WMACCA/LSNV Pro Bono Clinic€¦ · X discharge all types of debts i.e. taxes, student loans, child...
Transcript of WMACCA/LSNV Pro Bono Clinic€¦ · X discharge all types of debts i.e. taxes, student loans, child...
ACC/NCR & LSNV
Pro Bono ClinicBankruptcy Assessments
Training Agenda
Big Picture
Chapter 7 Bankruptcy
Income
Assets
Debts
Assessment for Chapter 7 Bankruptcy
Bankruptcy Advice for Candidates
Advice for Non-Candidates
The Big PictureWho is LSNV, why we need your help, and the purpose
of this clinic
What is LSNV?
Legal Services of Northern Virginia (LSNV)
Non-profit public interest law firm
Mission: to promote justice by providing free,
high-quality legal advocacy and information for
elderly, disabled, and low-income individuals
and families who face the loss of a
critical need, such as personal safety,
income, housing, medical benefits, education,
or family stability.
The Justice Gap
Justice Gap – Nationwide, the essential legal needs of the low income populations are not being met
Turn away 50% of applicants due to lack of resources
Less than 1 in 5 legal problems are addressed
1 legal aid attorney per 6,415 low-income people.
(compare -1 private attorney per 429 individuals above LSC poverty threshold)
150,000 people in Northern Virginia qualify for legal aid. So despite LSNV helping thousands of people each year LSNV cannot meet the legal need of our eligible clients alone
How does this Clinic Fit in?
Bankruptcy Justice Gap – VA Legal Aids Identify Bankruptcy
as 3rd highest unmet need
Why?
Supply & Demand
Clinic Fix -> Expand resources by allowing us to
meet with more clients faster
Client mistaken self-diagnosis
Clinic Fix-> Identify true bankruptcy clients and
redirect for help with other consumer issues
Note – we are being paternalistic. Some of the pre-condition are
our LSNV criteria but not a legal bar to filing. Insistent applicants
can always hire a private attorney.
What Bankruptcy Can & Can’t DoCounterintuitive at first glance - Bankruptcy will help someone who is back on their feet, whose debt has peaked and who is ready for a fresh start. Has the debt peaked?
- Bankruptcy – Chapter 7 Debt Liquidation it will
Provide immediate relief from creditors – Automatic Stay
Wipe out some obligations
Give someone a fresh start
- Bankruptcy Cannot
X Correct money management problems
X Correct financial problems created by insufficient income
X Force a loan modification (Chapter 7)
X discharge all types of debts i.e. taxes, student loans, child support, criminal fines
X discharge co-signers
X discharge post-petition debts
- Bankruptcy is:
• Time-consuming
• Expensive - $389 to file
• Matter of public record
• Takes at least 2 years to fix your credit
The Bankruptcy World
8
1. Debtor’s
income/assets
and debts go into
the case upon
filing
2. Property claimed as
exempt and non-
dischargeable debts
come out of the
bankruptcy
Secured Collateral
Non-Exempt Income/Assets
Dischargeable Debts
How will you Assess?
Step 1 - VA Attorney or VA Corporate Counsel + Paralegal
Step 2 - Interview Client
Step 3 - Checklist Income, Assets, Expenses, Debts
Step 4 - Make Assessment
Step 5 - Discuss with LSNV Staff
Step 6 - Make Recommendation & Give Advice
Step 7 - Fill out Closing Reports -> In Detail
Clinic
Diagnosis
Applicant
Chapter 7
Bankruptcy
Eligible
Not
Bankruptcy
Eligible
Chapter 7
Bankruptcy
Advice &
Referral
Consumer
Advice &
Referral
Advice
No
Referral
Handouts
- Budget/living expenses checklist
- Garnishment table
Breaks down the amount of disposable earnings that can be garnished from each paycheck (from 0-25 %)
- NCLC debt collection brochure
Handout for clients with general information containing a sample cease and desist letter
- Credit counseling information
List of local agencies
- Closing Report
ClientsWhat they’ve been told
Bankruptcy Assessment Apt. – not guaranteed a bankruptcy
Be aware of Financial Situations – budget, assets, debts, etc.
