Omaha Bankruptcy Attorney Blog

Will filing a bankruptcy stop or prevent an eviction?

2012-04-24T20:57:48Z

By: Jessie Polson

Many people feel absolutely helpless when their landlord starts threatening eviction. By the time a tenant receives notice of a pending eviction, the arrearage on the lease payments are so high that it seems like there is no way around an eviction. Through the filing of a bankruptcy, an eviction can be either stalled or halted all together.

The means by which a bankruptcy can help differ depending on the situation. If you are behind in rent, but the landlord has not yet received a judgment in state court for possession, then a bankruptcy can help by enacting the Automatic Stay as described in 11 USC §362. When you are protected by the Automatic Stay, your creditors, including your landlord, cannot take any action against you or against your property. This means that a landlord cannot evict you without filing the proper paperwork with the court and obtaining the Bankruptcy Judge's permission to begin the eviction.

The Automatic Stay can be lifted if you fall behind in your rent payments again. Therefore it is VERY important that you stay current with your rent payments after the bankruptcy is filed.

If your landlord has already obtained a judgment for possession before you file for bankruptcy, then the landlord may proceed with the eviction, notwithstanding the bankruptcy, unless you can successfully challenge the eviction in court. In order to successfully challenge a pending eviction in court, the laws of your state must allow it. If your state allows you to challenge an eviction then you must take the following steps:

•1. File a certification with your bankruptcy petition stating that your state allows you to stay on the premises if you pay the back rent, and you must deposit any rent due in 30 days with the bankruptcy court. This will prevent any eviction for 30 days, unless the landlord filed a motion to object, in which case, the court will have to hold a hearing within 10 days.

•2. If the landlord doesn't object, and you wish to prevent the eviction beyond 30 days, you must file a second certification within 30 days that you have paid the back rent. The landlord can also object to this certification, if this occurs, then the court must hold a hearing within 10 days.

There is one exception to the Automatic Stay. If your landlord certifies that you have endangered the property or have used controlled substances on the property, then the judge may allow an eviction even if you've filed a bankruptcy. Once this certification has been filed, you have 15 days to object to the truthfulness of the certification and the court must hold a hearing within 10 days of your objection. If the court agrees with your objection, then the automatic stay will remain in effect.

As you can see, it's much easier to retain possession of leased property if you file a bankruptcy before a judgment for possession is entered. So if you're facing an eviction, it's much better to speak to a bankruptcy attorney as soon as you're faced with an eviction.

Debtors' Prison: Will I go to jail for unpaid debts?

2011-12-23T21:42:35Z

A recent article in the Wall Street Journal reveals that more than 5,000 arrest warrants were issued since 2010 in the one-third of all U.S. States that allow creditors to place debtors in jail for not paying a debt. Nebraska does not allow this procedure, however, a debtor who fails to attend an Order in Aid of Execution hearing may be arrested for not attending the hearing. To make matters worse, due to a lack of notice, many debtors are unaware that they have been sued let alone that they had to attend a court hearing.

What is an Order in Aid of Execution hearing?

After obtaining a judgment, a creditor may schedule a court hearing to require a debtor to testify as to what they own and where they work. These hearings are commonly called "debtor exams" and they are used to inform a creditor as to where they should send a garnishment. A creditor must mail the debtor a notice of the hearing and the notice includes a warning that failure to attend may result in a warrant for arrest being issued. The problem is, many debtors never actually receive the notice of this hearing, and many judgments were obtained by serving notice to a debtor's prior address.

The typical nightmare story I hear from time to time is that a debtor is pulled over for a routine traffic violation, and is then hauled off to jail because of the outstanding warrant. I've had clients spend an entire weekend in jail until a judge was available to perform the debtor's exam.

What should I do if a warrant has been issued against me?

If an arrest warrant has been issued against you, the best action is to call the attorney for the collection company to schedule a debtor's exam. Many collection attorneys will take down the information over the phone and then cancel the warrant. If the attorney is not available, call the courthouse to schedule a time to attend a hearing.

How can I find out if an arrest warrant has been issued against me?

Some Nebraska counties have online searches to check for arrest warrants, such as Douglas or Lancaster County. A phone call to the County Sheriff should also provide that information.

