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Reno, NV  89511

Reno Bankruptcy Attorney

Stephen R. Harris, Esq.

“Providing Financial Protection for 46 Years”

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5 Categories of Debt-Relief That CANNOT Be Wiped-Out By Bankruptcy

5 Categories of Debt-Relief That CANNOT Be Wiped-Out By Bankruptcy

When considering debt-relief with a bankruptcy filing there are a number of obligations that cannot be wiped out. There are generally 5 categories that I will discuss in detail within this article. Some debts cannot be discharged because of specific statutes or prohibitions in the law, and will not be dis-chargeable just because of inexperience or plain sloppiness or timing of filing.

1. Debt-Relief Cannot Occur After Your Bankruptcy Filing

Debts are created by the event, not when you get the bill. If you buy a car with a loan, the debt is created at that moment, not when you get your first bill for payment. If you’re considering or must have substantial medical treatment that is uninsured, the resulting debt will not be covered by bankruptcy if you file before the treatment. If possible, delay the bankruptcy filing until after the medical treatment, and then include the debt in the bankruptcy filing.

2. Debts That Aren’t Listed in Your Bankruptcy Filing

Many times you may forget to list a creditor in your bankruptcy filing. Occasionally you might not even know you have a debt because the creditor stopped sending you a bill. Prior to filing bankruptcy be sure to go to all three credit unions to get a list of all the creditors you may own. Even if you are not sure of the amount you may owe list the debt and the creditors address. If this amount is wrong it puts the creditor in the position to have to file a proof of claim to establish the amount that actually owed. The point is you have listed the debt to discharge.

For example in Chapter 13 cases, debts are dischargeable unless you amend your filing to include those creditors who you may have forgotten on the original application. You have 90 days from the 341 meeting to make the amendment.  Creditors then have 60 days to file a proof of claim.

In Chapter 7 cases, the unlisted debt is not technically discharged. In over 95% of non-asset Chapter 7 cases, the creditor would not have received any money even when the debt was listed. In this case, most courts, but not all, allow the debt to be discharged.

Comparison of Non-Dis-chargeable Debt: Chapter 7 Versus Chapter 13

  • Marital and domestic support obligations are not dischargeable under Chapter 7 and dischargeable if paid under Chapter 13 plan.
  • Marital property divisions are not dischargeable in Chapter 7 and are dischargeable under Chapter 13 plans.
  • Student loans are not dischargeable under either Chapter 7 or 13 unless undue hardship can be proved.
  • Claims made for investment or theft are not dischargeable in either Chapter 7 or 13.
  • Criminal fines and restitution are not dischargeable under either chapter.
  • Non-criminal restitution is dischargeable under Chapter 7 and Chapter 13 unless there was willful conduct causing personal injury, fraud, or embezzlement.
  • Personal injury claims from drunk driving are not dischargeable in Chapter 7 nor dischargeable in Chapter 13 and must be fully paid in Chapter 13.
  • Motor vehicle fines and tickets are not dischargeable under Chapter 7 but are dischargeable if a minor infraction. They are not dischargeable if the conduct was criminal.
  • Claims for willful or malicious contacts are not dischargeable in Chapter 7 but may be under Chapter 13 unless assessed by the court.
  • Pension loans are not dischargeable under Chapter 7 but are dischargeable in Chapter 13, but the debt amount can still be detected from the pension account.
  • Welfare and unemployment benefits that were wrongly received are not dischargeable under Chapter 7 or 13.
  • Debts resulting from fraud are not dischargeable in either Chapter 7 or 13. This would include debts created immediately before filing, like credit card charges and other debts where the debtor had no intension to pay.
  • Real estate and personal property taxes that were incurred less than one year before bankruptcy are not dischargeable in Chapter 7, and in Chapter 13 plans, must be fully paid.
  • Trust fund taxes are not dischargeable. Trust fund taxes are those taxes that were withheld from employee paychecks there were supposed to be paid. So if a business is shaky be sure to pay these employment taxes before anything else, because they will never go away.
  • Loans that were made to pay non-dischargeable taxes are not dischargeable in Chapter 7. They are dischargeable in Chapter 13 unless borrowed fraudulently. For example, if you used a credit card to pay taxes while planning bankruptcy.

3. Reaffirmation of Debts in Your Bankruptcy

Other than taxes, which we will look at in a separate chapter, the only other debt that is not dischargeable are those that are reaffirmed.  Reaffirmation is the process in which you agree to pay all or part of the debt.  It gives all the rights back to the creditor. Why would one reaffirm?

The major reason is that a debtor wants to keep the debt is he want to keep the collateral that secures the debt.

