• Household of 1: $45,056.00
• Household of 2: $51,660.00
• Household of 3: $60,313.00
• Household of 4: $72,454.00

(Add $7,500.00 to median for every household member over 4.)

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at john@hillalaw.com or (866) 674-2317 to schedule a free, initial consultation.

First off, I am not a CPA—

Indeed, there can be.

Generally speaking, a surrender of underwater or already-foreclosed real estate in the bankruptcy process is a quicker, more cost-effective, and more protective way to walk away from a distressed home without fear of future collections or tax liability than a short sale—and certainly a foreclosure (in Michigan, unless your home is worth more than you owe on it, you cannot simply walk away from a home and let the bank foreclose upon it without opening yourself up to collections efforts for the deficient difference between what the house sells for at a foreclosure sheriff’s sale and what you own on the terms of your mortgage note).

One of the primary reasons that bankruptcy is a superior way to let a home go than a short sale, despite is negative reputation, is that there are no tax consequences to the surrender of a home or piece of real property in bankruptcy, particularly not a home that is your primary residence.

When you file for bankruptcy, you are legally insolvent. That being the case, there are no taxable consequences resulting from the discharge of debt or from the surrender of property in bankruptcy.

Outside of bankruptcy, there are various possibilities for the arising of taxable consequence to the surrender or short sale of property.

If a house is sold for less than is owed under the terms of the mortgage note that the home secures, there will be a “deficiency” resulting from the sale. Thus, the term “short sale” … Home sold for an amount short of what is owed for it. In some short sale deals, the lenders holding or servicing the note may agree to refrain from collecting upon the deficiency (that is, coming after you for it!) as part of the short sale negotiation. (A bad short sale deal involves NO guarantee of protection from collections—and there are many of these out there!) If there is a 2nd or 3rd mortgage on the home (yes, a home equity line of credit is a type of mortgage), it is even more vital and more difficult to obtain such guarantees.

However, even if these guaranties are delivered and acted upon properly by the involved banks or lenders or investors, the deficiency debt resulting from the short sale will almost certainly still be charged off by the holder of the mortgage note(s). That is, the debt will be reported to the IRS as lost business income by the holder of the debt, and they will gain a tax benefit to their bottom-line as a result, but you will be required to pay taxes as if the charged-off debt were personal income that you earned by way of working as a contract employee for that creditor in that year. This is because “charged-off” debt is treated by the IRS as “forgiven debt,” and “forgiven debt” is considered by the IRS to be a form of personal income.

In other words, you will receive a 1099 form from the creditor for the amount of the deficiency that you will have to then pay taxes on, unless you are eligible for forgiveness under the Mortgage Debt Relief Act, which expires at the end of this year unless renewed by Congress, or some other definitional insolvency standard.

There can be additional tax implications beyond this basic charge-off situation as well. For instance, if the real estate involved is a personal residence but not your primary personal residence or if it is commercial real property, there can be capital gain income or “prior depreciation recapture” income that is treated for taxable purposes like personal income. (Note that taxes owed that are less than 3 years old are not dischargeable in bankruptcy and may not be dischargeable at all depending upon other considerations as well!)

The amount of “personal income” that is taxable resulting from the loss of real estate can be considerable, often more than a person actually earns in a year from their own, real jobs since so many mortgages were so artificially huge at the height of the real estate bubble and since so many of them were so irresponsibly lent.

If you are considering a short sale and this is of concern to you, it is essential that you examine the tax-protective option of bankruptcy before committing to short sale deal, regardless of how ardent your real estate broker is about the benefits. If for not other reason than, although must people think of a Chapter 7 surrender of a home when they think of bankruptcy, there is the additional option of stripping a 2nd or 3rd mortgage in order to save a home and make it worth keeping that is availabe in a Chapter 13 bankruptcy.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please feel free to contact me at john@hillalaw.com or (866) 674-2317 to schedule a free, initial consultation.

One of the primary reasons

However, the surrender of a home in bankruptcy, which requires no negotiation with creditors or banks, incurs no tax liability, and leaves you free from worry over collections for deficiencies owed, unlike short sales, does not instantly immunize a homeowner from all costs associated with the property. Until the home is, per the deed or title filed with the register of deeds for the county in which the home sits, no longer titled to the homeowner, there will remain some costs: insurance and maintenance, primarily.

The surrender of a home in bankruptcy does not, as may typically be believed, instantly hand the house back to the bank holding the mortgage. What a bankruptcy does is discharge the homeowner’s legal obligation to make the monthly mortgage payment. Once the bankruptcy is filed, there is no longer any need to make a mortgage payment OR a property tax tax payment, since property taxes “run with the land” and will be paid by the bank after the post-bankruptcy foreclosure.

