I just received a lump sum settlement for my personal injury case. Is it safe in my bankruptcy? Is it safe from creditors generally?

Probably yes.

I have a client who received a $25,000 settlement from a personal injury case.  She is worried that creditors or even the bk trustee will try to take that money from her.  

So long as that money is for bodily injury and is compensatory, it is safe.  In other words, if she had made the mistake of signing a settlement agreement saying that they were punitive damages, then they could be taken by the bk trustee.  However, that is rare.  Almost everyone settles for compensatory damages to compensate you for some kind of injury.

I can safely list the $25,000 in her bankruptcy and then exempt (protect) it from creditors and from the trustee.

Here is the Utah Code Section that thankfully put her mind at ease:

Title 78B  Chapter 5  Part 5  Section 505

78B-5-505. Property exempt from execution.
(1)
(a) An individual is entitled to exemption of the following property:

…..

(x) proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory;

What happens if my bankruptcy case is audited by the U.S. Trustee’s Office (Department of Justice)?

Usually nothing.

(Chapter 13 cases get audited as well, but this blog article focuses on Chapter 7 cases).

Short answer:  If your case is above median and you draw an audit, they will ask for bank statements, tax returns, and paystubs to prove that you really do qualify for a chapter 7.  If you don’t, then they’ll move to dismiss your case. At this point, you can fight it (and lose), let it dismiss and try again, or even convert to a chapter 13.

Long answer:

When you file your chapter 7 case, the court assigns you an interim trustee.  This is the bankruptcy trustee that you have 99% of your dealings with.  Over him is the the U.S. Trustee’s Office, and they will periodically get involved in cases which are (1) above-median or (2) are referred to them by the regular trustees.

In my practice, when this happens, the U.S. Trustee will contact me, usually with the following email:

Dear Mr. Robert:

We have conducted a preliminary review of the Petition, Statement of Financial Affairs, Schedules and other documents filed in this case, pursuant to the United States Trustee’s duties under 11 U.S.C. §704(b), and have determined that we need additional information to complete our review. Pursuant to Bankr. D. Ut. LBR 2003-1(b) and 4002-1(b) please provide the information and copies of the following documents:
1) A copy of the Debtor’s most recent Federal and State tax returns with all attachments and Schedules (Please be sure to include a copy of the page showing itemized deductions claimed on that return (Schedule A), if applicable).
2) Copies of all payment advices received by the Debtor for the 6 months prior to the filing of bankruptcy (December 1, 2016 through May 31, 2017), including pension payments, social security payments, unemployment payments, etc.
3) Copies of check registers, canceled checks and bank statements from all financial institutions in which the Debtor maintained a financial account from December 1, 2016 through May 31, 2017.
4) A copy of the Debtor’s two most recent payment advices.
5) A copy of the Debtor’s Divorce Decree and/or Support Order.
6) The Debtor’s Statement of Intention shows he intends to retain his real property. However, his Schedule J lists no mortgage payment. Please explain the discrepancy between the two Schedules.
7) If any of the Debtor’s household expenses are not paid from his bank accounts, please provide verification of such expenses.

Please provide the response to xxxx@usdoj.gov by no later than Tuesday, July 25, 2017. If you have any questions concerning this matter, feel free to contact me at (801) xxx-xxxx.

The email looks scary, but it’s really not.  These are all numbers that you’ve already disclosed to your bankruptcy attorney, and if you are above-median, then you were probably expecting the audit.  The U.S. Trustee simply wants to verify the information you’ve provided.  Even better, they are professional, educated, and easy to work with.  They don’t want to trip you up and will be blunt and straightforward in their requests.  Your attorney will have no trouble dealing with them.  Unlike some other attorneys, they respond immediately to email and will actually answer their phones.

Being audited doesn’t mean that you’re in trouble.  It simply means that they are doing their job in a case where you may make too much for simple chapter 7.  Hopefully you do qualify for a chapter 7, and you pass the audit with flying colors.

