The basic rules of a cram-down are pretty straightforward:

1. A vehicle cram-down is only available in a Chapter 13 case (different options exist in other bankruptcy chapters);
2. The vehicle must be for personal use;
3. The debt must have been incurred more than 910 days (about 2 ½ years) before filing the bankruptcy petition ; and
4. The loan must be more than the fair market value of the vehicle. 

A cram-down is accomplished through a court order and confirmed Chapter 13 bankruptcy plan. The bankruptcy court will receive evidence of the amount owed and the value of the vehicle. Once the court approves the cram-down, the amount of the secured claim will be the same as the value of the vehicle. The remaining balance will be ordered as unsecured, and will likely be discharged at the end of your bankruptcy case. 

The new secured balance is paid to the Chapter 13 trustee who pays the creditor. The balance also includes a new court ordered interest rate. The approved rate of interest is directed by the United States Supreme Court in Till v. SCS Credit Corp, and commonly called the Till rate.  The Till rate is often less than the debtor’s original interest rate, and lowers the monthly payment. 

While the federal bankruptcy laws are meant to be uniform across the country, the sweeping changes to the Bankruptcy Code in 2005 left many questions that are still being resolved by different circuits. For instance, recently the Ninth Circuit in the case of In re Penrod broke from the rest of the country and decided that the amount of negative equity in a trade-in that was rolled into a new vehicle loan could be stripped off, even when the loan is less than 910 days old. This case highlights the different interpretations of the new bankruptcy laws and why it is critical to retain experienced counsel for your case. 

If you are considering bankruptcy and own a vehicle that is underwater, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can explain the several options for keeping or surrendering a vehicle during bankruptcy, and help you decide the best course of action for your family.

In today’s economy your credit score is not the only factor a lender considers when issuing credit.  Financial institutions are using new sources to profile their customers.  A recent article by Wall Street Journal writer Karen Blumenthal entitled New Ways Bankers Are Spying on You reports that banks are now examining rent and utility payments, bank deposits, as well as estimating your home’s value in order to gauge your financial health.  Blumenthal writes that in one case a bank customer was denied a credit after the lender reviewed his home loan records, determined that the value of his California home had declined, and noticed that his mortgage principal wasn’t declining—giving away that he has an interest-only mortgage. 

Financial good health is living within a budget, using credit responsibly, controlling debt and excess spending, working towards short and long-term financial goals, and contributing to savings and investments.  It is difficult to manage just one of these aspects when a person is overwhelmed by debt. 

Fortunately, the federal bankruptcy laws provide an answer for individuals living beyond their means and buried in debt.  Bankruptcy offers a legal means to restructure or eliminate your debts while protecting your family’s assets including real estate, vehicles, or retirement accounts.  During bankruptcy creditors cannot contact you directly and the vast majority of debtors do not lose any property. 

If you are drowning in debt, don’t be fooled by a high credit score.  Your financial house is built on sand and it is time to rebuild on solid ground.  Consult with an experienced bankruptcy attorney and discover how the federal law can get you back on the path to financial health.

Small business owners are required to withhold taxes from their employees’ paychecks and pay the Internal Revenue Service (IRS).  Employment taxes consist of two parts: (1) the employer’s portion, and (2) the employee’s portion.  The employee’s portion is withheld from the employee’s wages by the employer, and consists of a 6.2% Social Security tax and a 1.45% Medicare tax.  The employee’s portion is held in trust by the employer until it is remitted to the IRS.  The employer portion of the tax is paid directly to the IRS.  This obligation is comprised of a matching contribution of 6.2% as Social Security tax and 1.45% as Medicare tax.  

When an employer cannot pay the IRS, things can go south very quickly.  The IRS can close a business for failure to pay employee taxes, and can attempt to collect personally from each owner or manager responsible for withholding and paying the tax (known as a “responsible person”).  The IRS can collect 100% of the debt from each of the responsible persons until the debt is paid.  Usually this results in owners and officers pointing out each other’s personal assets in a “get him not me” effort to avoid payment.  This can be very nasty business. 

The federal bankruptcy laws can help manage this impossible situation.  While in some cases an individual can file bankruptcy and discharge the employer’s portion of the tax debt, the employee’s portion is not dischargeable.  However, bankruptcy allows the debtor to propose a plan to repay non-dischargeable payroll taxes, often without stopping business operations. 

If you are a small business owner with an employer payroll tax problem, consult with an experienced bankruptcy attorney and discuss your options.  The federal bankruptcy laws may be able to provide the time and opportunity to repay your tax debt and continue your business.

Under this new Treasury Department rule, an electronic tag will be added to automatic deposits from government agencies. These funds include Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration (“VA”) benefits, federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits. Banks are required to exempt all tagged deposits made during the previous two months and protect those deposits from garnishment. The consumer is no longer required to take any action to claim or identify exempt funds. The rule makes banks not liable to creditors for refusing to garnish the tagged funds, even if the money is co-mingled with other non-exempt money. 

