(Not just in Utah, but in almost every state unless your state has passed some kind of state extension).
Here is a link to the Utah Courts page on “Eviction Information for Tenants.” The single best part of the page is a simple statement that “[t]he moratorium does not forgive rent.” In fact, the whole paragraph is pretty important:
The moratorium does not forgive rent. You are required to make partial payments for rent if you can. Rent, late fees and penalties can still accrue during the moratorium. If you have not paid all of the back rent you owed when the moratorium ends on July 31, 2021 you could be evicted. You are also required to comply with all other terms of your lease
By the same token, that foreclosure moratorium does not forgive missed mortgage payments (called arrears). You are still liable for those payments, and if you can’t catch up, they can foreclose.
Even the various loan forbearance programs don’t forgive those mortgage payments. If you don’t have a deal specifically modifying your loan, then those payments are coming due very soon.
So how does bankruptcy help:
well, it can stop an eviction and it can stop a foreclosure.
I’ve covered these topics on the links below, but if you’re facing eviction or foreclosure, bankruptcy is a pretty good option.
On March 25, 2021, the United State Justice Department issued a “NOTICE TO CHAPTER 7 AND 13 TRUSTEES REGARDING TREATMENT OF RECOVERY REBATES AND TAX CREDITS FOR CONSUMER BANKRUPTCY DEBTORS UNDER THE AMERICAN RESCUE PLAN ACT OF 2021.” You can read it here.
In the Notice, the DOJ says that:
Chapter 7 and 13 trustees should not consider recovery rebates or child tax credits in administering estate assets or calculating disposable income in chapter 13 repayment plans.
What this means is that:
the money is not an asset (so the bk trustee cannot take it in a 7 or a 13), and
it doesn’t count as income (so it doesn’t increase your chapter 13 plan payment)
Basically, this money was intended to help families, and they get to keep it. It doesn’t help families for a bk trustee to take it, pay creditors, and charge a healthy service fee to debtors for the privilege of taking and administering their money.
But you still need to list your personal assets and value them. If you don’t, it can be bad.
When you file bankruptcy, your bankruptcy estate is created. The bankruptcy estate is all of your real and personal property, like your clothing, your car, and your home. It is the bankruptcy trustee’s job to review the estate and take any assets of value and sell them for the benefit of your creditors. (In a chapter 7 the trustee sells them. In a chapter 13 the trustee requires that you pay their value to your creditors over a 5 year plan).
Most of your property is exempt, or protected. For example, in Utah, state law protects the following from creditors (and trustees) , Utah Code 78B-5-505:
78B-5-505 Property exempt from execution. (1) (a) An individual is entitled to exemption of the following property: … (viii) (A) one: (I) clothes washer and dryer; (II) refrigerator; (III) freezer; (IV) stove; (V) microwave oven; and (VI) sewing machine; (B) all carpets in use; (C) provisions sufficient for 12 months actually provided for individual or family use; (D) all wearing apparel of every individual and dependent, not including jewelry or furs
So no, the trustee cannot take the shirt off of your back. Now if your shirt is made of mink and studded with diamonds, there may be an issue, but I’m betting that you’re not that stylish.
If you do not list your assets, you are committing fraud. It’s usually not actionable fraud, because forgetting to list your clothing is a “de minimus” mistake (literally “of minimum” or “a trifle”). But the trustee is going to ask you to amend your paperwork and list your personal assets, like the shirt on your back. And, most of the trustees in Utah will look at your attorney and say, “Counsel, either you’ve failed to do due diligence on this case, or else your client is a nudist borrowing a friend’s clothing for the meeting. Please amend the schedules accordingly.” It is funny when it happens, and it’s happened to all of us, but it still makes you look sloppy.
Honestly, I calculate it while muttering, “tsk, tsk, tsk” and telling my clients that maybe they do not want to file bankruptcy right now.
Basically, if you have too much equity in your home, you’re going to have to pay your creditors something. In a chapter 7 the bk trustee will sell your home and use the money to pay your creditors. In a chapter 13, you keep the home, but the bk trustee will have you pay that exposed equity back to creditors over a 5 year plan.
