Mail Solicitiations for Debtor Education Course

Most people who file for bankruptcy are required to complete two counseling courses.  One pre-filing “credit counseling” course, and a second post-filing “debtor education” (aka “financial management”) course.  The first course is required to be eligible to file for bankruptcy, the second course is required to earn your discharge.
Many people, after they file for bankruptcy, will receive letters from counseling courses attempting to solicit their services to newly filed debtors.  Do you need to pay attention to these letters?
If you have hired another attorney, perhaps.  If you’re not sure whether you have already paid for / taken your required courses, contact your attorney to verify.
If you have hired Holbus Law Office, LLC, the answer is no.  You can disregard those solicitations.
As part of our fee package, all of our Chapter 7 clients are automatically registered for their counseling courses, and will receive login instructions at the appropriate time.  All of our Chapter 13 clients are enrolled in the first credit counseling course.  Our Chapter 13 clients, however, are not charged for nor enrolled in the second counseling course because of the availability of a free (and frankly, superior) course offered by the Chapter 13 Trustee.

April 2014 Median Income Levels

Median income levels are due up for their semi-annual change on April 1, 2014.
The new Wisconsin numbers are as follows:
Household Size of 1 = $44,602
Household Size of 2 = $58,751
Household Size of 3 = $68,801
Household Size of 4 = $81,373
+1 = +$8,100
Across the board, these new numbers are higher than the existing numbers.  The median income level is a starting presumption as to whether you qualify for Chapter 7 Bankruptcy or must file Chapter 13 Bankruptcy based on income considerations.  Your income relative to the median income level is not the only consideration, as certain factors can tip below median debtors into Chapter 13 and above median debtors into Chapter 7.

Identifying Unusual Assets & Valuation of Uncommon Assets

This outline was originally presented by Atty. Greg Holbus and Trustee Steve McDonald at the March 11, 2014 Lou Jones seminar in Milwaukee.

The original intent of this presentation was to create a reference guide for attorneys to use in determining the value of certain uncommon or otherwise difficult to value assets.  As attorneys, we prefer primary sources (statutes and case law) whenever possible, so the hope was to find case law that addressed these unusual assets.  After 15 minutes of searching for three assets, it became clear that this approach would go nowhere fast.  In hindsight, this was to be expected.  The lack of case law demonstrates two implicit truths – (1) assets (particularly non-liquid assets) are only worth as much money as someone is willing to pay for them and (2) judges are wisely reluctant to establish binding case law that couldn’t take market conditions into account.
Accordingly, this presentation has evolved to cover three basic topics: identifying assets (particularly those that most people wouldn’t ordinarily think of as an asset); providing a list of documents and information that an attorney should request to help determine an “on paper” value with the understanding that actual market value may be less; and reviewing some of the factors that influence the value of an asset and a trustee’s willingness to pursue an asset that is non-exempt on paper.
The debtor shall file a schedule of assets and liabilities (unless the court orders otherwise).  11 U.S.C. § 521(a)(1)(B)(i)
Asset: an item that is owned and has value.  Black’s Law Dictionary
(I)      Practice Pointers
·         As you proceed through this outline, you may think that some of the items listed here as potential assets go a bit too far or are over-reaching.  My favorite example of this is “unclaimed bonuses, rewards, and points from credit cards and store cards”.  This is the asset that, when it has been brought to the attention of other bankruptcy practitioners, has elicited more than a few giggles – primarily because the value of these assets is often the equivalent of a $25 voucher at Wal-Mart.
·         However, all assets have the potential to be quite valuable.  In the case of credit card rewards, consider a business owner.  His net profits are very low (hence why he is in bankruptcy), but his overall revenue and expense volume might be quite high.  If most of his expenses are put on a credit card and if he is entitled to 1% cash back on purchases, he could easily rack up $1,000 in value once every couple of months.  This alone might not be worthwhile, but if there are already other non-exempt assets, then this extra thousand dollars is nothing to sneeze at.  The point is – you would not have known about the asset if you didn’t ask.
