How Can a Chapter 13 Bankruptcy Be Reinstated?In a Chapter 13 bankruptcy, a necessary portion of the petition is a Chapter 13 plan.  The plan is what determines how much a person pays every month to the Chapter 13 Trustee.  The plan includes any unsecured debt to be paid, taxes, car loans, back child support, arrears on a debtor's mortgage, mortgage payments to be paid through the plan (if debtor chooses to do this), student loans, and attorney fees, etc.  After factoring in all things that need to be paid through the plan, a monthly amount to be paid to the Trustee is assessed by the debtor's attorney.  The first plan payment is due 30 days after filing the bankruptcy and is due every month thereafter for a period of 36 to 60 months, depending on the plan.The debtor is responsible for making the plan payment every month.  If the debtor falls behind on plan payments, the Trustee can file a Motion to Dismiss for failure to make plan payments.  The Trustee can also file a Motion to Dismiss for failing to produce necessary documents, pay filing fees, or appear at a 341 meeting. In order to be reinstated for failure to make plan payments, the debtor has 14 days to become current with the Trustee and file a Motion to Reinstate stating whether the case was dismissed and reinstated previously and declaring that the deficiency has been cured.  The Trustee can file a response, and the Court will submit an Order granting or denying the Motion.  (L.R. 1017-2)If a case has been dismissed for failure to submit necessary documents, pay court costs, or attend the 341 meeting, the Court generally will not reinstate the case.  If filing a Motion to Reinstate, the Motion must contain information about when the missing documents were filed, the special circumstances why the debtor could not attend the 341 meeting, or when the filing fees were paid in full.  The debtor or debtor's attorney must file this Motion within 14 days.  (L.R. 1017-3)  For more information, please contact a St. Louis or St. Charles bankruptcy attorney.

If you owe the government taxes, the new bill introduced to Congress might be important for you. The Senate Bill 1813 passed the Senate on March 14 and could allow the federal government to prevent Americans from leaving the country. The tax debt must be in excess of $50,000 to the IRS. If that is the case the State Department would be allowed to revoke, deny or limit your passport. The IRS must have filed a lien or levy against you, but this can be done quickly as the IRS does not have to go to court in order to put a lien on your property. If you have made arrangements to pay your debt and are current on your installment payments, you might be exempted from the provision. Some attorneys criticizes the provision as unconstitutional because it would allow the IRS to restrict your freedom through a simple determination by an IRS employee that you owe taxes. Considering the state of the economy for the last few years, there are many people who would be affected by the bill. Supporters if the bill say that people who owe more than $2,500 in child support cannot get a new passport either. Tax debt can be wiped out through bankruptcy if specific conditions are met.

If you are unable to make your car payments, your lender may have threatened you with vehicle repossession or taken steps to repossess your vehicle. You may be considering filing bankruptcy in order to avoid repossession. In some cases, this is the best option.Automatic StayRegardless of whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, you're entitled to an automatic stay against your creditors while your bankruptcy is in process. This means that your creditors cannot take action to collect the debt until the bankruptcy case is finished. Thus, your car lender won't be able to repossess your vehicle while you are filing for bankruptcy. The automatic stay doesn't guarantee that you will be able to keep your vehicle long-term, but it does give you time to work out the arrangement that's in your best interest. It also depends on which chapter you file under. ReaffirmationIf you file for Chapter 7 bankruptcy, you can reaffirm your vehicle loan. This means that you sign a new agreement with your car lender to normally with the same terms as the original contract. Previous late payments are normally added to the loan balance. Reaffirmation leaves you responsible for your car loan rather than discharging the loan via bankruptcy. However, if the reason you can't pay your car loan is because of other debts, filing for Chapter 7 bankruptcy is often a good solution. Chapter 7 will discharge some of your other obligations so that you can use your income to pay your car loan instead of choosing between your car loan and other debts. Another alternative in a chapter 7 bankruptcy is to redeem your car loan. That means you will have a new car creditor who will pay off your car loan and you sign a new agreement with your new car creditor. Redemption pays off only the value of the vehicle, not the car loan. This means in most cases a saving. Additional attorney fees for filing the motion to redeem are normally part of the new car loan and don’t have to be paid by the debtor upfront. Motor vehicles are eligible for redemption if they have less than 100,000 miles and are less than 7 years old.Structured Repayment PlanIf you file for Chapter 13 bankruptcy, you can include your car loan in your structured repayment plan. This allows you to repay the loan over the course of the next three to five years, including all arrears you owe on the loan. As long as you stay current on your Chapter 13 plan, your vehicle will not be repossessed. Repaying your vehicle in a chapter 13 bankruptcy case is often a preferred option because the monthly plan payment which includes attorney fees, trustee’s fees and other debts is often lower than the original car payment. The car loan can be stretched out as far as 60 months and the debtor pays only the court’s interest rate which is normally lower than the contract interest rate. What is called in a chapter 7 “redemption” is called in a chapter 13 “cram down”. If your vehicle was purchased more than 2.5 years before filing of the bankruptcy case you pay only the value of the car and not the loan balance. This is often a substantial savings.No RetroactivityIt's important to realize that the automatic stay is not retroactive. If your lender has already garnished wages it is most often too late to recover the money. However, everything that is taken out after filing, will need to be returned to you. If your bank account is frozen you can keep your money as long as the bank has not paid the money to your creditor. If your car has been repossessed, your car creditor has to return the case as long it has not been sold at an auction.. Thus, if you are considering filing for bankruptcy, you need to make your decision before the it is too late and your creditor either sells your property or receives your money.ConsiderationsSome people think they can avoid repossession without filing bankruptcy if they voluntarily surrender their vehicle. However, if you give your vehicle back to the bank, in most cases the lender reports it as a voluntary repossession, which harms your credit. It may be in your best interest to file for bankruptcy instead. If you wish to surrender your vehicle through bankruptcy, you won’t be liable for any deficiency after your car creditor sells your vehicle.Before you file your bankruptcy attorney will discuss whether you have any non-exempt equity in your vehicle which would have to be paid to the trustee in a chapter 7 or would be part of the chapter 13 plan payment.If you are living in the St. Louis area and have a question for a bankruptcy attorney in St. Louis, please do not hesitate to contact us. Our office offers a free consultation and has four offices throughout the St. Louis Metro area. Offices are located in St. Louis City, Florissant, St. Charles, and Granite City.