If you don’t, then they will file a motion to dismiss.  You can fight it (and most likely lose).  You can convert your case to a chapter 13 and get on some kind of repayment plan with your creditors.  You can even let it dismiss out, plan a new chapter 7 with your attorney, and try again.

I have filed a lot of cases and have been audited over and over.  Sometimes I lose, but in most cases, the U.S. Trustee is satisfied with our documentation, and the clients receive a chapter 7 discharge.  The stories could make some fairly interesting blog posts, but not today.

I have a truck with some good equity in it. Should I sell it before I file bankruptcy?

Most likely yes.

Today I received a call from a woman who was laid off from her job after 20 years with the same company.  She was contemplating bankruptcy but had an interesting question for me:  what should she do with her truck?

She owed $4,000 on a secured loan with her credit union.  The truck itself was worth about $15,000.  If she filed bankruptcy with those numbers, the bk trustee would sell her truck, pay off the loan, and then give her $3,000 for her trouble (the $3,000 vehicle exemption under Utah law).  

She was contemplating selling it before going bankrupt but wanted to know if that would be considered “improper.”  I told her to sell it.  It is perfectly legal and proper to sell a non-exempt assets and convert it to an exempt asset.  In other words, I told her to sell it, pay off the secured loan, buy a car for $3,000 (the number I can protect), and use the rest for living expenses.

She then asked if the bk trustee would ask for receipts on her expenditures.  The answer is a definite YES!   The bk trustee knows (and I know) that you really want to put a few thousand in your dresser drawer for a rainy day, but you cannot do that.  You have to account for the funds, and the bk trustee will ask for proof, usually in the form of receipts.

So when you have an asset with value I cannot protect, it is generally a good idea to sell it and use the proceeds to benefit your family before you file bankruptcy.  If you let the bk trustee sell it, he will use it to benefit your creditors instead.

What happened to the chapter 13 trustee payment website for Lon Jenkins in Utah (tfs bill pay)?

It changed.

For the last few years, you could make your online chapter 13 plan payment at the trustee website using their bill pay service.  Now, when you click on their “Debtor Payments” button, it takes you here:  https://tfsbillpay.com/ .  It’s a new service, but clicking through their screens, it seems fairly straightforward to use.  Just don’t forget your case number.  

It seems to be a MoneyGram service, and unfortunately, yes, it does have a transaction fee of $8.99 per payment.  So if your plan payment is $100 a month, then you’ll be paying $108.99 each month if you use this service.  That is worth it, because you’ll receive immediate confirmation of receipt.

 

The trustee touts it as the:

Fastest Method of Trustee Payment

Use MoneyGram in time-sensitive situations like a dismissal hearing, before confirmation, or catch-up payment….

Peace of Mind!

Once your payment leaves your hands, it’s tracked and guaranteed to arrive at your trustee’s office.

The only bit of mild misinformation is the trustee’s statement that  you can “Talk to your Attorney.  They can print your MoneyGram card straight from their office.”  No, I can’t.

(See my now out of date articles here:  http://robertspaynelaw.com/myutahbankruptcyblog/2015/10/06/where-do-i-make-my-chapter-13-plan-payment-in-utah-now-that-lon-a-jenkins-is-the-trustee-and-not-kevin-r-anderson/

and here:  http://robertspaynelaw.com/myutahbankruptcyblog/2013/12/19/where-do-i-make-my-chapter-13-plan-payment-in-utah/

What documents do I need to bring to my 341 Meeting of Creditors with the bankruptcy trustee (2017 revisit)?

I covered this in 2014 (see below), and it really hasn’t changed.

About a month after we file bankruptcy, we meet with a bankruptcy trustee assigned to your case.  It is his job to determine if you have any non-exempt assets (things I cannot protect) that he can sell off so that he pay a portion of those proceeds to your creditors.  

Normally, the trustee asks for the following:

1.  driver’s license and social security card,

2. bank statement showing the balance on the date you filed and the transactions in the account during the month around your case filing,

3.  a current paystub (to show that your income is consistent with the paperwork we filed with the court).

