Can an Executor of an Estate File for Bankruptcy on the Estate’s Behalf?

By Ryan C. Wood

The death of a loved one affects the survivors both mentally and financially.  There may be additional stress if the beneficiaries of the deceased inherit property that is heavily encumbered and subject to foreclose by a creditor.  If you are a beneficiary of an estate and mortgage payments were prior to your loved one dying, can the executor of the estate can file for bankruptcy on the deceased person’s behalf in order to stop a foreclosure sale?  The answer to this question would be dependent on how the bankruptcy is filed.

When a person dies, all their property (including personal and real property, tangible and intangible assets and all debts associated with the person) belongs to a newly created “estate.” A decedent’s estate is not eligible to file a Chapter 13 bankruptcy petition because it is not considered an “individual” as defined in 11 U.S.C. §109.  A person that has already passed away also cannot file for bankruptcy. Therefore, an executor or personal representative of the decedent’s estate cannot file for bankruptcy on the decedent’s or the estate’s behalf.

When the estate is created, creditors will file claims with the court regarding what is owed to them.  If the assets exceed the debts, then the beneficiaries receive whatever is leftover according to the wishes of the deceased.  If the debts exceed the assets, the assets are liquidated to pay the debt off and the remaining debt will be written or charged off.  The beneficiaries will not have anything to inherit and there is no need to file for bankruptcy for the estate.

However, if the beneficiaries want to save a particular piece of property from foreclosure and the property is underwater the beneficiaries would have standing to file for bankruptcy in his or her individual capacity if they are otherwise eligible to file for Chapter 13 bankruptcy.

So why file bankruptcy with an experienced bankruptcy attorney?  If they stand to inherit any real estate that is about to be foreclosed, filing for bankruptcy will stop the foreclosure sale and help the beneficiary reorganize the debts by paying the mixed mortgage payments in a Chapter 13 plan.  This will help them keep the property in the long term if they are able to afford their regular monthly mortgage and the Chapter 13 plan payment to pay arrears.  The beneficiaries may want to keep the property in the estate for many reasons.  Maybe it is their childhood home and they want to preserve it for future generations.  Or it is the house they currently live in and if foreclosed, they will have nowhere else to go.  Whatever the reasons are, filing for a Chapter 13 bankruptcy will help them save their homes.  For more information about estates and filing bankruptcy, please consult an experienced bankruptcy lawyer in your state.

Mortgage Principal Reductions and Bank of America

By Ryan C. Wood

Bank of America has indicated they will be mailing out letters to their borrowers that would offer a principal reduction of up to $150,000 for 200,000 borrowers.  This is part of the $25 billion settlement agreement reached between Bank of America and the state and federal agencies for robo-signed documents during the foreclosure process.  Many lenders had processed the foreclosures without verifying documents.

As part of a settlement agreement Bank of America will be sending out these letters to their borrowers, but the borrowers still have to prove they qualify for the principal reduction.  In order to qualify you first have to respond to Bank of America’s letter.  A lot of borrowers have grown tired of questionable businesses sending them letters indicating they can help them modify their loans or reduce their principal balances.  Borrowers may think that this is another scam, so they either ignore the letters or throw them away.  However, if you do not open Bank of America’s letter or respond to it you will not receive the principal reduction.  Bank of America is sending these letters to borrowers by certified mail with the words “IMPORTANT” in red letter on the envelopes, so be on the lookout for these letters.  Be sure the letter is actually from Bank of America and not another third party company.  You may respond to the letter by providing Bank of America documentation of your income.  Your current monthly mortgage payment must be 25% higher than your current gross monthly income, which you cannot afford to pay.  If you can afford to pay, why would Bank of America give you a modification?

Once you have received the letter, you have to meet other qualifications to have your principal balance reduced.   Your mortgage has to be more than 60 days late, your mortgage must be owned by Bank of America or serviced by Bank of America and owned by an investor that is agreeing to have the loan modified, and you have to owe more on the mortgage than what your home is worth.