The National Consumer Law Center estimates that more than 1 million people each year have accounts garnished that contain exempt federal funds. Recipients are often sick or elderly and may be forced to forego needed food and medicine when an account is frozen. 

This new rule applies to all federally chartered federal and state banks and credit unions. While there is no cap on the amount of protected funds, the automatic protection only applies to the previous two months. Exempt funds must be deposited electronically to receive the identifying tag. Deposits made by paper checks are still exempt, but the bank is under no obligation to identify these funds or protect them from garnishment. The rule does not apply to military retirement or state issued benefits. 

There are many powerful consumer protection laws. If you have a judgment against you and are at risk of a bank or wage garnishment, consult with an experienced bankruptcy attorney and discover how the law can help. Your attorney can discuss your legal options to make the best of a bad situation.

The Bankruptcy Code identifies two different types of liens that may be avoided during bankruptcy: (1) a judicial lien; and (2) a non-possessory, non-purchase money security interest in household goods or tools of the trade.  Furthermore, to qualify for avoidance the debtor must be able to apply a bankruptcy exemption (a legal allowance to the debtor to protect property from creditors) to the property securing the debt. 

Clear as mud, right? 

Let’s make it a little clearer: first, judicial liens are judgments and garnishments caused by a court order or judicial process.  If your property is subject to a debt imposed by a court order, it may be possible to avoid the lien during bankruptcy.  Statutory liens, like tax liens, are not avoidable in Chapter 7, but may be avoidable in Chapter 13. 

Second, a non-possessory, non-purchase money security interest is simply a lien that you gave a creditor against property that you owned prior to incurring the debt and did not acquire using money from the creditor.  A typical example is a personal bank loan secured by your television and/or other household items. 

Finally, to qualify for lien avoidance, the debtor must be able to apply a legal exemption to the property.  For instance, if you own a television worth $500 used as collateral for a $1,000 personal loan, you may be able to apply a legal exemption to protect the television and avoid the lien against it.  Once the lien is avoided, the status of the debt changes from secured to unsecured and is likely discharged at the end of the bankruptcy case. 

Additionally, if the legal exemption does not protect all of the value of the property, the lien may be reduced to the extent the lien secures the property.  Using the above example, if the television is worth $500, but the debtor is only able to exempt $250 of its value, the creditor’s lien would be reduced in value from $1,000 to $250 (the amount of non-exempt equity in the television). 

To avoid a lien the debtor’s attorney files a motion with the bankruptcy court alleging that the creditor’s lien is impairing the debtor’s exemption.  Typically these motions are uncontested and are granted without hearing. 

It is important that you provide your bankruptcy attorney with documentation for all of your loans.  Your attorney can avoid certain liens during the bankruptcy that will safeguard your property after your bankruptcy discharge.

Many of our elderly try to avoid bankruptcy because they believe that they can pay their obligations with minimum monthly payments.  The unfortunate truth is that it takes many years to pay off even a small high interest debt with minimum monthly payments.  In the meantime a changed interest rate and annual fees can cause that minimum payment to increase.  Additionally, forgotten payments can lead to creditor harassment or lawsuits which can result in a real estate judgment lien and/or an asset seizure. 

Discussing personal bankruptcy with an older loved one can be difficult.  In many cases there is great concern over losing property or income.  The federal bankruptcy laws have changed significantly over the past fifty years and offer great protections for the elderly.  For instance, retirement income and social security are protected from creditor garnishment during bankruptcy.  In most cases all of the bankruptcy debtor’s property is exempt from turnover; however your bankruptcy attorney can discuss any property that may be at risk.  The bankruptcy laws offer many options for retaining property and discharging debts.  After the typical case the unsecured debts are discharged and there is more money available to pay necessary living expenses. 

Another common concern is the embarrassment of bankruptcy.  A personal bankruptcy is usually a very private legal process.  Friends and family are not contacted and bankruptcy cases are not published in the newspaper. Only creditors and co-debtors receive notice of a personal bankruptcy.   

If an older relative is struggling with debt, discuss the situation with an experienced bankruptcy attorney.  The federal bankruptcy laws contain many protections that shield the assets and incomes of the elderly while discharging burdensome creditors.  Don’t let the stress of credit cards and medical bills tarnish your loved one’s golden years.

Unveiling the calculator at CheckMyNPV.com is the latest move to streamline the HAMP process. It comes on the heels of an announcement by the Treasury Department to require that servicers designate a single point-of-contact through the entire default resolution process. 

If you are behind on your mortgage payments, or can’t afford your current mortgage payment, you have options! In addition to the federal bankruptcy laws, HAMP is one of several government programs that are available to homeowners in distress. In some cases, bankruptcy can provide time for the homeowner to negotiate lower payments with the lender, repay mortgage arrears, or even strip away a second or third mortgage loan. 

