Now that you Have Your Bankruptcy Discharge: 10 (actually 11) Things to Do to Make the most of it!

 

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

So You Finally Got that Bankruptcy Discharge
Congratulations!
You’re on your way to a fresh start.
Now you’ve got more to do? See why below:
1. Check debts that didn’t get discharged: Child or spousal support, student loans, or taxes for years for which you did not file a return (unless the IRS exceptions are met) are not dischargeable in bankruptcy. The discharge order will not tell you which debts survive and which do not, nor will the Court provide this information so you may continue to require the services of a knowledgeable bankruptcy lawyer to help you to assess this.
2. Verify lien balances: The discharge eliminates your personal liability for dischargeable debts; liens survive. If you plan to keep a house or car encumbered with liens, find out what you owe and resume payments. Otherwise, the creditor can enforce its lien by foreclosure or repossession.
3. Reset Banking Priveleges: Online banking and automatic bill pay may have been disabled while you were in bankruptcy but can be restarted at your request now..
4. Do Some Record Keeping: Save your bankruptcy papers and keep a copy of your discharge paper handy: You’re likely to encounter efforts by buyers of to collect debts that have been discharged in your case, or so called “zombie debt”. You need to be able to show that the debt was discharged in your case. Creditors with notice of the bankruptcy, and likewise those who buy up their worthless accounts and try to collect on them, were discharged (unless they fall within Rule #1 above). The services of a knowledgeable bankruptcy lawyer may be necessary to stop these collectors, or even under some circumstances to sue them for unfair practices and potentially turn the tables by collecting from them, including your legal fees.
6. Join a credit union: Credit unions are owned by their members. They are in the business of extending credit to members (hence the name, “Credit Union’: “Credit” stands for what they do and “Union” for the members they lend to) and the profits from such loans flow to members. Rates are almost always lower and terms better than the commercial banks, savings and loans and private lenders. Start out with a savings or checking account. Sooner or later you will probably need a car loan or even a home loan. Joining now will give you the longevity that adds credibility to a credit union.
7. Maintain insurance coverage: Even though you may have elected to surrender property through the bankruptcy that still stands in your name, make sure that you are insured for liability. Liability insurance covers you for claims of anyone injured on your property. Electing to surrender property doesn’t take you off title until someone else goes on title. Post bankruptcy claims arising from property you’re trying to offload can potentially ruin the fresh start.
8. Get a credit report: Several months after your discharge, check your credit report to make sure all discharged debts reflect a zero balance. The bankruptcy history can properly remain on your credit for up to 10 years, but you are entitled to a showing that you now owe nothing on all discharged accounts (but see Factor #1 above) This is crucial because your debt to income ratio (“DTI”),one of the primary if not THE primary factor lenders look to in extending credit. Getting erroneous entries corrected may be facilitated using the services of a knowledgeable bankruptcy lawyer. You are entitled to a truly free credit report annually from each of the 3 major credit bureaus which you can get by clicking here and credit experts recommend that you check it at least once a year.
9. Budget and Learn to Spend Within Your Means: Studies have shown that people who go bankrupt only do so ONCE in their lives. WHY? Well debt relief is only one side of the coin. On the flip side are the lessons people take from bankruptcy. So, like these now money wise people, take advantage of the fresh start that bankruptcy has provided, and make lifestyle changes so that it does not happen again. Follow Rule # 10 below and stop using trade credit (AKA: Credit Cards). Get a debit card instead and be you own bank, there is no interest that way!
10. Use credit Wisely. Once Lenders see that you have received a discharge, they may well start sending you “preauthorized” credit card applications. However, if you start to load up on credit again, you will soon be right back where you started. So the rule of thumb is to have just one credit card that you keep in a drawer somewhere for emergencies; If you do use it, make it “free credit”, that is: plan to pay it all back in the same month as incurred so that you are not left carrying a balance ant interest. That way you are living within your means. See Rule # 9 above. The only other credit to use generally speaking is for major purchases such as car or home loans.
11. Build up a reserve for emergencies and start saving again. Set up automatic savings Bankruptcy probably brought home to you how little net worth you have and how thin the safety net is. Arrange for automatic savings for both an emergency fund and for retirement.
Since you no longer have trade credit, it will be easier to devote some of your income to savings…follow the rule “Pay yourself first”. Experts recommend a reserve of 6 months salary and at least a 10% savings rate. Contributions toward your IRA or 401K at work count as you can withdraw these funds (with penalty if applicable) in an emergency.
If you follow these rules, you are more likely to take full advantage of your fresh start and not ever be back to see your friendly local bankruptcy lawyer!