How your credit will be effected by filing for bankruptcy depends on your situation prior to filing.  Credit is calculated using five factors: your payment history, the amounts you owe, the length of your credit history, the amount of new credit you have, and the types of credit you use.  The two biggest facts are your payment history and the amounts owed. Many people worry about the impact that filing will have on their credit.  Bankruptcy is visible for 7-10 years, however, it is important to note that everything you do is visible for 7-10 years.  Every late payment, or missed payment, is visible for up to 10 years.  If you are making multiple late payments or missing multiple payments every month you might be doing more damage to your credit than you would be by filing for bankruptcy.  Bankruptcy is a one time hit to your credit. The biggest factors in your credit score are the payment history, accounting for 35% of your credit score, and the amounts you owe, accounting for about 30% of your credit score.  Filing for bankruptcy will lower the amount that you owe drastically, so this area of your credit will actually improve.  In fact, in some cases, where the credit score is quite damaged, filing for bankruptcy may actually improve your credit score. It is also very possible that your score will not improve, or decrease.  The best thing you can do to increase your credit score is make payments on time.  Speak with your attorney about ways to improve credit.  You may want to get a small credit card that you can pay off in full every month.  It is important to remember that while the bankruptcy is visible for 7-10 years, it will not be calculated in your credit score for that long.  More often than not, people are able to purchase vehicles, and even houses, after filing. Filing for bankruptcy can eliminate your debt, or at least get it to a manageable level.  Filing for bankruptcy can give you a fresh start and help you take control of your financial situation.  Bankruptcy coupled with informed and responsible decision making can get you on the right step to living a debt free and financially stable from here forward.If you still have questions, or would like to set up a free consultation with a St. Louis Bankruptcy Attorney, contact us today!

By Patrick Arden  Speaking to a college crowd at the University of Michigan in January, President Barack Obama noted that for the first time Americans owe more on their student loans than on their credit cards. "That's inexcusable," Obama said. "Higher education is not a luxury—it's an economic imperative."But even as the president laid out a program that included earlier loan forgiveness, lower interest rates, and caps on repayments of loans, he was putting the screws to graduate students. Starting this July, graduate-student loans will no longer be subsidized, meaning students will see their debts multiply with interest even before they've received their degrees.The change will save the government an estimated $18 billion over the next decade—most of which has already been redirected to fund Pell Grants for undergraduates—but it's sure to tack thousands of dollars onto the debts of individual graduate students. The repercussions for graduate schools might be far-reaching, as people grapple with the question of whether a $50,000 master's or a $100,000 law degree is worth the money."The burden on graduate students is growing, and this makes a bad situation worse," says Eli Paster, a Ph.D. candidate at the Massachusetts Institute of Technology and the head of legislative concerns at the National Association of Graduate-Professional Students. "We don't want a disincentive for people to pursue a graduate degree." Borrow Now, Pay Later Graduate students rely almost twice as much on loans as undergraduates, according to the College Board. In 2009–10, grad students financed 69 percent of their costs with federal loans. Nearly half of the average student's $15,888 in loans was federally subsidized, with the government paying interest while the student is in school and for six months after graduation.Under the Stafford loan program, the largest of the government's school-financing plans, most full-time grad students have been able to borrow up to $20,500 a year at 6.8 percent interest, $8,500 of which would be subsidized. (Medical students can qualify for up to $40,500 in Stafford loans.) If students require more money, they can turn to Plus loans, which are unsubsidized and have an interest rate of 7.9 percent. Repayment of Stafford loans may be deferred for six months after graduation, though the unsubsidized portion accrues interest while the student is in school; repayment of a Plus loan begins after just 60 days.With the federal government no longer subsidizing Stafford loans, graduate students will immediately start accumulating interest on all debts. A student who took out just the $8,500 a year in subsidized loans would have repaid $46,953 over the next 10 years, according to the National Association of Student Financial Aid Administrators. Unsubsidized loans would add an extra $6,385 in interest payments.Of course, many graduate programs have much higher costs. The average master's student graduates with more than $50,000 in loan debt, says the Council of Graduate Schools, $77,000 for those with doctoral degrees. The Association of American Medical Colleges estimates the elimination of subsidies will increase the ultimate cost of loans for the average medical student by as much as $20,000. Passing the Bucks While acknowledging the student-loan crisis, Obama stopped the federal subsidy for graduate loans on the grounds that the government also owes too much money. Early reports blamed the move on the debt-ceiling debate, but the scheme was first contained in Obama's proposed budget for the new fiscal year."The idea had come up in the past, but it had never gotten much traction until it appeared in the president's budget proposal," says Patricia