·         Reminder for Debtors: Assets that are not disclosed cannot be taken as exempt.  You’re taking a big gamble not disclosing assets for fear that a trustee might seize them, because if the trustee does discover the asset later, attempts to exempt it later will likely be denied.  This is especially foolish if the asset would have been exempt in the first place.  Don’t presume to know better than your lawyer.
·         Few laymen have an appreciation for the term “assets”.  It has been my personal experience that most clients, upon hearing that I will be inquiring about their assets, have the knee-jerk response that they don’t have any assets.  Others believe that the term only applies to real estate or motor vehicles (i.e. things with legal title).
·         It is incumbent on the attorney to make sure that the client appreciates the full scope of the term.  Merely instructing your client to fill out a packet of forms with no added explanation or guidance is inadequate.
·         Clients generally do not volunteer information unless they believe it will help their case.  They don’t understand what is relevant to the bankruptcy process.  It is your job to flush information out of the client and to identify potential issues.
·         Clients generally do not read the print materials provided to them by their attorneys.  Though I strongly advocate giving plenty of material to read and/or fill out at their own pace, it is also important to review documents with them verbally.
·         Repetition is important.  Between verbal interviews and printed materials, my clients probably hear/read the same questions 5-7 times before their case is filed, and I do that because often, the client won’t think of something until the 5th or 6th time they have been asked about it.
(II)    Identifying Assets / Property of the Estate
·         See 11 U.S.C. § 541
·         Generally, all legal and equitable interests, interests in community property, interests in inheritances within 180 days of filing, certain property recovered by the trustee, and certain profits and proceeds generated by the estate except for services performed by the debtor after the case is filed.
·         Notable exclusions:
·         (b)(5) – funds deposited into an Educational IRA between 1 and 2 years prior to filing (limit of $6,225) and funds deposited within 1 year of filing if not in excess as described in 26 U.S.C. 4973(e).
·         (b)(7) – funds in an ERISA retirement plan, § 457 deferred compensation plan, or 403(b).
·         Real Estate – residences, former residences (that have not yet been foreclosed), business / rental properties, vacant lots, timeshares, hunting land, etc.
·         Most people believe that when they receive a notice of foreclosure, that the property is no longer theirs.  They are not aware of foreclosure procedures or redemption periods, and they’re not aware of which events actually trigger a change in legal title.
·         Motor Vehicles – cars, trucks, vans, motorcycles, boats, ATVs, snowmobiles, trailers, campers, RVs, mobile homes, scooters, mopes, aircraft, etc.
·         Liquid Assets – Cash, Bank Account Balances, Prepaid Debit Cards, Paypal Accounts, Whole Life Insurance, Stocks, Bonds, Redeemable Bonuses/Points/Rewards from Credit Cards & Store Cards, etc.
·         Don’t just ask about the current or next year’s refunds.  Some debtors are waiting on tax refunds from years prior – either because of a late-filed return, an amendment, or re-assessment.  This is a great example of an uncommon twist of an otherwise common asset.
·         Other Non-Liquid Assets – Ownership Interests in Corporate Entities, Trusts, Annuities, IP, Licenses, etc.
·         Contingent / Future Interests – Potential Inheritances, Pending Lawsuits, Unlitigated Claims, Tax Refunds, Life Estates, etc.
·         It is especially important to not overlook pending litigation or unlitigated claims.  Debtors could later be barred from bringing actions under judicial estoppel if a pre-petition claim was not listed on the debtor’s schedule of assets.
·         Although this outline is geared more toward liquidation in Chapter 7, it is also worth pointing out that many districts generally hold that contingent assets and windfalls that become realized during the pendency of a Chapter 13 are property of the estate.  Here in the Eastern District of Wisconsin, contingent assets are generally held to the “rule of halves” (debtor keeps half of the contingent asset, the other half comes into the plan for the added benefit of general unsecured creditors).
(III)  Why Bother with Insignificant Assets?
·         Schedule accuracy – § 521 doesn’t make a distinction between valuable and invaluable assets.