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

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Z is for “Zealous”, How far can your Lawyer go in representing you in Bankruptcy?

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

“Have Gun, Will travel”

Have_Gun%E2%80%93Will_Travel

Richard Boone as Paladin

Z is for Zealous.

Subsection 2 of the preamble to the Pennsylvania Rules of Professional Conduct: (“RPC”) “A Lawyer’s Responsibilities” states thatas advocate for his/her clients, “a lawyer zealously asserts the client’s position under the rules of the adversary system”.

Sounds simple enough but of course, the RPC nowhere gives any guidance as to the meaning of the word “Zealous”. Encarta defines the term simply as: “actively and unreservedly enthusiastic”. It is a sort of “boundary” term in the law in that we come to understand what it means more by understanding what we as lawyers serving bankruptcy clients can and cannot do in its name.  So let’s approach it from that angle.

A prerequisite for zealous representation is competence: RPC Rule 1.1 states that a lawyer shall provide competent representation to a client. Competent representation requires the legal expertise, skill, thoroughness and preparation reasonably necessary for the representation. In the bankruptcy context this means that a lawyer must have studied and understood the aspects of the Bankruptcy Code that are implicated in any representation.  Even if this requirement is met in general, should he or she not be well versed in a particular sub-area, there is a duty to seek the assistance and mentoring of another attorney who has the requisite skill set. For example, the implications of divorce for bankruptcy are so complex and localized/varied to the laws of each of the several United State as to be beyond the ken of most bankruptcy lawyers and equally so for most divorce specialists…cross disciplinary expertise must often be sought to answer these questions.

However, it is clear that the lawyer who is competent is not thereby necessarily zealous.  Zealous representation, which is not defined in the RPC, serves for most as the benchmark for excellence. Perry Mason may not have had all it its legal points correct but it does stand in the eyes of the public as the more dinified epitome of this attribute. For those who consider law practice more a profession than a business, it evokes the image of a crusader for justice. To others, however it suggests a fanatical, “no-holds-barred” advocate, willing to do anything for a client (for a fee). A hired gun… Have gun, will travel. 

Thus, being overly “zealous” clearly can land a lawyer in deep trouble.  Some attorneys have attempted to use it to justify unacceptable conduct even though it may have disciplinary or malpractice liability consequences (or both).  For example, we bankruptcy lawyers frequently are asked clients for advice on what might be called “pre-bankruptcy asset protection planning.”  While the ethical dangers associated with advice in this area are very real [See, for example, Ohio Rules of Professional Conduct (“ORPC”) Section 8.4(c), prohibiting a lawyer from engaging in conduct involving fraud], the consequences can reach beyond the realm of ethics and involve actual criminal liability for both transgressing client and counsel. This will reach to knowingly assisting a client who wishes to perpetrate a fraud on the bankruptcy court.  See my blog on the topic of Bankruptcy Fraud for more information. For example, in a recent West Virginia case a bankruptcy lawyer was criminally indicted for advising his clients to transfer a mobile home to a relative before bankruptcy so as to attempt to “remove” the asset from the reach of the Trustee in Bankruptcy.

Thus while lawyers clearly have an obligation to advance their clients’ cases with competence and enthusiasm, they also have an obligation as officers of the bankruptcy court they serve to refrain from knowingly counseling or assisting a client to commit a crime or fraud. RCP 1.2 (d).

Picture credit: Wikpedia:  http://en.wikipedia.org/wiki/Have_Gun_%E2%80%93_Will_Travel

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  


I also provide Mortgage Modification Services.

