I was conducting some research on expenses allowed and not allowed with regard to the Chapter 7 means testing provision of the U.S. Bankruptcy code and found some interesting information. In a case out of the Southern District of Florida, In re Koch, 408 B.R. 539 (Bankr. S.D.Fla. 2009), which is a precursor case to Ransom v. FIA Card Services, the court held in part that ownership expenses on vehicles that have no lease or loan payment obligation associated with it will not be allowed. With regard to this issue, it was argued before the United States Supreme Court in Ransom v. FIA Card Serv. 131 S.Ct 716 (2011) and was basically put to rest. The court held the same as the court in the 2009 Koch case that without any debts associated with a vehicle, i.e. the vehicle is owned free and clear, ownership expenses pursuant to the IRS standards are not allowed to be taken in a Chapter 7 means test calculation.
There is, however, a $200 old car allowance that can be used for vehicles that are more than six (6) model years old or have more than 75,000 miles on them. However, according to a bankruptcy attorney in the Southern District of California, a Chapter 13 Trustee has been challenging the use of this allowance. This allowance has generally been conceded by trustees but for some unknown reason, this trustee is trying to disallow it in Chapter 13 cases. In the article blog written by Raymond Schimmel, the California bankruptcy attorney, this $200 allowance has been allowed by the Executive Office of the United States Trustee (“EOUST”) even though it is not specifically covered by any language in the U.S. Bankruptcy Code. Rather, the EOUST referred to the Internal Revenue Manual wherein it states in I.R.M. 5.8.5.20.3 (10-22-2010) under Transportation Expenses, item numbered 5, “In situations where the taxpayer has a vehicle that is currently over six (6) years old or has reported mileage of 75,000 miles or more, an additional monthly operating expense of $200 will generally be allowed per vehicle.” Although this language in the IRS Manual is not legally binding, it has generally been accepted as an expense and I see no reason that the EOUST would change there position on this matter in the future. Therefore, if you have an older car that fits this category, I would take the deduction as it may just help you qualify for Chapter 7.
Category Archives: FAQs
Annuities and bankruptcy filings in Georgia
Annuities and bankruptcy
When a bankruptcy case is filed, one of the questions asked is how does the debtor earn his or her income? When you have a younger, working age debtor, that answer most likely will be that he or she has a job. However, when dealing with older, retired debtors, they may not earn income but receive income from investments. One way might be an annuity that provides a certain amount of funds every month. The question then is whether this annuity income may be claimed as exempt from the bankruptcy case. In Georgia, for example, an annuity can be claimed as exempt under O.C.G.A. Section 44-13-100(a)(2)(E), provided that certain factors are present with regard to that annuity.
After reviewing a couple of situations involving annuities and bankruptcy, I discovered that if a debtor is drawing monthly distributions from an annuity, those distributions may be claimed as exempt provided that the annuity was created prior to the filing of the bankruptcy case and those funds are being used to replace what was considered income. Additionally, support for exemption will also be evident if the annuity was funded by the debtor through his or her savings. Where a trustee may challenge the exemption of an annuity is when a debtor created that annuity with funds he or she has inherited within approximately 1 to 1-1/2 years prior.
If you are one of these types of debtors who is living on the distributions from an annuity and may be facing the possibility of filing bankruptcy, then it would be wise to seek legal advice from a bankruptcy attorney to see if the annuity will in fact be exempt.
If I file a bankruptcy is my credit ruined forever?
If I file bankruptcy, is my credit ruined forever?
Short answer – no. The Fair Debt Reporting Act controls how your credit history is treated and reported. The maximum time any information regarding a debt stays on your report is 10 years.
The filing of a Chapter 7 case will be reported on your credit history and will stay there for 10 years. If you file a Chapter 13 case, that information stays for 7 years. If you have negative information such as late payments, that also stays for 7 years. Therefore, if you know that this negative information is already on your report, it is unlikely that the filing of a bankruptcy case will make matters worse.
You are probably wondering how the concept of creditworthiness is viewed by potential creditors. Well, first off, they know that if you get a discharge in a Chapter 7 case, you cannot file again for eight years. Who do you think is more creditworthy? A consumer who has discharged all his debts and is now basically debt free, or one who owes $50,000 in credit card debt, and barely stays afloat by borrowing from Peter to pay Paul?
If you have a steady job – a regular income – and few debts after bankruptcy, financial institutions would be foolish not to approve a mortgage or car loan.
How to Hire a Bankruptcy Attorney in Atlanta
1. Don’t choose a bankruptcy lawyer based on cost alone. The expense of hiring a lawyer to assist you with your case can range anywhere from a few hundred dollars to over a thousand. Bankruptcy is not one of the major areas of practice for attorneys. It is a specialized area just like criminal law or medical malpractice. Make sure you choose an attorney who has, as they say, been around the block a few times.
2. When looking for a bankruptcy lawyer, try to choose one who has been practicing for at least 5 years in this specialty. Make sure to look at the lawyer’s total background. Prior to becoming a lawyer, he may have done something else that you can benefit from. Yes, we all agree that all lawyers need to get experience somewhere. What you want to avoid is having him get that experience at your expense.
3. Look for a lawyer who goes beyond just assisting you with the filing of your case. Your lawyer should be there to help you in the recovery process. Obviously he is not going to be able to provide financial assistance, but he may be able to provide you with advice and direction. Remember also that he may have resources available that you may not. Don’t be afraid to ask, “what can you do to help me after my case is over?”