Will filing bankruptcy cancel the arrest warrant?

Since filing bankruptcy discharges the underlying debt, most collection attorneys will cancel the arrest warrant upon receiving the bankruptcy notice. However, this is not an automatic procedure and some neglect to cancel the warrant. For this reason, you should verify if a warrant exists and then contact the court or the collection attorney and then verify with your bankruptcy attorney that the warrant is canceled.

Are Workers Compensation Settlements Protected in Bankruptcy?

2011-12-21T19:00:30Z

It seems like a lot of our cases involve debtors who fall behind on bills after becoming injured at work. After exhausting their savings and retirement accounts, the workers compensation insurance company makes a low-ball offer to settle the claim. Another tactic I see is where the insurance companies frequently terminates the temporary workers compensation payment based on some technicality in an effort to force a settlement.

Are Workers Compensation Settlements Protected in Bankruptcy?

Generally speaking, workers compensation benefits, including those awarded by other states, are protected in Nebraska bankruptcy cases. Nebraska Statute 48-149 states the following:

"No proceeds or interest thereon from payments or lump-sum settlements under the Nebraska Workers' Compensation Act or law of another state which provides compensation and benefits for employees sustaining job-related injuries shall be assignable, subject to attachment or garnishment, or held liable in any way for any debts, except (1) as provided in section 48-108 and (2) payments under the act or any law of another state which provides compensation and benefits for employees sustaining job-related injuries shall be subject to income withholding under the Income Withholding for Child Support Act, administrative attachment and bank matching pursuant to sections 43-3328 to 43-3339, and garnishment by a county attorney or authorized attorney pursuant to section 43-512.03 or garnishment for child support as defined in section 43-1705 by an obligee as defined in section 43-1713."

Case Law

Two notable Nebraska Bankruptcy Court opinions deal with worker compensation benefits:

In the case of In Re Jorash, Nebraska bankruptcy case 98-81340, the debtor had received a $37,000 workers compensation award, and he used $20,000 of the settlement as a down payment on his residence. Shortly thereafter, the debtor filed bankruptcy and the Chapter 7 Trustee attempted to claim the home. The Court ruled that the home was protected under Nebraska's exemption law. The Court ruled that not only does the exemption extend to the settlement funds held in a bank account, but it also protected property purchased with the settlement.

In the second case, In Re Mendoza, Nebraska bankruptcy case 05-81175, the bankruptcy court ruled that a hospital's medical lien did not attach to a workers compensation settlement. The Court cited Nebraska Statute 52-401 which states that "no such lien shall be valid against anyone coming under the Nebraska Worker's Compensation Act."

Chapter 13 allows a debtor more time to settle a workers compensation claim.

Frequently I see debtors who are being sued and garnished for unpaid medical debts stemming from a workplace injury. After running out of money and being fed up with the nonstop telephone calls from bill collectors, debtors feel great pressure to accept a low settlement offered by the employer's insurance company. Filing Chapter 13 greatly changes the dynamics of the settlement negotiations by giving a debtor up to five (5) years of protection from creditors. Filing bankruptcy immediately stops the creditor phone calls and lawsuits, and it will allow the workers compensation attorney the time needed to achieve a maximum settlement.

Don't Lose that Tax Refund in Bankruptcy!

2011-12-16T05:09:01Z

In a few weeks taxpayers will begin filing their 2011 tax returns, and for those taxpayers who are also filing bankruptcy at the same time a large number of them will forfeit the refund to the Chapter 7 Trustee. For nearly 20 years I have witnessed the Chapter 7 Trustee claim tax refunds from surprised-and then outraged-debtors at the mandatory Meeting of Creditors which debtors must attend about one month after filing bankruptcy. This happens every year, over and over again. The sad part is, this should almost never happen.

Are tax refunds protected in bankruptcy?

Tax refunds and other financial assets are protected in Nebraska, but there is a limit as to how much. The laws that protect property in bankruptcy are called exemption laws, and there are two Nebraska exemption laws that protect tax refunds:

"Wild Card" Exemption (Nebraska Statute 25-1552). This exemption law protects up to $2,500 per debtor of any type of personal property, including tax refunds. Married couples filing a joint tax return may thus protect up to $5,000.
Earned Income Credit (Nebraska Statute 25-155). This exemption protects whatever amount of the tax refund that comes from the federal and state earned income credit. There is no dollar limit to this exemption.