After it is determined that you do qualify for this program your monthly mortgage payment will be reduced to 25% of your gross income.

Now, keep in mind, this program is for about 200,000 of Bank of America’s borrowers. You may still need to find other options in keeping your home if you are not one of the 200,000 borrowers Bank of America has sent the letters to.  The letters will be staggered so that Bank of America can handle the responses, so don’t despair if you don’t receive the letter immediately.  The letters will be sent throughout the next several weeks and into the summer.  I am sure many bankruptcy attorneys will field phone calls regarding these letter.

If you have a second mortgage on your home this program will not help with it.  However, you may be eligible to have your junior mortgages stripped/removed in a Chapter 13 reorganization.  If you are not one of the 200,000 people who receive this letter from Bank of America you can still contact a bankruptcy lawyer to see what your other options are to keep your home.

Is it a Bad Idea to Use my Retirement Funds to Pay Off Debts Prior to Filing Bankruptcy?

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No one wants to be in a situation where they are living paycheck to paycheck.  Sadly, in today’s economy, it happens all too frequently.  Especially now due to COVID-19.  More often than not your paycheck may not cover all of your living expenses, so what do you do?  With the wide availability of credit cards and other sources of credit these days you may turn to credit as the solution to their problems.  Credit, however, is only a temporary band-aid for your problems.  What happens when the credit has reached the maximum limit and you can no longer borrow more funds?  You can also turn to your retirement account to pay off debts too.  This article will explain why that could be a bad idea.

You are planning and saving for your future when you invest in a retirement plan.  Ideally, these funds are to be used when you are retired.  ERISA (Employee Retirement Income Security Act) qualified pension and retirement plans such as 401(k)s, 403(b)s, profit-sharing plans, and Keoghs are exempted from the bankruptcy estate if you file for bankruptcy. The exemption is almost unlimited so it does not matter how much money you have in the retirement plan – you will not have to give up any of the funds if you file for bankruptcy.  If you have an IRA (traditional or ROTH), the limit is approximately $1 million.  That is still a pretty hefty amount that is safe from creditors.

When you make an early withdrawal from your retirement account you are hit with a tax penalty.  When you “borrow” funds from your retirement account you are creating a loan that normally accrues interest.  To make matters worse if you do not settle or pay off all of your debts what happens with the unpaid debts?  Unfortunately we meet with potential clients that have paid of one credit card only to have another sue them.  Paying off one card with retirement money in this situation is a complete waste of money.  If you only take out one of the eight lions chasing you what will save you from the other seven lions?  You will just have less retirement money and have achieved nothing unfortunately.  It is entirely understandable for everyone to want and try to stay out of bankruptcy.  There is no shame in that.  It would just be better to emerge from bankruptcy with as much money in a retirement account as legally possible.

When you file for bankruptcy protection all dischargeable unsecured debts will be wiped out upon completion of your bankruptcy case.    So why would it be a good idea to use exempt funds to pay off debts that would have been discharged in your bankruptcy case?  The answer – it isn’t.  However, most people use bankruptcy as a last resort, when all other solutions have failed.  By this time, your retirement funds are depleted, you have creditors hounding you for the unpaid balances and you still have no relief.

When you realize that you are unable to repay your debts it is a good idea to speak with an experienced bankruptcy attorney first to see what your options are.  Most bankruptcy lawyers like us will be able to quickly and accurately let you know what your options are.  It may be that bankruptcy is not right for you, but it should be ruled out first rather than borrowing from a retirement account. Bankruptcy may help you get a fresh start and debt relief AND help you keep your retirement funds for when you really need it – when you are retired and have no other source of income.

How Does Filing Bankruptcy in the U.S. Affect My Foreign Debt?

By Ryan C. Wood

In today’s world traveling and living in different countries is not very difficult.  It is no surprise that people may owe debts in different countries as well since credit can be obtained easily.  What do you do when you owe debts in different countries and you need to file bankruptcy with our bankruptcy lawyers in Union City?

