Simply because the claim for the debt is held by a governmental agency does not mean that the debt cannot be discharged. Even IRS or Michigan state or other state tax debts can be discharged in bankruptcy, under certain, very specific circumstances. Bankruptcy is itself a function of Federal law and, therfore, the mere fact that a debt originates with a Federal agency does not tell the tale. All debt claims are subject to the sweeping effects of bankruptcy, regardless of point of origination.

The primary question with Social Security overpayment (as well as tax debt) dischargeability is, as noted above, the question of fraud. Fraud is the primary ground in bankruptcy for a finding of a lack of dischargeability (i.e., the bankruptcy will not discharge the debt) for any debt and particularly so for Social Security, tax, and other debts of governmental origin.

Every case must be examined thoroughly on its own facts, in other words, to ensure that the debt can properly be discharged by a Chapter 7 or Chapter 13 bankruptcy. There are few, if any, genuinely bright-line rules in the bankruptcy process, and this is one of the primary reasons an experienced bankruptcy attorney should be retained to assist you with a Chapter 7 bankruptcy and, particularly, a Chapter 13 bankruptcy.

If you are a southeast Michigan resident and are interested in exploring your options for personal bankrutpcy, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free consultation.

While Bankruptcy is one of the most cost-effective and efficient legal means

 Surrendering a home in bankruptcy enables you to walk away from the property without fear of either future collections or of a negative taxable consequence, without any negotiation with the bank holding your mortgage required. If you live in a so-called “deficiency state” like Michigan, lenders can pursue you for the balance of your debt on a mortgage after a foreclosure in most circumstances. A bankruptcy prior to walking away will prevent that from happening.

 However, you may not want to walk away from your home. If your home is underwater or over-mortgaged only because of the presence of a second or even third mortgage on your home, it may be possible to remove those secondary mortgages with a Chapter 13 reorganization bankruptcy. If you are in danger of foreclosure only because you have missed some payments, a Chapter 13 can also give you an opportunity to make up those payment deficiencies while under the protection of the Bankruptcy Court, free from fear of threats of foreclosure.

 In other words, there are a couple of different ways that you can save your home with bankruptcy. Both require the filing of a Chapter 13 Bankruptcy, which is essentially a payment plan running 36-60 months. In a Chapter 13 payment plan, you pay secured debt first, then other types of debt last—and only then to varying degrees.

 When a Chapter 13 Bankruptcy is filed, a master discharge under Federal Law called the “automatic stay against collections” clicks into place, preventing any foreclosure currently underway from proceeding, as well as any other action by any creditor that would constitute a debt collection attempt.

 With that automatic stay in place, you propose to the Bankruptcy Court through your Plan a repayment scheme:

• First, to cure a mortgage arrearage, you propose paying each month the basic contractual mortgage payment you are required to pay on your first mortgage.
• Next, if there is an arrearage or deficiency in your payment history that has triggered a foreclosure process by your mortgage lender, you propose paying off that arrearage as a lump sum with some interest over the period of your Plan. For example, if you were $5,000 behind in your mortgage payments and proposing a 60-month Chapter 13 Plan, you would propose paying $5,000 divided by 60, with interest.
• Thus, when you exit your Chapter 13 Plan in no more than 60 months and in as few as 36 months, you would have maintained your mortgage payment and cured any deficiency, resolving the need for a foreclosure and saving your home.

 In addition, as mentioned, you may also be able to discharge a second or third mortgage on your home. If you home is worth less than you owe on a first mortgage in fair-market value terms, your second mortgage is not actually secured by the value of the collateral securing that loan—the house.

 In the Eastern District of Michigan, where I practice, I must file a sort of lawsuit for my clients in bankruptcy court, along with the filing of their petitions and Chapter 13 plans, to accomplish a stripping off of this lien. The outcome of this lawsuit is a declaration by the bankruptcy court that this is not, in fact, a secured debt but actually an unsecured debt, like a big credit card, essentially. And that debt, once declared to be unsecured, is paid only after all other secured and priority creditors are paid in your Chapter 13 plan, and they receive only what is left of your Plan payments at that time, the balance of your debt being totally discharged, permanently, and the lien removed from your home upon completion of your Chapter 13 plan.