In Michigan, there will, even after a bankruptcy surrender of the property, still be a foreclosure. The foreclosure process is the process by which a home is re-taken by the mortgage-holding bank and the title is transferred from the homeowner back to the bank. The bankruptcy process, which is a Federal legal mechanism, does not address this transfer: it is the law of the State of Michigan that speaks to the transfer of titles.

The foreclosure process in Michigan consists of 90 or so days of noticing, a sheriff’s sale, and a 6-12-month redemption period, during which time the homeowner remains in possession and on title for the home. Only after the expiration of the redemption period is a sheriff’s deed filed with the county register stating that the homeowner is no longer the titled owner of the property.

Until that occurs, a post-bankruptcy homeowner will need to keep the property insured for liability purposes in case someone injuries themselves on the property while they remain the titled owner, and they will need to keep it maintained according to whatever standards local municipal code in the city or township requires (grass-cutting, etc.).

So long as the homeowner “owns” the house in title, it is the homeowner’s responsibility to keep the property–and themselves–protected.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

Sen. Richard Durbin (D-Il) has introduced new legislation,

Student loan debt in the United States has reached the trillion-dollar mark, according to recent reports, even as tuition has sky-rocketed while job-prospects have radically diminished and as for-profit “educational institutions” have proliferated the educational “market” with high-priced associates’s and other degree programs in such pop-culture-fueled curriculum concentrations as crime scene investigation and fashion design, which have little to no chance of landing students an actual paying position, statistically speaking.

I tend to shy away from politics on this blog and, instead, concentrate on explaining matters of bankruptcy to interested consumers in an attempt to shed some light on this difficult and esoteric legal process.

However, in this practice, I have had so many clients and potential clients who are simply being crushed by student loan debt, particularly private loans originating from such lenders as Sallie Mae and AccessGroup, among others, whose collectors are among the most voracious, vicious, and unsympathetic out there, that I cannot help but endorse this legislation. Bankruptcy has been unable to help these people in nearly every instance, and I have been forced on numerous occasions to tell folks, “Sorry. Yes, I help people with overwhelming debt—but I can’t help you.”

It kills me to have to tell people this. Lawyers have a reputation for vacuuming up nickels that is, in some cases, deserved, but there are many of us who genuinely care for and want to help you.

Support this legislation. Contact your Senator to urge them to ignore the calls of the financial industry whose lobbyists wrote the legislation in 2004 that made private student loans non-dischargeable in bankruptcy for the first. Urge them to consider, first, not only the needs of their actual, human constituents but also the well-being of our economic system at large, which, ultimately, although it may enrich the coffers of the financial industry elite, cannot tolerate a vast majority of economically depressed citizens. Neither Democracy nor Capitalism can function under that pressure.

Click here if you need to find out who your Senator is and how to contact them.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

It may sound logical that, if you pass away after filing a bankruptcy case,

Bankruptcy Rule of Procedure 1016 governs the bankruptcy process after the death of a Debtor. Rule 1016 states that, in a Chapter 7 liquidation bankruptcy, death does not cause the case to be dismissed. Rather, the case continues onward as if the Debtor had not died. Because Chapter 7 is a “liquidation bankruptcy,” meaning that there is the possibility that assets of the Debtor may be sold off by the Chapter 7 Trustee administering the case for the benefit of the Debtor’s creditors, those assets remain even where the Debtor has passed on.

In a Chapter 13 “reorganization bankruptcy,” the death of a filing Debtor will allow the Debtor’s attorney to file a notice dismissing the case. The reason for this difference is that, in a Chapter 13, there is a voluntary right to dismiss the case at any time. Additionally, because Chapter 13 is not a liquidation bankruptcy in which assets are seized and sold off by the bankruptcy trustee, there are no assets that are part of the legal “bankruptcy estate” awaiting administration (that is, liquidation) at any time.

However, there may be circumstances where a Chapter 13 should not be dismissed. For example, if the Debtor who has passed away is married and has left a spouse behind as part of a jointly filed bankruptcy. That spouse may yet need the relief of the bannkruptcy discharge.

Under these circumstances, there are several options available to the surviving spouse: an early “hardship discharge” of the Chapter 13 (difficult to obtain but possible under such circumstances), modification of the Chapter 13 Plan so that the surviving spouse can afford to make the payments, conversion to a Chapter 7 bankruptcy, or even bifurcation of the joint case into 2 separate cases—one for the deceased Debtor, which may be then dismissed or for which a hardship discharge may be obtained, and another for the surviving Debtor, moving forward as a modified Chapter 13 or converted to a Chapter 7, depending on the asset situation (many people file Chapter 13s in order not to lose important assets in a Chapter  7).