What happens if my tax refund exceeds the amount of exemptions?

If your tax refund exceeds the amount of available exemptions, then the Chapter 7 Trustee has the duty to claim the non-exempt portion of the tax refund and to pay that amount over to your creditors. The most important thing to keep in mind here is that the Chapter 7 Trustee is paid a commission of whatever assets are paid over to creditors, so they are highly motivated to uncover assets, including unprotected refunds.

Losing a tax refund to the Chapter 7 Trustee should almost never happen, but it frequently occurs because the debtor's attorney fails to conduct a thorough interview of the debtor and fails to properly estimate the amount of the tax refund. Estimating the amount of a tax refund is tricky since tax laws change every year and the deductions or credits a person may claim change as well. The practice rule here is that if you are not 100% sure of what the tax refund will be, delay filing the case until the tax return is prepared.

Don't pay back loans to relatives with the tax refund prior to filing bankruptcy!

Another nasty problem associated with tax refunds occurs when a person uses the refund to repay loans owed to family members and then files bankruptcy shortly thereafter. This is a big mistake. Because bankruptcy law is designed to ensure fair and equal treatment to creditors, any payment made to a family member or "insider" (such as a business partner) must be disclosed and the Chapter 7 Trustee may be able to reclaim the money to redistribute to all of your creditors on a pro rate basis. For example, if you paid your mom back $5,000 with your tax refund and then file Chapter 7, the Trustee can force your mother to turnover the money to be divided to all your creditors.

Be prepared to tell the Trustee how you spent the tax refund.

If you received a large tax refund and then shortly thereafter file bankruptcy, the Trustee will ask you what you did with the money. Where did all that money go? A good bankruptcy attorney will anticipate this question and provide the answer within the bankruptcy papers (usually on the line where tax refunds are listed). If you received a $10,000 refund and then filed bankruptcy 3 days later, be prepared for a lot of questions at court about how you spent the money.

Outstanding Checks May Create Big Problems

2011-12-15T04:09:20Z

Every person filing bankruptcy must provide the court a list of all their property, including bank accounts and the balance in each account on the day the bankruptcy is filed. Since bank account balances change daily or even hourly, it is often very difficult to precisely state the exact account balance, especially if there is a delay between the time a case is signed and the time it is actually filed with the bankruptcy court.

Outstanding checks present a difficult problem. If you have $1,000 in the bank but you just wrote a $700 rent check the day before signing the bankruptcy paperwork that still has not cleared the bank, do you list $1,000 in the account or $300?

According to a bankruptcy court in Florida, a debtor should list the amount in the account without regard to outstanding checks. (See In Re Brubaker, 426 B.R. 902 (2010)). As a result, the debtors were forced to pay over $513 to the Chapter 7 Trustee.

How can this problem be avoided?

Call the bank before signing the bankruptcy petition or print out the online account ledger and give this information to the bankruptcy attorney.
Tell your attorney the next date funds will be deposited into the account. If your employer will deposit the next paycheck into your account the day after the bankruptcy petition is signed, tell that to your attorney.
Wait until the checks clear before filing the case.

Most bankruptcy trustees require that you bring a bank statement to court to verify how much was on deposit on the day the case was filed.

Converting from Chapter 13 to Chapter 7.

2011-10-26T13:54:19Z

Chapter 13 is a payment plan that normally lasts from three to five years, but sometimes the objectives of the payment plan have changed and it is time to consider dismissing the case or converting to the other bankruptcy option: Chapter 7. However, there are many factors to consider when converting a case to Chapter 7 and it is important to review the case from top to bottom all over again.

Am I eligibe to convert to Chapter 7?

Bankruptcy Code Section 1307 provides that a debtor may convert his or her case to Chapter 7 at any time provided they were eligible to file Chapter 7 at the time the Chapter 13 case was filed. In other words, if you could have filed Chapter 7 to begin with you are able to convert from Chapter 13 to Chapter 7 at any time.