This doesn’t mean ALL of the equity, just the exposed equity. Depending on where you live, your state offers a homestead which protects some of your equity. For example, in Utah, you can protect $43,300 of equity for each person on title for the home. So if your home has $40,000 of equity, you won’t lose it because there’s no exposed equity. However, if your home has $100,000 of exposed equity, only $43,300 of that is safe. The rest of the equity will need to be paid out to your creditors. That exposed equity can be paid out by selling the home or by filing a 5 year repayment plan in a chapter 13.
If you had the same home in Texas, 100% of the equity is safe (protected), so long as your home doesn’t sit on more than 10 acres. The Texas homestead exemption is huge.
Here is a depressing email exchange I recently had with a potential client (in which I recommend that instead of paying me to go bankrupt, that he should try debt settlement or consolidation instead).
Are we still going to be ok with the house in this crazy market? I know we talked previously on the phone and you had originally thought yes we would be ok. Is that still the case?
Let me know, thanks
Signed, A POTENTIAL CLIENT WHO IS GOING TO HATE MY RESPONSE
Robert Payne <email@example.com> 2:07 PM (13 minutes ago)
As for the house, I think we have a giant problem.
You told me it’s worth about $520,000 and we owe about $480,000 (Who is the mortgage lender, when did you take it out, and what is the balance?). This would give you $40,000 of equity. Under Utah law, I can protect $42,700 of equity for husband and another $42,700 of equity for wife, or about $85k of equity. If the house is worth $520,000, it is perfectly safe in a chapter 7 or a chapter 13.
However, when I look at the county tax assessed value, it puts your home at $690,500 (jumped from $584,100 in the last month with the new 2021 assessment). If I look at Zillow, it puts the home value at $774,731.
I need to know what the mortgage balance is, when you took it out, and who the lender is. Do you have a second mortgage attached to the property?
Chapter 7 With these numbers, you do not want to file a chapter 7. In a chapter 7, the bk trustee sends his realtor to look at the property. If he can sell it for enough to pay you your protected $85k and pay creditors anything, then the bk trustee will sell the home.
Chapter 13 In a chapter 13, the bk trustee will go off of the property tax assessed value of $690,500. Here is how the calculation would work: 690,500 (home value) – 480,000 (1st mortgage) = 210,500 of equity.
Then the trustee subtracts the following amounts 210,500 (equity) – 85,000 (homestead exemption) = 125,500 exposed equity.
Then the trustee subtracts proposed realtor’s fees/commission in a proposed sale (but does not sell it) 125,500 (exposed equity) – 41,430 (6% realtor’s fees on the sale of a home for 690,500) = 84,070.
This means that in a chapter 13, we have $84k of exposed equity. To keep the home, you would have to pay $84,000 over 5 years to your creditors to wipe out the unsecured debt like credit card debt. This would make your chapter 13 plan payment at least $1,400 a month for five years (plus another $250 or so to cover attorney’s and trustee’s fees)
Best route to take If you file bk, you either lose the home or lock yourself into payments of at least $1,650 a month for 5 years to keep the home. You may want to talk to a debt settlement or debt consolidation place first to see if there is any way of doing this without paying back at least $84k to creditors.
However, all of this depends on how much you actually owe on the home. If there is a second mortgage, or secured home equity line of credit, it may eat away at that equity and lower your payment substantially.
Robert P.S. The homestead has been updated to $43,300 for each of you, which protects another $1,200 of the home’s equity.
Basically, in most cases, you can move to a new place, list the old one in your bk and wipe out those unpaid rents.
That being said, it gets complicated pretty quickly.
Most people qualify for a basic chapter 7 case. In a chapter 7, you can list your debts (including unpaid rents), and all of those debts are wiped out except for certain priority debts like taxes, criminal restitution, child support and alimony, and student loans. Unpaid rents are the kind of debts that are wiped out. (Those are also discharged in a chapter 13, but you may have some kind of payment plan on those over a 5 year period).
Here are a few different scenarios:
Move to new rental then file bankruptcy — Now let’s say you haven’t paid rent for the past year due to the Pandemic, and now you move to a new rental. You can list the old rental in the bk and wipe out that balance, including collection fees and costs. The bankruptcy does not wipe out your new lease, and you can keep paying rents at the new home.
