Chermack Law | Category Archives: Bankruptcy Law

Choosing between Chapter 7 and Chapter 13 bankruptcy: liquidation and exemptions

Posted on September 25, 2017 by Elizabeth Rosar Chermack

Most people who come into my office with questions about bankruptcy and resolving their debts are familiar (on some level) with Chapter 7 bankruptcy. For most people who are considering filing bankruptcy, a Chapter 7 bankruptcy is the goal.

A Chapter 7 bankruptcy is sometimes called a “liquidation bankruptcy” but the reality is that generally people do not have things with a whole lot of value to liquidate.

When you file bankruptcy, everything that you own is “frozen” and becomes part of the bankruptcy estate. In theory, everything in the bankruptcy estate is sold and then the funds from the sale are divided up amongst your creditors. In reality, if everyone who filed bankruptcy lost EVERYTHING, there would be a lot of issues. For example, people who filed bankruptcy:

wouldn’t have vehicles to get to/from work;
wouldn’t have clothing (it’s hard to keep a job and function in society if you don’t have clothes); and
might not have a place to live.

Luckily, the bankruptcy code (and Minnesota law) protects people who file bankruptcy by allowing them to exempt certain things from the bankruptcy estate. When things are exempted from the bankruptcy estate, it means that you ultimately get to keep those assets.

As I stated above, for most people who are looking at filing bankruptcy, a Chapter 7 bankruptcy is the goal. Why is that?

It’s faster than a Chapter 13 bankruptcy; once a Chapter 7 case is filed – as long as everything goes smoothly – it is done in about 3 months.
Unlike in a Chapter 13 bankruptcy, you do not have to make monthly payments towards your debts.

Why would someone choose to file a Chapter 13 bankruptcy? Here are some of the possible reasons:

They couldn’t pass the means test
They have nondischargeable debts that they wanted to pay through a Chapter 13 plan
They had assets that wouldn’t be exempt in a Chapter 7 bankruptcy
They aren’t eligible for a Chapter 7 discharge at this time due to the date they last filed bankruptcy
They’re using the Chapter 13 payment plan to catch up on payments on a secured debt (car loan, mortgage) that they fell behind on

Elizabeth Rosar Chermack is a Burnsville Bankruptcy Attorney, and can help you analyze whether Chapter 7 or Chapter 13 bankruptcy is the right choice for you. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation.

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New means test numbers – effective May 1, 2017

Posted on April 26, 2017 by Elizabeth Rosar Chermack

On April 1, 2017, new median incomes for means test purposes took effect. I posted about it here: http://chermacklaw.com/updated-means-test-numbers-effective-april-1-2017/

On May 1, 2017, new IRS expense figures and Administrative Expenses Multipliers will take effect. You can find more information about this here:

https://www.justice.gov/ust/means-testing/20170501

Elizabeth Rosar Chermack is a Minnesota bankruptcy lawyer with an office located in Burnsville. Her office is close to Savage, Shakopee, Apple Valley, Farmington, and Lakeville. She can represent you in your bankruptcy matter. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation with Liz.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

Updated means test numbers – effective April 1, 2017

Posted on March 21, 2017 by Elizabeth Rosar Chermack

New means test numbers are going into effect on April 1, 2017. The median incomes for Minnesota have increased. As a result, it may now be easier for some people to qualify for Chapter 7 bankruptcy.

Here is a link to the updated median incomes for the means test:

https://www.justice.gov/ust/eo/bapcpa/20170401/bci_data/median_income_table.htm

Elizabeth Rosar Chermack is a Burnsville Bankruptcy Attorney, and can represent you in your bankruptcy matter. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation with Liz.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

Negotiating with Creditors

Posted on November 28, 2016 by Elizabeth Rosar Chermack

What do you do if you cannot afford to pay your creditors back in full, but it also doesn’t make sense to file bankruptcy? For example, if you owe $2,000 to a creditor, but you can’t afford to pay them in full – what do you do? In that situation, it really wouldn’t make sense to file bankruptcy, but that $2,000 debt is still out there and you need to figure out a plan so you can move forward with your life.