But because of obstacles client expectations may be different
Possible Obstacles
Indigent – Max 200% Poverty Level
Physical or Mental Impairment
Immigrants may need Interpreter
May be in Trauma, Stressed and/or in Crisis
Various levels of sophistication and education
What to Expect
They are not going to want to hear no, but it is important to not give false hope and the run around.
Inspiring full disclosure – FBI investigates bankruptcy crimes
Chapter 7
BankruptcyLegal Services of Northern Virginia
What is a Chapter 7
Debt Liquidation Plan – discharges most debt of the
petitioner due to inability to pay like unsecured loans
/credit cards, medical bills, most damages awarded in
a lawsuit
Who Can File - Any individual who lives in the US or has
property or business in the US can file a chapter 7
bankruptcy
US citizenship not required - normally does not impact a
pending immigration case. However, consumers with
pending immigration matters should consult immigration
attorney first
Must be married to file jointly
Quick Note on Chapter 13:
Wage Earner Plan
Debtor has significant disposable income or
equity in assets
Allows consumer to reorganize debt and get on a
payment plan
Consumer repays most or all of the debt through
a payment schedule that is individually tailored
Rights of creditors can be modified
Most plans last between 3-5 years
Income What is Exempt and subject to collection?
Monthly Income
By Source
a) Wages
b) Public Assistance
c) Social Security
d) Other
Total Monthly Income
Exempt Income:
Public Benefits & Others
Social Security – Retirement &
Disability
SSI
Unemployment compensation
Workers compensation
TANF
Veteran benefits
ERISA
Income: Wage Garnishment
Is the income vulnerable to a garnishment?
Writ and Garnishment Summons
Garnishee = EMPLOYER
Order to withhold wages
Hold up to 25% of disposable income that is income after mandatory deductions (i.e. taxes, Social Security but not retirement, health insurance)
Can last up to 6 months
Garnishee Worksheet
AssetsWhat is exempt and what is subject to collection?
Assets
Savings
Checking
Retirement Account (401k, IRA, 403b)
Real Estate Equity
Motor Vehicles Titled in Your Name
Tax Refund
Other (i.e. security deposits, deposits in dormant savings
accounts, pledged goods at pawnbrokers, possible legal claims,
cash value life insurance, pension plans, burial plots, inherited
property )
Total Assets
The Bankruptcy Estate
All property -> Intangible, contingent, & future property
(i.e. anticipated tax refund)
Nothing Stays Out – can’t pick and choose
Debts that family or friends owe you (this is an asset)
In chapter 7 cases, estate does not include property
acquired post-petition, except –
certain types of property acquired within 180 days
after filing:
by bequest or inheritance;
through a spousal property settlement or divorce
decree; or
as a life insurance beneficiary
11 U.S.C. § 541(a)(5)
Petition
Date
Post-
petition
Assets
Pre-
petition
Assets
NOT
included in
dischargeIncluded in discharge
Commonly Missed Assets
Tax refunds (when?)
Alimony or support
arrearages
Security deposits
Deposits in dormant
savings accounts
Anyone that owes you
Money
Personal injury or other
legal claims --any
possible claims, even
though law suit not filed
(risk of judicial
estoppel)
Cash value in whole life
or universal insurance
policies
Exempt Assets/Property -
Tenancy by entirety property interest, is protected from individual debts
Property exempt under Federal non-bankruptcy law (e.g. Social Security benefits)
Most retirement funds can’t be touched by Chapter 7
IRAs, Roth IRA, etc. – exempt to a limit (that limit is way more than our clients will have)
401k, 403(b), 457(b) cannot be touched
11 U.S.C. §§ 522(b)(3)(B) and (b)(3)(C)
Exempt Assets - Homestead
Exemption
- Must affirmatively file
- $5,000 lifetime exemption in any real or personal property of debtor’s choice
65 or older: $10,000
Certain disabled veterans: additional $10,000
Additional $500 for each dependent
- Separate exemption for spouse
- Note – only tool to protect non t/e property
Exempt Assets - “Poor
Debtor’s” Exemptions
Bible
Wedding/engagement rings
Household furnishings < $5,000 (determined by FMV)
Clothing < $1,000 (determined by FMV)
Medically prescribed health aids
Trade tools < $10,000 (determined by FMV)
Car < $6,000 (determined by FMV)
Pets
Tax Refund by EITC and child credit
-
Calculating Exemptions
Exemptions only apply to equity in the property
Equity: $2,000Car loan balance: $8,000
The Poor Debtors’ Exemption would fully exempt this car
and the remaining could be put toward a debtor’s second
car
Car worth: $10,000
Bank Account Garnishment
Ask if bank account is vulnerable to a garnishment?