At the meeting the trustee may demand that we produce other documents, like vehicle titles, or a copy of your divorce decree.  If you’ve already disclosed everything to your attorney, none of the trustee’s questions or demands will be a surprise at all.

If you are missing one of the essential items, like a driver’s license or social security card, the trustee may even refuse to conduct the meeting and will reschedule it when you have those items.

2017 revisit

You can bring alternate documents to the meeting if necessary:

  1.  driver’s license — you can actually bring any government issued photo i.d.  I have even had clients use their concealed carry permits (which seems like a vague threat to the bk trustee, but is really innocent, I hope).  No, you cannot use your Costco card, and yes, I have had clients try to use the Costco card before.
  2. social security card — anything issued by a third party with your social security number will work, including a W2 or a 1099.  i have even used a lawsuit where the creditor put the debtor’s social security number on the caption of the lawsuit to identify them (old lawsuit.  We don’t do that kind of thing nowadays).
  3. bank statement — if you don’t have it, you can email an electronic copy later, but the trustee will not accept your online bank statement off of your phone.  I probably have at least 1 client a month try to do that, and the trustee does not want to handle your phone.
  4. paystub — same as the bank statement.  If you don’t have it, you can email it later, but you cannot show a copy of your paystub off of your phone.

What do I need to bring to my 341 meeting of creditors with the trustee?

Will bankruptcy stop my payroll garnishment for child support (2017 revisit)?

In 2014 I wrote about this (see below) and said, ‘No,” but it’s a little more complicated than that.  

Filing bankruptcy won’t affect your normal monthly child support payments. But, it can affect back-child support.  Let’s say that you pay $500 a month in child support.  You are behind, a lot, and they are garnishing that $500 plus another $250 a month for back child-support.  If we file a chapter 13 case and propose to cover the back child support as part of your chapter 13 payments, then ORS will go back to garnishing the original $500. You still have to pay the back child support as part of your chapter 13 case, but it can be stretched over your 5 year (60 month) chapter 13 plan.

So, technically, filing bankruptcy can stop some of your payroll garnishment for child support.

Will bankruptcy stop my paycheck garnishment for child support?

What happens if I don’t give the bankruptcy trustee my tax refund (revisited)?

I covered this back in 2014 here:  http://robertspaynelaw.com/myutahbankruptcyblog/2014/03/27/what-happens-if-i-dont-give-the-bankruptcy-trustee-my-tax-refund/

Just remember that you don’t have to turn over your refund if you receive and spend it all BEFORE you file bankruptcy, but what happens if you are ordered to turn it over and you don’t?   

Short answer: you unleash a hellstorm of court proceedings.
Long answer: If you don’t turn over your tax refund monies after the trustee demands them, then various bad things can happen to you. In a chapter 13, you are required to turn over your refunds for the next three years. If you fail to do so, the trustee will dismiss your case. Sometimes, the trustee will dismiss your case and request that the court bar you from filing a new case for 180 days. This means that you can’t go bankrupt, can’t stop garnishment, and can’t avoid creditors for 6 months from the date that it is dismissed.

In a Chapter 7, it’s even worse. If you don’t turn over your tax refund, the trustee can and will file a Motion for Turnover (requiring you to turn over the refund). If you still don’t comply, then the trustee will file a Motion to Revoke Discharge, and your chapter 7 bankruptcy gets thrown out, you still owe the trustee the tax refund money plus his/her legal fees, and you can never get a discharge of those debts in a new Chapter 7.

It’s bad.

This is why I warn my clients about losing their tax refunds and remind them that it’s worth it in the short term to get rid of a lot of debt.

It is infrequent, but I sometimes have clients who refuse to turn over their tax refund monies.  I had one client who refused to turn over an $8,500 refund, refused to get on a repayment plan with the trustee, and eventually lost his discharge of over $60,000 of debt.  He chose to keep $60,000 of debt instead of lose that one year’s worth of tax refund monies.  It happens.