Did you file Chapter 7 within 8 years of filing Chapter 13?

If you filed a previous Chapter 7 case within 8 years of filing your Chapter 13 case you are not permitted to convert the case to Chapter 7. (See Bankruptcy Code Section 727(a)(8) ). But what if the 8 years expires during the middle of the Chapter 13 case? Sorry, same result. In order to convert a case to Chapter 7 you had to be eligible to file Chapter 7 on the day you filed Chapter 13. There was some confusion on this issue, but recent opinions by the Nebraska bankruptcy court has addressed this issue.

Do I have to go to court again? Yes, you will have to attend another hearing before the Chapter 7 Trustee about one month after the case is converted.

May I add new debts to the bankruptcy? Yes, you may add new debts that you have incurred after the Chapter 13 case was filed. In fact, this is a major reason to consider converting a case. Very often I meet with new clients who lack health insurance or their existing insurance will not fully cover all the anticipated medical expenses they will incur in the future. If it is likely that you will continue to incur medical bills not fully covered by insurance, then it may be wise to consider filing Chapter 13 until the medical situation stablizes and then convert to Chapter 7 when it appears that no future medical bills will be incurred. Too often I see debtors file Chapter 7 only to be back in deep medical debt a year later.

Will I incur additional legal fees to convert my case? There is a $25 court fee to convert a case, and there may be additional legal fees depending on how much your attorney was paid in the Chapter 13 case.

Dangers of Converting a case to Chapter 7.

A common error committed by attorneys when converting a case from Chapter 13 to Chapter 7 is that they have forgotten about all those non-exempt assets that would have been claimed by the Chapter 7 Trustee. You see, Chapter 7 is a "liquidation" bankruptcy, and that means that the Chapter 7 Trustee has the power and the duty to sell off any unprotected asset so that creditors may receive some payment on their debt. However, Chapter 13 cases involve no such liquidation and attorneys often recommend that a client file Chapter 13 when certain assets would be at risk in a Chapter 7 case, but they forget this fact 2 or 3 years into the Chapter 13 case and often will convert a case without reevaluating the dangers involved. Sometimes it is better to simply dismiss the current case and then file a brand new Chapter 7 instead of converting the case.

If your Chapter 13 case no longer makes sense, if the mortgage company broke through the bankruptcy protection and is back to foreclosure, if you have lost your job and cannot make the bankruptcy payment, or if other changes have occurred, contact your attorney to see if now is the time to consider a conversion to Chapter 7.

Advice from a Chapter 7 Trustee.

2011-10-25T16:16:28Z

I recently read the following article written by Chapter 7 Trustee Robert F. Anderson in South Carolina, but most everything applies to Nebraska cases as well. Here are a few tips from this wise Trustee:

Disclose, Disclose, Disclose. Beyond a doubt, the most serious error committed by debtors is the failure to fully disclose all property, income, creditors, and transfers.
Be Specific. Too many bankruptcy petitions fail to give the Trustee enough information to explain what an asset is worth and they leave the Trustee with more questions than answers. Give the Trustee enough information to answer all possible questions and to give the Trustee a sence of confidence about the completeness of the disclosure.
Fill in the Blanks. There are 35 types of personal property listed on Schedule B. Complete as many of those lines as possible, even if the amount to list is minimal. If you list no jewelry on Line 7 but come to the court hearing wearing a watch or earrings, be prepared to be lectured.
Tax Returns. Make sure the Trustee has received your tax returns (typically the last 2 returns) at least 7 days prior to the court hearing. Some Trustees will not conduct the hearing if the returns are unsigned or if schedules or state returns are missing.
Bank Statements. Bring to court a copy of the bank statement showing the amount on deposit on the day the bankruptcy was filed. The Trustee must verify how much was on deposit the day the case was filed, and he or she needs a copy of the bank statement to perform this job.
Prepare an Inventory of all your Property. Give your attorney a basic inventory of all property you own and the value of each item. Here is a list to complete and give to your bankruptcy attorney.
Bank Statements & Paycheck Stubs. Give your attorney six (6) months of bank statements and paycheck stubs. These documents are necessary to report your current and past income.
Claims against other persons. You must list every claim you have against another person on Schedule B. This includes personal injuries, insurance claims, damage to property, unpaid wages, etc. If you fail to list the claim you may forefeit the right to collect on it later, and you may find yourself defending a perjury charge. In other words, list it or lose it.
Past & Present Income. The income you list on Schedule I should match what you earned for the past 6 months and for the past two tax returns. If there is a difference you need to explain why income is less now than before.
Is the Petition Internally Consistant? Chapter 7 Trustees constantly compare one part of the bankruptcy petition to the other parts. If you earned $48,000 last year, then why does the schedule of monthly income show only $2,000 now? If you deduct life insurance as a payroll deduction on Schedule I, then why is there no life insurance policy listed on Schedule B? If you list a mortgage debt on Schedule D of $100,000, then why is there no real estate listed on Schedule A?