4. Your Bankruptcy Petition Can be Thrown Out – Revoked

Speaking of discharges, your bankruptcy petition can be revoked altogether. If that happens your filing is thrown out and you will not receive any relief from your debts. There are several reasons a bankruptcy may be denied:

Grounds For Revocation of Your Chapter 7 Bankruptcy Filing

  • Purposely fail to list an asset on your bankruptcy schedules.
  • Intentionally give false information in your bankruptcy schedules.
  • Lie or mislead trustee at the 341 meeting.
  • Fraudulently transfer property within one year before bankruptcy.
  • Fail to complete a financial management course after bankruptcy (required under BARF).
  • Refuse to cooperate with the trustee.
  • Disobey an order of the bankruptcy court.
  • Fail to file all federal tax returns that should be filed with the court.
  • Aggressively convert non-exempt assets into exempt assets.
  • Previously received a Chapter 7 discharge in a case filed within eight years of the current filing, or within six years if a Chapter 13 case
  • Failure to report or surrender property to the bankruptcy estate.

Grounds For Revocation of Your Chapter 13 Bankruptcy Filing

  • Failure to complete a financial management course while your bankruptcy was pending.
  • Failure to file all your federal tax returns that should be filed with the court.
  • Have not kept current with your post-petition support payments.
  • Received a discharge in a prior Chapter 7, 11, or 12 cases within four years of your present filing or in a previous chapter 13 case filed within two years.
  • Failure to cooperate with an audit after the discharge or you don’t satisfactorily explain mistakes in your paperwork.

5. How Income Taxes Are Handled in Your Bankruptcy

Income taxes fall into a special category, so we need to look at them in detail. Taxes due within three years are also priority items, which means they get paid before other items. Income taxes can be wiped out in bankruptcy under certain specific circumstances. To file bankruptcy, you will need to prepare the last four years’ income tax returns and have them available for the bankruptcy trustee. As a general rule, taxes that are less than three years old, you’re going to have to pay through a Chapter 13 plan or make arrangements with the IRS for payment.

Taxes that have not been paid that are more than three years old and were assessed more than 240 days prior to the filing date are dischargeable. Simple right? As with all things IRS there are a number of possible caveats:

  1. First, the taxes must be true, and you can’t have engaged in tax evasion. Your only excepted failure is not paying in a timely manner.
  2. Be careful of timing. The start of the 3-year period normally is April 15 of the following year of the period, but if you file an extension, it starts after the extension expires.

There are three possible reasons that the 3-year period can be extended:

  • If the IRS was prevented from collecting taxes because of a due process hearing, that time does not count, and an additional 90 days is added.
  • Similar to the above any amount of time that a taxpayer assistance order was in effect, also does not count, and an additional 90 days is added.
  • If you had a prior bankruptcy, the time the case is open does not count and 90 days are added to the three years.

If you never filed a tax return you will NOT be able to avoid paying them. There is no statute of limitations on non-filed returns.

How The Timing of Tax Payments Affects Your Bankruptcy

There are several timing decisions when dealing with tax payments that can affect the amount of taxes you may ultimately owe. When the IRS files a notice of tax lien with your county before you file bankruptcy it makes it even more difficult to discharge taxes. The lien gives the IRS a prior claim on all your assets, even retirement plans. So, they still encumber pre-petition assets.

When you file a Chapter 7, you may have the trustee use liquidate assets to pay your current taxes, but you must make an election to do so shortly after filing bankruptcy.

In Chapter 13, is critically important that you factor into your repayment plan the taxes the amount you do owe and that you expect to owe. If you don’t fulfill your plan agreement the entire bankruptcy can be revoked or denied.

Before filing bankruptcy, sometimes you want to consider paying non-dischargeable taxes by selling nonexempt property and paying off the tax debt. Always consult your bankruptcy attorney before taking this step.

State Income Taxes

Generally, the same rules apply to state income taxes that are covered by the IRS. If any of your federal tax liabilities change, be sure to file an amended state tax return also. You want to take advantage of any federal discharges that might apply to the state also. In Nevada, since there is no state income tax, this is one less thing to worry about.

Other Types of Taxes

Generally, non-income taxes are dis-chargeable in Chapter 7 or Chapter 13. The event that causes the tax liability must be more than three years before the filing date.

Property taxes are assessed against the property and land and only become an issue if you want to keep the real estate. You need to include provisions to pay these property taxes in any Chapter 13 plan.

Personal property taxes are not dis-chargeable if they are assessed against the owner and are less than one-year-old.

Please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.

3 Ways Filing For Bankruptcy Can Save Your Home

3 Ways Filing For Bankruptcy Can Save Your Home

We will spend some time talking about your home because the home is usually the biggest asset that most people have. Also, legislatures have recognized that people must have a place to live and homeownership has always been one of the cornerstones of American life. In fact, the number one reason people file bankruptcy is to keep their homes. Let’s discuss the 4 ways that bankruptcy may be able to allow you to keep your home.

1. The Stopping of a Foreclosure Action

Homeowners fall behind in the mortgage loan payments and they can lose their home through foreclosure. Foreclose is the last option a lender has. Previously, the lender has sent out all manner of notices and threats to get the homeowner to pay up, or make some kind of arrangements to pay, and therefore, it not a surprise when foreclosure proceedings begin.

Since the 2008 mortgage crisis, lenders have invented numerous alternatives to foreclosure. Foreclosure is the process that allows the lender(s) to reclaim the property, and then sell it to get their money back.

