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Introduction

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INTRODUCTION: 2004

If you came into the office for a face-to-face consultation, during that consultation we discussed at length the three basic topics of bankruptcy. If you did not come in the office for an office consultation, but communicated by letter and/or telephone, then by reading this you will hear everything we would have gone over during an office consultation: nothing has been left out. In an office consultation, the discussion was as follows: First, we discussed debts, in three categories. Second, we discussed assets, again, in three categories. Third, we discussed the general aspects of a bankruptcy filing.

The purpose of this introduction is to go over, again, the general points that were discussed during your initial consultation or, if you did not have an office consultation, to, in effect, give you a free office consultation. If your spouse was not able to be present for the initial consultation, this is a good opportunity for them to learn what you learned when you came in.

We will first discuss your debts, because that is why you have come to see us. Next we will discuss your assets because nobody should file bankruptcy without first seeing what assets, if any, they might lose. Finally, we will go over the general process for a bankruptcy. Even though 1,600,000 people file bankruptcy every year, the other 260 million people do not have much information.

I. DEBTS

Your debts are broken down into three categories. The first category are the debts that I can wipe out. The second category are the debts that I cannot wipe out. The third category are the debts that you will have to make a decision on.

A. Debts that will not be wiped out

We will first discuss the debts that I cannot wipe out. I listed to you the debts that cannot be wiped out (“Seven Deadly Debts”) in chapter 7 as follows:

1. alimony, (state court must modify, not included)
2. child support, (state court must modify, not included)
3. student loans, absent undue hardship (optional/extra)
4. tax debts relating to a business that you had such as sales and use taxes, trust fund taxes, (Social Security/FICA, income withholding, etc.), (not included)
5. personal income taxes that are less than three years old,
6. “bad boy debts” [fraud debts (e.g., where you have lied to the bank to get a loan, misstated your true assets to get a loan, etc.), malicious destruction of property, and criminal restitution debts], (not included) and, finally,
7. debts relating to a driving while intoxicated (DWI) accident. (Not included) During you initial consultation I inquired or would have inquired as to which of these debts you had. These debts will not be wiped out in a chapter 7 bankruptcy.

If you feel that your alimony or child support is too high, you must go back to the state court with a Motion to Modify the alimony or child support. It cannot be done as part of your bankruptcy and is not included in your fees and it is outside our area of practice.

If you owe income taxes that are not going to be discharged, you may want to consider hiring a tax negotiator, such as Walter Gunby, Esquire in Cambridge (410-228-6111) to submit an "offer in compromise." We do not represent you in connection with such negotiations with the Internal Revenue Service. Where you desire to wipe out old income taxes, failure to file, materially false returns, recent and pending offers in compromise, and extensions on filing (or non-filing) of tax returns may further delay or prevent the tax debt from being wiped out: consult with your tax advisor as this is outside our practice area. Also, federal tax liens that have attached to real estate may survive bankruptcy as to the title to the real estate: consult with a tax lien specialist.

If you have fraud debts, your creditor may file an adversary proceeding in the bankruptcy court challenging the discharge of that debt. Our fee does not cover such litigation which is an optional/extra. This concludes our discussion of the first category of debts, the debts that cannot be discharged.

B. Debts that will be wiped out

Next, we will discuss the debts that can be discharged. This is why 1,600,000 people file bankruptcy every year. [In fact, over the last twenty five years, one in every four families in Talbot County has had a member file bankruptcy through our office.] These are the bills that you receive in the mail, generally, such as personal lines of credit, credit card debts, doctor bills, lawyer bills, book of the month club bills, money that you owe a friend in Ohio, and the like. These debts are wiped out in a bankruptcy. Also included would be a deficiency resulting from the repossession/turning over of a car and the resulting auction sale or the deficiency from a foreclosure sale of your home.

Some people tell me that they are not certain what their debts are. One option is to go to a credit agency such as TRW or Equifax and purchase a copy of your credit report. They will not charge for this credit report once each year, and the credit report will list your outstanding debts. Another alternative is simply to look in your mailbox. These creditors do have a way of sending you bills every month. When listing your debts, keep in mind that if you have guaranteed a son's loan, you should list the lender as a creditor so that if your son defaults on the loan, your obligation will be wiped out. Similarly, if someone has guaranteed one of your loans, you will want to list your guarantor and the creditor so that he or she will get notice of the bankruptcy. That way, when the loan is called on your guarantor/friend, your obligation will be wiped out to them when they pay the debt. We also recommend that you always list any ex-spouse and their attorney as creditors in case they complain later on that you owe them money, for some reason.