McAllister at the Council of Graduate Schools. "There was a search for savings, and once this was on the table, it was hard to push it off."The death of subsidized loans was sold to student advocates as a necessary sacrifice to save the Pell Grant Program, which provides 9 million undergraduates with grants of up to $5,500 a year. "Congress now views all spending as bad, and we wanted to make sure the Pell Grant didn't get cut," recalls Rich Williams at the U.S. Public Interest Research Group's Higher Education Project. "Unfortunately, the money had to come from other programs in the higher-education pot."That's small consolation to graduate students, who warn undergraduates to watch their backs. Already, interest rates on undergraduate subsidized loans will be doubling to 6.8 percent this summer, and the elimination of all subsidized loans might not be far behind, Paster says. "Graduate students went first, but undergraduates will be next.""At least the money saved from eliminating subsidized loans went into a student-aid program rather than deficit reduction. That was a real possibility," says Megan McClean at the National Association of Student Financial Aid Administrators. She's troubled that a lot of recent changes to financial aid have come as part of budget negotiations, instead of being deliberated by legislative committees, which first conduct research and hold hearings with experts. "That creates better policies," she says.This might also explain why many graduate students were caught by surprise at the elimination of their subsidized loans. "When financial-aid changes happen in the budget, it's not really announced," Paster says. "You find out about it when you apply for loans before the start of the next semester. At that point, you don't really have a choice, except not going to school."Some worry the higher costs could make graduate school solely a province for rich kids: On average, black and Hispanic students already have higher debt loads than whites and Asians.McAllister says the government must make sure that debt doesn't dissuade students from going to graduate school. The Bureau of Labor Statistics projects that in the next decade, 2.6 million jobs will require people with advanced degrees. "If we want to meet these workforce needs, we should be investing in graduate education," she says, "not balancing the federal budget on the backs of students." The $80,000 MFA Student debt might already be affecting some graduate programs, as nationwide enrollment dropped slightly in 2010, the first decline in seven years, according to a recent report by the Council of Graduate Schools. But it's a mixed bag: While fewer students are seeking doctorates in the arts and humanities, more have enrolled in business schools and the sciences.That trend is mirrored at area universities. The number of graduate students at CUNY has remained virtually unchanged at about 33,000 since the fall of 2009, yet its Graduate Center has seen gains in the health sciences. Likewise, Columbia's professional schools have grown in the past year, while enrollment has been flat in its Graduate School of Arts and Sciences. NYU reports similar findings, though new applications are up a bit this year.MFA graduate student Monica Johnson found unwanted fame for showing up in Zuccotti Park last November to talk about the $88,000 in debt she accumulated during college and graduate school. She understands those who criticize her for a costly degree choice."At this point, I'd never say an MFA is the best degree, but there was a logical line of reasoning that led me here," Johnson says. "Both of my parents have associate degrees from a technical art school in Michigan, and both of them were able to have viable careers." She points out that not even law school is a safe bet these days. The job market is having a hard time absorbing new law graduates, and as a result, the number of students taking the LSAT has dropped by 25 percent over the past two years."I wasn't comfortable taking out the loans, and I kept asking people, 'Is this what you're supposed to do?' I'm not blaming anyone, but now I wish someone would have pulled me back. Everybody said, 'You just got to do it.'"Johnson says her big mistake was starting her master's at Pratt Institute, where she borrowed more than $40,000 to cover one year's tuition, before leaving to enroll in an integrated-media art program at Hunter College. "I have a job, and I'm paying only $1,000 a class," she says. "It really is the price tag that's the problem, I think." Facing the Future The students gathered in front of St. Francis College in Brooklyn don't look like the next class of suckers, but everyone interviewed during a recent lunch hour was thinking about graduate school. Most claimed a graduate degree is now necessary to get a good job."Going to grad school gives you an advantage, but so many people go," says Christopher Santoro, a junior from Dyker Heights. "Grad school's become what college was 30 years ago."Santoro has paid for his education with Stafford loans. Tuition at St. Francis is $18,100 a year, and 95 percent of students receive financial aid. "It's going to take a while to pay off all the loans," Santoro says. "Especially if I go to law school, it will be a lot, lot more. But I have to do it. I'm even contemplating going to grad school in engineering because law-school graduates are having a hard time getting jobs. My mother is the head of human resources at a bank, and she says everybody they hire is coming out of an Ivy League school."It's good that Obama's talking about financial aid," Santoro says, and he doesn't blame the president for taking the subsidy away from federal loans for graduate students. The student-debt crisis is another inherited mess, he says. "I'm a libertarian, but if I had to vote right now, I'd vote for Obama. I don't like anyone on the Republican side. We have no choice." Copyright 2012 Village Voice, LLC.  All rights reserved.