In that case, you are most likely going to need to negotiate with the creditor. Many times people are so overwhelmed by their debts (especially when they know they cannot afford to pay them in full), that they try to put off dealing with them. That is very understandable; especially when you have tried to contact your creditors on your own and the creditors aren’t willing to work with you. It can also be difficult to negotiate with a creditor once they’ve started garnishing your wages. Some creditors will refuse to negotiate once they have a wage garnishment in place. It can also be difficult to negotiate with a creditor on your own, because unfortunately many creditors and collections agencies can be quite intimidating when you are talking with them on the phone about your own debts.

If you are in a situation where you think it makes sense to consider negotiating with your creditors, it might make sense to consult with an attorney about your options, so you can figure out a plan to deal with your debts and move forward with your life. You will also want to talk with your “tax person” (your accountant or CPA) about what impact negotiating with your creditors may have on your tax liability.

Elizabeth Rosar Chermack is a Burnsville Attorney, and can discuss your options with you in regards to negotiating with your creditors. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation with Liz.

If I file bankruptcy in Minnesota, can I keep my car?

Posted on December 1, 2014 by Elizabeth Rosar Chermack

When potential clients ask me questions about filing bankruptcy, one of their first few questions to me usually has to do with whether they can keep their car if they file bankruptcy.

In order to answer that question, I need to get more information from them:

1) What other assets do they have? This will help me figure out whether we will be using the Minnesota exemptions or the federal exemptions. I explain the difference between the two types of exemptions during an initial consultation.

2) How much is their car worth? To figure out the value of their car, I have them look up the private party (not trade-in or retail value) on the Kelley Blue Book website.

3) Do they owe money on a car loan? If yes, which bank do they owe, AND how much do they owe? The reason for this question is two-fold. First, it helps me determine how much equity (if any) they have in the car. Second, we can talk about what might happen with their car loan after they file bankruptcy.

I can’t make any promises to potential clients or to blog readers, but I can say that clients do not typically lose their car after filing bankruptcy unless they have wanted to surrender (lose/get rid of) their car. Now if someone called my office and they owned (outright – no loan against it) a brand new car, they could very well “lose” their car by filing bankruptcy. However, it is not very common for people in that situation to be thinking about filing bankruptcy.

Elizabeth Rosar Chermack is a Minnesota Bankruptcy Attorney, and can represent you in your bankruptcy matter. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation with Liz.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

Credit scores and bankruptcy

Posted on August 13, 2014 by Elizabeth Rosar Chermack

When someone schedules an initial consultation with me to discuss their debts and what options they have to resolve their debts, their credit score is often on their mind. People want to know how filing bankruptcy will impact their credit rating. It is difficult for me to give an exact answer. Once a client retains me to file bankruptcy, I use a service to pull their credit reports (with my client’s permission, of course!) so I can enter information about their creditors into their bankruptcy petition. That service also provides me with a report to share with my clients. The report includes an “analysis” of what the company believes my client’s credit score will be one year after filing bankruptcy. It usually shows that the client’s credit score will improve/increase one-year after filing bankruptcy. I tell my clients not to take that “analysis” too seriously, but it is interesting to see. Only time will tell, of course, whether a person’s credit score will actually improve in accordance with that company’s prediction.

Recently, Bloomberg posted an article regarding credit scores and an upcoming change in how credit scores are calculated. The main point of the article is that this change will “reduce the importance of overdue medical bills and remove blemishes on once late, paid-off accounts.” This is good news for many people.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

How can I afford to hire a bankruptcy attorney?

Posted on June 3, 2014 by Elizabeth Rosar Chermack

It’s pretty common for bankruptcy attorneys to hear the following from our potential clients:

I need to file bankruptcy. I can’t afford to pay my creditors. How can I afford to pay for a bankruptcy attorney?

Everyone’s situation is different, but here are some ways that people are able to afford to hire a bankruptcy attorney:

1) Tax refunds. From February until April it is pretty common for clients to pay to retain a bankruptcy attorney by using their tax refund.

2) Help from relatives or friends. Sometimes a client’s friend or family member will help them out by paying their fees. It is important to clarify whether they think the money being paid is a gift or a loan. If it’s a loan, you need to be very careful about when you pay it back, because you do not want the bankruptcy trustee suing your friend or relative to recover a preference.