Foreclosure laws vary from state to state, but in Nevada, it usually begins when the lender files a lawsuit with the county, called a judicial foreclosure action.   In the case of a non-judicial foreclosure, the lender records a default notice with the county and mails copies of the filing to you.

The default notice will inform the homeowner that the home will be sold through a public auction or trustee’s foreclosure sale. The time between the foreclosure notice and the trustee’s foreclosure sale is usually three to four months. During that time, the homeowner still owns the home. After the auction, the new owner can evict the borrower. So practically, the lender will usually not file foreclosure proceedings until you’re at least 90 days overdue in your payments. Typically it will be another 90 days before the public auction. So this gives the borrower at least four months to solve the delinquency problem. Here is a detailed timeline for you to review in greater detail.

A chapter-7 bankruptcy filing stays or stops, the foreclosure action temporarily until you can arrange a satisfactory solution to the payment delinquency. Your filing gives you options to head off foreclosure in 2 ways:

  1. The official Chapter-7 bankruptcy filing will probably allow you to get rid of most of your other debts and therefore making it much easier to afford the mortgage. If you are current or can get current with mortgage payments, the value of your home may be covered by the state’s homeowner exemption, which in Nevada is $550,000. You can then stay in your home as long as you remain current on your mortgage debt. If the value of your home is more than the available state exemption, your home is subject to sale by the trustee, and that excess is used to pay your creditors.

For example: If your home is worth $600,000, the trustee can force you to sell it, give you a check for $550,000, and the remaining fifty thousand dollars is distributed to your creditors.

  • A Chapter 13 filing offers you another option to make up to the delinquent late payments over a 3 to 5 year bankruptcy plan.  If you are $5000 in arrears on your mortgage, then Chapter 13 allows you to pay off the $5000 over the  3 to 5 year life of your bankruptcy plan. Needless to say, you must remain current with your regular monthly payment during this time. So, if your arrears are $5000, and your plan is 36 months, then you would pay an additional $138.89 ($5,000 divided by 36 months) each month to pay off your arrears.  Remember, you may have eliminated a lot of other debt to make that additional payment affordable, and you get to stay in your home.

In some cases where the home is worth less than the first mortgage and there is a second mortgage on top of that, you may be able to eliminate the second mortgage, therefore making bankruptcy even more attractive.

2. Mortgage Restructuring

The filing for a Chapter-7 bankruptcy gives you the opportunity to take advantage, in some situations in which you may be able to restructure your home mortgage in the following ways:

  • You can propose to suspend payments until you can sell the property and pay off the secured mortgage.
  • Restructure the debt to reduce the interest rate and maybe change the terms.
  • You may be able to eliminate part of a debt in what is commonly called, cram down or strip off, in which Chapter 13 debtors do not pay the full amount of debt, but just the value of the collateral. For example, assume your property is worth $100,000 and has two mortgages. The first mortgage is $75,000 and the second mortgage is $40,000. The first mortgage is fully covered by the value of the property and therefore fully secured. But after you deduct the $75,000 on the first mortgage from the value of the property, only $25,000 remains. You did eliminate all but $25,000 a second mortgage. If you paid a second mortgage $25,000 over the course of your Chapter 13 plan, the mortgage debt is reduced dramatically,  even though you owed $40,000.

There are a few situations where residential mortgages have special protection and/or allow some modifications such as:

  • Loans that are due or will come due, during the next five years, like balloon loans.
  • Loans are secured by other property in addition to your home.
  • Loans that are completely unsecured because the property was fully encumbered by prior mortgages.

3. The Nevada Homestead Exemption

Even in bankruptcy, there are a number of categories of debt that cannot be wiped out. Even though the Nevada Homestead exemption is generous compared to many other states. As a general rule, the equity in your home is exempt from being taken up to the amount specified in the state law; in Nevada, it is $550,000.

BUT, the exemption can have all sorts of limitations such as the following:

  • If you bought your home within 1215 days in chapter-7 bankruptcy your home exemption may not equal the allowed amount of exemptions in your state.
  • There is $125,000 on homesteads if you have been convicted of certain federal securities laws or criminal acts that cause serious injury or death within five years of the bankruptcy.
  • The Homestead exemption may be reduced to the extent that the equity in your home was created with the intent to hinder or defraud creditors within 10 years of the bankruptcy.
  • Your exemption amount may be more than the amount stated by state law because the exemption must be more to cover the costs of selling your home. Commissions and other costs must be paid before your exemption is impaired.
  • Some kinds of residences may or may not be covered by the exemption, depending on the local court. Houseboat residences, for example, have for some time been deemed exempt, but sometimes not.
  • If you rent out part of your home, most courts have found that it does not impair your homestead exemption.
  • If you have lived in your current state for less than two years, the exemption law of your prior residence state may be the one that applies.
  • In most states, you must personally live in the residence to reap the homestead exemption.
  • Joint ownership of a home provides further confusion if only one spouse files for bankruptcy. Except for the eight community property states, when only one spouse files for bankruptcy, the other spouse’s interest in the property does not come into play.

So, I hope it is becoming clear that dealing with homestead exemptions is extremely complicated and one that needs to be discussed in-depth with your attorney.

