If there’s a bright spot in the midst of this recession, it’s the thrill bankruptcy lawyers get in stripping mortgage liens from underwater property. Action taken at the depths of home values will benefit clients long into the future if the client can hang on to the home til things recover. Yet I hear lawyers wrestling with  lien stripping worries revolving around mismatches between who’s on title to the property; who is liable on the debt; and whether the necessary persons are in bankruptcy. Let me suggest that the issue is simpler than that and invite you to tell me if I’m missing something It’s all about the property Put simply, my proposition is that the only one of the questions posed above that matters is: does the bankruptcy estate include all of the property from which you want to strip a lien? Or, put another way, in the affirmative, a bankruptcy court can only strip a lien from property of the estate. Lien stripping is grounded in the idea of an allowed secured claim.  Section 506(a)(1)  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, Notice that secured status has no connection to whether it is the debtor who is liable on the underlying claim.  The focus is on the property which is property of the estate. Lien stripping in practice Suppose the debtor inherited the real property in question from his grandmother subject to liens in favor of her creditors.  In the debtor’s bankruptcy case, a lien securing the grandmother’s promise to pay Big Fat Bank is just as strippable as if the debtor was the borrower.  As long as the property which is collateral for the debt is before the court, the lien is subject to valuing, and stripping. Contrast a case where the debtor is a co tenant with a sibling on the same inherited house.  Both halves of the house are subject to the bank’s lien.  If only one heir files bankruptcy, only that heir’s interest in the house is property of the estate, and the court can only strip the lien from the fraction of the property that is in the bankruptcy estate. The more common fact pattern seems to be that one spouse is on title to the property and the other spouse is liable on the note.  If applicable law brings all the real estate into the bankruptcy estate, then who took the loan is irrelevant.  It’s strippable to the extent the collateral is property of the estate. Get this problem pinned down, and life as a bankruptcy lawyer is easier. Image courtesy of wikimedia and some ancient Greek.

Because bankruptcy is a legal process that is intended to help consumers and businesses deal with the debt they are unable to pay, bankruptcy fraud is considered a federal crime. Being honest and fully disclosing information and details about your situation not only helps your bankruptcy attorney understand your financial background, it helps the court in determining the best outcome for your case. Providing false details may lead to paying a hefty fine, criminal charges and even imprisonment.Bankruptcy fraud can be committed in different ways such as hiding or concealing assets, filing too many times during a short time period or making false statements in court. Withholding information about assets is the most common type of fraud. This may even include transferring of assets such as bank account funds or property title. With multiple filing there have been debtors known to file with assumed or fictitious names. They may occur in more than one state while failing to submit a complete list of assets in each filing.Concerns about assets should be discussed with your bankruptcy attorney. Some may feel the need to hide certain assets when filing bankruptcy but the concept could make your case more complicated and lead to your case getting dismissed without a discharge. In many cases, you can still retain most if not all of your assets since bankruptcy provides several exemptions depending on which chapter is filed.Working with an experienced legal counsel can help you understand your financial situation, review equity in detail, give clarity on what to expect during your bankruptcy case and ensure legal procedures are followed accordingly to avoid your case from being dismissed or, even worse, being accused of bankruptcy fraud. --> 

What Is An Automatic Stay in Bankruptcy? In Bankruptcy, an automatic stay protects a debtor from creditors.  The automatic stay prevents a creditor from collecting on debts incurred by the debtor.  The automatic stay is effective immediately upon the filing of the bankruptcy.  As soon as the bankruptcy is filed and a case number is obtained, creditors may no longer pursue judgments, garnishments, foreclosure proceeding, or repossessions.  Creditors also must cease all phone calls, letters, e-mails, and any other form of communication with the debtor.  It is not legal for them to continue attempts to collect on any debts. However, secured creditors can ask the court for a motion for relief from the automatic stay.  A secured creditor has a claim on a debt that is secured by collateral, such as a mortgage on a home or a loan on a vehicle.  If a debtor is not current on their secured debts, the creditor can file a motion for relief.  When a motion for relief is filed, if the debtor does not become current or make arrangements with the secured creditor, the court can grant the motion for relief.  When that is granted, that gives the secured creditor permission to repossess or foreclose on the property.   The debtor is then no longer protected by the automatic stay from those particular creditors. There are exceptions to the automatic stay.  For example, if a debtor is in a situation where their landlord gets a rent and possession judgment against them for rent before the filing of the bankruptcy, that is not protected by the automatic stay.  The automatic stay has certain limitations.  If a debtor has had more than one bankruptcy case pending in the one year prior to the filing of the current bankruptcy, their automatic stay is limited to 30 days.  The debtor would have to file a motion to extend the automatic stay in order for it to last the entirety of the bankruptcy, which would state why circumstances are different with this bankruptcy and that it was filed in good faith.  If two or more bankruptcies have been pending in the last year, there is no automatic stay. If you would like to learn more about this issue or have any other questions, please contact a St. Louis or St. Charles attorney.