©Christopher C. Carr, Attorney at Law 2012, All Rights Reserved

Picture credit: Wikpedia:  http://en.wikipedia.org/wiki/Have_Gun_%E2%80%93_Will_Travel

“R” in Bankruptcy is for Rental vs. Chapter 13 Home Retention: A Tax Benefit Analysis

  r^36 by mag3737 is for Rental vs. Home Retention

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

Deciding whether to keep your home or not  is not always a simple “Rent/bankruptcy vs. “Keep/no bankruptcy” decision: if you have regular income  and otherwise are eligible to file a Chapter 13 Bankruptcy you should also consider keeping the property in a 13. In a  13 you still have to pay principal and interest and escrows, if any but the 13 Plan, once confirmed by the Court, will allow you to hang on to this most precious of assets and pay the arrears in the plan over a 3-5 year period instead of selling at a loss and in many cases owing the deficiency to the lender.

The decision is not an easy one and there are almost always emotional ties to a home as well.  But one thing is for certain: you have to pay taxes and anything that saves you a dollar in taxes is like a dollar in your pocket right?

Some lawyers and others will, in “knee jerk” fashion, tell you that since your house is under water you should short sell and “find another place to rent”.  However, any analysis which does not “add back” into the equation the net present value of the tax advantages of home ownership at your marginal tax rate is telling you only half the story.  Renting has little or no tax advantage, mortgage payments do. (Same for state and local taxes that you pay or are escrowed by your lender)  Let’s say your mortgage is $950 a month you are in the 25% bracket for example and your property taxes are $3,600 a year or $300 a month, then the ownership “savings”  is computed as follows:  ($950 + $300) x .25 or $312.50. Another way to say it is that the government is subsidizing 25% of your ownership cost under these assumptions (not quite because as I explain below, we also have to consider insurance in the computation).

The pragmatic way to analyze this as they taught us in MBA School, is to compute  your net after tax cost of home ownership and ask yourself the question: CAN YOU REALLY FIND EQUIVALENT RENTAL HOUSING FOR A PRICE AS GOOD  or BETTER THAN YOU ARE PAYING NOW?  Let’s look again at the example I have been exploring above.  To get the full cost of ownership you have to add in home insurance (which is not tax deductible). Let’s say that is another $75 a month. So your fully loaded cost (assuming you live in a place with no association fees) is (950 + 300 + 75)-312.50 = $1012.50.  Note when you figure in the tax savings in it brings the overall cost of home ownership down to only a few dollars more than the amount of your  mortgage payment.  So ask yourself, using your actual costs and tax bracket instead, can I find adequate rental housing for that net figure (in my example $1012.50 a month)?  If not, you might want to consider a Chapter 13 to allow you to keep your current residence.

Of course, the above analysis while a good starting point, it is just one of the factors to be considered. A couple of examples: if you can strip out your second mortgage in a Chapter 13 because your home is completely under water as to the second (meaning that there is not enough equity coverage for the second and any homestead or other exemptions that are applicable in your jurisdiction), that will further reduce your ownership costs by the amount of the monthly payment you make on the second now. And if you can get rid of your credit card debt to boot, you are that much more ahead (assuming you are still paying on them).  In a 13 keep decision, these things also have to be weighed against the rental advantages. Also consider any costs of sale and the effects of the deficiency judgment (see above) that you might incur!  See my article in this series called: J is for “Judgment” Lien and its Impact upon Homeowners for more information.

One factor that may seem to favor renting is the negative impact that a decision to go bankrupt will have on your credit.  Financial advisers warn that foreclosure will leave a “strong negative” on a credit report for as long as seven years from the date of discharge (which can be longer than 5 years from the date of filing in a Chapter 13), though the impact on a borrower’s rating declines over time. But remember that if you are far behind on you payments and/or your credit cards your credit has already been affected… and, a good bankruptcy lawyer can show you ways to rebuild credit even while in a Chapter 13 bankruptcy plan period (3-5 years).

Whatever your decision may be, I wish you luck.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

Other Attorneys Blogging on the Letter R Include: .

  • New York Bankruptcy Lawyer, Jay S. Fleischman on R is for Redemptions.
  • Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell on R is for Reaffirmation Agreements
  • Bay Area Bankruptcy Lawyer Cathy Moran on Retirement.
  • Colorado Springs Bankruptcy Lawyer Bob Doig on Repossession.
  • Kona Bankruptcy Lawyer, Stuart T. Ing also on Repossession

©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved.  See Disclaimers.

Photo by mag3737.

