Disposable Income in the bankruptcy world will be whatever is left over after taxes, insurance, and any necessary household expenses. This disposable income must then be turned over to the Chapter 13 trustee.
However, there are additional forms of income that can come into when calculating disposable income:
- Bonuses – If these were not already factored into the Schedule I, then the funds must be turned over to the trustee. However, one can submit an application to retain.
- Tax Refunds – This is the most common form of “disposable income” that is turned over to the trustee. However, please review our article on how you can keep you tax refunds.
- Inheritance – The amount deemed disposable could be reduced by available exemptions
- Life Insurance Proceeds – The amount deemed disposable could be reduced by available exemptions
Short answer, yes, as long as the paperwork is handled correctly.
In a Chapter 13 bankruptcy, tax refunds are treated as disposable income, and as stated in other articles, by default all disposable income is to be turned over to the trustee. However, the following are the most common avenues we take to ensure our clients are able to retain some, or all of their tax refunds.
Application to Retain: If a client has unexpected expenses, not already accounted for in their budget, we often submit an application with the trustee’s office to retain some or all of their refund. Examples of this is home repairs, vehicle repairs, vehicle replacement, and post-petition medical expenses. We sit down for a meeting which takes approximately 30 minutes, we review the tax returns, and documentation for these unexpected expenses and submit the application that day. Often, we can have the refund request approved within a week.
100% Plan: Bankruptcy plans where the client is already paying their creditors back at 100% are automatically approved to retain 100% of their refund. However, clients may turn over some or all of their refund in order to reduce their plan length.
More than 36 months into a 36-month ACP Plan: A 36-ACP is a case where the client passed the Means Test, but decided to file a Chapter 13 for another reason. In those cases, after the client successfully completed 36 months of their plan, the client is able to keep any future disposable income.
Built into Budget: Clients can list a proration of their tax refund on their Schedule I. For example, the client can list “ProRated Tax Refunds” under miscellaneous income for the amount of $500. By doing so, the client automatically gets to retain $6,000 from each tax refund. If they need to keep more, they may submit an Application to Retain with the trustee.
If you have questions about this process, or if you want to know what Russell can do for you, feel free to give us a call at (616) 920-0555.
Chapter 7
Under a Chapter 7 bankruptcy, the trustee looks to the timing of the inheritance. If the inheritance was before filing, any amount on hand at the time of filing will become part of the estate. When it becomes part of the estate, an individual will have to exempt it in order to protect it. Any portion of the inheritance that is nonexempt will allow the trustee to take it and distribute it to creditors. If an individual is entitled to receive an inheritance 180 days after filing the bankruptcy, the inheritance will not become part of the estate and the trustee will have no claim to any of it. However, if an individual is entitled to receive an inheritance within 180 days of filing for bankruptcy, they will need to amend their bankruptcy paperwork regardless of whether the court closed the case or not. Similar to an inheritance prior to filing for bankruptcy, the inheritance will need to be exempted through an amendment, if it cannot be exempted then the trustee will be able to take that portion and distribute it to creditors.
Chapter 13
Under a Chapter 13 bankruptcy the individual may still need to exempt the inheritance, similar to a Chapter 7. If the case is a 36-month ACP, then if the client becomes entitled to receive the funds after successfully making payments for 36 months, then the inheritance becomes the clients. A case becomes a 36-month if they pass the means test and were eligible for a Chapter 7, but regardless, filed a Chapter 13.
In any other scenario, the client will need to exempt as much of the proceeds as possible, then put forth an application outlining what unexpected expenses they have to retain the inheritance for, much like they would for a tax refund.
A common fear among individuals considering bankruptcy, is what the bankruptcy will do to their credit record and how long they will be affected. It is true that under the Fair Credit Reporting Act, this notation on your credit report will last for ten years, but the effects it may have are not always clear cut. In many cases, creditors view the bankruptcy as a step up from an individual’s prior credit conditions and some creditors may even view the bankruptcy as favorable, since, after discharge, the debtor will be free of other financial obligations and be more able to make payments on new lines of credit.
To better understand if filing for bankruptcy is the right action for you, it is recommended to set up a consultation with a local bankruptcy attorney.
If you owed money to the Michigan Unemployment Agency, you might want to give my office a call.
First off, if a determination was made between Oct. 1, 2013, and Aug. 7, 2015 that you owe for back unemployment compensation, Michigan will no longer attempt to collect these alleged “over-payments,” unless the cases were individually reviewed by a human and affirmed with a new notice to the claimant. So if that is you, take a deep breath.
For all others, you can file either a Ch 7 or Ch 13 bankruptcy and one of two things will happen: (1) Michigan does nothing, and the full amount is forgiven under the Bankruptcy Code, (2) Michigan files a Complaint, and then we enter into a settlement.