By Neil deMause  In tales of the economic miasma of the early 21st century (none but the great and powerful Krugman dare speak the D-word), the Debt-Ridden Student has become a stock character. She or he has graduated from college or is about to, saddled with mammoth loans accrued in order to pay rising tuition—and arrives in the work world only to find that the high-paying jobs that were supposed to repay all that debt have vanished along with Lehman Brothers.In recent months, though, a new worry has emerged: In addition to destroying their own lives, are today's debt-ridden college graduates going to trash the economy as well?It's the meme that will not die, reappearing with every study reporting new levels of student indebtedness. (Over $1 trillion! More than Americans' cumulative credit-card debt!) Mincing few words, William Brewer, chair of the National Association of Consumer Bankruptcy Attorneys, told The Washington Post last month, "This could very well be the next debt bomb for the U.S. economy."Brewer minces only slightly more words in a conversation with the Voice. "My concern is same song, second verse," he says, noting that bankruptcy lawyers were among the first to raise red flags about the mortgage crisis. "We're seeing a tremendous amount of defaults." He points to a Federal Reserve Bank of New York study released last month that showed that 15 percent of Americans with credit reports have student debt, and more than a quarter of those are behind in their payments. While he acknowledges that student debt's "tentacles into the economy are not the same," Brewer foresees a "chilling effect" on such things as new-car purchases and the housing market, as graduates deep in debt are unable to qualify for mortgages.Hogwash, responds Center for Economic and Policy Research co-director Dean Baker. "The numbers are just totally different," says Baker, who has some cred of his own when it comes to mortgage-bubble gloomcasting, having warned of an eventual housing crash as early as 2002. "We're talking about something on the order of a trillion dollars in student-loan debt. The housing-market peak was over $20 trillion."What about indebted students reducing their spending as a result? "It's a damper, no doubt about it," Baker says. "That list of big purchases—first car, new house—those are things that undoubtedly many people will have to put off." As for the overall economy, though, he notes that the rule of thumb is that people spend 4 to 5 percent of their wealth each year. Even if you double that under the assumption that young people burn through their money like energy drinks, that's still only $80 billion a year. "That's a little over half of 1 percent of the GDP. It's not trivial, but it's not anything that's going to put us into a recession."Still, that's not likely to be much comfort if you're one of those holding a share of that trillion dollars in debt—especially if you came of age in the last decade, when student debt was falling to historic lows. That all changed starting a few years ago, to the point where in the class of 2010, two-thirds of students graduated with some outstanding loans, according to the California-based Project on Student Debt. Average debt load per student: $25,250.That number is rising an average of 5 percent a year, with no signs of slowing down, says Lauren Asher, president of the Institute for College Access and Success, which runs the Project on Student Debt. "Student debt has become a fact of life for more and more Americans and for the majority of college graduates," she says. "That was not always the case."While rising tuition has gotten the most press, Asher blames a number of factors: "With the down economy, you have this painful convergence of less money in state coffers, less money in family bank accounts, more need and demand for education, and more eligibility for aid." The upshot, she says, is increased costs when students can least afford them.As a result, loan-default rates are rising as well, in some cases, dramatically so. The number of students who default within two years of leaving school—"the tip of the tip of the iceberg of student distress," Asher says—has risen from a low of 4.5 percent in 2003 to 8.8 percent in 2009, the most recent graduating class for which numbers are available. And a study by the Institute for Higher Education Policy further found that for every student debtor in default, two more have already fallen behind in their payments.A look at the New York City default numbers shows wide variation from campus to campus. Where most colleges, including NYU, Columbia, and CUNY, sport default rates in the low single digits, two schools—ASA in Downtown Brooklyn and Manhattan's Apex Tech—managed to send more than 1,000 indebted students out into the world (with or without degrees—the numbers don't distinguish) in 2010, more than 20 percent of whom have already defaulted.ASA and Apex Tech are both private for-profit schools, and Asher says that this is par for the course for the growing industry: Nationwide, students at for-profits are more than twice as likely to default on their loans as those at public schools and three times as likely as students at private nonprofits, according to Department of Education data. (Not all for-profits are created equal, though: For-profit Monroe College in the Bronx managed to cut its default rate from more than 10 percent to just 5.6 percent in the most recent report.)"Too many are borrowing a lot of money to get degree certificates that turn out not to have the value that they were led to expect," Asher warns. In some cases, students have gotten federal student loans to attend accredited schools, only to find that their particular courses were not themselves accredited, leaving them ineligible to take licensing exams.Steve Gunderson, president of the Association of Private Sector Colleges and Universities, counters that because they cater largely to a poorer, more adult-student population, for-profits are inevitably going to see more defaults. "We're dealing with a constituency that, if not for grants and loans, would not have an opportunity to pursue higher education," he says.Although students defaulting on their federal loans is a concern for the government, which gets stuck with paying off the lender and then acting as collection agency, it's no walk in the park for the indebted, either. Student-loan debt is unlike mortgage debt: Where a homeowner can, in a worst-case scenario, walk away from an underwater house and leave their bank holding the bag, you can't dump an unwanted college degree. Nor can you even duck out on student debt by declaring bankruptcy, as lenders are allowed to keep after you for repayment even if you've gone bust.The only exception is in cases of "undue hardship," and Brewer warns that it's nearly impossible to qualify for. When clients come to him staggering under student-loan debt, Brewer says, he'll sometimes jokingly hand them a bus schedule. "They say, 'What's the bus schedule got to do with it?' I say, 'Well, you walk out in