P is for Property of the estate: The key to when a lien can be stripped by the bankruptcy court.

p from toofar north

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

When you inherited that property from your father who died in Texas, it had a second lien which was completely under water and impairs an exemption but you had no liability for the underlying home equity loan so it can’t be stripped in your Chapter 13 bankruptcy, right?  Wrong. Let’s see why.

To be “strip eligible”, a secured claim has to be an “allowed claim”. Section 506(a)(1) of the US Bankruptcy Code provides:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property…”,

The relevant inquiry then for lien stripping is not does the “debtor” owe the debt but does the estate have an interest in the property to which the lien attaches?  For that to happen all that is required is that the subject property be in the estate created when the debtor declares bankruptcy. Here are 3 examples to better illustrate the point:

  1. Simple Inheritance Scenario. Suppose the debtor inherited a parcel of real property from her deceased father subject to a lien in favor of his creditors. In the debtor’s bankruptcy case, a lien securing the father’s promise to pay the Bank of Armadillo is just as strip eligible as if the debtor rather than her deceased father were herself the borrower. As long as the property which is collateral for the debt is properly before the court, the lien is subject to stripping.
  2. Co-Beneficiary Scenario. Take the same case but now we have two debtors, each a co tenant and heir with a sibling in the same inherited house (a duplex). Both halves of the house are subject to the BOA lien. If only one debtor files bankruptcy, only that co-tenant’s interest in the house is property of the estate, and the court can only strip the lien from the half of the property because only half is in the bankruptcy estate.
  3. Husband & Wife (certain states only) Scenario. Somewhat the reverse fact pattern is a very common one in Pennsylvania, where I primarily practice law. This can happen for example because the original owner, say the wife, upon marriage deeds the property into husband and wife form, which under Pennsylvania is called “tenancy by the entireties” and serves to protect the marital property from the creditors of the individual marriage partners. The husband is now on title to the property while the wife, the original owner, remains the only one liable on the note. If both spouses file for bankruptcy,, the real estate comes into the bankruptcy estate. Once again, it’s strippable simply because the collateral is property of the estate without reference to the locus of the debt.

Because bankruptcy is essentially “all about the debtor and his or her debts”, it is a common mistake to overlook liens that could have been stripped because the debts do not happen to “belong” to the debtor. This then is another illustration of how competent counsel, by properly identifying and claiming this benefit for you, can save you far more than any legal fee you might have to pay.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

Other Attorneys Blogging on the Letter P Include:

  • Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: P is for Plan.
  • New York Bankruptcy Lawyer, Jay S. Fleischman: P is for Pay Advice.
  • Colorado Springs Bankruptcy Attorney Bob Doig: P is for Preferences.
  • Maui Bankruptcy Attorney, Stuart Ing: P is for Preference.
  • Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy: P is for Pride.
  • Cleveland Bankruptcy Attorney, Bill Balena: P is for Phone Call
  • Wisconsin Bankruptcy Lawyer, Bret Nason:  P is for Property of the Estate
  • San Mateo Bankruptcy Lawyer, Jeff Curl:  P is for Priority Debt
  • Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein:  P is for Privacy
  • Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange:  P is for Payment

©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved.  See Disclaimers.

Photo by Too Far North

“W” is for Wages are not always safe from creditors in Pennsylvania

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

Single W by CarbonNYC age garnishment is not legal in Pennsylvania. So your paycheck is safe and sound, right?

Your employer has just deposited your paycheck into your bank account and you write a check to pay your mortgage, “knowing” there is now plenty of money in there to cover it and nobody can get it. But the check comes back “NSF”. It bounced and for the life of you, you cannot figure out why!  But then there’s that innocent little check you cashed a while back for $1.19 and now it’s coming back to haunt you. Read on to see what happened…

Well, while your wages may be safe from direct garnishment this may be cold comfort indeed because, your bank accounts are not protected in this way.  In Pennsylvania, a bank account levy is allowed under Section 9607 – Title 13 – COMMERCIAL CODE  only after judgment is awarded.  But once armed with a judgment your creditors can take your entire bank account – if they can find it. If a legal judgment has been entered against you in Pennsylvania, the holder of that judgment can satisfy it in whole or in part with money in your bank accounts simply by obtaining a court order against your bank.