Your Home Valuation Regarding The Nevada Homestead Exemption

Before we can make any decisions on how to handle your homestead exemption, you need to know how much your home is worth. If you have recently purchased your home, the selling price will be a good starting guide. You may need to hire a real estate appraiser to give you an accurate valuation. It is not wise to use either asking prices of similar homes in your neighborhood or real estate agents’ estimates. They tend to be higher estimates with the bias towards listing your home. After you have a good fair market value, you will need to make adjustments to discover the real net value.

Take the real net value of your home, subtract the cost of selling it, which may be as high as 10%. From that number, subtract the amount owed on any outstanding mortgages and the amount owed on any other liens or judgment, real estate taxes, etc., and this figure will be your real equity. If your real equity is less than your homestead exemption, then this is the amount that you claim as exempt, not to exceed the exemption limit in your bankruptcy.

In conclusion when contemplating the various financial and personal issues involved with filing for any type of bankruptcy please be sure to consult a qualified and experienced Nevada bankruptcy lawyer, especially if you are you in a considering entering into a Chapter-13 bankruptcy plan. Renting your home, moving, making improvements, refinancing, signing a contract to sell can all have serious consequences for debtors.

Please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our practice and services here in Reno.

4 Major Details of Filing for Bankruptcy

4 Major Details of Filing for Bankruptcy

To this point, we have given you a general overview of Chapter 7, Chapter 13, and Chapter 11 bankruptcy processes. Let’s look at 4 major details of filing for bankruptcy in order to determine how bankruptcy can best work for you.

1. Exemptions and Non-exemption Property

When you file bankruptcy, all your real and personal property  becomes section 541 property of the bankruptcy estate.

The bankruptcy law is designed to not leave you impoverished and destitute. It leaves you with the basic necessities of life in order to enable you to get a new start. These necessities are exemptions or so-called exempt property that are beyond the reach of creditors. The other assets that you have are the non-exempt properties. The non-exempt assets are the ones that the bankruptcy trustee may take or demand turnover on behalf of the creditors.

Determining which assets are exempt and which assets are nonexempt is a complicated process, especially under the amendments of the 2005 bankruptcy law.  Thirty-four states have opted out of the federal bankruptcy exemption scheme, and theoretically have their own list of exempt assets. Nevada is one of those states that allows you to use the state exemption instead of the federal exemptions. There are 16 states that allow you to use either the federal or the state exemptions, and you can then choose which ones are best for you. 

Every state allows different exempt assets. In Nevada,  exempt assets are listed under NRS 21.090, which is entitled, Property Exempt from Execution. Here is a summary of major Nevada exemptions:

  • $15,000 equity interest in an automobile, and in a joint filing up to $30,000 against one car or up to $15,000 for each car.
  • Up to $550,000 of equity in your homestead residence. To claim this exemption you not only have to own the home, but you also have to live in it at the time you file the bankruptcy petition.
  • One gun and two guns if a joint bankruptcy. You might have one gun that’s worth $50,000, but it would still be exempt from creditors, notwithstanding the high value on the one exempt gun.
  • Up to $500,000 in a retirement account or pension or unlimited exemption in ERISA per IRS Code 408 or 408a under the IRS Code.
  • $12,000 of household goods and clothing. Including a wedding ring. Usually, wedding rings are considered family keepsakes. That means you can have a wedding ring worth hundreds of thousands of dollars and argue that it is a family keepsake. If both husband and wife are filing for bankruptcy, you can stack (or double) the exemption for a joint filing. Valuations of these household goods are based upon the fair market value at the time of the bankruptcy filing. You can use thrift shops or auction values, which are usually a tiny fraction of their original retail value.
  • Up to $16,150 of personal injury awards and all other amounts would go to the bankruptcy trustee.
  • Social security and disability incomes are exempt.
  • Up to $5,000 in a private library, art, family pictures, musical instruments, keepsakes, and jewelry.
  • Up to $10,000 in tools of your trade or to carry on business.
  • Up to $4,500 in farm equipment and supplies.
  • Up to 75% of the disposable earnings per week, or 50 times the minimum hourly wage.
  • All money, benefits, privileges, or immunities accruing in any manner growing out of life insurance. The cash surrender values of that insurance would be exempt.
  • Any vehicle equipped or modified to provide mobility for a person with a permanent disability.
  • Any prosthesis or equipment prescribed by a physician.
  • The money for a 529 education plan.
  • All money and other benefits paid pursuant to the order of a court for the support, education, and maintenance of a child or a former spouse
  • Up to $1000 in a “wild card” exemption, of cash, stocks, bonds, etc.
  • Proceeds received from a private disability insurance plan.
  • Money in a trust fund for funeral or burial services.
  • Unemployment compensation benefits received pursuant to NRS 612.710.
  • Child welfare assistance provided pursuant to NRS 432.036.
  • Stock in a Corporation with less than 100 shareholders, but any dividends from that stock are not exempt.
  • Uniforms for doing your job.
  • Rent deposits that you have with landlords as security for rented property.