 This process may be different in other jurisdictions.

 If a foreclosure is imminent, you have a steady stream of income, and you would like to save your home without spending a year or more negotiating with your mortgage creditors, a Chapter 13 Bankruptcy may be a viable option for you.

If you are a southeast Michigan resident and would like to discuss your options in bankrutpcy, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

The Chapter 13 Plan may be 36-60 months long. Although there is no income-based eligibility standard in a Chapter 13, the same income-based “means test” that determines Chapter 7 bankruptcy eligibility also determines whether you may have a 36-month Plan. The Chapter 13 Plan is devised by you and your attorneys and proposed to the court for its and for creditors’ approval. What you pay in a Chapter 13 Plan is whatever net income you have in your household each month, after basic household expenses, such as food and gas and utilities are taken into account. For instance, if you have $1500 in net household income each month and $1200 in household expenses, your Plan payment would be $300 every month. 

The approval process for the Chapter 13 Plan is roughly 5-6 months long and will require you to attend, typically, at least two hearings at the Bankruptcy Court. Once the Plan is approved by the Trustee who is assigned to your case by the Court when it is filed, you are off and running, your only obligations being a timely monthly payment and good communication with your attorney, should your income decrease or expenses increase at any time. 

Chapter 13 is the form of bankruptcy available to you if you are not qualified to file a Chapter 7 bankruptcy.  However, there are many good reasons to file a Chapter 13 even if you are qualified for Chapter 7. 

First, there is no liquidation of your personal assets in a Chapter 13. If you have property that would be seized and sold off in a Chapter 7, a Chapter 13 may be your best option if that property is important to you. 

For this same reason, if you are running a small business, a Chapter 13 may be a wiser option so that you do not risk losing your business in a Chapter 7, where the Trustee has the right, under certain circumstances, to seize and wind down your business. 

Second, in a Chapter 7 bankruptcy, you either keep or surrender your real estate as-is, with all mortgages intact. In a Chapter 13, we can pursue a mechanism called a “lien-strip,” which will remove and discharge your liability to make payments on a second mortgage, if your house is worth less in fair market value than you owe on a first mortgage. 

We can also, under certain circumstances, cram down the payment you make for other secured debts, such as a car payment, so that you pay in full in the Chapter 13 plan only what the property security it as actually worth. If your car, for example, was purchased more than 3 years ago and has more than 75,000 miles on it, you will pay off your loan in a Chapter 13 only to the extent of the car’s real value.

Tax debts and other non-dischargeable debts, with the exception of student loans, can also be paid off through a Chapter 13 Plan at 0% interest—a few percent better than the IRS will give you in most of its repayment plans. 

A Chapter 13 can also be dismissed at any time if it is no longer working for you, or it can be converted to a Chapter 7 later on, if your economic circumstances decline. It is a highly flexible process. 

Chapter 13 Bankruptcy, best of all, requires virtually no negotiation with your creditors for it work. It is one of the most effective and most efficient processes for dealing with personal debt left in the American legal system. Debts discharged through bankruptcy carry no taxable penalty. 

If you are a southeast Michigan resident and are interested in exploring your bankruptcy options, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.

One of the concerns most frequently expressed to

These are serious concerns for people who do see bankruptcy as a way out of what very realistically may be a hopeless financial situation but also a potential impediment for moving forward afterward.

Regarding the reputation concern, however, failing to take necessary action because of a general worry that others might perceive you to be less responsible or less financially capable may be a self-defeating tactic. Bankruptcy stops financial bleeding, if it does nothing else, and allows you to move forward, to rebuild credit, to move past unfortunate circumstances and, yes, even unfortunate decisions. The perception of a person who is meeting their obligations rather than drowning in them will almost always be a more positive perception.

Reputational damage is only a concern, firstly, if anyone finds out that you have filed bankruptcy–and, then, only if they actually care that you have. The odds of either are small than might be thought.