And how can creditors gain access to this information in this day and age of “privacy protection”? Well one way is through you via what is called “discovery in aid of execution”.  That is, under the PA Rules of Civil Procedure you can be required by subpoena to submit to questioning under oath regarding your assets and accounts.

But most collectors cannot be bothered to go through proper legal channels…that costs legal time and money. Instead they will resort to various underhanded schemes to find your accounts. One of the most successful routines they use is to trick debtors into cashing small checks they send them, say, for $1.19 (see above).  Accompanying the check will be a fake letter saying “we made an error in your account in your favor and so here’s $1.19 back”. When you cash the check the collector will see a copy of it in his bank statement and he can tell exactly where you do your banking.  That is enough to allow him to get what is called a “Seizure Order” against that bank. You may never even figure out how he got you but for a mere $1.19 (which he just tacks back onto your account) he typically seizes several hundred dollars. (The typical collector’s commission is between 40-50% of every dollar he collects.) The lesson is simple – don’t cash small checks your creditors send you.

Here is another far more important lesson: If you get served with a debt complaint, you definitely want to get a lawyer involved right away not only because not only can he defend you against it (either with a bankruptcy filing or outside bankruptcy) but also because a creditor judgment (that’s the key word of this blog if you haven’t guessed) can ALSO result in a lien against your home which will have to be satisfied before you can sell, whether or not you later go bankrupt. See my blog on the complex topic of Liens.

Now back to the exciting conclusion of this blog: except for a few minor exceptions such as the Commonwealth’s  statutory exemptions and payments received from Social Security, the entirety of all of your bank accounts may be subject to garnishment by a creditor who has obtained a judgment against you. And this applies to your hard earned wages as well, once they have been paid to you, as they become available to garnishment once they are on deposit in your personal checking account.It is important to recognize (i) that this is not a one shot deal, it can happen again and again until the debt is satisfied and (ii) that the one sure way to protect your bank accounts and the wages on deposit in them is to avail oneself of the automatic stay in bankruptcy to protect your assets. The stay is one really important reason why people in financial distress opt to seek the protection of the bankruptcy court!

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

 

I also provide Mortgage Modification Services.

Other attorneys playing the bankruptcy alphabet game:

  1. Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
  2. Bay Area Bankruptcy Lawyer Cathy Moran
  3. Northern Ohio Lawyer Bill Balena
  4. Jay Fleischman New York Bankruptcy Lawyer

©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved.  See Disclaimers.

L in Bankruptcy is for Long Term Payments, Chapter 13 Plans

L  By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

Tel: 610-380-7969 Email: cccarresq@aol.com Web: westchesterbankruptcyattorney.org

This article deals with situations where debt repayment extends beyond the 3-5 year period allowed in a Chapter 13 and the end of the automatic stay in bankruptcy and some things that can be done about it.

The typical scenario would be where a homeowner uses a Chapter 13 to repay the arrears on their mortgage. The law states that while the arrears must be paid 100% over the course of the plan, payments on the mortgage may extend beyond that time. How could it be otherwise because almost all mortgages have a life of 30, 40 even 50 years, far longer than the maximum bankruptcy plan?

But what about a homeowner who also has non dischargeable taxes? They too can be “scheduled” and payments made over the course of the plan…but when the plan ends so does the “automatic stay” and the tax creditors will STILL be there waiting to get their money. And the IRS has an array of weapons at its disposal. For example, unlike common creditors, it can slap a lien on your home without even having to file suit to do so. And such liens can be more than just a nuisance, especially when it comes time to sell because then the title company will not issue a policy of title insurance until the lien has been paid thus in effect giving the IRS a second bite at the apple. You can try negotiating a lower tax with the Service by submitting what is called an Offer in Compromise after the bankruptcy is discharged but not everyone can qualify and a 20% nonrefundable down payment must be submitted with your offer on IRS form 656. If the IRS accepts the offer, it will want the remainder in 5 or fewer monthly installments.

But luckily there are other alternatives. The law allows a tax debtor to file under more than one chapter in bankruptcy in sequence. Many people wrongly believe that there is a waiting period after a discharge before another bankruptcy can be filed whereas the law actually reads only that you cannot receive a discharge in the second bankruptcy. However, as to non dischargeable debt, it really does not matter.