This is not all the exemptions, but you can see the list is quite extensive and will not leave the bankrupt petitioner destitute. Nevada residents will probably stay with their state exemptions, which in most cases are more generous than the federal ones, and probably more generous than most other state exemptions.

2. The Critical Concept of Valuation

Household goods and similar items are usually valued at what a secondhand or thrift store would ask for similar items. Automobiles can be valued by Kelly blue book or by numerous websites for automobiles in or similar condition. Real estate should be similar to properties that have sold for in the community. Assessed values can be obtained through your local tax assessor as an additional guide. Real estate listing prices almost always tend to be higher than real values, so don’t rely on them.

3. Secured Creditors and Your Assets

Some creditors have a great interest in your assets because you have given them extra protection when you made the original agreement with them. These are your “secured” creditors. A good example is your home. You may have bought it for $300,000, but you borrowed $250,000 along with your $50,000 down payment to purchase it. There may be a few other creditors, like the IRS, or support obligations that have special priority interest also (We will talk about those in a later section).

Chapter 7, Chapter 13 and Chapter 11 bankruptcy filings each treat  your assets differently. In Chapter 7, you will lose your non-exempted asset. In Chapter 13, you either make payments over the life of your reorganization plan to pay back the value of those non-exempt assets to the creditors, or you give the non-exempt assets  up to the  standing trustee.

The standing trustee then sells the non-exempt assets and distributes the net proceeds to your allowed creditors on a pro rata basis. The repayment plan may take as long as five years. In Chapter 11, your renegotiate the values of assets and make a plan to pay off the creditors  over a period of time, sometimes as long as 8 years.

Secured creditors are those that have liens on your real or personal property. A lien is simply a claim on the property that secures the lender’s interest until you fulfill your agreement to pay  for the loan in full. After the loan is paid for, the lien is released and you own it free and clear.

In bankruptcy, if the lender has a lien on your real and/or personal property, he has a prior right to be paid before bankruptcy wipes out your obligation to that lender. The lender usually “perfect” their security interest in the assets by recording their lien in public records, either a deed of trust for real estate or a UUC-1 for personal property.  If a lien is not perfected, the bankruptcy trustee has the power to eliminate non perfected liens.

There are two kinds of liens:

  1. Consensual liens are those that you voluntarily grant to someone else. They may be for personal property like furniture and automobiles, or they may be for real property, which is usually referred to as deeds of trust or mortgages. In both cases, you borrow money from someone and give them a lien or security interest in certain property until you pay the lender off.
  2. The other kind of lien is a non-consensual lien. This type of lien you never volunteered for, but the law gives creditors a lien to secure something. A perfect example of this is the real property tax on your home or investment property. Another example is when a court enters a judgment against you, they might receive a lien against your property to secure the judgment.

This is important because many times debtors filing bankruptcy have a judgment lien recorded against their homestead and that judgment lien prevents the debtor from claiming their full exemption. The bankruptcy court, the debtor can then file a motion to set that judgment lien aside, assuming that judgment lien impairs the debtor’s exemption.

You usually cannot cancel a security lien, but you can reaffirm their interest, and pay it off over 3 to 5 years in a Chapter 13 case. In Chapter 7 bankruptcy you can redeem the property by paying for it within 30 days of the 341 meeting. In either case, you wind up by keeping the property.

The concept of liens is important because, in bankruptcy, your personal liability is eliminated, except the lien still secures creditor’s interest in the property. In other words, they can still repossess the property until you pay for it.

Bankruptcy gives you special powers and options to remove liens from some exempt items.

We said previously when you file bankruptcy, everything becomes property of the bankruptcy estate, unless exempt. This means not only “things”, but also any “interest” you might have in them. For example:

  • Any proceeds from the sale or rental of property. If you receive rents, they belong to the estate. The trustee will usually allow you to use rents to pay for the expenses, like the mortgage, taxes, repairs, insurance, etc.
  • Inheritance rights arising within 180 days of the filing date.
  • Martial property divisions with 180 days of filing.
  • Any property you transferred within two (2) years of the petition date.
  • Any debts or tax refunds that are owed to you.

4. What Do You Own?

Your “interest” in property may not be what it initial appears to be. For example, if you jointly own property, your interest is in the part, not the whole. You might be in a real estate partnership with three other people, and only your part is subject to the jurisdiction of the bankruptcy.

If you own a car worth $20,000, but you have secured loan against it for $15,000, then your interest is really only the difference of $5000. The loan has a priority or secured  claim on the balance.

A home is frequently owned by both spouses. In Nevada, because it is a community property state, the home become property of the bankruptcy estate (unless exempt), even if the other spouse does not file for bankruptcy (more on home ownership later).

In conclusion, there is always a lot to think about when contemplating filing for any type of bankruptcy. At Harris Law Practice we have been providing financial protection and guidance in the Reno area for the last 45 years. I am here to help. Bankruptcy may not be your only option. Let’s explore all of the alternatives to filing bankruptcy and possibilities that could exist for you.

Let me work with you. Please make an appointment at 775-786-7600 or 775-690-2190 for your free, confidential and personal consultation to talk things over .

