Home Prices Drop Two Percent Nationwide

Data recently released by Standard & Poor shows that home prices have dropped roughly two percent nationwide since June.  This news is a grim reminder to homeowners that real estate is dragging behind in the economic recovery.  In some cities, notably Phoenix and Las Vegas, home prices are now roughly where they were in 2000, while a 27 percent advance would have been needed to keep pace with inflation. 

Some analysts have speculated that the homebuyer’s tax credit artificially supported the housing market, and now that this credit has ended, the impact of foreclosures and a glut of homes for sale will depress prices in many areas. However, an improving economy could offset that trend and increase demand for homes as the job market improves. 

In many cases the federal bankruptcy laws can help a family deal with a home that is losing value.  During a Chapter 13 bankruptcy a debtor is able to strip away an entirely unsecured second and/or third home lien.  A junior lien is unsecured when the senior lien is more than the value of the home.  An unsecured junior lien can be stripped and the debt discharged during a Chapter 13 bankruptcy. 

A Chapter 13 bankruptcy also provides an opportunity to negotiate with the lender for a modification of the debt.  In some cases the lender may reduce principle or interest and modify the existing note, making staying and paying on the home a more attractive option. 

During Chapter 7 or Chapter 13, a debtor is able to walk away from a house and discharge the debt.  In this way bankruptcy can be used as a financial tool to relieve the burden of a declining investment. 

If you are struggling with debt and overwhelmed by a home that is depreciating in value, speak with an experienced bankruptcy attorney and discuss your options.  Your bankruptcy attorney can help you devise a plan to eliminate your debt and improve your financial situation, both short term and long term.

Protecting Your Income Tax Refund

The traditional wisdom regarding bankruptcy and tax refunds is: get it and get rid of it before filing bankruptcy. The bankruptcy trustee can’t take what you don’t have, right? 

In the law there are rarely absolutes. In some cases the trustee can demand money that you no longer have in your possession. A common example of this is a preference payment to an insider creditor (e.g. repaying a loan to your mother from your tax refund). The trustee can sue you or your creditor for the turnover of the money. 

The simplest way to avoid any potential loss of your income tax refund is to discuss the situation with your bankruptcy attorney. In many cases your attorney can exempt all or a portion of your tax refund, so you can keep the cash money after you file bankruptcy. First, you are required to identify the property in your bankruptcy schedules, and then apply the applicable exemption law to protect it. Failure to list or exempt this asset may render the entire amount unprotected and lost to the bankruptcy trustee. 

If your exemptions will not protect all of your income tax refund, you should consider spending the difference to benefit your family. The best guidance is to spend the money on goods or services that are reasonable and necessary. While your attorney can help you decide on specific purchases, the following categories are generally safe: 

1.  Household expenses such as utility bills, mortgage or rent payments, car payment, auto insurance, and needed auto repairs/tires

2.  Personal expenses such as food and clothing, dental work, and medicine

3.  Priority debts like child support arrears and tax debts 

Luxury good purchases like electronics, vacations, and jewelry should be avoided. Likewise gifts to family members or friends, spending sprees, and gambling should all be avoided. Any payment from your tax refund that you plan to make to a creditor should be discussed with your attorney. 

Your income tax refund is your money! You can ensure that this money benefits your family by discussing your situation with your bankruptcy attorney.

Military Service Can Mean Special Treatment Under Bankruptcy Laws

Military service is a selfless and honorable public service.  Veterans deserve our respect and our gratitude.  Congress has passed many laws attempting to give veterans a preferred status to meet special needs that result from service to our country.  For instance, wounded veterans receive health care after discharge, and veterans often have hiring preference for jobs. 

In recognition of the potential economic hardship that extended military service may impose on our reservists and national guardsmen, Congress has made a special exemption from the bankruptcy means test.  Members of the Reserves or National Guard who file bankruptcy while on active duty or within 540 days after release from active duty are excluded from all forms of means testing.  The means test is a mandatory calculation that determines whether the debtor’s income is low enough for you to file Chapter 7 bankruptcy.   

Disabled veterans are also exempted from taking the means test.  However, this exemption only applies if the indebtedness was primarily incurred during service on active duty or while performing a homeland defense activity. 