In covering § 341 hearings for other lawyers, I’ve seen a wide range of detail in household goods.  Some of them are very simplistic (Household Goods: $5,000).  I’ll leave it to the trustees to comment on how much detail they think is appropriate.  I certainly don’t think it’s necessary to itemize the number of pens and thumbtacks (and other “junk drawer items”) a debtor has, but I personally feel there should be some reasonable level of detail.  If for no other reason, you’re demonstrating that the debtor has taken some time to seriously consider what stuff they own.  Remember that the federal household goods exemption (11 U.S.C. § 522(d)(3)) is limited to individual items worth less than $575.  If all you write is “Household Goods: $5,000”, then you really haven’t demonstrated to the trustee that your use of the (d)(3) exemption is appropriate.
·         What might commonly be an insignificant asset could – in that one-in-a-million case – be a significant asset that you’re not going to find out about if you don’t ask.  Clients rarely volunteer relevant information.
·         Covering a wide gamut of potential assets will help your client appreciate how broad the term “asset” is, and it could jog their minds to reveal an asset you might not otherwise have discovered.
(IV)  How to Value Certain Assets – What Documents to Request & What Information to Look For
Bear in mind that these are “on paper” valuations.  In reality, what something is worth is what someone is willing to pay for it.
·         Real Estate & Vehicles
§  Be sure to scrutinize the mortgage and title documents to confirm you have a properly perfected lien.
§  If the recording date was less than 90 days before the date you’re filing bankruptcy, look to the contract to ensure that recording happened within 30 days.  (11 U.S.C. § 547(c)(3))
·         Stocks
§  Number of Shares x Price per Share
§  Look to stock statements for number of shares.
§  Price per share is as simple as a Google search.  You can find the exchange and stock symbol simply by searching for the company name plus “stock”.  For example, searching “Wal-Mart stock” will give you NYSE: WMT.  You can plug that back in at any time to Google to get the current price per share the day you file the bankruptcy case.
·         Savings Bonds
§  Ask for a copy of the bonds themselves.
§  All you need is the series, face value, serial number, and issue date – and each item is printed on the bond itself.
·         Ownership Interest in a Business
§  Sole Proprietorship – no separate business entity; “business assets” are personal.
§  Corporations, LLCs, etc. – total value of corporate assets less total amount of corporate liabilities; remember to ask about accounts receivable and accounts payable; review deeds and titles to verify whether real estate or vehicles are owned personally or by the corporate entity.
·         Life Estates
1.       You’ll need a copy of the deed to determine when the life estate was created.
2.       Determine the applicable interest rate under 26 U.S.C. § 7520 based on the month/year the life estate was created.
3.       You’ll need the grantors’ (usu. the parents) dates of birth to determine current age.
4.       Single Living Grantor – use IRS Publication 1457; Table S
Scroll until you find the applicable interest rate determined at step 2.
Locate the age determined at step 3.
The grantor’s interest is in the “Life Estate” column, the grantee’s interest is in the “Remainder” column.
5.       Multiple Living Grantors – use IRS Publication 1457; Table R(2)
You’ll have to reference both grantors’ ages, but otherwise, the process is similar to step 4.
Multiple R(2) tables, based on the applicable interest rate from step 2.
6.       Take into account any joint interests among grantees, and any valid mortgages or other liens encumbering the property.
·         Potential Inheritance
§  Potential benefactor’s age and overall health condition.
§  Potential assets and liabilities.
§  Potential number of beneficiaries.
§  Any known details of a will (per capita or per stirpes distribution, specific bequests).
§  Any known life insurance policies or retirement accounts listing the debtor as beneficiary.
·         Pending or Unlitigated Claims
§  Cause of action.
§  Whether a lawsuit has been filed, and its status if filed.
§  Potential actual damages and potential punitive awards.
§  Likelihood of favorable judgment, settlement, and collectability.
