I’m About to Receive a Lump Sum Social Security Payment and Does that Affect My Bankruptcy Case?

By Ryan C. Wood

A number of issues that come up in the real world are not good in once in the bankruptcy world.  Receiving a lump sum social security payment is one of them.  There are many people that are about to file for bankruptcy  or have already filed for bankruptcy and realize that they will be receiving a lump sum payment from the Social Security Administration for payment owed to them for prior months (sometimes years).  At times it is not clear when the funds will be received or if they will be received at all.  Receiving a lump sum payment is normally a cause for celebration since you will now receive what is owed to you by the government.  However, the most prevalent fear out there is that because they are about to file for bankruptcy, or have already filed for bankruptcy, they may lose some or all of those funds.  Well, we are here to help you settle those fears.

Social Security benefits are exempted from the bankruptcy estate.  What is a bankruptcy estate?  A bankruptcy estate is created when you file for bankruptcy protection.  The bankruptcy estate essentially includes all assets that you have in your name, whether it is real or personal property, tangible or intangible goods.  We use exemptions to protect those assets.  Since Social Security benefits are exempted from the bankruptcy estate, it means that these benefits are protected against creditor collection, including levies, garnishment, or any other legal process.

If you received your lump sum social security payment before your bankruptcy case is filed, be sure to place those funds in a separate account that is not commingled with deposits from other sources.  This way, there is no argument that the account consists of only the social security payment, and all the funds in the bank account can be protected.  If the lump sum payments are commingled with monies from other sources, it becomes harder to trace the funds.  If you have your paycheck deposited in the bank account along with the lump sum payment, how do you prove that the $1500 you spent on rent came from the lump sum social security payment and not your paycheck?  The harder it is to prove that the funds came from the social security payment, the harder it is to protect.

If you receive your lump sum social security payments after your bankruptcy case is already filed, you need to make sure the payments are listed in Schedule B of your bankruptcy petition.  If it is not, you can file an Amended Schedule B to list the lump sum payment and exempt the asset on Schedule C of your bankruptcy petition.  As previously indicated, remember to place the lump sum payment in an account that is not commingled with other funds to ensure maximum protection.

How Do Social Security Benefits Affect My Bankruptcy Case?

By Ryan C. Wood

These days, most of Americans use credit cards in one form or another and carry a balance each month.  Everyone has been affected by the economic meltdown.  People living off social security benefits are no exception.  If you are in over your head and in a lot of debt, and receive social security benefits, you may be wondering if receiving social security benefits will affect your ability to file a bankruptcy case.  The answer depends on your specific financial situation.

If you currently do not own any real estate and the only income you receive is social security income, you are technically judgment proof because your social security benefits are exempt from collection activities, such as garnishments and levies.  If this is your situation, you may not need to file for bankruptcy.  Even if your creditors file a lawsuit against you and obtain a judgment, they cannot levy against your social security benefits.  The most important thing is to make sure you can prove that everything in your bank account is derived from social security benefits and not commingled with other sources of income.  It should not be too difficult to prove all the money you have is from social security benefits if that is your only source of income.

If you do have real estate or other assets that need to be protected and you have other sources of income in addition to your social security benefits, most people will need to complete the Statement of Current Monthly Income and Calculations (commonly referred to as the “Means Test”) to determine whether you qualify for a Chapter 7 bankruptcy or whether you should file a Chapter 13 bankruptcy instead.  The means test determines what your average disposable income is based on your average income minus allowable deductions.  If you have any disposable income left over it most likely means that you should be filing a Chapter 13 bankruptcy and paying back to them what you can afford to pay each month.  Social security benefits are not considered income for means test purposes.  That means that any income you receive from the Social Security office does not need to be calculated into this monthly equation.

However, even though social security benefits are not considered income for means test purposes, there is a second test to determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy.  This test depends on what your monthly household income and expenses are.  This is similar to the means test in that it takes your income and subtracts your expenses, but while the means test calculates the average income minus allowable expenses based on IRS standards to determine your disposable income, this test simply takes what your actual and future monthly household income is and subtracts your actual expenses to create your monthly budget (Schedule I and J in your bankruptcy petition).  Whether your social security benefits are considered “income” depends on what jurisdiction you live in.  Here in the Northern District of California, social security benefits are included in your household income.  If based on your monthly budget you have disposable income, then again, it is a sign that you may need to file for a Chapter 13 bankruptcy.

