Tag Archives: assets

Pay Attention When Filing for Bankruptcy

When you file for bankruptcy, you are required to provide a ton of information to the Court and the Trustee assigned to your case.  Although it is true that no one is perfect, everyone makes mistakes, there are things about all of our lives that we frankly don’t know; none of that explains the multitude of phone calls I get from people who seem to know less about their lives than I do — and I haven’t even met them yet.

When I get a call from someone about filing for bankruptcy I begin by asking some basic questions — about how much debt, what kinds of debt (credit cards, medical bills, taxes, repo’s, pending law suits, student loans, child support), whether or not the person has been sued recently, have they filed their taxes, do they own their home, are they current on mortgages and car debt.  I’m not looking for exact figures, but I do expect that people have a basic grasp on things.

When I get answers that don’t make sense, I start typing.  I start with the Supreme Court’s online network that includes dockets for all Oklahoma District Courts.  It is searchable by name.  That shows me very quickly every lawsuit filed in the last ten or more years against someone (although, admittedly, when someone’s name is Tim Smith, this is less than helpful).  Then, I check the County Assessor’s website for real property ownership records — again, searchable by name.  Then, I check the County Clerk’s website for judgment liens, tax liens, transfer of real estate, mortgages and UCC-1 filing statements.

In just a couple of minutes I frequently know a lot more about the person I’m talking to then they seem to.  I can’t count the number of people who tell me that they’ve never been sued — they are just having their wages garnished.  Really?  Sure, child support and some student loans can do a wage assignment or administrative garnishment without a lawsuit; but that is almost never the case.  They just weren’t paying attention to the question, or they didn’t want to admit to it, or — something; and to a large extent it is my job to try and catch when a client isn’t paying attention and doesn’t answer something correctly or accurately; but there are limits to what I can do.

Ultimately, it is the client who signs bankruptcy papers.  It is the client who can have his discharge denied for failure to disclose assets, or even liabilities.  It is the client who can go to jail for bankruptcy fraud.

I understand that the events that frequently lead up to a bankruptcy filing are the kinds of things that get out of control and thinking about them can be at best depressing and at worst terrifying.  Still, if you tell your lawyer about the garnishment summons your employer just got, your lawyer can help you get your case filed in time to stop it, notify the creditor to release it ASAP when the case is filed, possibly even help recover funds.  If you tell your lawyer that your Mother has added your name to her house — to avoid probate, of course.  In addition to helping you educate your Mother about better and safer options, your lawyer can help keep your Mother’s house out of your bankruptcy.  If you tell your lawyer that you have been sued, your lawyer can help you determine whether or not you need to have judgment liens removed from your house.

Oh, and if you don’t tell your lawyer about these things, odds are very good that your Bankruptcy Trustee will find out about them.  Of course, that will happen after the case is filed, and your hands will be pretty much tied.

So, if you find yourself thinking that you have more debt than you can pay.  Stop.  Take a deep breath — and think.  Think about all the things you have been trying not to think about, because it is just all too foreign and overwhelming.  Then, call a local bankruptcy lawyer for help; and be prepared to answer questions and ask questions until you are comfortable that you have disclosed everything you need to disclose.


Your Bankruptcy Trustee Can Pay Your Taxes For You

Occasionally, I run into a situation where a client needs to file for bankruptcy, maybe even needs to file NOW; but – they have non-exempt assets. Now, in Oklahoma we have pretty generous exemptions, and most people who file for Bankruptcy lose nothing but a bunch of debt. Occasionally, though, I run into someone with mineral interests, a significant amount of jewelry (our wearing apparel exemption is generous, but a $35,000 ring that isn’t your wedding or engagement ring is going to be a problem); and they still need to file. This is a problem.

Usually, given a little time we can find a solution that the client is happy with. This is what is called pre-bankruptcy planning, and it is tricky. There are plenty of things that you can do with an asset right before a bankruptcy filing that your Trustee can just undo. There are other things you can do that will get you into real trouble – losing your discharge, going to jail. This is not an area to mess around with if you don’t know what you are doing. Still, generally, given time, there are things that can be done to protect a non-exempt asset.

So, what happens when you don’t have time? Sometimes you need to file NOW. In those cases you file the case knowing that the Trustee is going to administer whatever the asset is. Several years ago, I filed a Chapter 7, and first thing the next morning was emailing the freshly appointed Trustee (who didn’t even know she was the trustee yet) wanting to know when would be convenient for my client to deliver approximately $50,000 in jewelry to her office. She was a little taken aback. In this particular case the client didn’t want the jewelry and had made some efforts to sell it but had not been successful.

Consequently, he was thrilled when I asked him if he would like to have the Trustee pay his taxes with the proceeds from the jewelry he didn’t want and hadn’t been able to sell.

Here is the scoop. We filed for what is called a short tax year. It is perfectly legitimate, although it is very rarely done. Basically, my client filed two tax returns for the year in which he filed for Bankruptcy. He filed one return for the calendar year up to the day he filed for bankruptcy, and he filed a second return for the remainder of the calendar year. We did this, because he had made no estimated quarterly payments prior to filing for bankruptcy; and his income for that period had been substantial.

By doing this we converted his tax liability for that first, short-year, return into a liability of his Bankruptcy estate that was entitled to priority – meaning it got paid first. He still had to pay the tax liability for the rest of the year, but that was only about a quarter of the year’s total tax liability. So, he got his Bankruptcy Trustee to liquidate stuff he didn’t want and use the proceeds to pay three quarters of his taxes for the year. Now, that is pretty sweet.


What if the Trustee Wants My STUFF?

I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the debtor was, and the debtor wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt if you are using Oklahoma exemptions, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have choices; and it is your lawyer’s job to help you find them.


Facebook in Court?

USAToday just published an article about the increasing use of Facebook and other social networking sites in divorce cases.  That really doesn’t take a genius to figure out.  Guy denies affair.  Girlfriend posts pictures.  From an evidentiary perspective, that’s sweet.

So, are there any Bankruptcy Trustees routinely searching for Debtors online?  I doubt it — at least in most cases.  However, that doesn’t mean that a Bankruptcy Trustee won’t just happen to search for something else — maybe, a lake house for himself; and run across a familiar name.  More significantly, I would expect Trustees to start searching Social networking sites in cases where they suspect something is amiss.  Cases where maybe the income history and the asset/spending pattern from the schedules don’t seem to jive.

Debtors get caught trying to conceal assets in the darnedest ways.  I haven’t heard of a Facebook exposure yet, but I’m sure it is coming.