The housing bubble has burst, but that doesn’t mean the fallout must rain down all over you and your family. Protect your home by taking advantage of the legal processes in place to refinance, modify, or discharge your home debt. Speak with an experienced bankruptcy attorney and discuss your legal options.

Purchase money security interest loans (PMSI) occur when the lender loans money that the borrower uses to purchase a specific item and the lender retains a secured interest in the item. This is commonly the case with motor vehicles. The bank lends to the borrower for the specific purpose of purchasing an identified vehicle, and the bank takes a lien on the vehicle.  PMSI loans cannot be discharged in bankruptcy. However, under certain circumstances a PMSI loan can be “crammed down” by the bankruptcy court so that the amount owed is equal to the value of the collateral. 

Non-purchase money security interest loans (NPMSI) occur when the borrower already owns property that is used as collateral for a loan.  For instance, a borrower may take a loan from a finance company and use household goods and/or jewelry as collateral for the loan. The bankruptcy laws allow the debtor to exempt (up to a certain amount) household goods and jewelry, so the NPMSI loan can be avoided to the extent that the loan impairs the legal exemption. 

For example, let’s say that you take a loan from a finance company for $500 and secure it with your television worth $400. If you apply your legal household goods exemption to protect the full value of your television ($400), the finance company’s loan impairs the exemption. After the bankruptcy court grants a Motion to Avoid Lien filed by your bankruptcy attorney, the television is fully protected and the creditor is left with an unsecured loan. 

The bankruptcy laws contain many powerful provisions for protecting property. If you are in debt and need legal relief, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can discharge your debts, safeguard your property, and provide the financial fresh start you need.

Section 548 of the Bankruptcy Code endows the bankruptcy court trustee with the power to undo a fraudulent transfer made within two years of the bankruptcy filing. Fraudulent transfers include any transfer made with the intent to hinder, delay, or defraud creditors; or transfers made while the debtor is insolvent which do not involve a fair value exchange. While the lookback period is set at two years by section 548, another section of the Bankruptcy Code (section 544) permits the trustee to apply state law to undo a fraudulent transfer. In many cases the state law lookback period is longer than two years. 

There is generally no issue if you have sold property and received a fair price. However, if you have transferred property in a less than honest fashion, the transfer may be undone. For instance, if you sell your car worth $5,000 to your brother for $500, and then file bankruptcy two months later, the trustee may seize the car from your brother and sell it to pay your creditors. Likewise, deeding jointly owned real estate to a non-filing spouse prior to filing bankruptcy can create a thorny legal dilemma.

 Every individual bankruptcy case must include a Statement of Financial Affairs which asks the debtor to list all property transferred within two years before the bankruptcy filing. It is important to answer this question honestly, and to discuss any recent property transfer with your bankruptcy attorney. 

If you are considering bankruptcy, consult with an experienced bankruptcy attorney and discuss your legal exemptions. In many cases your attorney can legally protect your property without the need to sell or transfer. Your attorney can advise you on the best course of action to protect your property and restructure your financial obligations.

The act of paying one creditor while ignoring another is called a preference payment by the bankruptcy laws.  The debtor preferred to pay one creditor and not others.  A preference payment is defined as a transfer of money made before a bankruptcy filing, to pay on a pre-existing debt, made while the debtor is insolvent, and gives the creditor more than it would receive from the liquidation of the debtor’s assets during a Chapter 7 bankruptcy. 

In deciding who should get paid first, the Bankruptcy Code divides creditors into classes and creates a hierarchy of preferences.  For instance, the Bankruptcy Code prefers that child support is paid before credit cards, and that a secured car payment is paid before a medical bill.  In many cases a pre-bankruptcy preference payment is perfectly fine; in other cases it can create trouble for the debtor and the creditor.  This is especially true when one creditor in a class receives more than other creditors in the same class, or a creditor in a lower class receives money before creditors in higher classes. 

When a preference payment occurs within 90 days of the bankruptcy filing, the bankruptcy trustee can ask the court to order the preferred creditor to turn over the payment(s) for distribution according to the hierarchy of preferences.  This period is increased to one year if the creditor is an “insider” creditor.  An “insider creditor” is generally a relative, business partner, etc. who has a special relationship with the debtor. 

Common preference payment scenarios include:

1. Repaying a personal loan from a family member just before filing bankruptcy;
2. Paying one business vender, while ignoring others.
3. Transferring a credit card balance from one card to another.
4. Paying off a credit card, medical bill, or personal loan just before bankruptcy. 

When the trustee requests turnover of a preference payment, the creditor is faced with either complying with the request or litigating the matter in bankruptcy court.  There are legitimate preference payment defenses which largely depend on the circumstances of the payment.  However, the general practice of bankruptcy trustee is to sue first and ask questions later. 

If you are struggling financially, seek out legal advice early and avoid making mistakes with preference payments.  An experienced bankruptcy attorney can help you make wise financial decisions and avoid preference payment situations.