C. Debts to make a decision on

The next category of debts that we discussed are the debts that you must make a decision about. Essentially, these are your "secured debts." [e.g., home mortgage, car loan, Circuit City, Gordon's Jewelers, Radio Shack] The most typical example of secured debts are your mortgage payment on real estate or your car payment on a car loan. If these bills are not paid you will lose your house or your car. It is that simple. There are other categories of secured debts. For example, Circuit City, Radio Shack and Lowe's have their own secured credit cards. If you buy a big tag item such as a satellite dish, riding mower, sewing machine, refrigerator, tires, washer/dryer, etc. they will retain a purchase money lien on the item. Therefore, if you wish to keep these appliances or items you must continue to make your regular monthly payments. As an alternative, where the items are old, you may offer them the fair market value, in a lump sum, of the item. In most cases, however, people choose to either continue to make their regular monthly payments or to give the item back. In addition, if you are a few months behind on the payments for these items, Sears or Lowe's or that type of creditor will want you to sign a reaffirmation agreement. The agreement will, ordinarily, have the past due payments on the end of the account but it will also mean that you are still personally liable for the payment of that account, even though you have filed bankruptcy. Before you sign a reaffirmation agreement, keep in mind that such agreement continues your personal obligation to pay for that account. Other examples of secured credit would include Gordon's Jewelers. If you have bought your boyfriend an expensive diamond ring and financed it at Gordon's Jewelers (no relation), Kay Jewelers, etc., either they get their money or they get their ring if it still exists. If you have gone to Hub Furniture and bought an expensive set of furniture, even though you may not make any payment till April next year, they own the furniture until you pay for it. The same would be true where Circuit City finances the purchase of a big screen TV or Radio Shack finances the purchase of one of their expensive computers. Either you pay for that item or you give it back. In the event that you file bankruptcy and you no longer have the item (perhaps it was a Christmas gift or you have thrown it out), that will be the end of it unless you have intentionally given the item away to defraud your creditor. In some cases, the secured creditor may ask for the name and address of the recipient of your gift or for them to turn it over or finish paying for it. Another example of a secured debt would be a judgment recorded in the land records where your deed is recorded.

A judgment entered before bankruptcy is void for further wage garnishments or attachments on checking accounts. If and only if more than $600.00 is taken out of your paycheck within 90 days of filing, you have the right to demand and/or file an optionalextra adversary proceeding (1/3 contingency legal fee whether by adversary or demand letter) to recover the garnished wages. You may even hold off filing until they have garnished more than $600.00. However, if a judgment is recorded against your real estate, it will be necessary to file an adversary proceeding to attempt to clear that judgment off the land records. Generally, such a law suit will cost $600 per judgment. If you have real estate, you will want to check with the land records office in your County to see if there are any judgments against you during the past fourteen years. If so, let us know and we will look further into this. Of course, if you have no real estate, or if you do not plan to keep your real estate, or if you have no judgments against you, you need not concern yourself with this. For all the details as to items not covered in your filing fee, please review the Debtor's Acknowledgment in this booklet, which will be signed later on when you sign your petition.

II. ASSETS

We have now discussed the three types of debts. One category cannot be wiped out. One category can be wiped out. The third category you must make a decision on. Next, we will discuss the three categories of assets. Now we consider the three categories of assets. There is one type of asset that you can keep. There is one type of asset that you cannot keep. There is one category where you must make a decision.

A. Assets you can keep

First, consider the assets that you can keep. Basically, this would include everything that you own such as clothing, furniture, and the "stuff" that you have bought over the years. If we were to take all of your clothing, TVs, stereos, etc. and put them on tables outside and have a yardsale, we probably would not fetch even $1,000.00. Accordingly, all of these items are exempt under state law and you may keep them no matter what. For most people, they either drive a car that is so old that it has little or no value (even though it is paid for) or that is so new that it is heavily in debt and has no equity. In either case, the car may be kept. Where there is a lien on the car, of course, monthly payments must continue to be made. Where there are two liens on the car, please advise us as to the amount of the second lien. In most cases, you will have to continue paying both the first and second lien payments. However, if the car is worth $5,000.00 and the first lien is for $6,000.00, the option exists, as you wish, to file an optional/extra motion to void the second lien on the car. If you wish such a motion to be filed, the cost will be $250.00 and you will have to provide us with a written appraisal of your vehicle.

