Des Moines Bankruptcy Attorney Jeff Mathias: Iowa Chapter 7 Bankruptcy

4/24/2013

Iowa Chapter 7 Bankruptcy - Mistakes to Avoid & Reaffirmation

Common Iowa Bankruptcy Mistakes

1. Preference Payments

If you owe on credit cards or medical debt and instead of paying that you pay past-due debt to family within 1 year of filing bankruptcy, that is a preference payment. The Judge can take that money back from your family and give it to your other creditors. For ordinary (non family) creditors it is within 90 days of filing bankruptcy. So don't pay past due debt just before filing. On-time payments in the ordinary course of business are fine.

2. Transferring Property
Don't transfer titles, sign property away etc. before you file bankruptcy. Don't sell property for less than fair market value. The Judge can reverse these transfers.

3. Loading Up
Once you know you can not repay your debt, it is fraudulent to continue to acquire new debt. So don't do any cash advances or balance transfers. It is best to stop using credit cards entirely once you know you are going to have to file bankruptcy. There is a presumption that charges made within 90 days of filing are fraudulent and those may have to be repaid.

4. Tax Refunds
If you are filing after about October 1st and before you get your tax refunds, be sure to discuss how much you can exempt with Jeff. You have a $1,000/$2,000 joint exemption plus you can use part of your wild card(s) for tax refunds and you also keep all Earned Income Credit, see page 2 of your Federal 1040.
NOTE: Huge tax refunds are not good. This is a no-interest loan you are making to Uncle Sam each year. Far better to claim more dependents and get more $ on each paycheck.

5. Unlisted Debt
Please don't leave creditors off your petition! Jeff will email you a draft petition so you can review it again after we go through everything together in the office.

6. Unlisted Assets
We can't exempt assets that are not listed, so very important to list everything you own of significance. Normally we can deal with it in some way.

7. Lawsuits & Claims against Others
Personal Injury and other claims must be listed. Because your cooperation is needed in order to prosecute your Personal Injury claim, an arrangement can often be made so you can keep part of the proceeds & we may be able to exempt them if you need them for basic living expenses.

8. Inheritance
If you will be receiving an inheritance or life insurance proceeds within 6 months, do not file bankruptcy. If you do receive these funds the Court can take them to satisfy your debt.

9. Waiting too Long
Lawsuits, wage and bank garnishments and liens and all their associated headaches can be avoided.

10. Missed Hearing
If you forget to attend your hearing your case may be dismissed.

See Jeff's Iowa Divorce & Bankruptcy Lawyer

Reaffirmation Agreements
When you file Chapter 7 you schedule all debt including home and car loans you would like to keep. Some banks request new contracts called Reaffirmation Agreements. Our Judge prefers in most cases that you not reaffirm. She normally tells clients to just keep & pay. That way you can not be sued, garnished etc. if you can't pay in the future for some reason. Since banks are inconsistent on credit reporting, you may want to pull your Equifax credit report occasionally and see if they are reporting your payments. if not, you can request a payment history from the lender once a year and forward that to the credit bureaus with a request they update your credit history. Also see Northern District of Iowa Bankruptcy Court on Reaffirmation Agreements. Jeff's Facebook and Twitter. More on Common Chapter 7 Bankruptcy Mistakes.

Video on Reaffirmation Agreements in Iowa Chapter 7

Serving all of Iowa from Des Moines - Jeff Mathias Law Office,
4800 Mills Civic Parkway, Suite 218, West Des Moines, Iowa 50265.

"You have made this experience virtually painless for me!"- April, 2016 Client

"Thanks again for all of your help. You truly made the bankruptcy process painless."