There are 2 scenarios where this strategy can be used with good effect. Suppose you file Chapter 7 to wipe out all your qualifying dischargeable debts and taxes. When the Chapter 7 is completed, some non-dischargeable taxes remain, but you could file under Chapter 13 for a repayment plan to deal with the balance. This strategy is called: “Chapter 20” (7 + 13). This stops interest and penalties.

Likewise, a “Chapter 26” (13+13) may be a way to spread paying a tax debt over a longer period– up to ten years (i.e. 2 5 year plans). This means filing one Chapter 13 and completing it, and then filing a second Chapter 13 for remaining debts. This also stops interest and penalties and most importantly liens will not attach to your property because of the automatic stay. If done quickly enough, this can be accomplished before the IRS starts up collection activity again.

As always, it is best to seek the advice of a competent bankruptcy attorney as this is a complex timing sensitive legal area.

©Christopher C. Carr, Attorney at Law 2009, All Rights Reserved. Photo by Chrisinplymouth.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

Others who have actually reached the letter L in the Bankruptcy Alphabet include:

St. Clair Shores MI attorney, Kurt OKeefe, who speaks the truth when he says that L is for Lie, the Big Mortgage Industry

Cleveland Attorney ( oh how I miss beautiful Cleveland on the shores of lake Erie where once I lived), Bill Balena ensures us that L is for Life Insurance

New York & California Bankruptcy Lawyer, Jay S. Fleischman who attaches great relevance to L is for Lien

Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell who lays it all bare for us in L is for Lien Stripping

Honolulu Bankruptcy Attorney Stuart T. Ing also peels back the layers in L is for Lien Stripping

Marin County Attorney, Catherine Eranthe enlightens us in L is for Lift the Stay

Colorado Springs Attorney Bob Doig has gems of wisdom on why L is for Luxuries

Metro Richmond Consumer Attorney, Mitchell Goldstein who is solidly behind L is for Liquidated

Allen Park, Michigan Bankruptcy Lawyer, Christopher McAvoy enumerates how L is for List It Or Lose It

J is for “Judgment” Lien and its Impact upon Homeowners.

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

1.      What Is a Judgment vs. a Lien and how do they arise in Real Estate?

When you owe money and are unable to pay, the creditor, unless it is the IRS, must take you to court before levying upon your back accounts or garnishing your wages. Typically the creditor will sue you in municipal court or in common pleas court in Pennsylvania if the amount of the claim is larger than $12,000 (up to 15,000 for Philadelphia County real estate matters). When a lawsuit is initiated against you, you will be served with a Complaint. If you do not respond (by answer or other responsive pleading) within a set period of time or appear at the hearing set for your case, a default judgment will be issued against you. This judgment will be recorded by the court.

In Pennsylvania, a judgment is an automatic lien on real property owned by the defendant in the county in which the judgment is located. The lien of a judgment lasts for 5 years, 42 Pa. C.S.A. Sec. 5526, and execution must be issued against personal property within 20 years after entry of the judgment, 42 Pa. C.S.A. Sec. 5529. In addition, via a mechanism called a writ of execution liens can be transferred to other counties in Pennsylvania where the debtor owns property. A lien on real property means that the debtor cannot sell the property until all liens are paid. However, a judgment lien can only be arise in real property. If the debtor does not own real property within the applicable jurisdictional limits, the judgment lien cannot attach to anything and all the creditor has is a recorded judgment. What is the use of this?  Well, the creditor can then use this judgment to pursue garnishment where available or levy upon your Pennsylvania bank accounts. However, wage garnishment is prohibited in Pennsylvania except for certain obligations such as support.  It is critical for homeowners to respond to all lawsuits by bringing them immediately to the attention of their attorney as in this way an ordinary unsecured debt such as a unpaid credit card debt can become a lien against your home. (See final comment below.)

The filing of a bankruptcy will stay a foreclosure and the underlying debt can be discharged in a bankruptcy except for certain obligations such as domestic support obligations (DSO’s) which are non-dischargeable under Section 11 USC. 523(a) (5) of the Bankruptcy Code. (But see my blog on the effects of a Chapter 13 bankruptcy on DSO’s for further valuable information for homeowners facing support issues.) Even if these steps are taken the lien of the prior judgment will typically continue (in some some cases they can however be completely or partially removed as discussed below) and may cause difficulties for homeowners. To avoid the continuing negative financial consequences they can create, the judgment will need to be removed where possible.