Active duty servicemen and servicewomen are not excluded from the means test.  However, active duty personnel receive protection under the Servicemembers Civil Relief Act (SCRA).  The SCRA protects active duty military personnel from default judgments and evictions, and can even reduce the servicemember’s interest rates.  Active duty personnel serving in a combat zone are also excused from completing pre-bankruptcy credit counseling. 

If you have served in this country’s military and are now struggling with debt, speak with an experienced bankruptcy attorney and learn how our national laws can help you in your time of need.  The bankruptcy laws broadly protect Americans overwhelmed by debt, and specifically protect certain veterans who have suffered financial hardship as a result of their service.

Be Accurate About Your Bank Balance When Filing Bankruptcy

During a Chapter 7 bankruptcy case, all of the property in the debtor’s “possession, custody, or control” is part of the bankruptcy estate. If there is estate property that is not exempt from collection, the bankruptcy trustee may require turn-over the property to pay creditors. It is therefore extremely important to accurately identify all of the debtor’s property and its status prior to filing a bankruptcy case. 

One situation that can cause headaches in bankruptcy is misrepresenting the actual balance in a checking account on the day the bankruptcy is filed. If the debtor is unable to exempt the cash balance in a bank account, the trustee may require its turn-over, even if the cash is subsequently spent. 

Delays in filing a case can sometimes lead to checking account issues. For instance, the debtor believes that the case was filed the day before payday, when actually it was filed on the debtor’s payday. The bankruptcy schedules report $100 in the bank account, when actually the amount is $1,000. 

Negligence can also be a factor in bank account mishaps. One common mistake is reporting the checking ledger balance instead of the actual bank balance. The United States Supreme Court held in the case of Barnhill v. Johnson, 503 U.S. 393 (1992), that the transfer of funds occurs when the bank honors a check. Therefore, if the bank balance is $2,000 and $1,900 is written in outstanding checks that have not been honored by the bank, the full $2,000 is property of the estate. 

Preventing the above problems is simply a combination of good bookkeeping and good communication.  First obtain your actual bank balance, and account for any direct deposits, pay checks, and any outstanding checks.  Next discuss the situation with your bankruptcy attorney. Be careful about writing checks just prior to filing bankruptcy.  In some cases pre-filing financial transfers can cause additional issues in your bankruptcy.  It may be prudent to delay your bankruptcy filing until certain checks clear or your paycheck has been spent on necessities. 

Avoiding surprises and problems in your bankruptcy case takes cooperation between you and your attorney. Immediately inform your attorney if you have changes in your property, debts, income, or expenses after you have signed your bankruptcy petition.

Can An Illegal Immigrant File Bankruptcy?

There is no requirement of citizenship in the Bankruptcy Code. Section 109(a) of the Bankruptcy Code states that “…only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor” in bankruptcy. Your legal status does not determine eligibility to file bankruptcy; however there may be complications if you are not a U.S. citizen. 

First, you must be able to prove a physical residence or ownership of property within the bankruptcy court’s jurisdiction. A permanent physical address is required for the bankruptcy forms. Residency is also important to qualify for state exemptions used to protect your property.  Generally, a debtor must show residency within a state for at least 90 days preceding the bankruptcy filing in order to qualify for that state’s exemption laws. 

Second, you must prove your identity. Most bankruptcy debtors use a social security number (SSN), but an individual tax identification number (ITIN) may also be used. An ITIN is issued by the IRS to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. Whether a SSN or ITIN is used, physical verification of the number must be shown to the bankruptcy trustee. 

While there is no requirement in the Bankruptcy Code that you must have either a social security number or ITIN, the bankruptcy petition requires you to sign a Statement of Social Security Number. The options on this Statement are (1) you have a social security number; (2) you have an ITIN; or (3) you don’t have either. If you select option three, you may be able to use a valid passport or some other official government issued identification as proof of identity.  There are bound to be consequences for the debtor that does not have a SSN or ITIN including the red flags it sends to the Department of Justice, the IRS, and INS. 

Crimes of “moral turpitude” that are be disclosed within a bankruptcy filing may affect your immigration status or application for citizenship. These acts include the fraudulent use of credit cards, bad check offenses, tax evasion, fraudulent transfer of an asset, or falsifying government documents (including your bankruptcy petition.) 