-July, 2015 Client

"Thank you! Two simple words, but as much as I didn't want to file bankruptcy, I knew I had no choice. I'm glad I found you in my search for an attorney. You made the process easy for me and without judgement. As I sat in the courtroom, it was humbling for sure, but I realized we all have a story and sometimes life just isn't easy or doesn't turn out the way we dreamt. But now I have a fresh start and I'm so looking forward to getting back on track, moving forward and I know there are many positives waiting for me to experience in life." -May, 2015 Client

"This is great thanks! I thank you for everything
Mr. Mathias! Me and my family are very grateful
for all you've done. This was my first time going
through something like this and it went fairly
smooth. Happy holidays from the White Family!"
-December, 2014 Clients

"Thank you so much, I really appreciate it. I am very impressed with your fast responses and caring manner." -September, 2014

"A million "Thank Yous" This is such a weight lifted from me. You were definately the right man for the job. Give yourself a big pat on the back, you've earned it."-September, 2014 Client

"You are wonderful and care. That means a lot. You should put 24 hour service on your website. I just figured you were getting out of the Motley Crue concert. Lol." -July, 2014 Client

Click to read Jeff's 29
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See Jeff's Iowa Divorce and Bankruptcy

What is bankruptcy?

Bankruptcy is a federal law that allows Americans to get a fresh start by discharging debt they simply cannot pay. Bankruptcy is essential to our free market economy and a key reason we have so many successful Americans because it enables us to take chances. Bankruptcy is also a great leveler. Wages for most Americans have not kept up with inflation. Bankruptcy is a way to even the playing field and give hard working Americans a chance to start fresh and save for important expenses like home purchase, college and retirement. Without bankruptcy, millions of Americans would struggle needlessly.

Can my wages be garnished?

Iowa Code section 642.21 addresses how much of your wages can be garnished each year based on your income level.

25% of Disposable Income
Section 537.5105 generally limits the Iowa wage garnishment to 25% of disposable (after tax) earnings per payday.

Iowa Annual Income Limits/Wage Garnishment
Wages under:
$12,000/year- $250
$16,000/year- $400
$24,000/year- $800
$35,000/year- $1500
$50,000/year- $2000
Over $50,000/year-10% of Wages

Federal law prohibits employers from firing you due to a wage garnishment.

Bank Account Garnishment
Judgement creditors can start by garnishing the funds in your bank account. I have had many many clients shocked when a creditor removes all of the money from their account causing their outstanding checks to bounce resulting in big overdraft fees.

File your bankruptcy BEFORE you are garnished. Once your bankruptcy is on file, they cannot garnish bank accounts or wgaes.

Garnishment Prohibited for Soc Security, etc.
Cornell Law on property Exempt from Levy. Exemptions include Social Security, Unemployment Benefits, Workers Compensation & Child Support.

Creditors still garnish these funds, since they don't know the source of your bank balances. If you have had exempt funds garnished, contact the garnishing firm and inform them the funds were exempt. If they do not release the funds, you may have to fight them in state court. People who need to file bankruptcy anyway will normally get the Chapter 7 on file to avoid these headaches.

Recovery of garnished funds once your Chapter 7 is filed depends on whether you have enough exemptions available. Jeff can give you some feedback on that if you email with the amount garnished, when it was garnished and by whom.

Will I ever get Credit Again?

Bankruptcy remains on your credit for up to 10 years, but most people are offered credit right after their bankruptcy. Banks know you can't file Ch 7 again for 8 years, so you are a good credit risk.

Many of my clients have gotten a good interest rate on a home within 2 years of filing bankruptcy.

Video- It takes about 2 Years to Rebuild Credit

Boston Globe- Study says bankruptcy can bring more loans

Boston Globe
NEW YORK - Personal bankruptcy may increase the amount of revolving credit, such as credit cards, that debtors can access, according to a study by economists at the Federal Reserve Bank of Boston.

It found that those who are poor and have low credit scores are quickly able to borrow again, and frequently end up with higher loan limits

Are my taxes discharged?

If all four answers are YES the taxes should be dischargeable.