Garnishee= BANK
Order to freeze bank account
Up to judgment amount plus court costs and interest
Can last up to 3 months
Can the funds be reclaimed?
Exemptions i.e. social security, disability, child support
Note Homestead Deed
Joint account? Presumption: in proportion to net contributions; 50/50 ownership if married. Can be shown otherwise by clear and convincing evidence/ Notice required to both account holders
DebtsIs the Debt Dischargeable or not in bankruptcy?
Dischargeable Debt (typically)
Credit Card
Medical Debt
Store Credit Cards (Best Buy, Macy's, etc.)
Rent from Prior Landlord
Deficiencies (Automobile Loans, Mortgages, etc.)
Personal Loans
Other (co-signed loans, rent to own contract damages, payday
loans, utility bills, loans on retirement funds, campground and
timeshare contracts)
Other
public benefit overpayments
Possible non-dischargeable debt? Yes No
Tax Debt
Student Loan Debt
Outstanding Support Obligations
Court Fines (parking tickets, traffic fines, criminal restitution)
Secured Loans Yes No
Car
Mortgage
Computer/Entertainment
Other
Is client current
If not, is client willing to surrender collateral?
Whose Debt? Applicants and
Special Case of Necessaries
Doctrine Common law rule – spouse liable for the other spouse’s
necessary debts (usually medical)
Parents may be liable for children’s necessary debts (usually medical)
Doctrine is ratified by statute for spouses
Limits - Spouses permanently living separate and apart
Chapter 7 Typically Non-
Dischargeable Debts
- Alimony
- Child support
- Taxes
- Student loans
- Secured loans if collateral is retained
- DWI/DUI
- Debts obtained by fraud
Unsecured Debt
Unsecured – an obligation based on a promise to pay, or a statutory and/or other legal obligation. Normally must take you to court in order to collect on the debt obligation. Typically dischargeable
Credit cards
Doctors bills
Deficiencies from secured loans – car, mortgage, etc.
Personal loans – including family members – can’t prefer creditors
Law suit damages
Utility bills
some court judgments
Secured Debt
What is a Secured Debt? borrower has pledged some property that the creditor can take if the borrower does not repay the debt
Department store credit cards – maybe “retain & pay”
Credit union loans - maybe
Car Loans
Mortgage
usually can reclaim the collateral without going to court
Car repossession
Mortgage foreclosure
General rule: secured creditors stay secured
Personal liability is wiped out (no deficiency after foreclosure, i.e.)
Lien survives bankruptcy (unless ordered otherwise)
Secured Debt in a Chapter 7
Options for Collateral
Surrender property and debt discharged
Redeem property if already repossessed
Pay creditor current resale value of property
Must pay entire amount in one payment
Done by motion in bankruptcy court
Debt owed above value of property discharged
Reaffirm debt/sign reaffirmation agreement
As if bankruptcy didn’t happen
Must be in debtor’s best interest/court approval
Secured Debt - Mortgage
If client can afford the mortgage
payments he/she may be able to
retain the home, provided …
Payments are made
Little or no equity
If ample equity in the home
may be required to sell it to pay
your creditors, or
file a Chapter 13 bankruptcy.
AssessmentTo File or Not to File – that is the Question
Reasons to Wait/Not File
Has debt peaked? Will more debt accrue post discharge? Debtor may still incur additional debt, especially if expenses exceed monthly income or client has no health insurance
a debtor may not obtain another chapter 7 discharge for eight years
Debtor Collection Proof - If debtor is unemployed or has only protected income (for example, Social Security benefits and most pensions), there is no rush to file
Tax debts that may become dischargeable
SOL – old debt or defense to single debt
Different state exemptions may apply if debtor has moved recently
Ability to use nonexempt assets prior to filing
Dismissal of one or more prior bankruptcy case(s) within past year (resulting in a limit on the automatic stay)
Gift or transfer of property within past 2 years (or longer, depending on state fraudulent transfer statute)
debtor has within past 90 days: made payments to an unsecured creditor totaling more than $600 that would be preference
debtor has within past 1 year: made payments to insider totaling more than $600 that would be preference
tax refund - it might be better to wait until debtor can receive the money and spend it before filing on ordinary expenses and exempt property
*If you advise client to wait, make sure to explain that the debtor should not incur debts she has no intention to pay – may be declared nondischargeable!