3) Payment plans. Some attorneys offer a payment plan. The client pays the fees over a few months, and then they are able to file their case.

Bankruptcy attorneys are not permitted to accept credit card payments from someone who is filing bankruptcy. In other words, if you are going to be filing bankruptcy, you cannot use your Visa credit card to pay your bankruptcy attorney.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

Filing bankruptcy while unemployed

Posted on May 19, 2014 by Elizabeth Rosar Chermack

Like anything in life, you have to take the bad with the good. Sometimes, though, there is also some good that you can take with the bad. I have yet to meet someone who is ecstatic about being involuntarily unemployed. However, sometimes there is some “good” that comes with the “bad.”

It is not uncommon for employed people to be struggling financially and to be in debt and be unable to pay off their debts. While employed, though, those people will often continue to “tread water” and “survive” by making minimum payments towards their debts and basically hoping for the best. They may have looked into bankruptcy at one point or another and found out that their income made it difficult for them to qualify for a Chapter 7 bankruptcy due to the means test. They also may not have felt ready (or financially able) to commit to a Chapter 13 bankruptcy. So they continue to (barely) keep their heads above water.

Then tragedy (or “the bad”) strikes, and they lose their job. Maybe their company shut its doors or needed to do layoffs due to budget constraints. Suddenly it feels impossible to make even their minimum credit card payments each month. Here is where “the good with the bad” comes into play. It is generally a lot easier for people to pass the means test and qualify for Chapter 7 bankruptcy when they are unemployed – even if they are receiving unemployment.

Of course, there are other positives and negatives to this situation. Every case (and person) is different, after all. When someone files bankruptcy, they want to be sure that they won’t find themselves in a worse financial situation shortly after filing bankruptcy. If someone doesn’t have health insurance, for example, it might be a good idea to wait to file bankruptcy until they are insured.

Because every situation is unique, if you are considering bankruptcy, you should consult with a bankruptcy attorney.

Elizabeth Rosar Chermack, Attorney at Law, is a debt relief agency helping people to file for bankruptcy relief under the bankruptcy code.

Tax consequences of foreclosure in Minnesota

Posted on December 10, 2013 by Elizabeth Rosar Chermack

When someone meets with me because their home may end up being foreclosed on, one of the things that I tell them is that they should meet with an accountant – a good one – sooner than later. Last year, people were concerned about whether the Mortgage Forgiveness Debt Relief Act would be renewed. The Mortgage Forgiveness Debt Relief Act applies to federal income taxes. In 2013, again, people are concerned about whether the federal act will be renewed. Uncertainty abounds.

Unfortunately, there is one thing that we are certain about at this point in time: a foreclosure in 2013 could be very painful on your Minnesota state taxes. According to this MPR article:

If you’ve recently been in foreclosure, the state may tax you. That’s because many people technically receive income when their lender sells the house for less than is owed on the mortgage.

If you think that you might be in that situation, my advice to you is to contact your accountant as soon as possible. You also might want to consult with an attorney.

My cliché “New Year, Fresh Start” post

Posted on December 4, 2013 by Elizabeth Rosar Chermack

It’s December, and that means family gatherings, kids being on break from school, painful commuting traffic due to snow (like today!), and… lots of Facebook posts, blog posts, and inspirational quotes about making resolutions for the upcoming new year.

Although it’s cliché, there is something to be said for the feeling that comes – even the freedom that comes – from deciding that things are going to be different in the new year. It is common for people to put off tackling their major life decisions (in my profession the decisions I tend to hear about involve getting divorced or filing for bankruptcy) during the holiday season. Then, come January, they are ready to make those decisions and give themselves a “fresh start” for the New Year.

Not everyone will have major life-changing events occur in the next year – and that is a good thing. Those who are sailing smoothly into 2014 can help support those who will be facing a more challenging 2014. I am not talking about financial support here , either. We can be patient with one another and try to be more understanding when someone seems like they are having a rough day.

“Be kinder than necessary because everyone you meet is fighting some kind of battle.”

– J.M. Barrie

My goal for the new year is to keep the above quote at the forefront of my mind.