In short, there are many options available in an unfortunate situation such as this. All of them require the guiding hand of experienced bankruptcy attorney, as unforeseen circumstances, just as they are a part of life, can be a part of any legal process as well, regardless of how straightforward it may seem from the outset. It is always a risky maneuver to attempt a bankruptcy without legal counsel who can deal with such unfortunate circumstances should they occur, when you will be unable to.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

There are some significant advantages in Chapter 7 Bankruptcy to having “mostly” business or non-consumer debt. I have previously written about the dischargeability of business debts and the valuation of small businesses on this blog, but I have not previously discussed the primary advantage of having a so-called “non-consumer” Chapter 7 bankruptcy case: the waiving of the requirement of passing the Chapter 7 Means Test for Chapter 7 eligibility.

The Means Test is the eligibility standard for Chapter 7 bankruptcy for consumer cases—and consumer cases alone. What the Means Test does is compare the gross, pre-tax and other deduction income of the filing Debtor’s entire household (regardless of whether other income-earning adults in the household are jointly filing or not) with the median income in the filing Debtor’s state for a household of that same size. If the household’s combined, gross income is above the median income, the Debtor is not generally eligible for Chapter 7. If the household income is below the median, the Debtor is eligible for Chapter 7.

There are various deductions and other calculations involved in the Means Test that can reduce a household’s income enough to pass a Debtor through into Chapter 7 even if the household is a little above the median, but, very generally, this is how it works. (NOTE: Always consult an experienced bankruptcy attorney if you are considering filing for bankruptcy before utilizing any of the various online Means Test calculators and deciding for yourself that you are not eligible and should not bother trying: these calculators fall short in their ability to truly measure whether any one individual may be eligible for Chapter 7!)

The Means Test, which was inserted into the US Bankruptcy Code by Congress in 2005 as part of the BAPCPA bankruptcy “reform” act, is, to put it mildly, a cynical mechanism for forcing otherwise eligible debtors into Chapter 13 Bankruptcies so that they must repay some of what they owe to their creditors (the BAPCPA Code amendment was largely drafted by financial industry lobbyists and then simply rubber-stamped by Congress).

Chapter 13 Bankruptcy is a wonderful tool for Debtors requiring one or more of the mechanisms available in a 13 that are not available in a Chapter 7—but the worst reason for anyone to do a 13, from my point-of-view as a Debtors’ attorney, is because of a Means Test failure.

Some Debtors do not have to file a Means Test in order to be Chapter 7-eligible, however, and a “non-consumer” Debtor is one of these types for which the US Trustee (the “policeman” of Chapter 7 eligibility, a functionary of the Department of Justice) may not pursue an “abuse”-based dismissal of the Debtor’s bankruptcy case under Section 707 of the Bankruptcy Code. In other words, they don’t have to file a Means Test at all with their petition.

A “non-consumer” Debtor is a Debtor whose debts  are “primarily” non-consumer debts. Largely, non-consumer debts are business debts but may also include tax debts, student loan debts, and other sorts of non-consumer financial obligations. “Primarily” means, basically, 51% or more of the total debt of all types owed by the Debtor. If a Debtor meets this criteria, the Debtor need not file a Means Test and will be eligible for a Chapter 7 regardless of the income they’d earned in the six months prior to filing, the period of time that the Means Test specifically looks at to compute the Debtor’s average household income.

In most prospective bankruptcy clients’ cases, their home mortgage is what prevents them from being classified as “non-consumer cases” as the home mortgage—or mortgages— is a debt that can out-strip the value of all of the Debtor’s other debts alone. But—not always.

An experienced bankruptcy attorney should be consulted, as noted above, if you are interested in pursuing a bankruptcy regardless of whether you believe that you will “fail” the Means Test. For a variety of reasons such as this one, which online Means Test calculators do not and cannot properly measure, you just might be eligible for a Chapter 7 even if you previously thought that you were not.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

Priority unsecured debts are paid second-to-last in a Chapter 13 Plan, and, in either a Chapter 7 or a Chapter 13 bankruptcy, a “priority” classifications generally means that the debt is non-dischargeable.

Income taxes, along with child-support and spousal support payment deficiencies, intentional tort lawsuit damage awards, unpaid wages owed to employees, contributions to employee benefit plans, certain claims of farmers or fishermen, and others, are, generally, priority unsecured debts that are not dischargeable. (There are circumstances in which tax debts can be discharged, however!)