front of my office here, step in front of a bus, get yourself in a coma, I probably can prove undue hardship.'"For those staring down a mountain of student debt, there are some options—so long as they're standard-issue government loans, at least. In 2009, the U.S. Department of Education launched Income-Based Repayment, under which debtors with low incomes can defer making payments on their student loans and can be absolved of debt altogether after 25 years. Indebted graduates can get loan forgiveness in 10 years if they're working in a public or nonprofit job, and under new rules issued by the Obama administration, starting in 2014 low-income debtors can have their payments capped at 10 percent of their income, down from 15 percent currently. (Asher's group runs a website, ibrinfo.org, that includes a debt calculator to see if you're eligible for the program; the new federal Consumer Finance Protection Bureau offers its own debt-repayment assistant at consumerfinance.gov.)As bad as "stay poor for 25 years, and you're off scot-free" sounds, it's a breeze compared to what awaits those who've taken out private student loans, which make up an estimated 10 to 20 percent of all student borrowing. With private loans, warns Asher, "you're really at the mercy of your lender. They're underregulated, they mostly have variable rates—they have a lot in common with exploding mortgages." Loan companies can place you in default for being even a day late, as opposed to nine months of nonpayment on government loans. Some private loans don't even discharge on the borrower's death.Several solutions have been proposed to untangle the student-debt mess. Brewer's group, predictably, would like to make it easier to unload student-loan debt through bankruptcy—something that was possible with private loans until 2005 and which U.S. senator Dick Durbin of Illinois has proposed be reinstituted. At the same time, a few dozen colleges, including Columbia, have pledged to change their financial-aid policies to cap or eliminate debt for low-income students, though it's uncertain how long this voluntary commitment will remain in place.Meanwhile, students are casting a harder eye on the costs they'll rack up while earning a degree—when they can figure it out at all. Since last fall, all colleges have been required to post "net-cost calculators" on their websites, showing how much you'll actually pay per year based on your income level. These are still a work in progress, though: They can be hard to locate on school websites, and some (Columbia's in particular) require students to enter a daunting amount of financial information before learning how much they'll be expected to pay toward tuition."College pricing is still a lot more opaque than it should be," Asher says, and the convoluted loan world doesn't help any. She recalls an award letter she received during her time in graduate school for public policy. "I could not tell what was a grant and what was a loan. I had to call the office and say, 'Can you tell me what this acronym means?'"With a student-loan system like this, the economy had better not hang in the balance. Copyright 2012 Village Voice, LLC, All rights reserved.

  Read any interesting tax returns lately? As bankruptcy lawyers, we’re required to collect them from our clients and funnel them to the trustee. But, are you reading them? Often, as a former employee used to say, they’re dry as dinosaur bones. But almost as equally, they provide new information or clues about assets and activities of your client not previously disclosed. Found in the tax return Let’s start a list of things you might find perusing your client’s 1040: Interest income- does the list of payors match the scheduled accounted or accounts closed in the last year? Distributions from retirement accounts Gains or losses from sales of stock Total income for the year for the SOFA entry Investment real estate Charitable contributions- useful perhaps for means test purposes, and for SOFA transfers Business expenses – useful in projecting net income; remember to exclude depreciation for bankruptcy purposes Interests in partnerships or estates Form 1099 from debt settlement or foreclosures Business assets subject to depreciation Dividend income Student loan interest The plot line in a tax return doesn’t usually make scintillating reading, but it’s worth doing.  There’s no feeling quite as foolish as encountering questions at the 341  meeting that the trustee got from reading the return when you haven’t.  Image courtesy of Makuahine Pa’i Ki’i

Qualified Retirement Plans and BankruptcyWhen people are considering filing bankruptcy, it is very common for them to be concerned about the retention of their assets.  Debtors frequently inquire whether they will be allowed to retain their retirement benefits, such as 401k accounts.  Many people have worked for many years to acquire these assets and do not want to lose them through the bankruptcy proceeding.  There is an exemption for qualified retirement plans, which means debtors will be allowed to keep their retirement benefits as long as they are qualified.  A qualified retirement plan's definition under the United State Bankruptcy Code, Section 513.430.1(10)(f) is "any money or assets, payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan or profit-sharing plan that is qualified under Section 401(a), 403(a), 403(b), 408, 408A or 409 of the Internal Revenue Code of 1986, as amended, except as provided in this paragraph."In a bankruptcy, 401(k) contributions are protected by ERISA (the Employee Retirement Income Security Act).  This generally means the Trustee will not be able to take your 401(k) proceeds, and the proceeds will be protected from creditors.  This applies only if the 401(k) account is still intact.  If the money has been removed from a 401(k) account and put into an unprotected account, such as a checking or savings account, there is no longer protection from the Trustee, who can then access the money and disperse to creditors through the bankruptcy.Another common retirement plan option is a 403(b), which is exempt in a bankruptcy according to Section 513.430.1(10)(f).  This is a annuity that is available to certain organizations and non-profit agencies.  It is similar to a 401(k) and allows employees to contribute tax exempt until the employee withdraws from the plan.  Roth IR As and 457 plans are also generally exempt through the bankruptcy.The reason these retirement plans are generally protected from creditors is because there are usually restrictions on when and how these plans can be withdrawn.  There are usually limits on the age of the person and fees to withdraw from these accounts, as well as tax implications at the time of withdrawal.  Being able to keep these assets allows for debtors to plan for the future and withdraw from these accounts when they reach a certain age and/or retire so they have some form of income at that time.  If you would like more information about this matter, please contact a St. Louis or St. Charles bankruptcy attorney.