But how much would the settlement be for? As you may already know, if Michigan is claiming an over-payment, they will demand that you repay them that amount, plus a x5 penalty. So if Michigan claims you were over-payed $5,000, they will also demand you pay them a $25,000 penalty, for a grand total of $30,000. If we enter into a settlement, by default Michigan will accept the original over-payment amount, plus a x1 penalty. As a result, you would owe $10,000 instead of $30,000. And we can negotiate a manageable repayment amount, based on your circumstances.
More questions, contact me today.
It is possible for there to be a situation where a parent needs to file for bankruptcy, but has severe dementia, and therefore mentally incapacitated.
Dementia can come on gradually, limiting their ability to make wise financial decisions. By the time you realize their mental health is affecting their finances, it could be too late. So how do they voluntarily file for bankruptcy?
The first step would be to have someone appointed to represent them. The most common approach is going through Probate Court and having a family member appointed Guardian and Conservator. Although there is much debate whether having a valid Power of Attorney would be sufficient, having one appointed by the courts is as close to iron-clad as one can get. Then, the individual appointed would work closely with their bankruptcy attorney to draft the requisite paperwork, and would then sign on behalf of the incapacitated individual. Additionally, you will want to attach the Guardianship and Conservatorship paperwork attached to the petition.
Additionally, you can motion to the Court for a waiver for the Credit Counseling Course. You will want to file this concurrently with your Petition to avoid having a MTD filed by the U.S. Trustee’s Office.
If you or a family member are considering filing for a Chapter 7 or Chapter 13 Bankruptcy, you will want an experienced attorney that has already faced virtually any situation that you can throw at them. Give me a call today at (616) 920-0555.
f you currently have a loan for a mobile home, there is a chance you are paying a high interest rate for for a loan where you owe significantly more than what the home is worth. If that is the case, then I want to meet with you.
Section 506 of the bankruptcy code allows an individual in a Chapter 13 Bankruptcy restructure personal property loans in situations where they had the loan for more than 910-days by dropping the loan amount down to the Fair Market Value of it. Further, regardless of how old the loan is, you can drop the interest rate down to 4.5%. Let’s look at a few scenarios.
So let’s say you have a trailer that you purchased 10 years ago for $50,000, at 20% interest, with a 30 year loan. Your payment would be $836 a month, for the next 20 years. But let’s assume that due to depreciation, that trailer is only worth $15,000 in it’s current condition. I could restructure that loan for you, for $280 a month, and have it paid off in 5 years.
Please give me a call today if you have a mobile home. I would like to sit down and see how much I can drop your payment for you.
The answer really depends on which Chapter of Bankruptcy you previously filed (Chapter 7 and Chapter 13), and which Chapter you wish to file. Additionally, these restrictions only apply if you received a discharge in your previous filing.
Ch 13 -> Ch 13: You must wait at least 2 years after the filing of your initial case before you may refile and receive another discharge. Fortunately, more than likely you were in the first case for at least the 3 year minimum, so theoretically you could refile the day after you receive your discharge.
Ch 7 -> Ch 13: You must wait at least 4 years after the filing of your initial case before you may refile and receive another discharge.
Ch 13 -> Ch 7: You must wait at least 6 years after the filing of your initial case before you may refile and receive another discharge. There is an exception to this 6 year waiting period in instances where your initial Ch 13 was a 100% plan or where it was at least a 70% plan and proposed in good faith and your best efforts.
Ch 7 -> Ch 7: You must wait at least 8 years after the filing of your initial case before you may refile and receive another discharge.
Some people think that if you file for bankruptcy that you will lose your home. This is not the case in 99.9% of filings.
If you have less than $11,850 in equity in your home, you can keep your home, and your other assets will not be affected at all. If you have between $11,850 – $23,700 then you can keep your home, but your D5 Wildcard exemptions may be limited.
If you have between $23,700 – $37,775 in equity, then you will want to use your Michigan Exemptions. If you have more than $37,775 then you will want to contact my office. There are still a few more exceptions that you can take advantage of. Give me a call at (616) 920-0555 or email me at Travis@RussellGR.com
As discussed in a prior article, think of an exemption as a credit you can use to buy back your property. If you have a loan or lien on a piece of property, then you only need to use your credits to buy back you ‘equity’ in the property (Equity = Value – Loan Amount). Most exemptions can only be used to protect a certain category of property. A “Wildcard” exemption, however, can protect ANY asset. So the question becomes, how much does one receive of Wildcard exemption?
At a minimum, you will receive $1,250.00 in Wildcard. Additionally, you will receive whatever federal homestead exemption you have left over, capped at $11,850.00. This means, if you have a home with little to no equity in it, you can potentially receive $13,100.00 in D5 Wildcard exemptions to apply towards protecting your assets.
If you have any further questions on D5 Wildcard exemptions, or any other bankruptcy matter, please do not hesitate to contact me at (616) 920-0555 or Travis@RussellGR.com