What Are Some Common Exceptions to Discharge in a Bankruptcy? In a bankruptcy, there are some common exceptions to discharge.  This means that there are certain things that are unable to be eliminated through a bankruptcy.  According to the United States Bankruptcy Code, Section 523, Debtors are unable to discharge certain taxes.  If the taxes are more than three years old from the date which they are due, i.e. April 15, they are able to be discharged as long as they were filed in a timely manner and were filed more than two years prior.  For example, if it is February 1st, 2012, debtors would be able to discharge taxes for the year 2007 and earlier.  If it is May 1st, 2012, debtors would be able to discharge 2008 and earlier because it is after April 15th. Debtors often inquire about the ability to discharge many other forms of debts.  Student loans, child support obligations, and fraudulent transactions cannot be discharged.  According to Section 523 of the United States Bankruptcy Code, debtors also may not discharge a debt related to an intentional tort against another person or their property.  A judgment related to a vehicle accident may be discharged under a bankruptcy, and the bankruptcy will assist the debtor in getting their license back if it has been revoked as a result of the judgment.  However, the Bankruptcy Code does not allow a judgment on a motor vehicle accident to be discharged if the accident occurred as a result of the debtor being intoxicated or under the influence of drugs. There are also other exceptions to a debtor's discharge.  A debtor cannot discharge a debt that could have been included in a previous bankruptcy, a payment of restitution ordered by the court, a debt pursuant to a divorce judgment or marital settlement agreement to be paid to a debtor's spouse or ex-spouse, or condo fees as long as the debtor maintains ownership of the property.  There are also other exceptions to discharge pursuant to the United States Bankruptcy Code.  The ones discussed are exceptions to discharge that can arise with some frequency.  If you have any questions about exceptions to discharge or other issues, please contact a St. Louis or St. Charles bankruptcy attorney.

Many people turn to bankruptcy due to garnishment or increased collection efforts.  With respect to garnishment, if your wages are not currently being garnished, but you think that you will be subject to a garnishment, filing for bankruptcy will stop any efforts to garnish or collect.  In a Chapter 7 Bankruptcy the debt will be completely discharged and the creditor will not ever be able to try to collect this debt or garnish your wages.  In a Chapter 13, the wage garnishment will stop, but you may be required to pay back that creditor, depending on your plan and the nature of the debt.  If your wages are currently being garnished the wage filing for bankruptcy will stop the wage garnishment.  Once your case is actually filed with the court creditors are not permitted to continue garnish your wages. In some cases it may take a few pay periods to stop.  You are entitled to a refund for any garnishment that occurs after you have filed for bankruptcy.  As a practical matter, it may take some time to receive your refund. With respect to collection efforts, creditors are not permitted to make any attempt to collect the debt after you have filed for bankruptcy.  If your creditors continue to contact you after filing with the court you should inform your attorney who can then contact the creditor, or if the problem persists, make a formal complaint. Some attorneys will accept payment plans for fees, but may not file until you are paid in full.  Creditors are not required to stop contacting you until after you actually file with the court.  As a practical matter, once you have retained an attorney, you may tell your creditors that and provide your attorney's information.  At that point the creditor may choose to stop contacting you regarding the debt. It is important to note, that if you choose to reaffirm any type of debt, generally a vehicle or a house, and you are not able to remain current on those payments your creditors may contact you, try to collect, garnish your wages, repossess property, or put a lien on your home.  Reaffirming your debt basically means that you have choose to keep the property and the contract and you are obligated to pay in accordance with the terms of the original contract. If you have any questions, or would like to schedule an appointment, contact a St. Louis Bankruptcy Attorney today!