Bankruptcy laws can be confusing , especially when trying to differentiate income or expenses on the means test and income for your Schedules I and J.  If you have any questions, it is a good idea to consult with an experienced bankruptcy attorney.  Please contact us at Fremont bankruptcy lawyers or Union City bankruptcy lawyers, or call us at 877-9NEW-LIFE /877-963-9543 today to schedule a free consultation.

Bankruptcy Filing Fees Increase as of November 1, 2011

By Ryan C. Wood

The cost of living continually increases over and over again.  When this was originally written the Court filing fees were increasing and since unfortunately increased again.  The Court filing fee to file a chapter 7 bankruptcy case is now $335 and chapter 13 bankruptcy $310.  No doubt due to COVID-19 the federal government will use it to increase the court filing fees again.  These increases became effective December 1, 2016.

The percentage increase of the Court filing fees over the years are far higher than the cost-of-living for average people though.  Ask your bankruptcy attorney more about how their attorney fees and expenses have changed over the years at a lesser increase than the court filing fees. 

Court Filing Fee 2011 Increases  

Starting November 1, 2011, a lot of the fees related to filing documents in your bankruptcy case will be increasing.   The most important ones that are relevant to you are the fees to file your Chapter 7 bankruptcy case or Chapter 13 bankruptcy case.  The Judicial Conference of the United States adopted new court fee schedules.  On November 1, 2011, your Chapter 7 bankruptcy court filing fees will increase from $299 to $306.  Your Chapter 13 bankruptcy court filing fees will increase from $274 to $281.  This means that if you wanted to file a bankruptcy case, it may be more beneficial for you to file on or before October 31, 2011 before the price increases.  Although it is only a seven dollar ($7) increase, every penny counts.   A mere $7 could buy you a satisfying meal.

If you already retained an attorney to represent you in your Chapter 7 or Chapter 13 bankruptcy case it would be advisable to pay your fees in full or provide them with the necessary paperwork to file your case as soon as possible so that you do not have to pay more money for the court filing fees.  

For those of you who have already filed your bankruptcy case, this price increase does not affect you, as it is for people that file new bankruptcy cases after November 1, 2011.

Additionally, people whom seek to file fee waivers for their bankruptcy filing fee are still subject to the same rules prior to the fee increase.  Whether or not you qualify for a fee waiver always depends on the circumstances.  A judge will not grant a fee waiver unless your income is less than 150% of the poverty level and you cannot afford to pay the fee in installments.  Even if you do not qualify for the fee waiver, the judge may potentially grant your application to pay the increased filing fee in installments.

Besides filing fees for Chapter 7 and Chapter 13 bankruptcy cases another fee increase that may be relevant to you is the fees for filing an amendment to your Schedules D, E, F and Creditor Matrix in your bankruptcy case.  The fees have increased from $26 to $30.  Hopefully your bankruptcy lawyer and you reviewed the petition carefully before filing it so no amendments need be made.   

Chapter 13 No Look Fees Increased Northern District of California

The no look chapter 13 bankruptcy attorney fees in the Northern District of California finally increased and become consistent between all divisions.  A district wide model chapter 13 plan was approved and along with that plan new increased no look fees.  The no look fees are presumptively deemed reasonable for the various things listed.  No fee application is supposed to be filed itemizing time spent and why when requesting no look fees. 

Foreclosure and What are the Tax Consequences, Do You Have to File For Bankruptcy?

By Ryan C. Wood

These past couple years have been very hard on homeowners.  Homes are being foreclosed on left and right.  If you have been caught in this crisis as well you may need to know what your options are after your home is foreclosed and whether one of those options includes bankruptcy.

Many bankruptcy attorneys ran into all kinds of scenarios regarding foreclosure and potential resulting debts during the mortgage meltdown.  For many homeowners the foreclosure was not their only problem with debts and credit card debts were also a major problem.  Luckily there is the Bankruptcy Code that provides a legal discharge of personal liability for all debts incurred prior to filing.  

If your residential property was foreclosed and you only had one mortgage on the property then you may not need to file for bankruptcy since the creditors cannot go after you for any deficiencies due to the One Action Rule.  However, under normal circumstances, even if the creditors do not go after you for the deficiency you may still owe a hefty chunk to the taxing authorities, the Internal Revenue Service (“IRS”) and California’s Franchise Tax Board (“FTB”).  That is because the taxing authorities could treat the cancellation of debt as a taxable event since you did not have to pay the deficiency to the mortgage creditor, and thus the money you did not have to pay them is considered income in the form of a 1099-C.  This is a harsh double whammy for homeowners who have lost their home and now they have a hefty bill they need to pay the taxing authorities.  Hopefully if your CPA did not identify your tax debt is related to your foreclosure the bankruptcy attorney you consult with will.  Not all 1099-C income is a taxable event that must be added to income.