What are the median income figures for bankruptcy in Utah (April 2017)?

I posted this a couple of years back and realized that we need some updated numbers.  Here is the original blog post:  What are the median income figures for bankruptcy in Utah (February 2015)?

Basically, if you are over, then you are a chapter 13. If you are under, then you are a chapter 7. median income.  These are GROSS numbers (that means your income before we take out taxes, health insurance, or anything else).

Now remember that these numbers can be adjusted by child support payments (received or made), larger mortgages, huge tax debt, etc. So, it is a gross overgeneralization to say that if you are over that figure then you MUST be a chapter 13, but this is the baseline we start with. That being said, here are the current figures for Salt Lake County that we use on our Form 122A Current Monthly Income and Means Test for Chapter 7 (6 month average of current monthly income and disposable income):

Single: $56,638

Married: $62,903

Married with 1 child: $71,047

Married with 2 children: $79,710

Married with 3 children: $88,110

Married with 4 children: $96,510

Married with 5 children: $104,910

Married with 6 children: $113,310

Married with 7 children: $121,710

Married with 8 children: $130,110

Married with 9 children: $138,510

Married with 10 children: $146,910

Married with 11 children:  $155,310  (I have 11 children, and this is where I fit on the table).

When I file bankruptcy, can they sue an authorized user on my credit card?

No (generally).  

Generally, when you file bankruptcy as the signatory party on a credit card (the owner of the debt), it wipes out your liability for that debt.  So if you owe American Express $10,000 and go bankrupt, then it wipes out that $10,000 liability.  However, what happens if your son was also on the card as an authorized user (they issued him a card so that he could make charges on your account)?  He is NOT liable.

I get asked this question over and over, and although I am confident in the answer, I turned to Google just to make sure I’m getting it right.  Here is a very clear Question and Answer article from bankrate.com written by Steve Bucci entitled, “Others not liable for card owner’s debt,”

[A]uthorized users of credit card accounts are not financially responsible for payment of the accounts. But that won’t stop some collectors from asking you to pay. Some reasons they may give is to keep the memory of the person clear or that he would have wanted it that way. The next time you get a call, explain to them that you know your rights and that you are not legally responsible.

Ask them to send you a copy of the original agreement for the credit card account. They just might respond with, “We can’t send information regarding this account to you because you are not the owner of the account.” This would allow you to respond, “I rest my case.” Keep all your documentation with the lender in case you need it for a collector down the road.

They may try to argue that your authorized user is liable, and absent some particular fraudulent situations, they are wrong.  Additionally, if they report that bad debt on your authorized user’s credit report, he can file a simple credit dispute to get it taken off.

There are also some situations where your spouse could still be liable for the debt if you were the owner of the account and she was the authorized user.  In that kind of situation, it may be safest to file bankruptcy together.  That’s a bit more complicated, and I’ll save it for a different post.

A debt collector just told me that they are starting garnishment proceedings. When are they going to start garnishing me?

Never, if you file bankruptcy first.

That being said, it’s usually a lie on the part of the debt collector.  Garnishment is the tail end of a series of legal actions, and unless you’ve already been served, had a judgment entered against you, and given them your employer info to send the garnishment paperwork, then they are bluffing.  Basically, if they filed a lawsuit today, it will usually be about 45 days before you see the first garnishment from your wages.  

If they do already have a judgment, they will serve the papers on the payroll office of your employer.  Even then, payroll will normally inform you and give you a fair heads-up kind of warning.

It sounds scary on the phone, but collectors tend to say nasty things.  Many of those nasty things are at best, gross misrepresentations, and at worst, bald-faced lies.

I have given the timeline here:  A creditor just called and said that they are initiating the legal process for garnishment. How long do I have until they garnish me?

You can also find more information here:

A creditor just got a judgment against me. Will they start garnishing me right away?

How does a creditor find out where I’m working so that he can garnish my wages before bankruptcy?

How long will it take my creditors to garnish me after they get a judgment? (video)