Section 507(a)(8)(B) of the Bankruptcy Code specifieds that property taxes, likewise, are priority unsecured debts.

What is the upshot of this? It depends upon whether you are filing Chapter 7 or Chapter 13 bankruptcy, and it depends upon whether you are surrendering or retaining the real estate from which the property tax arises.

If you are surrendering the home in Chapter 7 or Chapter 13 (this can be done in either Chapter), the property tax debt will run with the land under Michigan law. This means that the foreclosing bank or subsequent purchaser, after the post-bankruptcy foreclosure sheriff’s sale, will be responsible for paying the property taxes and they need not be treated in your personal bankruptcy as there is no “personal liability” that results from them. In other words, your city can’t pursue you after your bankruptcy to collect the property taxes.

If you are keeping your home, however, the property taxes, of course, must be paid. In a Chapter 7 bankruptcy, a priority debt is listed as such in your petition and simply not discharged—not affected—by the bankruptcy.

In a Chapter 13, however, the debt must be paid through the Chapter 13 Plan and must be paid in full within a maximum of 60 months, which is the maximum length of a Chapter 13 payment Plan. The ability to catch up back property taxes or mortgage payments at 0% interest is one of the great benefits of a Chapter 13 Bankruptcy, in fact, especially given that the priority debt must and will be paid in “priority” order over other miscellaneous unsecured debts such as credit cards, medical bills, lines of credit, and personal loans.

Just as as Chapter 13 can help you in this way save a home from foreclosure by the bank holding your mortgage, a Chapter 13 can also help save a home from tax foreclosure by the city, township, or county.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

Placing assets into a trust

As I’ve written here before, a Chapter 7 Bankruptcy is a “liquidation” bankruptcy both in that your debt is liquidated, or discharged, and in that there is a possibility that your assets will be liquidated during the bankruptcy process. A Trustee assigned to your Chapter 7 Bankruptcy case by the Bankruptcy Court has the duty of seizing and liquidating personal assets that are valued above the limits of the protective exemptions provided by the Bankruptcy Code statute. While, in most Chapter 7 Bankrutpcies, these exemptions are sufficient to cover everything a typical household generally has, some higher earning or higher asset households may include assets that cannot be protected with the available protective exemptions. Thus, in a Chapter 7 Bankruptcy, those assets are subject to seizure and sale for the benefit of the filing person’s creditors by the Bankruptcy Trustee.

How to protect such assets and still file Chapter 7? The short answer is that there is no easy answer and that, in such situations, it is highly likely, depending on how much you desire to retain the property in question, that a Chapter 13 Bankruptcy, in which no assets are liquidated, is the proper course of action.

Among the “easy answers” that I often encounter among prospective clients is the placement of such assets into a trust. However, the protective quality of a trust will vary greatly depending upon the nature and purpose of the trust, its specific provisions, and state law.

Section 541(c)(2) of the Bankruptcy Code excludes from the “bankrutpcy estate” from which the Trustee may liquidate assets property of a trust that is subject to a restriction on transfer on applicable state law. In Michigan, the new Michigan Trust Code made effective on April 1, 2010 specifically allows for so-called “spendthrift trusts,” which protect property left via a trust to a beneficiary from the beneficiary’s creditors. Thus, if you are the beneficiary a spendthrift trust, in Michigan, your property is safe from the Trustee’s liquidation in Chapter 7 Bankruptcy because it is non-transferable to creditors.

However, placing property in a trust which is does not very specifically contain an explicity “spendthrift clause” or in preparation for your own bankruptcy will not protect your property in your bankruptcy. The spendthrift trust will protect only the beneficiary’s interest in the trust.

Short of that, property in a trust must be exempted and protected as any property owned by a filing bankruptcy debtor must, subject to valuation limitations of the available exemptions.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

A Chapter 13 bankruptcy, as I’ve described here in prior posts, is essentially a monthly payment plan in which some and sometimes all of your debts are paid according to what, in theory, you can afford to pay after your basic household expenses are met each month. In other words, you pay in a Chapter 13 what you have left over each month of your available income after paying your household bills.

The question, from the point of view of the Chapter 13 Trustees who are assigned to your case by the Bankruptcy Court after your case is filed and whose job it is to review proposed Chapter 13 Plans and either approve or object to them, is: what is a necessary household expense?

Some expenses are obviously necessary: food, gas for your car, medical expenses, household utilities, even cable television (if it is not a terribly high “premium” package), and many others are allowed by the Chapter 13 Trustees here in the Eastern District of Michigan are necessary usually without comment or objections.