What if I do not know who my creditors are? If you do not know who your creditors are, there are a couple of things you can do:         1.       Run your credit report or have your attorney run it for you (usually a fee)        2.       Start holding onto bills, letters, etc. that you receive in the mail        3.       Get creditor info when collectors or creditors call. What information do I need to know about my creditors? The bankruptcy petition asks for certain information about your creditors. At a minimum, you need:         1.       Name of creditor         2.       Address        3.       Amount owed        4.       Date the debt was incurred        5.       Consideration (what the debt is from; i.e. medical bill, credit card, loan, etc.) Do I need to know the original creditor and the collection agencies? How do I know who has it when they get sold to a new collection agency all the time? This is something that you just want to do your best on. You want to list any creditor that you are aware of so list the original creditors information and any collection agency that you are aware was a holder of the debt. What if I find more creditors after the case is filed? Do I have to pay those creditors back? No you do not have to pay those creditors. As long as your bankruptcy case is still open, you can add creditors. However, there is a fee for this you want to do the best you can to list all of your creditors before the case is filed.

Often people who file bankruptcy wonder what will happen to their credit score after filing bankruptcy and have concerns about the balances on their accounts. The answer to this is the credit report will not show any balances on the accounts as the creditor can no longer report to the credit bureaus about the debt. However, the credit score will increase or decrease based on a number of factors and previous credit information. The major factors are:    Credit card or loan repayment history Ÿ   Amount of debt owed Ÿ   Length of credit history Credit history is based on credit card repayment and the debt owed on these cards. If someone had a high balance on the cards and bad payment history may have an increase in the credit score after filling bankruptcy. On the contrary, for many others the bankruptcy will decrease the credit score. However there are many ways your credit score can be improved after filing bankruptcy. The most important is paying your mortgage payment or car payment on time as some of the creditors do report these payments to the credit bureau if the debt is been reaffirmed by bankruptcy filer. You may also choose to open new credit accounts or obtain the secured card or prepaid cards, which may require a security deposit and allow the cardholders to use the limited allowed money. This is reported to the credit bureau. Timely credit card payments will have a very positive effect on your credit score.  There are many services available, by paying a minimal fee that monitor accounts after filing bankruptcy and dispute any incorrect information reported to the credit bureaus. They also correct discrepancies on the credit report. Managing money wisely by monitoring interest and only using credit card when you can pay the balance in full each month will help you increase your credit score and become more financially secure.

Can the trustee really make me turnover documents or property? No, the trustee cannot MAKE you turn them over. However, if you filed bankruptcy to receive a discharge, which most people do, then you will want to turnover items requested by the trustee. Failure to cooperate with the trustee can result in dismissal of your case or denial of your discharge. What does denial of discharge mean? It means that your debt is not dissolved. It means that you essential (in most cases) hired an attorney, took a credit counseling class, attended a 341 meeting, and a hit to your credit all for nothing. You are back as square 1 with the same debt you start with and are now out of even more money for the fees and costs associated with the filing of the bankruptcy. Can’t I just tell the trustee that I did not get a tax refund? Or that I do not have any money at the time of filing? How will they know if I have cash in my wallet? Simple. You are going to tell them. Can you lie to them? Sure, if you want to commit perjury. All of the bankruptcies schedules, statements, and related documents are signed by you under penalty of perjury as being true and accurate. You are also sworn in under penalty of perjury at your 341 meeting where you will be asked if your schedules are accurate and whether you valued your items fairly and honestly. So by lying to the trustee or intentionally listing incorrect information on your schedules, you are risking prosecution for a perjury, which is a federal crime. For obvious reasons, I do NOT recommend this. If you are concerned about property you have being an issue in your bankruptcy, talk to your attorney BEFORE the case is filed. Your attorney can advice you on whether or not bankruptcy is the best option and whether there are ways to legally protect your property.