8 Common Alternatives to Filing Bankruptcy

8 Common Alternatives to Filing Bankruptcy

First, we will look at the alternatives to filing bankruptcy and the pros and cons of each alternative for filing bankruptcy in detail.  Potential filers may use one or all of the below-detailed suggestions to restructure their finances in order to avoid filing bankruptcy.

1. Getting Help From Your Family

Family help may be an alternative for you, but you must be careful not to make a bigger mess and create a possible lifetime of resentments. Unless you change your habits and restructure your finances, the problems that got you into possible bankruptcy will likely not change. If you use your family’s money, be sure the money is used wisely and you don’t wind up in bankruptcy anyway. If you have a nonexempt asset, you might want to give them a security interest in the asset, so that if you are not able to pay them back and you wind up filing for bankruptcy, then the family loans are protected by the valid security interest in non-exempt assets.

2. Selling Assets

If you have significant non-exempt assets that can be sold to pay off your debts, it might be wise to do so, since you will probably lose them in the bankruptcy anyway, assuming those assets are not transferred out prior to the Petition filing. The assets that you should sell are known as nonexempt assets. These are assets that are not protected under the bankruptcy or State exemption laws.

If you do sell nonexempt assets, do so at a fair market price. Do not repay friends and relatives if there’s any possibility of bankruptcy prior to one (1) year filing bankruptcy. They may be forced to repay that money to the bankruptcy trustee.  Section 547(b).

Exempt assets are those that you will probably be able to keep even if you are filing bankruptcy. So don’t let the creditor force you into selling an exempt asset.

  • In Nevada, your home equity is protected up to $550,000.
  • Your individual retirement accounts up to $500,000
  • An automobile up to $15,000 in value
  • Household and personal belongings up to $12,000 in value.
  • One gun

Nevada property exemptions.  Property exempt from execution listings are found in NRS 21.090 and are briefly described as follows:

  • Pension, retirement, or IRA, 1 gun, private libraries, works of art, musical instruments up to $5000 in value.
  •  Farms trucks, farm stock, farm tools, farm equipment, and supplies not to exceed $4500 in value.
  • Professional libraries equipment supplies and tools, inventory, material seized to carry on the trade or business of the debtor not to exceed $10,000 in value;
  •  for any work income, 75% of the disposable earnings of a judgment debtor during that week, or 50 times the minimum hourly wage prescribed by certain federal fair labor standards act provisions.
  • all money benefits privileges or immunities occurring or in any matter growing out of any life insurance.
  • all money and other benefits paid pursuant to the order of a court of competent jurisdiction for the support, education maintenance of a child.
  • all money and other benefits paid pursuant to the order of a court of competent jurisdiction for the support and maintenance of the former spouse [alimony].
  • payments in an amount not to exceed $16,100, received as compensation for personal injury, not including compensation for pain and suffering an actual pecuniary loss.
  • payments received pursuant to the federal Social Security act.
  • any personal property not otherwise exempt from execution not to exceed $1,000 in total value, also known as the wildcard exemption.
  • the stock of the corporation described in subsection 2 of NRS 78.746 except as set forth in that section.

Every state is somewhat different in their approach to exemptions and the values for those exemptions.  Nevada is considered a more generous state for allowing the debtor’s exempt property. The other States that have generous homestead laws are Florida, Texas, Massachusetts, and Oklahoma.

3. Lower Credit Card Interest Rates

There is a possibility you may be able to move credit card balances from high-interest rate cards to lower ones. Sometimes this can have a significant effect in lowering your monthly cash outflows, but what ultimately happened is that you wind up extending the terms of the balances that you do owe. Be careful about opening new credit card accounts to pay off old ones. If the new account was opened within the year of your filing bankruptcy, the credit card company may attempt to claim it was fraud and tried to prevent you from discharging that debt.

4. Restructure Your Home Mortgage

Usually one of the largest expenses that you have is mortgages on your home. If you can restructure the mortgage terms, it may give you more cash to pay your regular monthly bills. Begin negotiations with your lender as soon as possible. Most banks and mortgage companies don’t really want your house back, they want the money that is outstanding on the loan. Foreclosure is a huge hassle for everyone involved, so they are usually willing to look at alternatives.

Every government agency has programs designed to avoid foreclosure. If your home is insured by the Federal Housing Administration, Veterans Administration, Farmers Home Administration, or HUD, contact them to see what programs they may have available that is best for your situation. Since the 2008 housing valuation bust, these governmental agencies and bank lenders have created numerous new programs for homeowners to avoid foreclosure.

If you have significant equity in your home, you will almost always get more proceeds by selling it yourself rather than letting it go into foreclosure.  But remember, the equity in your home will be protected in bankruptcy up to the state homestead amount.  If you’re facing foreclosure, it’s well worth the attorney’s fee to discuss your home and the bankruptcy ramifications on your house.

Be careful about using home equity loans to pay your debts. Home equity loans are secured by your home and may place it at risk if you cannot pay the loan. Home equity loans do have the advantage that they are usually tax-deductible and the interest rate is lower than credit cards. The trap that many people fall into is that they pay off their credit cards, increase their mortgage payments, and then begin using the credit cards again. So, they eventually wind up with more debt than they had started with and now their home is at risk also.