What is a Means Test?A means test is an essential portion of the bankruptcy petition that must be filed with the rest of the schedules that comprise a bankruptcy petition.  In a Chapter 7, the official name for the means test is Form 22A:  Statement of Current Monthly Income/Means Test.  In a Chapter 13 bankruptcy, the official name is Form 22C:  Current Monthly Income/Disposable Income.  The means test is what determines whether a person is eligible for file a Chapter 7 bankruptcy.  In a Chapter 13, the means test determines how much a person will be back to their unsecured creditors, if any.In order to complete the means test, the first step is entering all forms of income for the debtor for the six months prior to the month the bankruptcy is filed.  Therefore, if a person is going to be filing a bankruptcy in May, the debtor's income should be entered for the beginning of November through the end of April.  Applicable income includes child support, employee wages, self-employment income, income from rental properties, food stamps, pension income, alimony, etc.  The only income that does not apply in the means test is Social Security income. If the person is under median based on their household size, they are eligible to file a Chapter 7.  If they are over median, additional information will need to be entered, such as mortgage payments, car loans, taxes, mandatory wage deductions, mandatory 401(k) deductions, court-ordered alimony or child support payments, child care, healthcare expenses, health and term life insurance premiums, telecommunication expenses, etc.  There is an automatic deduction based on household size for utilities, food, etc.  Once those specific expenses have been factored, if the DMI (disposable monthly income) is negative, the debtor will still be eligible to file a Chapter 7 bankruptcy based on those expenses.  If the DMI is positive, the debtor will be required to file a Chapter 13 bankruptcy.  The DMI amount will determine what the debtor will be required to pay each month to their unsecured creditors for the next 60 months.  The remainder will be discharged.  When filing a Chapter 13 bankruptcy, debtors will also get a creditor for any 401(k) deductions, regardless of whether they are mandatory.  If you would like more information about the means test, contact a St. Louis or St. Charles bankruptcy attorney.

Failure to schedule causes of action appears to be an endemic problem as shown by the fact that the Fifth Circuit has been asked to apply judicial estoppel to a bankruptcy case once again. However, the latest decision, Love v. Tyson Foods, Inc., No. 10-60106 (5th Cir. 4/4/12), which can be found here, shows just how difficult it is to draw the line between fairness and integrity as Judges Carolyn King and Catarina Haynes disagreed on how the doctrine should apply to a chapter 13 debtor's untimely disclosure. The Court, with Judge King writing the opinion, held that the debtor failed to meet his burden of proof to show a non-disclosure was inadvertent.What HappenedWillie Love was dismissed from Tyson Foods after he failed a drug test. When the company refused to re-test him based on his contention that an antibiotic caused him to erroneously positive, he filed a charge of discrimination with the EEOC. and later filed suit. Along the way, he filed chapter 13 and did not list the claim The defendant successfully moved for summary judgment based on judicial estoppel based on the non-disclosure. While this synopsis is accurate, the following time line gives a more complete understanding of what occurred.Willie Love was dismissed from Tyson on April 2, 2008.He filed chapter 13 on May 1, 2008 and did not list a potential cause of action.Love filed a complaint of discrimination with the EEOC on May 30, 2008.On September 22, 2008, the Debtor confirmed a chapter 13 plan which did not provide for a distribution to unsecured creditors. Love received a right to sue letter from the EEOC on December 16, 2008.The Debtor filed suit on March 12, 2009.On July 16, 2009, Tyson moved for summary judgment.On July 22, 2009, the Debtor amended his schedules to disclose the claim and moved to employ special counsel to pursue the claim. On January 7, 2010, the District Court granted the Motion for Summary Judgment.The Majority OpinionJudge Carolyn King, writing for herself and Judge Jacques Weiner, upheld the summary judgment, finding that the debtor had failed to raise a fact issue as to whether the failure to disclose the asset was inadvertent. The opinion noted that the debtor's brief discussed only two of the elements of judicial estoppel and did not address inadvertence. There are three elements to judicial estoppel: “(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently.”Opinion, p. 4, citing Reed v. City of Arlington. The debtor made the following argument to the District Court:(1) “Plaintiff’s positions are no longer inconsistent as [Love] supplemented his Schedule to list the current case as an asset in his bankruptcy”; (2) “the Defendant has failed to show the bankruptcy court has accepted the Plaintiff’s prior position that he had no contingent claims”; (3) “Plaintiff will not derive any unfair advantage or impose any unfair detriment on any opposing party if not estopped”; and (4) “Plaintiff’s bankruptcy is still pending and any monies paid by Defendant through settlement or judgment in this case would go into the bankruptcy to pay Plaintiff’s creditors first.”Opinion, p. 6. The majority found this explanation to be insufficient, stating:Critically, Love’s arguments before the district court did nothing to refute Tyson’s allegations or explain why Love did not disclose his claims when his disclosure obligations first arose. His first two arguments clearly do not speak to his motive to conceal his claims against Tyson. With respect to Love’s third argument, whether Tyson or Love would accrue an unfair detriment or benefit if the lawsuit were allowed to go forward after Tyson forced Love to disclose his claims is an entirely different issue than whether Love had a financial motive to conceal his claims against Tyson at the time Love failed to meet his disclosure obligations, which is the relevant time frame for the judicial estoppel analysis. (citations omitted). Regarding Love’s fourth argument, Love did state that he would pay his creditors before collecting any money from his claims against Tyson, but he made this assertion only after Tyson brought his