Private school tuition is generally not considered to be a necessary expense in bankruptcy, and, thus, in Chapter 13, and monthly average funds allocated to such tuition would have to be paid into the Plan. The exception to this is if you are what is called a “100% Plan,” meaning that, based on your proposed monthly Plan payment, you are already paying 100% of what you owe to your creditors. If this is the case, private school and other non-necessary expenses will usually be allowed as there is no further need for more money to be paid into your Plan. You cannot pay your creditors more than 100% of what is owed to them!

However, one expense that is considered necessary to a certain monetary limit by the Bankruptcy Code (the Federal statute describing the bankruptcy process) itself is charitable giving, or tithing. Congress specifically allowed this expense in order that a person filing for bankruptcy not be prevented from engaging in the exercise of their religious freedom and, to some, their religious obligations. Under the Religious Liberty and Charitable Donation Clarification Act of 2006, which clarified the Bankruptcy Code’s allowance of tithing, bankruptcy filers are allowed to tithe up to 15% of their gross annual income.

Is, then, tuition for a minor child’s private school considered in Chapter 13 to be a charitable contribution if the private school is a religious-based school, such as a Catholic school?

The case-law is divided on the subject, but there is room for argument that at least up to 15% of the tuition–the allowed tithing limit–may be considered a necessary allowable expense.

Here in the Eastern District of Michigan, this is even a tough argument to make, however. The important thing to remember is that, in a Chapter 13, once the Plan is “confirmed” (approved) by the Court, there is no ongoing scrutiny of your budget, unless you miss Plan payments or your subsequent tax returns show a drastic improvement in your income. What the Trustees are really arguing, when they argue that an expense is not “necessary for an effective reorganization,” is that your Plan payment should be a little more than has been proposed.

In other words, what you do with the sum total of the money you don’t pay into your Plan each month is up to you after Confirmation.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

As of December, 2011,

For residential property not used for “agricultural purposes,” regardless of acreage, the determining factor is the amount of indebtedness on the mortgage involved at the time of foreclosure. If the amount claimed by the bank or other entity holding the mortgage to be due at the time of foreclosure is 66 2/3% of what is owed, the redemption period is 6 months. If the amount owed is less than that percentage, it is 12 months.

The reason for this is that the Michigan legislature recently revised a state law concerning foreclosure, MCL 600.3240, to make this change. The change was a “bargain” struck with creditor-friendly state legislators to continue to allow them to foreclose by publication rather than judicially (i.e., via a formal lawsuit filed with a state court in order to prove their right to foreclose). The result may be that properties with larger acreage that simply do not happen to be utilized agriculturally (determined by the filing of a Schedule F with one’s tax return) will be foreclosed faster, still with no need for banks to prove their right to foreclose before a judge, and, additionally, shortening a prior 90-day modification mediation period in the state foreclosure process to 60 days if the homeowner does not quickly return certain documentation.

In short, this is mostly favorable to mortgage-holding creditors and their servicers rather than homeowners, though, for many foreclosed homeowners, particularly those who, like most, actually have less than 3 acres to begin with, there will be no effective change in the redemption period.

But what is the redemption period? The redemption period, in short, is a period of time following a foreclosure sheriff’s sale of your property which Michigan state law provides in order to give you an opportunity to come up with a lump sum of cash sufficient to buy the property back from the foreclosing bank free and clear of any liens for whatever the foreclosing bank (or other sheriff’s sale purchaser) paid for it. For example, if, at sheriff’s sale, your home is purchased by the bank holding the mortgage (who are required to enter a bid up to the full amount of the debt you owe that bank) for $150,000, you may “redeem” the property from the bank, buying it back, for $150,000.

Obviously, this is not something that many homeowners can accomplish. But the redemption is, otherwise, a period of time in which the homeowner may remain in the home with any further need to make mortgage payments or pay property taxes before being required to relocate.

If a bankruptcy has been filed by the homeowner as a logical reaction to the foreclosure, the up-shot of this is exactly that: they may have less time to remain in the home free of that obligation to make a monthly payment, preparing to make the next move forward. While, after a bankruptcy, there will be no continuing legal obligation to make any payments or negotiate with the foreclosing bank (or any banks or entities holding second or third mortgages, who will have received nothing from the sheriff’s sale) with regard to deficiencies the bank may collect from the homeowner even after foreclosure (that is, the difference between the amount owed on the mortgage note and the amount the house sold for at sheriff’s sale), it is still a very useful if not vital period of time for homeowners attempting to make a fresh start.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.