In my experience, there more you think like the Trustee and the more you read the bankruptcy petition from the point of view of a Trustee, the better your case will be. Think like the Trustee.

Time for a new bank account?

2011-10-21T20:34:02Z

Warning! If you owe your bank money and you file bankruptcy, you may find that your account has been frozen and that all the money in the account has been applied to the outstanding loan.

One of the very first questions I ask every potential client is whether they owe their bank money. Very commonly a client will have a line of credit or overdraft protection linked to their checking account, and these are debts which must be listed on the bankruptcy schedules. In fact, some banks are so watchful of new bankruptcy cases that they review every new case filed in the state on a daily basis and then automatically freeze the accounts of every customer who files bankruptcy.

Bankruptcy Code Section 553 allows banks to "offset" any money in their possession on the day the bankruptcy case is filed against their debt. The bank may only seize the money on deposit on the day the case is filed and they may not offset future deposits.

The Solution:

Take your money out of the bank you owe and open a new account somewhere else. As a general rule, keep your loans and your banking separate. Although it is convenient to keep all your loans and deposits in the same bank, this becomes disasterous when a bankruptcy case is file.

Imagine the chaos of having a paycheck directly deposited into an account on the same day the bankruptcy is filed. All those automatic payments are stopped, mortgage payments become late, NSF charges are assessed by the bank, you have absolutely no money at all until the next paycheck and your employer is scheduled to deposit your next paycheck that into a closed account. I can't imagine a worse way to start the bankruptcy case.

Can I just pay the bank off before bankruptcy?

If you owe your bank a small amount (less than $600), you may decide it is easier to pay off the loan instead of switching banks. However, if you owe more than $600 it is advisable to simply switch banks.

Automatic Deposits & Payments.

If you are like me, you have set up several automatic deposits and payments in your bank account. If you are switching to a new bank remember to give your payroll department the new account information and notify the creditors you have allowed to deduct payments out of your account of the new bank as well.

"How would they ever know?"

2011-08-30T17:12:59Z

From time to time we get clients who are reluctant to list all their property and income on the bankruptcy schedules. When confronted with information indicating that they are concealing assets from the Court they respond by saying "how would they ever know?" Well, here is a real story that came across our desk today.

In the middle of the Chapter 7 case, a debtor's grandfather passed away and left $100,000 of Certificates of Deposit payable on death to our client. Our client was not sure what she should do, so she spoke to her daughter to seek advice. Her daughter then spoke to her father who had been divorced from our client for some time. Her father was remarried and he asked his wife since she was the sister of another bankruptcy attorney. That attorney happened to be the Chapter 7 Trustee assigned to our client's case, and, not realizing that he was the trustee assigned to that particular case, he advised that the debtor speak to her attorney. So, our client called us to report the inheritance. We then called the Trustee who indicated that he already knew about the inheritance but he did not realize it was his case.

How would they ever know? You would be surprised to know how a bankruptcy Trustee learns of concealed property. Every year we attend bankruptcy seminars as part of our requirement to take continuing legal education courses, and a standard presentation at these seminars is a panel discussion hosted by all the bankruptcy trustees in Nebraska. With a smile on their face, the trustees tell stories of ex-spouses, neighbors, coworkers, employers, bankers and relatives who secretly contact them to inform of suspicious property that may not have been disclosed in the bankruptcy. "How can they file bankruptcy when own a vacation home in Florida?" "How can they keep a 5^th Wheel Trailer and file bankruptcy?" "How can they file bankruptcy when they just inherited $100,000 from their rich uncle?" Debtors are frequently surprised when a Trustee learns about their little secrets, and the consequences of hiding information from the Court can be painful.