Also in the category of assets that you can probably keep will be your home. Here, again, the question becomes one of value. If the State of Maryland tax assessor says that your home is worth $100,000.00 and you have a first mortgage on the property for $90,000.00, then there is no equity in the property for bankruptcy purposes. To determine whether there is equity in the property we total up all of the debts on the property, as well as open real estate tax bills. In addition, the trustee would have to be able to pay administrative cost of approximately 8-10% (brokerage commissions and trustee commissions) in order to sell the property.

In short, even a house worth $100,000.00 with mortgages of only $85,000.00 probably would not be sold by the trustee and result in any meaningful return to the unsecured creditors. If there is not a meaningful return to the unsecured creditors, the trustee is not ordinarily allowed to sell the property. Most people are able to keep their homes in bankruptcy, but not everyone is. It is a question of the economics. If you bring in to us a ridiculously low appraisal for your home, you may fool us, but you may not be so lucky if the trustee calls a local broker and asks him or her to look at the property. So it is important to obtain a realistic assessment of the value of your property. Of course, that valuation should be in the context of the actual condition of the property, considering necessary repairs, and current market conditions and should not be an overblown, pie-in-the-sky estimate of a high value. That would not be in your best interest. Of course, where a home or any other asset is jointly owned with a non-filing spouse with whom there are no joint unsecured debts, equity in such marital assets is unlimited.

B. Assets you cannot keep

We have now discussed the first category of assets, the assets that you can keep. Now we will discuss the second category of assets, the assets you cannot keep.

• If you and your brother own a farm in Kentucky and there is no mortgage on it, then it is too valuable for you to keep in bankruptcy. The trustee will sell it. It does not matter that you own land in Kentucky, rather than Maryland. It does not matter that you own it with your brother. You have a one half interest and, in fact, the entire farm can be administered and sold by the trustee (your brother would be given his half by the trustee where the farm cannot be subdivided into two parcels).
• Another type of asset that you will not be able to keep would be a highly valuable classic car or Harley Motorcycle (hog). Suppose, for example, that you have a '69 Corvette Stingray in mint condition and 8,500 miles, and there is no lien on the car. The trustee is not going to be fooled into believing that it is worth only $400.00.
• Other examples of assets that you cannot keep, no matter what, would include a regular checking account with, say, $50,000.00 in it. You can honestly represent to the court that your 1978 piano that cost $3,000.00 is only worth $400.00. You cannot honestly tell the court that $50,000.00 in the bank is only worth $1,000.00. If you are concerned about specific assets or property interests that you have that may be particularly valuable, or a pending or possible inheritance or trust fund, please discuss it with us now.
• If a relative (for estate planning reasons, or otherwise) has titled property in your name (even if they have reserved a life estate) let us know at once: for example, dad died and Mom titled the farm in your name and sis's name -- tell us & provide copies of the deed. These assets may be taken by the trustee and sold.
• If you have been repaying family members creditors old debts over the last year, they may be forced to give the money back.
• If you have given your son your Corvette, he may have to pay for it or give it back.

C. Assets to make a decision about

Third, we have the assets that you must make a decision about. This, essentially, reflects the third category of debts. This would relate to secured debts. If you have a home and you want to keep it, you must make the mortgage payments. If you have a car and you want to keep it, you must make the car payments. If you financed furniture and you want to keep that asset, you must make your monthly payments. Also keep in mind that you should continue making the payments on your apartment or you will lose your apartment. With respect to utility service, you can wipe out bills to Easton Utilities, Connectiv, or Verizon. They are a utility. If you do, they must reinstate your service, if it has been cut, and continue service. They have the right to establish a new account and require a two month security deposit, however. Keep in mind, though, that the security deposit is your money and you will, eventually, get it back. As long as you continue to make payments on secured assets, you will be able to keep those assets. If you are behind in your house payment or car payment, come current as soon as possible. If you do not come current in your house payments, it may be necessary to convert to a chapter 13 payment plan which will cost more money in legal fees and is a much more complex proceeding.

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