nondisclosure to light. Love’s disclosure obligations arose long beforehand, and his statement about his post-disclosure conduct again fails to speak to his motivations while he was obligated to disclose his claims but had not yet done so. Consequently, we agree with the district court’s conclusion that Love ultimately provided “no basis for concluding that [the] failure to disclose th[e] litigation [against Tyson] to the bankruptcy court was ‘inadvertent.’” Thus, the district court did not abuse its discretion by applying judicial estoppel to Love’s claims.Opinion, pp. 6-7. Thus, the Fifth Circuit affirmed the District Court. (The majority opinion included a thoughtful rejoinder to the dissent. While I am not discussing it here, I want to emphasize that the judges engaged each other in a respectful debate). The DissentIn a spirited fifteen-page dissent, Judge Catarina Haynes offered both procedural and substantive reasons why she believed the majority was wrong.First, she argued that judicial estoppel is an affirmative defense. As a result, the Defendant had the burden of proof to show that there was no factual dispute as to any of the three elements. According to Judge Haynes:As the party invoking judicial estoppel on summary judgment, Tyson thus bore the burden of proof and had to prove, not just hypothesize, that Love had knowledge and a motive for concealment. Tyson failed to do so. Dissent, p. 14. Judge Haynes went on to state that even if Tyson had met its burden of proof that the debtor's response was sufficient to raise a fact issue.We should stop here, as I have shown that no summary judgment burden “shifted” to Love. However, even if it did, I disagree that Love failed to respond in kind, creating a material factual dispute on whether he had motive to conceal. Love’s summary judgment response set forth the Supreme Court’s judicial estoppel standard from New Hampshire v. Maine, 532 U.S. 742, 751 (2001). See also Hall v. GE Plastic Pac., 327 F.3d 391, 399 (5th Cir. 2003). There, he disclaimed the third prong of that standard. Indeed, he expressly responded to Tyson’s claim that his “motive” was to gain money “free and clear” by arguing in response that any recovery would not be paid to him but to the estate. He stated:"Plaintiff will not derive any unfair advantage or impose any unfair detriment on any opposing party if not estopped. Plaintiff’s bankruptcy is still pending, and any monies paid by Defendant through settlement or judgment in this case would go into the bankruptcy to pay Plaintiff’s creditors first. To the contrary, if Plaintiff is judicially estopped his creditors would be injured, and would be prevented from receiving any monies from the current case."Thus, if Tyson’s mere allegation that Love’s motive was to gain an unfair personal advantage by taking money “free and clear of creditors” is enough to satisfy its summary judgment burden on “motive,” then Love’s statement that any monies paid “would go into the bankruptcy to pay Plaintiff’s creditors first” should similarly discharge his non-movant’s burden. The majority opinion discounts Love’s argument because it does not use the “magic words” of “motive” or “inadvertence.” We have not so exalted form over substance, particularly in the face of a Supreme Court opinion using the exact language Love used. The majority opinion contends that whether the claim is “free and clear” or not, a potentially deviant debtor may always attempt to “collect any recovery on claims without his creditors’ knowledge.” I agree that there is something problematic about a debtor who conceals assets that do not belong to him in an effort to forever keep his creditors in the dark. This hypothetical deviant, however, does not, as a matter of law, establish Love’s intent to conceal where his only action was an omission and the claim remains property of the bankruptcy estate. Dissent, pp. 17-19.Judge Haynes went further and stated that under Reed v. City of Arlington and Kane v. National Union Fire Ins. Co., that the bankruptcy estate should not have been estopped. She wrote:This case, though different in kind, is controlled by our decisions in Reed and Kane. Both concerned whether a Chapter 7 trustee is estopped from pursuing unscheduled claims on behalf of the estate where the debtor had wrongly concealed claims during the bankruptcy proceeding. (ctiations omitted). We held in both cases that the claims originally brought by the debtors were unabandoned assets of the estate and that “the only way the creditors would be harmed is if judicial estoppel were applied to bar the trustee from pursuing the claim on behalf of the estate.” (citations omitted).It makes no difference under the circumstances of this case that Love is not a trustee as were the parties seeking to avoid estoppel in Reed and Kane. For our purposes, his role as essentially a debtor in possession puts him in an analogous position to a trustee. It follows that because the claim is the property of the estate, and the estate has not been administered, judicial estoppel should not apply to bar relief that would benefit creditors. (citation omitted). The debtors in Kane were virtually indistinguishable from Love in his position as debtor. While the Kanes’ lawsuit was pending in state court, they filed a Chapter 7 bankruptcy. (citation omitted). That bankruptcy resulted in a no-asset discharge. (citation omitted). It was not until a summary judgment motion was offered, arguing that judicial estoppel should apply, that the Kanes filed a motion to reopen the bankruptcy so the Trustee could administer the previously undisclosed lawsuit. (citation omitted). We reversed the district court’s summary judgment application of judicial estoppel, holding that equity did not compel barring the trustee from acting on behalf of the estate. (citation omitted). Indeed, we even highlighted the possibility that the debtors may recover in the event of surplus. (citation omitted).It is true, as the majority opinion points out, that the claims in Reed and Kane were pursued by “innocent Chapter 7 trustees, and not by the debtors themselves.” But Love’s role as both debtor and protector does not make the analogy any less apt. The only real implication of the majority opinion’s distinction is that the trustees in Reed and Kane were “innocent.” This distinction is irrelevant, however, because the debtors in those cases were in the same position as Love, and the characterization of the trustee’s role