2.      REASONS TO HAVE A LIEN/JUDGMENT REMOVED:

When a creditor who has obtained a judgment but the debtor subsequently files a bankruptcy, the debt underlying the judgment is discharged through the bankruptcy. However, the lien of the judgment itself will remain and will be effective against any real property in the county and will interfere with the sale of the property. A lien on real property means that the debtor cannot sell the property until all liens are paid. Understandably, a title company will refuse to clear the title for a home when the property has a judgment lien against it until the title insurer receives proof that the lien has been satisfied or discharged and this can defeat or delay a sale of the property. A lien can of course be satisfied through payment but a typical homeowner files bankruptcy precisely because they can no longer pay their mortgage.

Even if you do not own real estate, while no creditor can collect upon the judgment, it will still continue to exist on the county record. The judgment will be reported to credit bureaus as active, thus continuing to impair your credit for up to 7 years, which is the length of time a judgment can remain on your credit.

3.      WHICH JUDGEMENTS AND LIENS IN REAL ESTATE MAY/MAY NOT BE DISCHARGED BY BANKRUPTCY AND HOW IS THIS DONE?

Certain types of debt cannot be discharged through a bankruptcy. For example, back child support cannot be discharged through a bankruptcy.

The lien of a judgment which was entered before the bankruptcy was filed will appertain against real property of the debtor for at least 5 years after entry of the judgment in the county. (See above).  However, to the extent the lien impairs an exemption the lien will be subject to removal once the debt has been discharged.

The homestead exemption in bankruptcy applies to property used as your residence. As of early 2012, the federal homestead exemption is $21,625 (if both spouses file, this is doubled). State homestead exemptions vary a great deal. In some states, like Florida, there’s no limit, while in other states, like New York, the limit is $50,000 to $150,000, depending on where in the Empire State you reside.  In Pennsylvania, for example, the federal exemption may be elected. So, if you have a house with $50,000 worth of equity you are entitled to a federal exemption with your spouse of $43,250.00. If you only owe $50,000 on the property, you can petition the court and have the judicial lien removed up to the exemption amount.  The lien for the remaining $6,750 will remain on the books. Unfortunately however, few homeowners in this day and age of declining home values have sufficient equity in their homes to claim equity impairment sufficient to remove liens following bankruptcy. (See final comment below.)

This process only works when you have claimed a valid exemption relating to your principal residence in the bankruptcy proceeding and the underlying debt has been discharged. If these conditions are met, the bankruptcy court will, upon motion made by your attorney, remove the lien to the extent it impairs your homestead exemption.

A debt must have however been included in the bankruptcy for it to have been discharged.  If the creditor was not listed and the debt existed before the case was filed, the case may need to be reopened and the creditor added. (This topic will be treated in greater detail in my blog under construction with the working title: “U is for the Unlisted Creditor in the Bankruptcy Alphabet”.)

If you are involved in a Chapter 13 bankruptcy, which is the usual case for homeowners, you cannot receive a discharge until your plan has been completed which can take up to 60 months. A judgment cannot be removed if a discharge has not been issued. You will have to wait until your plan is completed before you will be able to remove any judgments issued against you and begin to clear your credit.

Once the discharge has been obtained, clearing a listed judgment (but not the judicial lien if you have non-exempt real estate in the county: see above) may be as simple as having your lawyer send a notice of discharge in bankruptcy to the clerk of the court of the county in which the judgment was recorded with a copy to the creditor.

Clearing debt off your credit report however can require the additional help of a credit specialist.  Certain lawyers can assist you with credit repair.

4.      CONCLUSION: DO NOT HIDE YOUR HEAD IN THE SAND:

Obviously these rules are very complicated and, while I have illustrated with examples drawn mainly from Pennsylvania where I practice, vary from state to state and even within state boundaries.  There is however one sure fire way to keep a lien from arising on your real property in Pennsylvania and elsewhere.  Never allow a judgment to be entered against you before you have the oportunity to file bankruptcy. Instead, seek the advice of a competent bankruptcy lawyer as soon as you see the first sign of a law suit looming on your horizon and start planning for a bankruptcy filing to preempt the filing of a judgment.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved. See Disclaimers.

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