4. Law firms come in all sizes. There are some attorneys who work only by themselves. There are some attorneys who work in small 2, 3 or 4 attorney firms. Then there are those firms that have 10, 20, 30 or more attorneys working for them. Be careful because hiring a large law firm may not be to your advantage. Remember time is money to an attorney. Those large firms generally work on a billable hours basis. In those large firms, every minute you spend with an attorney will cost you money.
5. A few years ago, it was impossible for an attorney to advertise his services. Fortunately for attorneys, that restriction no longer applies. Attorneys are free to advertise, albeit under some controlled conditions, the services they provide to the public. Advertising can help you learn about the services a lawyer provides, but it may not provide you with any details about the attorney or his firm. Before hiring an attorney, make sure you ask questions and make sure that the lawyer is qualified and competent to handle your case.
6. Many people will ask a friend or family member for a referral. Yes, this is a good way to find an attorney. If he was good enough for my friend, he is good enough for me. Right? Well, maybe. Don’t use the referral as your only measurement. Meet with the attorney. Make sure that you are comfortable with him and that he will be able to do the job you are looking for.
7. Location is sometimes a barrier when looking for an attorney. Many people want to find someone that is close to them. Convenience becomes a measurement. But convenience may not bring you to the attorney that can do the job. In today’s electronic age, nearly all the paperwork that is done can be handled by fax, e-mail or over the internet. It is far more important to you to choose an experienced, qualified lawyer – than to choose one because he is close to home.
8. One of the many irritations that clients have is that their attorney will not return their phone call. Yes, this is a problem, so make sure that you can contact your lawyer when you need him.
9. When hiring an attorney to assist you with a legal problem, be it bankruptcy, criminal or anything else, make sure you are getting the service you intend.
10. Finally, when choosing a lawyer, make sure that his fees are fair, that he does not charge you for phone conversations, or that he responds to your questions so that you understand the answers and that you do respect or like him. When you hire an attorney, you must be comfortable with him and confident that he will do the job you are hiring him to do.
Basic Bankruptcy Questions and Answers – Bankruptcy Attorney in Atlanta, Georgia
Will I lose everything if I file for Bankruptcy?
The thought of losing your possessions because you are filing a bankruptcy case scares many people. Many also have private 401(k) accounts, government retirement accounts and personal private pensions or other investments that they think will get seized and used to pay creditors. The idea that this money may be lost is a real concern of clients. There is good news though, when you file a bankruptcy case, the courts allow you to exempt some of your property such as a portion of your real estate equity, your personal property and your retirement money. Much of this is safe and sheltered from the reach of the Bankruptcy Court by virtue of a Georgia law called the exemption law. The Georgia exemption law sets out specifically what you can protect if you file a bankruptcy.
The Georgia exemption law may be found at the Official Code of Georgia Section 44-13-100.
The exemption law provides that certain types of property may not be seized by the trustee or creditors in a bankruptcy. For example, if you own real estate and it has equity in it, the Georgia Exemption Statute provides that the first $10,000 of that equity is exempt. If you are considering filing a joint case with your spouse, the real estate exemption is doubled to $20,000.
Most of your household goods will be exempt, unless you happen to own an item or two that has a high value. The Georgia Exemption Statute allows for $5,000 of household goods such as televisions, furniture, electronics, etc. to be exempt (double this if filing jointly). However, the catch in this is that no one item should be worth more than $300. Thus, a standard 27 inch television is not going to be a problem, but if you happen to own a 52” big screen TV, you may have a problem.
Value of property is determined by looking at what would it would cost to replace the furniture that you are attempting value. All of the trustees in bankruptcy use this as a measure of value. I tend to take a different viewpoint, I usually consider what the item would bring at a garage sale or at auction as many people would not necessarily purchase new furniture to replace the furniture they have. If you are having difficulty in determining what some of your household goods may be worth, go to eBay or the classified ads and see if you can find items that closely match your goods.
A very important exemption in the Georgia Exemption Statute has to do with retirement plans. For those who are worried about this, there is good news here in that that the bankruptcy judges in Georgia have determined that 401(k) plans are exempt as are pensions. The way to gauge this is that if the retirement plan has a penalty for early withdrawal, it is probably exempt. Over the years that I have been helping clients, there have been some who discharged $50,000 of credit card debt but were able to keep their $100,000 401(k) account. You may think this as outrageous, but Congress has considered the arguments of the lending industry vs. the public policy of encouraging personal retirement plans. At this point in time, you get to keep your retirement money.
If you have a vehicle that you have title to, the Georgia Exemption law permits you to exempt $3,500 of equity in that vehicle. So if you have a vehicle that is worth say $2,000, then it would be fully protected. On the other hand, if you have a vehicle that may be worth $10,000, then you will only be able to exempt $3,500 of that value. You may be able to protect the remaining value of the vehicle through another category of the exemption law if available.
One of the categories of the Exemption law is a catch-all that can be used for any property that you own and not protected by the law. If you do not own real estate, then half of the real estate exemption can be used for any and all other property. So that car you said was worth $10,000 and you could only protect $3,500 of it, well, you now have another $5,000 available (double for joint filers). Here is another example, let’s say you have a car worth $15,000 and you owe $7,000. If you deduct the what is owed from the value, you would have $8,000 of equity. Using the $3,500 exemption that is allowed and $4,500 of the catch all exemption category, you can now protect the entire value of the vehicle.