as “innocent” has nothing to do with the imposition of judicial estoppel where that trustee’s duty, imposed post-disclosure, is to act on behalf of the estate. Dissent, pp. 22-24.In conclusion, she stated:Unlike the litigants in our prior decisions concerning judicial estoppel, Love gains no potential legal advantage from his failure to disclose the claim against Tyson to the bankruptcy court. As Love explained to the district court—albeit somewhat ineloquently—the recovery sought against Tyson would aid his creditors, not defraud them. In this vein, Tyson has not established Love’s motive to conceal. Our precedent counsels against judicial estoppel in these circumstances.Moreover, the court’s equitable discretion must be used against the backdrop of the bankruptcy system and the goals it espouses. The outcome affirmed by the majority opinion does not further those goals—either in dissuading future deviant bankruptcy litigants or in protecting third party creditors’ rights. At the very least, the remedy espoused in Reed could be utilized here in preventing unnecessary harm to creditors while preventing an allegedly deviant debtor from “playing fast and loose” with the courts.None of the above represents some effort to “change the law.” Rather it seeks to hold alleged tortfeasors who would reap an admitted windfall to their summary judgment burden of proof. Further, while judicial estoppel certainly should be available in some circumstances, it should not be mechanically applied. It is an equitable doctrine, demanding nuance, not absolutes.The majority opinion discusses a very real concern, that debtors may defraud the bankruptcy system by failing to schedule their claims. Using judicial estoppel to curtail this potential problem, however, is not the answer under all circumstances. There are other legal avenues to punish, and obtain relief from, fraudulent debtors without imposing a windfall on an alleged tortfeasor to the detriment of innocent creditors.Accordingly, I respectfully dissent.Dissent, pp. 26-27.Who Got It Right?This is a difficult opinion. Love v. Tyson Foods, Inc. presents a closer case because the debtor was both the person who failed to schedule the cause of action and later sought to pursue it. However, the case is more ambiguous because (i) the claim had not been filed on the petition date and (ii) the debtor promptly amended his schedules to disclose the claim once the omission was pointed out. In the balance between integrity and fairness implicated by judicial estoppel, is it more important to punish the initial omission or to encourage disclosure, however belated, for the benefit of the creditors?I think that Judge Haynes has the better argument. At a minimum, this was not a case that should have been resolved on summary judgment.First, although it was not clearly discussed by either opinion, the debtor unambiguously contested two out of the three elements of judicial estoppel. The debtor noted that while he had taken an inconsistent position, he had amended his ways. Further, he did not obtain a benefit from taking an inconsistent position. The majority glosses over this point, noting that the debtor had confirmed a plan which did not propose any distribution to the unsecured creditors. However, no chapter 13 plan is final until it is completed. Under 11 U.S.C. Sec. 1329(a), a chapter 13 plan may be modified after confirmation upon request of the debtor, the trustee or a creditor to increase the amount of payments under the plan. Thus, there was still time to include the litigation proceeds in the funds to be distributed to creditors under the plan. Because there were fact issues on the first two prongs of Tyson's affirmative defense, the court should not have reached the third prong.With respect to the third prong, inadvertence, the facts detailed by the majority speak loudly to the practical realities. On the date the debtor filed bankruptcy, he had not filed a charge of discrimination with the EEOC, he had not received a right to sue letter and he had not actually filed suit. While he had an obligation to disclose the potential cause of action, it is far more more believable than not that an unsophisticated debtor could have missed this distinction. As a practicing attorney, I am often frustrated with the wooden terms employed in the schedules. Schedule B21 asks the debtor to disclose:Other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims.This language is unlikely to resonate with the typical debtor. It would be much much more useful to ask:Are you suing anyone? Do you want to sue anyone? Has anyone done anything wrong to you?That would be much more useful than asking about "contingent" and "unliquidated" claims, setoffs and tax refunds. (Indeed, my spell check does not believe that "unliquidated" is even a word). On procedural grounds, the court should have ruled that there were fact issues and that summary judgment was improvidently granted. Substantively, Judge Haynes has the better argument as well. This decision does not punish the debtor. The debtor will receive a chapter 13 discharge if he completes his payments. However, the creditors will not receive any distribution. While there were only two unsecured creditors who filed claims in the aggregate amount of $2,305.74, I am sure they would have preferred to receive payment. eCast Settlement Corporation was a creditor in both this case and in Reed. eCast makes its money by purchasing unsecured claims and seeking recovery in bankruptcy. By minimizing the recovery to creditors such as eCast, the Court reduces the amount that eCast and other debt buyers will pay for distressed debt, which will reduce the amount paid to the initial creditor.s While the individual case may only affect two small unsecured claims, it has the potential to affect millions of claims. What Should Be Done?Normally, when two intelligent, articulate judges reach different results, one would hope that the losing party would seek panel rehearing or rehearing en banc to allow the court to reconsider the issue. However, in this case, the court notes that while the debtor had one counsel in the bankruptcy case and another in the district court case, that the debtor was pro se on appeal. The fact that a pro se party made it this far is remarkable. However, it is less likely that an unrepresented party will take the next step, which would be a shame. It would be nice if the Court were to reconsider the matter on its own motion.