What is the consequence of not listing all property, debts and income on the bankruptcy schedules? For starters, the discharge of debts can be denied. In addition, property concealed from the trustee is no longer exempt and the trustee may elect to sell the property even if it would otherwise have been protected. Lastly, criminal charges may be filed. As Teresa Giudice of Real Housewives of New Jersey recently discovered, bankruptcy fraud is very real and very serious.

How Will Bankruptcy Affect My Credit?

2011-07-15T18:24:21Z

Filing a bankruptcy will affect your credit. However, for most people contemplating bankruptcy, their credit score has already suffered due to the circumstances that have caused them to consider bankruptcy in the first place. Generally a bankruptcy case will appear on credit reports for 10 years after it has been discharged. Debts that have been discharged through bankruptcy should be reported as "Discharged in Bankruptcy."

One benefit of filing a bankruptcy is that it will provide a clean slate to clear off the negative treatment that comes with high balances, late payments, and accounts in collections. Since nearly 1/3^rd of a credit score is based on a person's debt-to-income ratio, the bankruptcy discharge greatly helps that area of the credit score.

Depending on your circumstances, a credit score normally improves within a year or two of getting a discharge. If a debt is "reaffirmed" in a bankruptcy (e.g., a car or home loan that is kept) and you continue to pay on that debt after a bankruptcy, the creditor will continue to report the timeliness of payments after bankruptcy, and that can aid in boosting the credit score after completion of the bankruptcy. Reaffirming secured debt is one way to improve your credit score more quickly.

Another strategy to improve the post-bankruptcy credit score is to obtain a credit card with a small credit limit or a secured credit card. By making small purchases and paying them off on time and in full each month, you will have positive treatment on your credit report that will help you to rebuild your score. To improve the credit score you have to play the game-you have to use credit each month and pay off the balance in full on time. If you only pay cash for all purchases after bankruptcy, how will a banker know that you know how to use credit responsibly?

One issue that can sometimes arise following a bankruptcy is that some debts on a credit report may be inaccurately listed and will not be reflected as "discharged in bankruptcy." This happens when a credit report is not updated after the bankruptcy discharge. Even though the debt has been discharged in the bankruptcy and there is no legal obligation to pay it, the credit report may not reflect the fact that it was discharged. Our firm sends a letter to our clients at the time of their discharge recommending that they review their credit report for inaccuracies and we provide the address of all three credit bureaus so that our clients can write a letter to the credit bureaus asking for their credit report to be updated.

Under the Fair Credit Reporting Act, inaccurate credit reports can be corrected. The Fair Credit Reporting Act allows a person to challenge the accuracy of credit reports and furnish proof to be considered in making corrections. You have the right to one free credit report each year, and you can apply for that free credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion.

To dispute inaccurate credit information, you must contact the credit reporting agency with information showing the inaccuracy and they have 30 days to investigate. You should also contact the information provider (creditor).

By: David Hepperlen, Attorney at Law

Are Social Security Disability Settlements Protected in Bankruptcy?

2011-07-12T20:34:09Z

Recently a chapter 7 client of mine received a large sum of money from a Social Security Disability claim. He was awarded this money as payment for retroactive Social Security benefits that accrued while his disablity claim was pending.

Are Social Security Disability awards protected in bankruptcy?

In 2010 the Eight Circuit Court of Appeals issued a ruling which confirms that Social Security Disability settlements are protected in bankruptcy. In re Todd Carpenter, 08-6046.

Todd Carpenter received a lump-sum payment of $17,165 for retroactive benefits when his disability status was determined by the Social Security Administration. Those funds were deposited into a bank and kept separate from all other funds. Shortly prior to filing, the debtor converted the funds in the bank account to a cashier's check. The question before the court was whether the funds were part of the bankruptcy estate and whether the Chapter 7 Trustee had a claim to the funds.