Chapter 7 Candidate
Assessment Ideal Candidate
Monthly Income collectable
Monthly Income = Monthly Expenses plus Monthly payments for non-dischargeable debts?
Debt load peaked
Health Insurance (recommend car insurance!)
Significant dischargeable unsecured debt
Hasn’t had a discharge recently (Chapter 7 within 8 years)
Additional Considerations
Court action pending or facing collections (like a garnishment/repossession/foreclosure)
Debtor does not have nonexempt assets that debtor wants to keep
Debtor is not behind on secured debts that debtor wants to keep
Good Bankruptcy
CandidatesAdvice and Next Steps
Bankruptcy for Everyone?
Initial Bankruptcy Advice
- Bankruptcy alone will not:
X Correct money management problems
X Correct financial problems created by insufficient income
X Repairing credit can take at least two years
- Bankruptcy is:
• Time-consuming
• Expensive - $389 to file
• Matter of public record
- Attendance at a 341 Meeting of Creditors is mandatory for everyone who files
Pre Bankruptcy Credit
Counseling
Debtor must have a “briefing” from an approved, non-profit credit counseling agency within 180 days of filing petition
Agency must determine that a debt management plan not feasible and recommend bankruptcy. Approved counseling agencies are on website for the US Trustee and
most bankruptcy courts: www.usdoj.gov/ust
Chapter 7: Cost
Total Cost: $389
Petition:
$335 – Certain individuals, with income at or below 150% of the federal poverty guidelines, can apply for a waiver.
Additional Administrative Fees:
$21 Homestead Deed
$33 Electronic Data File
Note we can waive our fees but not the court’s
The Automatic Stay
Effective from day of filing
Some Prohibitions
Attempts to collect pre-petition debts
Commencement or continuation of judicial or other
proceedings to collect debts i.e. Garnishment, foreclosure
Efforts to take possession or assume control of property of
the state i.e. car
Utility Service may not be shut off
Note: some exceptions - Criminal actions, child support,
some tax determinations and proceedings, pre-
prepetition final order for possession, repeat filings
within a year
Motion for Relief from Stay
Court may Terminate, Annul, Modify or Condition the Stay
For cause, including lack of adequate protection
Lack of equity and property not necessary for effective reorganization
For example, creditor may file for relief on a defaulted mortgage to foreclose on the home
11 U.S.C. 362(d)
Post Filing Debtor Education
Course
Financial Education Course:
Instructional course concerning
personal financial management
Certificate showing proof of course
completion must be filed within 45 days
after the meeting of the creditors
Solid Start Financial Education Services,
LLC (866) 467-4147
www.cricketdebt.com.