Bankruptcy filings, although public record by way of the US Federal Court System’s online PACER system, are not typically published anywhere else. Generally, if you do not tell anyone that you have filed a Chapter 7 or Chapter 13 bankruptcy, they will not find out about it. If they do, the question will be, as noted above, whether it is something that they truly perceive as a negative.

Consider this: according the US Federal Courts, in 2010, in the Eastern District of Michigan alone, where I practice, and which consists of Detroit, Ann Arbor, Flint, Saginaw, Bay City, Port Huron, and all of the municipalities in between, 50,787 bankruptcies were filed in that year alone. This means that the odds that anyone discovering the bankruptcy are very high indeed that, if that person alone has not filed for bankruptcy, they very likely are closely acquainted with someone who has.

Given the state of the economy over the past several years, the necessity and efficacy of a bankruptcy for many families as a means of moving forward from unemployment, divorce, undervalued real estate and multiple mortgages, has become clear. It remains one of the most effective means available in the US legal system for the benefit of consumers, and, on a cost-effectiveness basis, one of the least expensive legal remedies, period.

Consumers considering bankruptcies who have reputation-reliant professions, such as insurance sales professionals, realtors, and others, are rightly concerned that their businesses may be affected. However, as, the character Paul Atreides often chanted in Frank Herbert’s classic science fiction novel Dune, “Fear is the mind-killer.”

Do not be paralyzed by fear when the solution to your financial problems is at hand.

If you are a resident of southeastern Michigan and are considering filing for bankruptcy, please feel free to contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation.

A bankruptcy can be filed in any of the Federal judicial districts

In other words, so long as you have either lived in or kept a permanent residence (“domicile”) in that Federal judicial district for six months prior to  the filing of the case, or so long as your principle place of business is in that district if you are a corporation or business or other entity filing for bankruptcy, you may file your bankruptcy in that district.

Therefore, to use my own district as an example, a resident of Detroit, Michigan, which is located in the Eastern District of Michigan Federal judicial district, is obviously most likely to file in the Eastern District of Michigan because they actually live here (presuming they have lived here for more than six months). If that Detroit resident were to join the military and be assigned a station overseas or were to take a job overseas, he or she could still file for bankruptcy in the Eastern District of Michigan so long as his or her permanent address and/or assets remained principally in the Eastern District of Michigan.

A person filing for bankruptcy outside of the United States may encounter some practical difficulties filing from abroad, such as the need to appear personally for at least one hearing. However, an experienced bankruptcy attorney can assist in overcoming such practical hurdles and work with the Trustee assigned to an overseas client’s case to obtain court approval to conduct hearings telephonically, via Skype, via a personal representative with power of attorney and knowledge of the client’s financial affairs, etc.

If you are a permanent resident of southeast Michigan living abroad and are considering filing for bankruptcy, please contact me at (248) 977-4128 or jhilla@aronofflinnell.com to schedule a free, initial consultation, which can be conducted via telephone in such circumstances.

Many people use the tax return system as a pseudo savings account. They count on getting a federal and state refund every year and immediately use all the money to pay for all the necessary home upgrades, car repairs, medical bills, etc.. that they have been waiting to fund all year.

Put those same people as debtors in a Chapter 13 bankruptcy, and they should consider altering that strategy. For starters, depending on your district, your confirmed plan probably requires you to turn over your tax refund to your bankruptcy trustee.  That doesn’t necessarily mean the debtor will not get his/her refund, just that it’s no guarantee and might require a motion for the court’s approval to retain the tax refund. (Note that, in the Eastern District of Michigan, tax refunds ARE required to be turned over to Chapter 13 Trustees for the life of a Chapter 13 Plan. – JMH)

What are some reasons the debtor would not get a tax refund? The tax refund is “disposable income,” under 11 USC 1325(b)(1)(B) and therefore should be paid to the debtor’s unsecured creditors. Thus, if the debtor does not have a valid reason to retain the funds (examples: new transmission for the car, dental work, etc..), then the funds should be used to pay the unsecured creditors. So if the refund is $6,000, and the debtor only needs $3,000 for home repairs and nothing else, the debtor is likely going to have to split the refund with the trustee.