1. Are they income taxes?

2. Was the tax return due more than three years ago? (returns are due on April 15th of the following tax year)

3. Was the return filed more than two years ago?

4. Was the tax assessed by the IRS more than 240 days ago?

(see your tax transcript)

Note- Property taxes assessed before bankruptcy, sales taxes and withholding taxes are never dischargeable.

Loving v. United States (Bankr.S.D.Ala., 2011)

The 3 time rules:

The 3 year rule; the most recent due date for the return must be over 3 years old. 11 U.S.C.§ 507(a)(8)(A)(i)

The 240-day rule: the tax must have been assessed more than 240 days ago. 11 U.S.C. § 507(a)(8)(A)(ii).

The 2-year rule: The taxpayer must have filed his or her 1040 tax return more than two years ago. 11 U.S.C. § 523(a)(1)(B)(ii).

STUDENT LOANS

Can I be denied student loans due to bankruptcy?

No. 11 U.S.C. § 525 prohibits discrimination in providing student loans based on bankruptcy filing.
"(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title"

Also - Student loan proceeds are exempt when you file bankruptcy.

See Student loan forbearance follows bankruptcy. Lenders give you an administrative forbearance while your bankruptcy is active.

See Student Loan Borrower Assistance

Sallie Mae on Bankruptcy and Student Loans

Health Savings Accounts

While HSA’s are essentially a federal tax benefit and are defined in the Internal Revenue Code HSA’s are regulated by State law. State law determines when an HSA is established. See IRC Publication 969

HSA's are property of the estate and should be listed & exempted. So if you have an HSA it is best to spend it down on whatever medical needs you have before filing bankruptcy.

The wild card exemption is your best be to claim up to $1,000 exempt.

Or you can cash it out and use it for other purposes. Tax treatment would be similar to cashing out a 401k early, but this is still better than turnover if you have a larger HSA.

Leach v. Christians is the 8th Circuit Bankruptcy decision that holds HSA's non-exempt.

File bankruptcy before Divorce

Because 11 USC 523(a)(15) excepts from discharge debt ordered in a divorce decree, it is normally better to file your bankruptcy before your divorce decree is entered.

11 United States Code 523(a)(15):
(Bankruptcy does not discharge debt ordered paid) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.

See Jeff's Uncontested Iowa Divorce Blog.

Beware of Bench Warrants

Although debtors prison was abolished long ago, we have seen some aggressive collection activity that results in arrest.

When a judge issues a judgment against a debtor, the debtor is supposed to complete a financial disclosure form that will provide the information a creditor needs to collect his debt. If the debtor fails to do this, the creditor can obtain a court order compelling the debtor to show up in court to explain why he hasn’t. If the debtor fails to show up for this hearing, a judge can issue a contempt of court order and a warrant for the person’s arrest.

Sometimes this happens without the debtor having any knowledge of the proceedings since they were never properly served. Fortunately we have not seen much of this in Iowa yet but it is happening in Minnesota and Illinois.

Filing bankruptcy stops this by discharging both debts and judgments.

529 Plans

Under Section 541(b)(6), a 529 Plan is not considered part of the bankruptcy estate at all to the extent that the funds were deposited into the account more than 720 days before filing of the case and if the beneficiary of the funds was your child, stepchild, grandchild, or stepgrand-child.

Funds deposited less than 720 days before filing but more than 365 days before the case is filed are part of the bankruptcy estate and you can exempt up to $5,000.

Technically, if you deposited funds more than 720 prior to filing theyare EXCLUDED - not exempt.

Famous & Bankrupt

Feel guilty about bankruptcy? Don't.
Americans have long used bankruptcy law to get a fresh start!

To get him out from under foot, in 1690 King Charles II granted William Penn an estate in the American colonies. Penn created a Quaker refuge and his manager borrowed to the hilt on the estate and fled with the money. Penn was left holding the bag and ended up in a British debtors prison. His former estate became the State of Pennsylvania.