In a case of first impression for the Fifth Circuit or any other court of appeals, the Fifth Circuit has ruled that inherited IRA accounts may be claimed as exempt under 11 U.S.C. Sec. 522(d)(12). Matter of Chilton, No. 11-40377 (5th Cir. 3/12/12), which can be found here.In Chilton, one of the debtors inherited an IRA account in the amount of $170,000. The debtors established an IRA account to receive distributions from the inherited account. The trustee objected that the account was not a "retirement account" and was not the type of tax exempt account identified in section 522(d)(12). The bankruptcy court sustained the objection, but was reversed by the district court. Section 522(d)(12) allows a debtor who elects federal exemptions (an option available only to debtors in about eleven states since most states have opted out of federal exemptions), to exempt "(r)etirement funds to the extent that such funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a)of the Internal Revenue Code of 1986." Thus, there are two requirements: 1. the funds must be retirement funds and 2. they must be held in an account exempt from taxation under one of the designated sections.The court rejected the argument that funds set aside for the retirement of another could not be "retirement funds:"The plain meaning of the statutory language refers to money that was “set apart” for retirement. Thus, the defining characteristic of “retirement funds” is the purpose they are “set apart” for, not what happens after they are “set apart.” Here, there is no question that the funds contained in the debtors’ inherited IRA were “set apart” for retirement at the time Heil deposited them into an IRA. This reasoning finds further support from 11 U.S.C. § 522(b)(4)(C), which provides that “a direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section . . . 408 . . . of the Internal Revenue Code of 1986, . . . shall not cease to qualify for exemption under . . . subsection (d)(12) by reason of such direct transfer.” In other words, the direct transfer of “retirement funds” does not alter their status as “retirement funds.” As we see no reason to interpret the statutory language differently from its plain meaning, we hold that the $170,000 contained in the inherited IRA constitute “retirement funds” as that phrase is used in section 522(d)(12).Opinion, p. 5.The Court also ruled that the account was held under the proper section of the Internal Revenue Code. The Trustee argued that the account was tax exempt pursuant to 26 U.S.C. Sec. 402(c)(11)(A), while the Debtor contended that section 408(e) was the relevant section. While this discussion of the Internal Revenue Code would seem arcane and of little interest to bankruptcy lawyers, the Court relied on the expansive language of section 408(e), which stated that "(a)ny individual retirement account is exempt from taxation under this subsection . . . " Because the account was an individual retirement account, it fell within the definition of "any" individual retirement account. Thus, common sense construction carried the day even thought the subject matter was the tax code.On a final note, the Court of Appeals decided this appeal quite expeditiously. The case was argued on February 22, 2012 and decided on March 12, 2012, just nineteen days later. Judge Carl Stewart should be commended for his prompt work.

The answer is that it depends.  The short answer is that the more recent the debt is the less likely it is that it will be dischargeable.  The more detailed answer requires analysis of a series of qualifications.  First, to be dischargeable, the tax debt must be at least three tax years prior to the time the debtor files for bankruptcy.  On March 13, 2012 a 2008 tax debt is not dischargeable.  After April 16, 2012 a 2008 tax debt may be dischargeable.  (Note, generally taxes must be filed by April 15, however, this year the date falls on a Sunday so taxes will need to be filed or postmarked by April 16, 2012.)  If the tax debt is at least three years old, the next issue is that the tax return must have been timely filed, or filed at least two years prior to the bankruptcy.  This can become an issue where otherwise dischargeable taxes may not be dischargeable if returns are not filed on time.  If a debtor did not prepare a return for any given year and the IRS assessed a deficiency for that year the amount is not dischargeable unless the debtor files a tax return for that year.  However, if this applies to you, remember, that your return must be timely or must be filed at least two years prior to a bankruptcy.  The most simple concept to take from this is to file your tax returns on time.  The tax return cannot be fraudulent in any way to be dischargeable.  If you were married at the time and there was fraud that you were not a part of there may be some options for you to pursue with the IRS regarding the debt.  Taxes are not dischargeable in any event where the taxpayer is guilty of any intentional act of evading tax laws.  When filing for bankruptcy, if you are required by law to file a tax return, you need to have filed your returns for the previous four years.  If for some reason, i.e. unemployment, you are not legally required to file you will be excused of this obligation in the bankruptcy, but will still need to provide a copy of your most recent tax return. If you have questions about whether your taxes are dischargeable, make an appointment with a St. Louis Bankruptcy Attorney today!