If you have immigration issues and need to file bankruptcy, discuss your situation with an experienced attorney. The United States bankruptcy laws are very liberal and can help you get out of debt. Your attorney can work with you to resolve your debts while avoiding deportation.

Will I Lose My Tax Refund by Filing Chapter 7 Bankruptcy?

April 15 is quickly approaching and many Americans are filing their income tax returns.  A common question at this time of year is, “Will I lose my income tax refund if I file Chapter 7 bankruptcy?”  The short answer is no, at least if you consult with an experienced bankruptcy attorney. 

The safest situation is to file your tax return and receive your refund prior to filing bankruptcy.  The bankruptcy estate is calculated as of the date that you file your case.  If the tax refund money is gone on the date you file your bankruptcy, there is generally no way for the bankruptcy trustee to make a claim against the tax money. 

However (it’s funny how bankruptcy law, like life, has many “howevers”), there are exceptions to the general rule.  For instance, if you pay an insider creditor on an antecedent debt, the trustee can avoid the transfer.  An “insider” is a basically person close to you like a friend, family member, or business associate.  If you owe an insider money, and you repay the debt from your tax refund, then the trustee could ask the insider to repay the money to the bankruptcy estate.  Paying an insider within a year of filing bankruptcy usually leads to problems. 

You may run into a similar problem if you pay down a loan, or pay any creditor a large lump sum within 90 days of filing bankruptcy.  You could also run into an equity issue by paying off a vehicle with a large tax refund.  These may seem like responsible actions, but the bankruptcy laws are full of landmines.  Before spending your tax money it is wise to consult with your bankruptcy attorney to avoid these sticky situations.     

Another issue that occasionally happens is when a bankruptcy debtor files a Chapter 7 case after filing a tax return, but before receiving an expected small refund.  “No problem,” says the bankruptcy attorney, until the IRS adjusts the small refund into a large refund.  There is “no problem” if the debtor has available exemptions to protect the refund, the debtor simply amends his schedules.  But sometimes there is no way to protect all of the refund and the trustee is able to collect.  That is an unfortunate situation for someone that really could use the extra money, and a case that can be avoided by waiting until the refund is received and spent. 

If you are concerned about keeping your income tax refund, consult with an experienced bankruptcy attorney.  Your attorney can advise you on property that is exempt (protected) and non-exempt (not protected) before you file your case and risk losing any property.

Foreclosure, Pets, and Bankruptcy

The economic downturn has had a far-reaching affect. The mortgage crisis created a new victim: the family pet. As more families lost their homes to foreclosure, more pets were abandoned or left at animal shelters. USA Today reports that some pet owners are leaving pets in empty houses and garages with some food and water. Often these abandoned animals aren’t found for days or weeks and are dead or dying. 

Before you decide to walk away from a home and turn your back on a family pet, consider how the federal bankruptcy laws can help your financial situation. First, there are options to keep your home during bankruptcy by paying arrearages over time, stripping away an unsecured second or third mortgage, or buying needed time to qualify under a home loan modification program.

Contrary to widespread misinformation, you do not have to give up your pet when you file bankruptcy. The judicial trend is to recognize pets as more than property. In a recent case from the U.S. Bankruptcy Court for the District of Maryland, a Chapter 13 debtor was allowed to claim pet care expense in his bankruptcy plan over a trustee’s objection. The judge in that case found that a family pet should not become “a helpless casualty of a family’s financial crisis,” and “as long as the Debtor is ready and willing to provide the pet with a loving home, the Debtor should not be prevented by the bankruptcy process from continuing to do so.” 

Family pets, or “companion animals,” are not limited to dogs or cats. In the case of In re Gallegos, a U.S. Bankruptcy Court in Idaho held that a pet horse, although residing outdoors, could qualify as a “household pet.” In Gallegos the judge held that “[i]t is more the fact that an animal is held primarily for the enjoyment and companionship of its owners, and not for some other reason, that makes the pet a member of a debtor’s household.” 

Like any other monthly expense, pet care expenses must be reasonable. One bankruptcy court found that spending $100 for the care of two dogs was reasonable, while another court found that $750 per month for pet care expense was not reasonable. 

If you are struggling with debt and need help with your finances, consult with an experienced bankruptcy attorney before making any important and long-lasting decision. You owe it to your loved ones to consider all the available options before deciding on a course of action.