The Timeline- Credit counseling
Certificate from a court approved agency
- File the petition
- All Debts in Order of Priority
- All Assets
- All Exemptions
- All Income
- All Expenses
- Credit Counseling Certificate
- Automatic Stay
- Debtor takes Post Filing Debtor Education Course
- Meeting of creditors (341 meeting)
Approx. 30 days after filing petition
- Debtor education
Certificate from a court approved agency
- Notice of discharge
60 days after meeting of creditors
Beware
Fraudulent Transfers – any transfer w/in the last 2 years
prior to filing
For less than reasonably equivalent value while insolvent
or
With intent to hinder, delay or defraud a creditor
Voidable Preferences
Payments made to a creditor totaling $600 or more w/in
90 days prior to filing, if transfer gives creditor more than
would have gotten
Documents to Start Gathering Credit reports from Equifax, Experian and Transunion (client to bring or give
authorization for you to pull)
Pay stubs (last 60 days before filing will have to be provided to bankruptcy court)
Debtor’s federal tax returns for past 2 years
If client owes back taxes, obtain tax transcripts for each year at issue
Bank statements for past 3 months
Domestic court orders (divorce decree, child support order)
Copy of client’s lease (if client is a tenant)
All bills and collection letters from all debts (including utilities)
Copies of any papers from current or past lawsuits
Prior bankruptcy filings: conduct a PACER search
Student loan info: National Student Loan Data System (NSLDS)
Home or any real property:
Conduct a title search to identify all mortgages and judgment liens
Look up home value on county tax assessor website, zillow.com, eppraisal.com; consider getting an appraisal if value is in question
Cars:
Get VIN number and make, model, year, mileage
Find value through Kelly Blue Book (www.kbb.com), the NADA Used Car Guide (www.nadaguides.com), or other sources such as www.carprices.com or www.edmunds.com
LSNV Bankruptcy Project
Refer to LSNV for Bankruptcy Apt
Services are free
Clients are responsible for filing fees and
costs
But Note – At capacity so there is a waitlist
But Note – Bankruptcy Attorney will do
additional assessment
Don’t guarantee a bankruptcy will be filed
Not a Bankruptcy
Candidate Right NowAdvice & Next Steps
Counseling Collection Proof
Debtors
If client’s income and assets are exempt under state or
federal the property cannot be attached even if
creditor gets a judgment
Social Security benefits are exempt from
attachment (other than for child support, alimony,
tax debts, student loans, and public benefits
overpayments)
But being collection-proof does not protect debtor from
being sued or receiving collection calls
We cannot do a bankruptcy for peace of mind
But there are rights under the FDCPA
Dealing with Debt Collection:
FDCPA
- Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692
Protects debtors from abusive, deceptive and unfair
debt collection practices
- Applies only to debt collectors. Not original creditor.
- Debt collectors
Collection agencies
Debt-collecting attorneys
- Calls, letters, multiple bills
- Cease & desist letter
Debt collector must stop
See 15 U.S.C. § 1692c(c)
Types of Debt Collection:
Secured Debt
Secured creditors may take action to regain their collateral without going to court
Foreclosure – has client tried a loan modification, repayment plan or other alternative? Free Housing counseling
Repossession
Cannot breach the peace
Not over protest of debtor
No actual or constructive force
Va. Code § 8.9-503
Demand payment for deficiency
Debt Collection – In Court Try
Defenses to Typical Warrant in
Debt Cases Debt buyer claims
Co. buys bad debt
Default judgments
Defenses
Missing docs
Evidence issues
Terms and conditions after debt charged off
Choice of law
Condo/HOA dues
Acceleration
Unauthorized fees
Bylaws procedure
Payment plans
Deficiency claims
Post repossession or trade/recreation schools
Unpaid rent or damages to property
Credit Cards
Contract
UCC – Shorter SOL
Medical bills
INOVA v. private care
SOL
Treatment received?
Insurance or Medicaid? 3rd party claims?
Repayment Plans
Is it in the client’s interest? Did client already break
one?
Be wary
What can client afford each month?
How long will it take?
Is client collection proof?
Financial counselor?
Are there a lot of other higher priority debts?
Alternatives to Bankruptcy
Credit Counseling
Debt Management Plan
Debtor sends monthly payment, distributed each month among creditors
Usually no cancellation of principal
Creditors may waive some fees
If plan is not affordable and debtor fails to complete it, all debts revert to original contract terms
Debt Settlement (*beware!)
For-profit businesses
Collect money from the consumer, but do not send regular payments to the creditors; hold money until a debt can be settled
Often make false or unrealistic claims about their ability to settle debts
If debts are settled for less than the amount owed, consumer may owe taxes based on cancellation of debt income (not so if discharged in bankruptcy)
Money Management Advice
- Pay bills in order of priority:
Rent/mortgage
Child support
Food
Utilities
Car payment/transportation costs
Taxes
Insurance
Not a Bankruptcy Candidate -
Next Steps
Advice
Cease & Desist Letter
Repayment plan
Defending the Lawsuit
Budget adjustments
Prioritizing debt
Insistent client can hire private counsel
Situation Changes re-contact LSNV
i.e. insurance, more income, etc.
Refer for consumer apt if applicable, i.e. pending court date, housing counseling, etc.
Thank you!Special thanks to ACC/NCR and all the VOLUNTEERS
for participating in this event