The appeals court held that the treatment of Social Security payments is not governed by bankruptcy law, but rather it is governed by a separate federal statute, Section 407 of the Social Security Act. The relevant part of the act is as follows:

(a) The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution . . . or to the operation of any bankruptcy or insolvency law.

After dissecting the language in Section 407 of the Social Security Act, the Court held that "such [Social Security payments] are not property of the bankruptcy estate." This holding means that Social Security payments are protected from the claim of a Chapter 7 Trustee. According to the 8th Circuit Court of Appeals, such disability awards are not part of the bankruptcy estate and are thus beyond the reach of the Chapter 7 Trustee.

This was great news for our client since he not only received a discharge of his debts through the Chapter 7 bankruptcy but he was able to keep his lump sum payment from Social Security as well.

Purrfect Trust

2011-07-08T15:48:39Z

Upon the death of an elderly woman, a hand-written will was discovered-apparently created just days before her passing. Like many elderly individuals, her thoughts turned toward the care and protection of family and loved ones once she was gone. Inheritances and trusts are often created to ensure future financial security and this woman was no different, save one exception. In her hand-written will, she created a trust to care for dear "Slim." The trust was to cover his basic living needs over the course of his life-covering even funeral costs should the worst happen. The one exception: Slim was a cat.

The remainder interest of this trust was to be split between my client and her brother should there be any funds remaining after Slim's funeral. As a caveat, should Slim die by suspicious circumstances, all the money would go toward a charitable animal house. Thus, slipping some antifreeze into Slim's food wasn't an option.

My client, who was second in line to Slim, was in financial trouble. She had more unsecured debt than would be covered by the balance of the trust should Slim pass early. However, Slim was in good shape and, while older, was unlikely to pass any time soon.

Can we protect the client's interest in the trust?

As we learned earlier in the Ted Baer bankruptcy case, considerable case history indicates that the bankruptcy estate includes all present and future property interests. This means that the Chapter 7 Trustee may be able to claim a future interest in a trust even if the debtor does not currently have access to funds in that trust. However, the case law is not unanimous on this issue (see Magill v. Newman, 903 F.2d 1150 (10th Cir. 1990)(holding that the future right to spendthrift trust assets was not property of the bankruptcy estate).

At issue appears to be the following provision: 11 U.S.C. Sec. 541(a)(5) states in part that property of the bankruptcy estate includes any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date.

How long will Slim live?

Does this mean that Slim has to live 180 days after the filing date? Is the debtor willing to roll the dice that Slim will live another half-year? Or is Slim's life inconsequential? Is the potential remainder in the cat trust already an interest that can be claimed by the trustee?

If faced with the choice, the safest route is to file a Chapter 13 and not dangle a precious asset in front of a Chapter 7 Trustee who is all to willing to claim an interest in any type of trust-even one for a cat!

Welcome to Our Omaha, Nebraska, Bankruptcy Law Blog

2011-05-27T17:21:45Z

When you are struggling with financial debt, an experienced lawyer can be of great assistance and look out for your rights. The federal bankruptcy system can be confusing and intimidating, with a unique set of rules and a language of its own. An attorney who understands the law and the process can help you evaluate your options and make the right decisions.

At Sam Turco Law Offices, we help people get back on their feet in Omaha, Nebraska. Our entire practice is devoted to consumer bankruptcy. We focus on guiding our clients to the debt relief solutions they need.

Contact our office by e-mail or call us at (402) 682-8573 to discuss your situation with an experienced attorney.

Our Bankruptcy Law Blog

We established this blog to provide valuable information to individuals throughout Omaha who are struggling with debt or who are interested in the bankruptcy process. We will regularly update this blog, posting on a wide range of debt relief topics, including bankruptcy, Chapter 7, Chapter 13, foreclosure and debt management.

We welcome your participation in the discussions on this blog. Feel free to comment on posts that interest you.

It's important to note that the stories and cases reported on this blog are not meant to implicitly or explicitly depict cases actively handled by our firm. In most cases, the blog will simply be covering cases similar to those we are interested in handling.

Contact Our Office

Contact our office by e-mail or call us at (402) 682-8573 for more information.