5. Negotiating With Your Creditors

Although this sounds good, in most practical situations, especially with credit cards and consumer debt, renegotiating with your creditors seldom works.  Work out agreements are the most valuable when you have significant nonexempt assets available to pay off your debts, but you need time to make the appropriate arrangements.

6. Using Retirement Plans

Using retirement plan monies is almost always a bad idea for several reasons.

  • Retirement plan monies are almost always protected in bankruptcy.
  • Most debts that you would pay with your retirement plan monies would be wiped out in bankruptcy anyway.
  • If you withdraw retirement plan monies early, there may be serious tax due.
  • If you don’t repay retirement plan loans, that non-repayment will also incur tax penalties.

7. Threat of Bankruptcy

Part of negotiating with creditors can include the threat of bankruptcy. Sometimes the threat of bankruptcy will give you additional leverage in an offer to pay less than you owe. If the creditor thinks the bankruptcy will completely wipe away the debt he might be willing to accept a greatly reduced settlement on the balance you owe. If you hire a bankruptcy attorney to handle the negotiations, it becomes evident to the creditor that you might fulfill your threat.

Be careful about threatening bankruptcy to secured creditors where you are behind in payments, like automobile loans, because you might wake up one morning and find the car has been repossessed.

8. Moving to Another State

Finally, one of the last alternatives to filing bankruptcy is the simplest but can be fraught with many problems in the future. Occasionally, moving to a different state and simply ignoring the bill collectors, can make financial sense.

Moving to a different state requires a creditor to comply with a different set of laws to collect the debt. If you have few assets, do not care about your credit rating, and most of your income comes from social security benefits, welfare or unemployment, you might decide to totally ignore your past financial problems. This decision will probably require you to change your lifestyle, by not having assets in your name, limiting bank accounts, and dealing more with cash and money orders.

If you are sued, and a judgment is entered against, you may have to worry about bill collectors finding what little you do have. You must be careful about having bank accounts because the judgment holder or a collector can seize all the money in them. In some cases, these judgments can go on for as long as 20 years. So, do not make this choice lightly.

In conclusion, there is always a lot to think about when contemplating filing for any type of bankruptcy. At Harris Law Practice we have been providing financial protection and guidance in the Reno area for the last 45 years. I am here to help. Bankruptcy may not be your only option. Let’s explore all of the alternatives to filing bankruptcy and possibilities that could exist for you.

Let me work with you. Please make an appointment at 775-786-7600 or 775-690-2190 for your free, confidential and personal consultation to talk things over .

The Chapter 11 Bankruptcy Process Can Be Scary

The Chapter 11 Bankruptcy Process Can Be Scary

In general the filing of a chapter 11 bankruptcy is complicated, time-consuming and expensive.

Complications of the Governing Provisions

The Chapter 11 bankruptcy process is complicated because the governing provisions for a Chapter 11 are found in section 1101 through 1146 of the bankruptcy code.  With the overlay of what can and cannot be done set forth in section 101 through 112 [General Provisions], section 301 through 308 [Commencement of the Case], section 321 through section 333 [Officers], section 341 through section 351[Administration], section 361 through the section 366 [Administrative Powers], section 501 through section 511 [Creditors and Claims], section 521 through section 528 [Debtors, Duties and Benefits], section 541 through section 562 [Estate].

The filing of the Chapter 11 bankruptcy petition, by an entity or individual, is governed by section 301.  Following the filing of a voluntary petition for Chapter 11 bankruptcy relief, there is normally set by the U.S. Trustee’s office a Section 341 first creditors meeting, scheduled to take place 4 to 5 weeks after the petition filing.  In between the petition filing and the noticed section 341 first meeting of creditors,  the initial debtor interview, is conducted at the bankruptcy court by US Trustee’s office.

Which is essentially an informal office interview where the debtor provides business records for his business and personal activities, bank statements 3 to 6 months previous to filing, evidence of insurance, available and most recent financial statements, and the last 2 to 3 years income tax returns.  All of these business records are then reviewed by the bankruptcy analyst working for the U.S. Trustee’s office.

The initial debtor interview is usually attended by the debtor and the debtor’s attorney, and answers given at the IDI meeting are usually not under oath, and lead to further questioning by the US Trustee’s attorney representative at the section 341 first meeting of creditors.  

After the section 341 first meeting of creditors is concluded by the US Trustee’s office representative, then creditors have an opportunity to ask factual questions about assets and liabilities for debtor’s business affairs.  Following conclusion of the section 341 meeting, the debtor has the exclusive time period to file a plan or reorganization of 120 days, followed by another 60 day exclusive of time period to gain confirmation of the plan of reorganization that is timely filed by the debtor.  

In the case of small businesses, under section 1121, the requirement is for the debtor to gain confirmation of plan within 300 days from the date of petition filing, unless extended by the court.  Additionally, there may be a 90 day limitation to file a plan reasonably capable of being confirmed in the case of a single asset real estate case.  See Section 362.