Meriwether Lewis of Lewis & Clark fame, sent by President Jefferson to map the western territory went into debt to fund his explorations. He later stabbed himself to death on the way to debtors Court in St. Louis.

Frontiersman Daniel Boone borrowed to fund his fur-hunting expeditions, but it did not always work out. In some cases unfriendly Indians took his fur in exchange for letting him keep his scalp. Boone's lawyer said he had more lawsuits entered against him than any other man of his day. Boone's motivation for settling Kentucky was to avoid his creditors back east.

Abraham Lincoln's Illinois general store failed. After winning a spot in the State Legislature, Abe noticed his horse and saddle were gone. They were repossessed by the Sheriff! Later, he confided to a friend that debt was his life's greatest obstacle. Honest Abe also practiced Bankruptcy Law in Illinois before moving on to hold the United States together as President during the Civil War.

Conrad Hilton lost all his hotels when he could not pay his bank during the great depression. Later, he bought them all back and built a few more.

J.C. Penney's first store went bankrupt when he refused to give Whiskey as a kickback for orders from a large customer. Penny went belly up and got a job in a drapery shop which he later purchased and expanded into 1100 department stores nationwide.

Famous Architect Frank Loyd Wright lost his home, Taliesin in Wisconsin and was thrown on the street when business dried up in 1922. During the following decade, he designed some of his most famous projects.

American Author Mark Twain spent nine years in Europe avoiding creditors of his defunct typewriter invention business. Twain returned to the United States in 1864 to file bankruptcy.

President Ulysses S. Grant lost his fortune in an early Ponzi scheme. Mark Twain helped Grant write his memoirs while Grant suffered from Cancer so the proceeds could support his family after his death.

Harry Truman opened a shop in Missouri after the First World War only to have it fail. He was humbled by having to move in with his mother-in-law. Truman settled his debt for pennies on the dollar when his bank went bankrupt! Later, he got a good job, in Washington, DC.

Roland Hussey Macy failed at selling ribbons, provisions to miners and at a general store before going bankrupt in 1855. His next effort, Macy's became the worlds largest store.

While in debtors prison, Charles Goodyear experimented with rubber mixes. Later he accidentally created weatherproof rubber by mixing in sulpher and applying heat. Goodyear had poor patent protection. The Goodyear company was named in his honor only, he saw few profits himself.

Country Music Singer Willie Nelson got his fresh start after the IRS disallowed tax deductions and demanded a $9,000,000 check. Ouch!

Oskar Schindler spent all the money he had to feed, cloth and provide medicine to the 1098 Jews he saved while operating a factory in Poland during WWII. Schindler was en route to debtors prison when the people he saved and their families combined funds to pay off his debts and support Oskar until he died in 1974.

Actor Gary Burghoff, "Radar" from the film and TV series M.A.S.H. hit hard times after the show ended, filing bankruptcy in 1991. Now he sells his wildlife drawings for up to $25,000 each.

Famous "G Man" Eliot Ness (who captured the notorious Chicago Gangster Al Capone) tried politics in Cleveland but lost in a landslide after spending every dollar he could muster. His book "The Untouchables" bombed. After Ness died, his exploits were made famous in television and film; too late for Ness to benefit.

Sam Walton's first store was a Ben Franklin discount shop which he made one of the most successful in the chain. Walton's problem was a short lease, when it expired, the buildings owner canceled his lease and took over the store himself. Walton had to start from scratch. He later created the largest company in the world and became a billionaire.

Rapper MC Hammer, unable to continue support of his 70 member posse, filed bankruptcy in 1996 saying, "It's time to stop bleeding and get on with my life".

65 Famous People Who Went Bust

Des Moines Bankruptcy Attorney Jeff Mathias

4/24/2013

Iowa Chapter 7 Bankruptcy - Mistakes to Avoid & Reaffirmation

Deuteronomy

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