Other Issues for State Exemptions

In Part 1 we covered when you should normally take state or federal exemptions.  Again, as a caveat, check with your Chester County bankruptcy lawyer before you do anything!  

There are are potential issues that must be considered when taking state exemptions. Pennsylvania's exemptions excludes retirement assets that were contributed within one year of filing for bankruptcy.  In addition, federal tax liens against one spouse may attach to entireties property, regardless of state law -- so says the Supreme Court in U.S. v. Craft.  

Bankruptcy Planning

Sometimes, however, it is best to plan for a bankruptcy by meeting with a lawyer well in advance.  For example, you can't commit a fraudulent transfer/conveyance by transferring the property for no consideration.  But, a transfer of the property for fair market value may do the trick.  

For example, if you owned a car by yourself (and it was work $30,000), you could transfer the vehicle for a half interest to your spouse as long as the spouse paid 1/2 the fair market value.  Then, if that transfer of funds (the 1/2 of the fair market value) is spent towards reasonable and necessary needs, then you should be fine.  

In the alternative, if there are shared/joint debts and you don't want them accelerated, you can work to pay off the joint debts and file 90 days after paying them off to avoid what section 547 of the Bankruptcy Code calls a preference.  

An often overlooked section of the Statement of Financial Affairs in a bankruptcy petition is #15 -- Prior address of debtor.  It states that if a debtor has moved within 3 years immediately preceding the "commencement of the case".  This means, prior to the filing of your Chester County bankruptcy, you must list all addresses where you lived.  If the petition is a joint filing, both husband and wife must list their previous addresses (even if they did not live together).  

As a Chester County bankruptcy lawyer, I often get asked the difference between a secured creditor and an unsecured creditor.  Here's a short response:

Secured Creditor:   creditor whose claim against a debtor is secured by a valid (meaning, a contract or a legal note recorded at the courthouse) mortgage, lien, or other security interest against property that is owned by the debtor.  This is typically a home mortgage, a car loan, or a boat loan.  

Unsecured Creditor:  A creditor whose claim against the debtor is not secured by a valid mortgage, lien or security interest against the debtors property.  This is typically a credit card, personal loan, or medical bill.  

In general, a secured creditor has the ability to collect all or a portion of its claim from its collateral (the property), while an unsecured creditor may not do so (there is nothing to "attach" to).  

Frequently, a secured creditor may be owed more than the property to which it secures.  This makes sense -- think about it, you've probably heard that a person owes more on their car the minute it is driven off the lot.  In a Chapter 13 case, the debt with a secured creditor is divided between a "secured" and "unsecured" claim.  The only exception is a mortgage company whose mortgage is on the debtor's home.  

Emergency Petition Requirements

An emergency bankruptcy petition may be filed.  This encompasses only a few pages from the start of the bankruptcy to stop a sheriff sale, judgment, etc.  Then, after filing the emergency petition, the person has 15 days to file the remaining schedules.  Your Chester County bankruptcy lawyer can get an extension of normally 15 days by filing a Motion to Extend the time period.  

You will still have to do the pre-bankruptcy credit counseling prior to filing the emergency petition.  The cost of this ranges between $15-$50.  It will take you normally 60 minutes on-line or on the phone (your option).  It is not hard, but you must take the time to get it done.  You will also have to get together any creditors you need notified of the emergency filing.  This is typically done with a mortgage company who is seeking to execute a sheriff sale and you are filing an emergency petition to stop it.

Regular Petition Requirements

Your attorney in Chester County is going to have to get all of your assets and debts.  In addition, all of your income and expenses will be needed for the filing of the petition.  These all go on the bankruptcy schedules.  You may have to get your credit report (for a free one, go to www.annualcreditreport.com).  All of this takes times and you must be sure to have everything complete and documented.  You don't want to forget about a source of income (i.e. rental income) or forget about a second home!  

Chester County Chapter 13 Options

A husband and wife my file a joint Chapter 13 case.  If each party meets the requirements to file individually for a bankruptcy with a Chester County bankruptcy attorney, they may do so together.  They must meet the debt limits and must fulfill all the filing requirements, including completing the credit counseling, signing the petition, and appearing at the Meeting of the Creditors or "341 hearing".  This is the more typical path for Chester County families as it is often the case that both husband and wife have unmanageable debts and are struggling with keeping up with their bills.  

Sometimes, however, the debt is only in one of the spouse's names and it may make sense to run your credit reports to confirm that this is the case.  Then, it is best to consult with your local attorney to make sure this is a proper strategy.  

Joint and/or Separate Options

Some couples decide to have only one spouse file.  This is a strategic decision that must be made with you and your attorney.  Frequently, in cases where there is a "non-filing" spouse, it is done because all of the debt is in the one spouse's name and the couple wants to preserve the other spouse's credit.  In other times, if it is a Chapter 13 where a family is trying to save their home, only one spouse files if they are on the mortgage/deed.  

If only one spouse files for bankruptcy, the other spouse's income must still be included on the petition and factored in to the means test. There is no getting around this requirement.  Generally, however, if both spouses are liable for any significant debts, they should file a joint Chapter 13 case.  