No eviction yet, file bankruptcy, then move — What if you haven’t paid rent in a while, and you need to file bankruptcy right away? You can file bankruptcy and wipe out those unpaid rents. BUT, and this is a big “but,” you are liable for any fees you incur from the day you file until the day you move out. Let’s say that you’re apartment costs $1,000 per month and you are $10,000 behind in rent. You decide to file bankruptcy, and then move out a month later. You can wipe out that $10k of back rent, but you must pay that $1,000 for the month you stay after filing your case.
Eviction ready to be filed and you file bankruptcy — If the eviction proceedings haven’t been filed yet, then they cannot evict you. Well, they can, but there are a bunch of hoops to jump through. If you file bk before they file eviction, then they will need to file a bankruptcy court motion to lift the automatic stay (the bankruptcy protection), and then they can evict you. Don’t forget that you still owe those unpaid rents for the time you occupy the home after filing bankruptcy until you move out.
Eviction filed before you file bankruptcy — The landlord wins. If he gets that signed eviction order before you file your chapter 7, you need to move out immediately. He doesn’t care that you have no place to go. He wants you out, and that eviction order is enforceable.
These moratorium’s don’t cover every single property, but it’s pretty close.
If you want to keep your home, you’ll eventually have to catch up on those payments, either through a large cash payment, a loan modification, or a chapter 13 bankruptcy.
If you want to stay in the same rental unit, you’ll need to catch up on payments.
As for bankruptcy, yes, you can file bankruptcy to discharge the debt you owe on a rental, or even to surrender a home and discharge the mortgage debt. Of course, you should probably wait until the end of June unless you have other creditors trying to garnish or repossess. And yes, if you’re going bankruptcy on those unpaid rents or surrendering your house, you will have to move.
Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you’re unsure, call a bk attorney in your state and find out.
I’ve written a few articles on this, and the links are below.
Here, I will try to give you a quick and dirty list of the do’s and don’ts of spending your tax refund monies.
pay off Mom and Dad before you file bk
buy a new toy, like a dirtbike
hide the money and claim that you spent it
buy food storage and clothing
buy boring household appliances like washer/dryer/refrigerator/freezer/stove/sewing machine
buy guns (really) (I can protect up to 3 of any value)
Utah has NO exemptions to protect your tax refund when you file bankruptcy. This means that if you go bankrupt before you receive and spend your tax refund, you will lose it. The chapter 7 trustee will take your refund and use it to pay your creditors. On the other hand, if you wait just a little bit to file and receive your refund, you can spend it all before filing bankruptcy.
Just remember to spend it on exempt items.
You can definitely use it to pay your bankruptcy attorney to prepare your case.
Don’t pay off friends or family! Call me if you have any questions on how to spend it. You can even text me on a Saturday at noon as you’re standing in an RC Willey trying to decide if you should purchase the new $800 bunk bed set for the twins (yes, you can). You can text me at 801-787-8860.
The list is below, but you’re always safe with food storage, clothing, washer, dryer, refrigerator, freezer, stove.
Here is a rehash of my post on this same issue last year (and the year before):
It’s that time of year again where I have to answer the phone and tell people that I don’t want their money until February or later because of tax refund season. It makes a lean December/January in our household, but it’s the only way to protect my clients.
(I am cutting and pasting from earlier posts, so please forgive the repeat information).
So let’s say you get your refund February 1, 2016. What do you do?
Better said, what don’t you do:
1. Don’t go buy a new toy like a dirt bike or a tv.
2. Don’t pay off any friends or family. This is a preferential transfer, to an insider no less, and it results in Mom and Dad being sued by the trustee.
So what do you do:
1. Spend it on exempt items under Utah Law. This basically means food, clothing, washer, dryer, fridge, freezer, stove.
(Did you see a computer on the list? No. Don’t ask me if that’s okay. It’s not).
2. And use the rest to pay me.
So let’s say you spend the tax refund on food storage March 1st and keep all of your receipts. When can you file? March 2nd.
(C) provisions sufficient for 12 months actually provided for individual or family use;
(D) all wearing apparel of every individual and dependent, not including jewelry or furs; and
(E) all beds and bedding for every individual or dependent;
There are other items you can spend the money on, and this is by no means comprehensive, but this should give you a good idea on how to spend it. If you have questions on what to use it for, ask your attorney; that’s what he’s there for.
You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later.