First of all, if you live in the United States, it would be difficult for a foreign creditor to enforce their debts against you.  Different states have different rules about whether or not a foreign creditor can collect or enforce a judgment of a foreign debt.  In order for a debt to be recognized and enforceable, the foreign creditor would need to “domesticate” their debts.  Different states have different rules regarding domestication of debt.  In some states a foreign creditor can enforce their debts against you if they meet the requirements of the Uniform Foreign Money Judgments Recognition Act (“UFMJRA”).  In addition to meeting the requirements of UFMJRA the foreign creditor must have had personal jurisdiction over you or subject matter jurisdiction over the matter.  The in most states courts have a lot of discretion over whether to allow enforcement of these debts even if the foreign creditor met all the requirements.  Therefore, a lot of foreign creditors may not go through all these steps to try to enforce their judgment against you unless it is was worth their effort to do so.

Regardless of whether or not a foreign creditor domesticates their debt, all creditors are subject to the automatic stay that is in place when you file for bankruptcy in the United States with a bankruptcy attorneys in Fremont.  It does not matter if the debt is from the United States or from another country.  This means that if the foreign creditors try to collect from you or file a lawsuit against you after you have filed for bankruptcy protection they are subject to sanctions as applicable under the Bankruptcy Code.

This does not mean you are home free however.  Filing for bankruptcy protection in the U.S. only protects you from the collection of the debt while you are in the U.S.  As soon as you return to the foreign country the foreign creditors may still pursue the collection of the debt.  For example, if you lived in Canada and moved to the U.S. and filed for bankruptcy protection in the U.S., the Canadian creditor cannot collect from you in the U.S., but if you return to Canada, the Canadian creditor can still pursue you for the Canadian debt unless you file for bankruptcy protection in Canada.

Do I Need to Disclose Property Owned in a Foreign Country in my Bankruptcy Case?

By Ryan C. Wood

When you file for bankruptcy protection in the United States you must to list all your real and personal property.   These assets include both foreign and domestic owned property like houses, bank accounts and investment accounts.

Many people may exclude their foreign owned assets under the mistaken assumption that the bankruptcy trustee may not know or be able to trace the foreign owned assets to them, thereby making those foreign owned assets safe.  The bankruptcy trustee may have multiple ways of learning about these foreign owned assets.   Some of these methods include looking at your tax returns, bank records, official documents, or someone you know may notify the bankruptcy trustee about your assets.

The failure to disclose foreign owned assets may be due to a misconception that since you are filing for bankruptcy in the United States you only need to disclose the assets that you own in the United States.  This is completely false.  You need to disclose ALL assets owned whether these assets are located in the United States or another country.

If you purposefully exclude these foreign owned assets in your bankruptcy petition you will be committing perjury that may subject you to criminal prosecution.  You could potentially be fined up to $250,000 and/or five years in prison.  The bankruptcy judge may also dismiss your bankruptcy case.  The trustee may liquidate your excluded asset in a Chapter 7 bankruptcy case.  None of these outcomes are good for you or your financial situation.  Obviously these results are counter-productive of what you had originally intended, a fresh start free of financial burdens.  An honest debtor receives the fresh start that he or she needs, but a dishonest debtor may end up in a worse situation than what he or she intended.  The moral of the story – be the honest debtor so you receive the outcome that you want.

Just because you have assets in a foreign country does not mean that you would need to give up those assets when you file for bankruptcy.  You still receive exemptions that protect the assets you have.  Whether or not all of these assets are exempted depends on your particular circumstances.  It is best to discuss your situation with an experienced bankruptcy attorney to ensure that all or most of your assets are protected.  Even if not all your assets are protected, the attorney may go over what your options are. You may contact our experienced Fremont bankruptcy attorneys or Oakland bankruptcy attorney today at 877-9NEW-LIFE or 877-963-9543 for a free consultation.