Another reason the debtor might not get to keep all or part of the refund is because the debtor is not current on the plan payment. If the debtor is not abiding by the terms of the confirmed plan, the excess money of the tax refund will need to go to the debtor’s creditors to help get the debtor current.

This is certainly not to say the debtor should set up their tax withholdings to owe money come tax return time. If so, the debtor would theoretically not have the funds to pay the taxes without needing a motion to excuse the plan payment.

Therefore, the ideal scenario is the debtor’s tax return shows something close to a net even. In that case the debtor would not owe any money, which would interfere with making the next plan payment, and also does not need to ask the trustee’s permission to get at any money.

• 1 person household: $43,677
• 2 person household: $50,079
• 3 person household: $58,467
• 4 person household: $70,237

 For each individual in a household over 4, $7500 is added to the median.

This is a slight increase over the prior numbers and may enable more people to qualify for Chapter 7 bankruptcy.

If you are a southeast Michigan resident and are considering filing for bankruptcy and have questions about whether you qualify, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation.

I often grapple with chapter 7 debtors over getting them to understand that they do not really need to reaffirm their mortgage to keep their home.

The primary reasons I emphasize them not reaffirming is that the reaffirmation means the debt is not discharged in the bankruptcy, missed payments can continue to harm the debtors credit, the debtor will be liable in the future for a deficiency balance and the bank can still foreclose if payments are not made in the future anyway, regardless of whether the debtor reaffirmed or not.

However, even beyond that, there is another hidden advantage that debtors often do not consider strongly enough. By not reaffirming, the debtor has the freedom to move without repercussion in the future.

I recently had a case where the advantage of not reaffirming the mortgage paid off handsomely for the debtor. In this instance, the debtor owed more on his mortgage than the house was worth, but the debtor wished to stay in the home. The debtor did not reaffirm the mortgage, and therefore discharged the debt. By continuing to pay, the debtor stayed in the house.

About a year after the discharge, the debtor received a job offer about an hour away from his home. The debtor accepted the job and naturally wanted to move closer to his new office. By not reaffirming, the debtor was able to walk away from his home and move to his new home without any troubles. The bank’s only recourse was to take the property back—the same property the debtor was voluntarily leaving anyway.

Now imagine the scenario that the debtor had reaffirmed the mortgage in his bankruptcy under the mistaken impression that he needed to do so to remain in the home. In that case, he would still be liable for the note. If he stopped paying because he wanted to move, he would have a post bankruptcy default, foreclosure and possible deficiency lawsuit to deal with. If he wanted to avoid that, he would have to keep paying on a property he no longer wanted or short sale the home.

This example illustrates the point that debtors should always think long and hard before entering into reaffirmation agreements.

However, some cases are “asset” cases that do involve a transfer of assets from the filing individual’s ownership to the creditors whose debts he or she is discharging by way of the Chapter 7 Trustee assigned to the case, whose job is to do just that.

Sometimes, however, a filing individual does have more property or more cash assets in their possession than the exemptions in the Bankruptcy Code allow me to protect. (The exemptions are bits of the Bankruptcy Code statute that allow me to remove up to certain dollar-amounts of certain types of property from that legal “bankruptcy estate” containing otherwise everything the individual owns or is owed at the timing of the filing of the case.) These cases are called “asset” cases.

Usually, the available bankruptcy exemptions are sufficient to protect, if not ALL of somebody’s property, nearly all of it and what the Trustee manages to liquidate and distribute to creditors is less than what the individual owes to their creditors. This is sometimes only a few thousand dollars or less, which may be a small price for the individual to pay to discharge and walk away from tens of thousands or hundreds of thousands of dollars’ worth of debt.

Occasionally, however, the asset liquidated by the Trustee may be quite valuable. On extremely rare occasions, its value may outstrip the total dollar amount owed to the individual’s creditors.