So let’s break it down. When you reaffirm a debt, you are re-assuming the debt. This means that your liability isn’t wiped out by the bk. If you stop making payments a year from now, they can repossess the car and sue you.
However, by reaffirming the debt, you get to keep the financed car and get that positive credit reporting.
Before Discharge: If you change your mind after reaffirming the debt, you can rescind (or cancel) it at any time before discharge. All you have to do is notify the creditor. That being said, I like to file a Notice of Rescission with the court as well. I am putting a text version of my Notice of Rescission below. I also mail and email a copy to the secured creditor.
After Discharge: The bk code gives you 60 days from the date your reaffirmation agreement was filed with the court. This is NOT 60 days from when you signed it. This is 60 days from when the creditor got around to filing it. Use that same Notice of Rescission.
Case Closed: A Client contacted me today and said that wants to give up her reaffirmed truck. Her discharge was entered 2 weeks ago, and her case closed out 5 days ago. Now she changes her mind! Officially, I don’t have to file that Notice of Rescission, but I’m going to do so and send a letter to the creditor.
Oral Notice????: Technically, there is no required means of giving notice to the creditor. Oral notice is actually sufficient (just telling them over the phone). That being said, I like to keep things in writing. In law school they taught us that: “If it’s not in writing, it didn’t happen.”
Just remember that if you do rescind your reaffirmation agreement, they will want the car back soon. They can even repossess it that night. However, they’ll probably contact you to arrange a time to pick it up.
Here is a copy of my poorly drafted official “Notice of Rescission.”
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
Bankruptcy No. XX-XXXXX
Chapter 7 Hon. WTT
NOTICE OF RESCISSION OF REAFFIRMATION AGREEMENT WITH RC WILLEY FINANCIAL SERVICES
Debtor gives notice that she is rescinding the Reaffirmation Agreement (Docket 10) recently filed between her and RC Willey Financial Services. Dated this 30th day of July, 2019.
/s/ Robert S. Payne Attorney for Debtor
Certificate of Service
I certify that I mailed a copy of the foregoing to RC Willey Financial Services at POB 65320, Salt Lake City, UT 84165-0320
Short answer: You can either file a chapter 13 bankruptcy within 10 days of the repossession or pay off the loan balance in full. Either one gets you the car back.
Since you’re probably not sitting on a wad of cash, you can file a chapter 13 and restructure the car payments over a 60 month plan at roughly 6% interest. Your chapter 13 plan payments will start on the 25th of next month.
The long answer is a bit more complicated.
Under the Utah Code, a creditor cannot sell the car for 10 days from the date of repossession. repo
70A-9a-612. Timeliness of notification before disposition of collateral. (1) Except as otherwise provided in Subsection (2), whether a notification is sent within a reasonable time is a question of fact. (2) In a transaction other than a consumer transaction, a notification of disposition sent after default and 10 days or more before the earliest time of disposition set forth in the notification is sent within a reasonable time before the disposition.
During that 10 day period, you have a right to redeem the repossessed car. This means that you have the right to pay off the loan balance plus any collection fees, and then you can get the car back.
70A-9a-623. Right to redeem collateral. (1) A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral. (2) To redeem collateral, a person shall tender: (a) fulfillment of all obligations secured by the collateral; and (b) the reasonable expenses and attorney’s fees described in Subsection 70A-9a-615(1)(a). (3) A redemption may occur at any time before a secured party: (a) has collected collateral under Section 70A-9a-607; (b) has disposed of collateral or entered into a contract for its disposition under Section 70A-9a-610; or (c) has accepted collateral in full or partial satisfaction of the obligation it secures under Section 70A-9a-622.
This means that if you suddenly come into some healthy cash, you could basically buy the car, paying off the balance in full. This is not the case for most people.
Or, you can file a chapter 13 bankruptcy. A chapter 13 bankruptcy triggers the redemption section of the Utah law, letting us propose a chapter 13 plan that will pay off the loan in full. Right after you file the chapter 13 case, your attorney can demand that the lender allow you to pick up the car from the repo yard.
Even better, chapter 13 lets you change the interest rate and stretch out the loan repayment to 60 months.
You can also file a chapter 7, but it is 100% up to the lender as to whether or not they’ll let you get the car back and resume payments.