Filing of the Disclosure Statement in Chapter 11 Bankruptcy

After that debtor timely files its plan of reorganization, the debtor also files a companion pleading called a disclosure statement, which disclosure statement is noticed for hearing under section 1125 of the bankruptcy code, seeking a court order  decreeing the existence of the adequacy of the information in the disclosure statement, which is a requirement before debtors are allowed to solicit their plan of reorganization.  

Once the court enters its order approving of the adequacy of the information contained in the disclosure statement pursuant to section 1125, the debtor can proceed to notice a confirmation hearing under section 1129(a)  and (b) of the bankruptcy code.  The confirmation hearing is the ultimate goal for a debtor filing the Chapter 11 plan, for a confirmed plan dictates creditors repayment schedule, which payment obligations must be strictly adhered to  by the debtor and accepted by a creditor on certain terms and conditions set forth in the confirmation plan.

Timing the Chapter 11 Bankruptcy Filing

Timing may be a critical element in bankruptcy filing for number reasons.  Some reasons may affect your individual situation. Your attorney will be aware of the subtle details that might because you to delay the filing date. If these circumstances apply to you, talk with your attorney. Here are some of the important ones:

  • If you have repaid debt to family members or insiders during the past year, you may want to wait for a year to pass so you protect them from having to repay money to the estate.
  • If you expect to receive a large income tax refund or other payments, you might want to wait until you receive that money. If you file for bankruptcy before you receive the money, that money will become part of the bankruptcy estate and it will potentially go to the trustee not to you.
  • If you have recently incurred debt, especially credit card debt, you may want to wait in till some time passes so that the creditor will not try to claim fraud. The creditor may want to try to stop you from including that debt in the bankruptcy and receiving a discharge.
  • If you have recently lost your job or have a major reduction in your income, waiting a few months may make passing the means test much easier. The means test is based on your average income for the last six months before filing the petition, so if you have a few months of lower or no income, it will reduce your average monthly income for these 6 months.
  • If you’re considering divorce, talk with your attorney to see when the most advantageous filing date would be appropriate.
  • If you owe taxes that are more than three years old, it’s possible some of that tax burden may be dischargeable after a specific date also.
  • In Nevada, there is a homestead exemption of $550,000 if you purchase the home more than 1215 days ago prior to the petition filing. If you purchased it less than 1215 days prior to the petition filing, the homestead exemption is then set at $155,675.  So waiting past that 1215 day may be worth the difference in dollar savings to you.
  • If you think you’ll have large medical bills due in the near future, it may pay to wait at until after those bills were incurred to include them in the bankruptcy. You won’t be able to file another bankruptcy for least eight years.
  • Your debts will not be wiped out if you have filed a previous Chapter 7 case in the last eight years, or four years for chapter 13 case.

In many of these cases a few days, a week or a month mean the difference of thousands of dollars in assets that you may have to give up or may be able to keep.

I had a case where a husband and wife couple came in to consult with me that had over $2 million in their bank accounts, but were going to owe much more than the $2,000,000 in debts after 1 or 2 years when   their creditors’ claims matured.  They had transferred most of the $2,000,000 to potentially exempt assets beyond 2 years of their filing, therefore, they did not have to report on Question 10 of the statement of affairs that they transferred assets in the 2 year time frame before filing the petition.  

If asked about the transfer in the 341 meeting, they would have to disclose the transfers because it happened within 4 years. As luck would have it, the bankruptcy trustee and creditors that did attend the section 341 first meeting of creditors did not know of the transfers beyond the 2 year period, having failed to request records of the debtors that reflected that the $2 million had been transferred to other asset forms many years before the bankruptcy filing.  

If there is no questions asked about the time period after 2 years before filing the petition, and if there were no transfers within the two-year time frame of filing the petition that would be reportable under question number 10, there is no obligation on the part of the debtors to volunteer information relative to transfers that happened in year 3 and year 4 or other years beyond 4 years. 

Therefore, in this instance, silence is golden.  Had bankruptcy trustee or creditors asked about transfers in years 3 and 4 prior to petition filing, they would have found out about transfers to entities that were arguably exempt, or excluded assets, thereby triggering issues on the avoidance of these years 3 and 4 transfers under section 544, and the need applicable State of  Nevada uniform transfer act.   

The 9th Cir. previously held that transfers of nonexempt property to exempt property are not prohibited, so long as it is done not to defraud or hinder on delay creditors.  If transferring non-exempt to exempt property within 6 months of filing is considered an act in furtherance of defrauding creditors, one must wait for 1 year, 2 years or more. The Ninth Circuit case site for transferring nonexempt and exempt is Sherwood.  That case essentially held that transferring non-exempt assets to exempt assets status is legal, so long as it is done without the intent to defraud creditors.

Summary

All of the above examples perfectly illustrate why it is absolutely mandatory that you hire an experienced bankruptcy attorney to steer you through a chapter 11 bankruptcy case. I know there is a lot of information here so my advice is to call our office at (775) 786-7600 or (775) 690-2190 anytime to set up a complimentary and confidential consultation with me at your earliest convenience. You can also visit our new business Facebook Page for more information.