Chester Bankruptcy - State vs. Federal Exemptions

A Chester County debtor is allowed to take either state or federal bankruptcy exemptions pursuant to 522(b)(1).  Pennsylvania is a minority state in that it has not opted-out of the federal bankruptcy exemptions.  Most of the time, Pennsylvania exemption laws are terrible (meaning, you can't exempt much) and it is normally advised by a Chester County bankruptcy lawyer to elect for the federal bankruptcy exemptions. For your notes, the PA exemption law is 42 Pa.C.S.A. Sections 8123-8127 (I'm sure you won't be looking those up).  

If a Chester County individual or family wishes to proceed under the state exemptions of Pennsylvania, an "interest that the debtor holds in property with a spouse as entireties property is exempt to the extent that such entireties property is exempt from process under PA law.  So, "entireties property" is "immune" from process when only one spouse is liable for the debt.  

Breakdown of the Law

What this means is:  If you own a home with your wife, and all the debt is in your name, the home is completely exempt.  This is normally the course where a home has too much equity beyond the bankruptcy exemptions.  This can also be the case for real or personal property.  The value can be through the roof and it does not matter.  

But, the rules are important:  1)  All the property must be in the entireties and 2)  All the debt must be individual.

So, if you meet this case, you must make sure that the non-filing spouse has no debt (or very little).  

There is a couple issues with this plan and we will cover it in Part 3.  

Unsuccessful Chester County Chapter 13

If you are in a Chapter 13 and you are unable to make plan payments, the bankruptcy normally gets "dismissed".  After a dismissal, your Chester County property and home are no longer protected under the federal bankruptcy laws.  You still have options -- you may refile your bankruptcy as a Chapter 13 or you may file a Motion to Reopen your bankruptcy.  

Another option is to, prior to the dismissal, file to convert your Chapter 13 to a Chapter 7.  The Chester County bankruptcy can be converted to a Chapter 7 for any reason and at any time.  The Trustee may also seek to convert the case prior to the dismissal as well.  The court may allow the conversion if it is in the best interests of the creditors and the estate.  

If the debtor dies or becomes incompetent during the Chapter 13, the case may be dismissed.  But, if further administration is possible and is in the best interest of both parties, the case may proceed "in rem" and be concluded in the same manner as if the person has not become incompetent or passed away.  

A proof of claim in a bankruptcy for open-ended debt, such as revolving credit lines, is governed by Rule 3001(c).  It is, essentially, a way for a creditor to make sure they get paid in a Chapter 13 plan.  The purpose of Rule 3001(c) is highlighted in In re Goeller from Virginia, which states, "The underlying principal...is that the bankruptcy claims process should be simple and straight-forward so that creditors can be promptly paid.  This objective is furthered if creditors are able to file claims without undue expense or burden.  At the same time, there must be standards so that trustees, debtors and other creditors can reasonably determine whether filed claims are proper.  Your Chester County bankruptcy lawyer is supposed to look at each proof of claim to ensure it is proper.  

Rule 3001 endeavors to balance these competing principles."  The court further created reasonable guidelines, including sanctions for non-compliance.  It looks for substantial compliance with the "spirit of the applicable rules" as per In re Crutchfield in the Middle District of Georgia.  So, if most of the information allows for the debtor to know, understand and match the claim, sanctions are not appropriate. 

Essentially, if there is "substantial" and "sufficient indicia" in the claim, it should normally be examined to be valid.  To dispute the claim, a Chester County bankruptcy attorney will first make an informal request of the creditor for clarification, file an objection to the proof of claim in no clarification is provide, file a request for admissions, and file of a Certificate of No Response.  

If you have filed a Chapter 13 with a Chester County bankruptcy lawyer, you will have to constantly communicate with your lawyer to make sure things progress properly.  

Some reasons why a bankruptcy get dismissed are

• unreasonable delay by the debtor that is prejudicial to creditors
• nonpayment of filing fee (check with your lawyer on this)
• failure to timely file a plan with the Trustee
• failure to commence making timely payments under the plan or proposed plan (most common)
• denial of confirmation of a plan and denial of time for filing another plan or modifying the proposed plan
• material "default" by the debtor with respect to a term of a confirmed plan
• revocation of the oder of confirmation and denial of confirmation of a modified plan
• termination of a confirmed plan by reason of the occurrence of a condition specified in the plan, other than the completion of payments under the plan (rare)
• only on the motion of the U.S. Trustee, failure to timely file the schedules and other information required, or
• failure of the debtor to pay a domestic support obligation that first became payable after the filing of the Chester County bankruptcy

As you can see, some of these issues rest solely with your bankruptcy attorney and others relate to your efforts.  Make sure you check with your lawyer and make sure you know what your obligations are in your Chapter 13 bankruptcy.  

Sub-Prime Lenders

We recently covered one option of getting a mortgage through FHA or conventional mortgage.  But, sometimes that is not an option.  Some people are still in a tough spot.  They will call their Chester County bankruptcy lawyer to find out what should be done.  

But, some people can seek a sub-prime mortgage.  This industry was booming prior to the recession but has been strangled (but not killed).  You will have to hustle to get a sub-prime lender.  You will most likely get an inside source from a Realtor who has worked on these issues before.  

These sub-prime lenders are varied.  You can find different rates, different terms, and different requirements across the board.  You should expect a higher interest rate from these sub-prime lenders, so you will have to make sure you get on top of whether it makes sense financially for you to switch from renting vs. buying.  

You should also confirm from the mortgage company whether they will allow you to refinance (or, preferably be automatically refinanced) into a conventional rate after 24 months of good payment.