Of course, this is rare because the calculation by the filing individual of the worthwhileness of the bankruptcy’s filing in the first place may be premised upon the fact that they will lose less to the Bankrutpcy Trustee than they owe; if they could simply sell off a valuable asset in order to pay creditors off and avoid bankruptcy in the first place, this is generally preferable. When this occurs, it may be because a filing individual has underestimated the value of an asset, did not realize that they owned it in the first place (e.g., a piece of real estate titled to them by an elderly relative without their knowledge, etc.), or for other reasons.

What happens then?

The Trustee takes a small percentage of the amount distributed to creditors, naturally. After that, however, Section 726 of the Bankruptcy Code governs how creditors are paid and in what order. Creditors are paid by the Trustee according to the timing of the claims that they file with the Bankruptcy Court when the Trustee alerts them that there is an asset to be distributed and according to their classification as “secured” creditors (holding debts with collateral attached to them) or “unsecured” creditors (holding debts with no collateral attached to them). Interest owed is paid as well, under certain circumstances.

However, after all creditors have been paid in accordance with Section 726, the Debtor him- or herself (i.e., the individual who filed the bankruptcy) is then paid.

In other words, you can only pay 100% of what you owe–and no more. If an asset liquidated by the Trustee brings more money to the Trustee for distribution to creditors than those creditors are actually owed, the filing individual will get money back from the Trustee. Eventually. (This distribution process can take months or years to complete.)

If you are a resident of southeast Michigan and are considering filing for bankruptcy and have further questions about assets in bankrutpcy, please feel free to contact me at jhilla@aronofflinnell.com or (248) 977-4182.

In an effort to avoid filing bankruptcy, nearly every home owner with a troubled mortgage has attempted a loan modification to some degree. Although most attempts usually fail, even on the rare occasions when the modification has been approved, the debtor often still feels the need to file bankruptcy. As such, it is important to consider the impact and ramifications of a home mortgage loan modification before, during and after bankruptcy.

Loan modifications before a chapter 7 bankruptcy are not binding as to the note unless reaffirmed in the bankruptcy. If the loan is not reaffirmed in the bankruptcy, the note is then discharged. The debtor and lender can still honor the agreement as to the lenders lien rights (under a stay and pay scenario) without a reaffirmation agreement, but the note obligation would be forever discharged. Therefore, a debtor who saw his/her monthly mortgage payments slashed in half with a modification before bankruptcy might still not want to reaffirm the mortgage in the bankruptcy if the principal balance was not reduced and the home still has negative equity.

Loan modifications during a chapter 7 bankruptcy are binding if they are approved by the bankruptcy judge through a signed reaffirmation agreement. The debtor can still reaffirm a note which is not the exact same deal as the pre-petition obligation. A modification is essentially a reaffirmation agreement under better terms. Any modification agreed to during the case without bankruptcy court approval is not binding as to the debtors obligation on the note and is discharged.

Loan modifications after a chapter 7 bankruptcy can only be binding as to the debtor on the note if the debtor reaffirmed the mortgage with court approval during the pendency of the bankruptcy case. 11 USC 524 prevents the debtor and creditors from entering into an agreement after bankruptcy for a debt that was discharged in bankruptcy. Therefore, unless the mortgage was reaffirmed in bankruptcy, any post-discharge home modification is only binding as to the creditor’s lien rights.

Loan modifications before, during and after a chapter 13 bankruptcy are binding as to the debtor’s obligation under the note because the debtor who retains a home in the chapter 13 does not discharge the note. The debtor’s chapter 13 repayment plan is determined in part by the amount of money available to the debtor after the debtor pays the home mortgage, so a modified mortgage can lead to an increased payment to the debtors unsecured creditors.

It is important to note that most modifications start with a three-month trial period where the lender can back out for almost any reason before offering a permanent modification. One popular reason lenders deny permanent modifications is because of changed circumstances. As such, debtors should be wary of filing bankruptcy during the 90-day temporary modification trial period and just assuming the lender will continue to honor the modification agreement.

Guest Post by Atlanta Bankruptcy Attorney Peter Bricks.