions.

For example, if you have a bank account that’s been seized and you’re not yet ready to file bankruptcy, you can file a motion with the court asking to apply the exemptions that you’re allowed under state law. The court will almost certainly grant you those exemptions and then allow you to recover that bank account or that other asset as long as the value of the asset that’s being seized is within the value of your allowed statutory exemptions.

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Bankruptcy

Over Exemptions? Let the Trustee be your Friend

Over Exemptions

The client is told she’ll have to pay something to the trustee in bankruptcy, and her heart sinks. But it doesn’t have to be that bad.

Every Chapter 7 client wants a “no asset” case, when a debtor’s equity in his assets is less than allowed exemptions. But sometimes the client’s commissions are just too high, or the car is paid off, or the tax refund is too generous, and there’s no room left in the allowed exemptions.

When this happens, the client should know that the trustee has his own tough choice: try to sell the assets on the open market, or strike a deal with the debtor? For most trustees who fear that their estate may only be worth a few thousand dollars, the ease of selling the assets back to the debtor far outweights the burden, cost and uncertainty of trying to get top dollar for the assets on the open market.

These days, with so many clients still reeling from the real estate boom and bust of the last decade, the debt may have mushroomed to hundreds of thousands or even millions of dollars from homes or investment properties gone bad. Even clients who are eligible for Chapter 13 may choose instead to swallow hard and write a check to the trustee in order to put the mess behind them once and for all.

Clients should take some comfort understanding that the debtor is usually the best buyer for bankrupt assets, and for a Chapter 7 trustee even a bargain sale beats exposing the assets to the open market.

For more information, read Over Exemptions? Pay Cash to the Trustee and Sleep Better.

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Bankruptcy

Lenny Dykstra: A Cautionary Tale of Fraud and Fear

Debtors have options when their assets exceed exemptions. They can file chapter 11 or chapter 13 and make a stream of payments to buy back their property’s surplus equity. They can file chapter 7 and negotiate a buyback from the trustee, or else just release the assets outright. They can stay out of bankruptcy and plan for the day that they can legitimately claim a no-asset case. What they can’t do is refuse to list the assets to hide them from creditors.

Bankruptcy is a powerful device to allow honest debtors to shed their debt and enjoy a fresh start in life. The news is rampant about debtors who hide assets in their backyard, try to sell assets on ebay or, like Dykstra, secrete and sell valuables. Now discovered, Dykstra has plead guilty to bankruptcy fraud and will likely serve up to 51 months in federal prison.

What did Dykstra do? Prosecutors say he hid, sold or destroyed more than $400,000 worth of items without permission of the bankruptcy trustee. Court documents show Dykstra said he put an oven, sconces and chandeliers into a storage unit, but prosecutors said he actually sold the items for $8,500. He also hid baseball gloves, balls, bats and other memorabilia from the bankruptcy court and creditors and sold them last year for about $15,000. So, what did prosecutors prove? After a career of World Series glory and millions of dollars, Dykstra threw it all away for just over twenty thousand dollars.

Many debtors hide relatively minor assets from the trustee not so much out of greed, but more out of fear: fear of impoverishment, fear of losing their former elevated sense of themselves, fear of losing control. What they find is that the cost of this fear is usually far greater than the value of the assets they secretly keep.

Prosecution for bankruptcy fraud is rare, but losing a bankruptcy discharge is not.  Complete disclosure of assets and debts, income and expenses is the cornerstone of the bankruptcy world. As Lenny Dykstra has sadly learned, the meager profits of a fraudulent bankruptcy case rarely equal the complete relief enjoyed by the honest debtor.

Lenny is competing for the “World’s Greatest Celebrity Debtor” in March Madness: Bankruptcy Brackets.

Categories
Bankruptcy

89 Year Old Vet Forced From Home Because Of Poor Planning And Dishonesty

An 89 year old WWII vet hid $66,000 in gold and silver in his backyard, didn’t tell his lawyer about that and then filed for bankruptcy. His home, owned free of all secured claims other than a few minor judgment liens, is to be sold and he is forced from it. This story is creating a national outcry, as described in this article. The debtor’s wife died recently from cancer and the debtor too has cancer. Due to his dishonesty the debtor is losing his home and his bankruptcy discharge. It’s an awful story about a tragedy that didn’t need to happen.

Honesty is the lynchpin of the bankruptcy system. Discharge and protection from creditors are powerful privileges, made possible by a debtor’s complete and accurate disclosure of his assets and debts, income and expenses. When a debtor refuses to disclose assets there is a subversion of the process. When this vet lied on his schedules, he gave up any right he had to receive the benefits from the bankruptcy system.

In truth, this debtor should never have filed his case. In the first instance, he has a $250,000 homestead exemption under Montana law. Had he not committed perjury on his bankruptcy schedules he never would have had to lose his home. He could have lived out the rest of his life peacefully.

As far as the creditors who were hounding him for the $109,000 in credit card and medical bills? He could have settled with the loudest of them by liquidating small amounts of the $66,000 and paying them accordingly. I believe he could have transferred the money to a trusted relative and then in three years filed a bankruptcy case. This is the kind of careful planning that is essential any time a person is considering a bankruptcy case.

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