Since the foreclosure rates have been so high in the most recent years the federal and state governments have created temporary laws that would help ease the financial hardship of homeowners who have lost their homes.  IRS created the Mortgage Forgiveness Act of 2007 which forgives up to $1 million in debt for the deficiencies related to the foreclosure of a primary home for a single or married filing separate taxpayer and up to $2 million for a married couple.  The debt has to be related to the house, either building, improving or maintaining it.  There could be multiple mortgages on the house, and as long as they were all used for the property, you would not have to pay taxes on the cancellation of that debt.  The trouble that a lot of homeowners run into is the fact that sometimes the second mortgages are taken out to pay off their credit card debt or buy new cars which have nothing to do with the house.  If that is the case the deficiencies on that debt are still a taxable event to the IRS.

California has a similar program that protects homeowners who have lost their homes in a foreclosure.  They exclude up to $250,000 of debt for deficiencies related to foreclosure of a primary residential property for a single or married filing separate taxpayer and up to $500,000 for a married couple.

Since both the federal and state governments are protecting only primary residences, if you have a rental property, or business property, or even second mortgages that were taken out to pay off debt that is not related to your home, the cancellation of such debt are still considered taxable events.  Be sure to seek the consultation from an  experienced bankruptcy attorney and not an attorney just jumping on the band wagon when the economy turns sour.  

Reaffirmation in Chapter 7 Bankruptcy

By Ryan C. Wood

When you file for Chapter 7 bankruptcy, all your dischargeable unsecured debt will be discharged once the judge signs the Order of Discharge.  This means that your personal liabilities to repay those debts are discharged, and you are no longer obligated to pay those debts.  If you have a secured debt, however (i.e. houses, cars, etc.), then although your personal liability to repay that debt is discharged, you would need to continue paying on it to keep that property, otherwise the secured creditor could repossess or foreclose on that property.

One of the things that your secured creditors may want you to sign after you have filed a bankruptcy case is a reaffirmation agreement.  A reaffirmation agreement is basically a new contract between you and the creditor indicating that you promise to continue making payments on that debt.  Since it is a contract that you have signed after your bankruptcy case, any liabilities arising out of the default of the debt is not discharged in your bankruptcy case.  The most usual type of reaffirmation agreements pertain to vehicles.  If you default on the payments, the creditor can repossess your vehicle and go after you for any deficiencies.  If you do not sign a reaffirmation agreement and you default on the debt, then the creditor cannot go after you for any deficiencies, as your personal liability was discharged in the bankruptcy case. 

If you do decide to sign a reaffirmation agreement, it needs to be filed with the court.  There may be a hearing on the reaffirmation agreement if you are not represented by an attorney.  If you have signed a reaffirmation agreement and changed your mind, you can cancel the agreement within 60 days or until the discharge of your bankruptcy case, whichever is later.  Since the future is uncertain, it may not be a good idea to sign a reaffirmation agreement unless you are absolutely certain that your job is stable or you receive favorable terms in the reaffirmation agreement, such as decreased interest rate or reduced monthly payments.  Otherwise, if you sign a reaffirmation agreement, and then you lose your job in the future, or receive a pay cut and are unable to repay the debt, then you will lose your property still owe on the deficiencies on the property. 

There are other options other than signing a reaffirmation agreement in your Chapter 7 bankruptcy case, including: surrendering your vehicle, redeeming your vehicle, or retaining your vehicle and paying the secured debt.  If you surrender your vehicle, any deficiency will be discharged in your bankruptcy case. 

Redeeming your property is when you pay the fair market value for your property rather than what you actually owe.  This may be beneficial if the value of your vehicle is significantly less than what you owe.  The only issue with redeeming your vehicle is that you have to pay the full amount of the fair market value of your vehicle. 

The other option is to retain your vehicle and continue making payments on it.  Most creditors will continue to accept payment on your vehicle and they will not repossess your vehicle if you are current on the payments.  Then, if you are unable to make your vehicle payment, then your vehicle will be repossessed, but you will not owe any deficiencies because you did not sign a reaffirmation agreement.  However, one of the risks in this option is that some creditors that will repossess your car even if you are current on the vehicle if you do not sign a reaffirmation agreement. 

If you have any questions regarding which options to choose to retain your vehicle, please contact us at Fremont bankruptcy attorney or Hayward bankruptcy attorney at 877-9NEW-LIFE or 877-963-9543 today.