·         Tax Refunds
§  Trustees are entitled to a pro rata amount of the current year’s refunds (e.g. in a case filed on April 15, 2014, the trustee could recover about 28% of the 2014 refunds.  If using wildcard, this amount is usually exempt and the trustee won’t hold a case open that long to recover the refund.  But if using state exemptions, you’ll need to consider this.
·         Money in a Lawyer’s Trust Account
§  Is your client in the middle of a divorce?  Is your client suing someone for personal injury or breach of contract?  It’s worth asking if the client has retained counsel.  If they have, there may be money sitting in that lawyer’s trust account for advanced fees or costs that haven’t been earned.
·         Claim in the Bankruptcy Case of Another
§  Review the debtor’s proof of claim.
§  Check PACER to verify that the claim was timely filed and allowed; that there have been no objections.
§  Where available, review the plan (Chapters 11, 12, or 13) or schedules (Chapter 7) to determine likely distribution.
·         Equitable Interest (e.g. Land Contract)
§  Amount of down payment + total monthly payments paid in so far.
·         Season Tickets
§  License Fee + Face Value of Issued Ticket(s)
·         Whole Life Insurance Policies
§  Recent statements will have the current cash surrender value.
§  When using WI state exemptions, if the policy was issued within the last 24 months, only $4k is exempt.
·         Retirement Accounts
§  Most are not property of the estate under § 541(b)(7).
§  If uncertain if the plan qualifies for an exemption, the plan administrator can usually tell the debtor.
§  Monthly balance statements for value.
§  § 522(d)(10)(E) – payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor
§  § 522(d)(12) – exempt from taxation under 26 U.S.C. §§ 401, 403, 408, 408A, 414, 457, or 501(a).
§  § 815.18(3)(j) – Assets held or amounts payable under any retirement, pension, disability, death benefit, stock bonus, profit sharing plan, annuity, individual retirement account, individual retirement annuity, Keogh, 401-K or similar plan or contract providing benefits by reason of age, illness, disability, death or length of service and payments made to the debtor therefrom.
·         Residual Income
§  Property of the estate under 11 U.S.C. § 541(a)(6).
§  Would include the pro rata amount of the debtor’s next paycheck for work performed pre-petition.
§  More notably, applies to books of business in the insurance industry.  Agents are paid money for contract renewals, which is for work performed pre-petition.  It is possible to sell these books, and although I’ve not had the experience of having to sell one, I’m told that the value is generally computed at 24 months of the typical monthly residual payment.
§  If your client is a real estate broker, you’ll need to inquire about any commissions due to them prior to filing the bankruptcy case that have not yet been paid.
·         Trust Beneficiaries
§  Review the trust documents.
§  Most contain a spendthrift provision that prevents the trustee or creditors from making a claim to the debtor’s interest in future payments.
§  In absence of such a provision, the property currently in trust is property of the bankruptcy estate.
·         Annuities
·         Many are exempt as retirement accounts.  Check the establishment documents for ERISA language.
·         Account statements for value.
·         Intellectual Property (copyrights, trademarks, and patents)
·         If the IP has potentially significant value, consider consulting with an IP attorney to discuss valuation.
·         Has the debtor received offers to purchase rights to their IP?
·         Has the debtor received any royalties on account of their IP?
·         Franchise or License Rights
·         Often have restrictions on alienability.
·         Has the debtor received offers to purchase?
·         Does the agreement contain provisions to sell rights back to the franchisor?
(V)    Exemption Planning – Factors Affecting the Trustee’s Decision to Pursue or Abandon a Non-Exempt Asset
·         Nuisance Obstacles
§  Uncertain Markets
§  Non-liquid assets are only as valuable as someone is willing to pay for it.  What something is worth on paper is not necessarily what it is worth in real life, given current market conditions (for better or for worse).
§  Unsatisfied Liens
§  Liens reduce the available equity in property.  Some liens can be avoided.  Others cannot.
§  Joint Ownership Interests
§  Under certain circumstances, a trustee may sell a joint owner’s interest.  See 11 U.S.C. § 363(h).
§  Contingent and Future Ownership Interests
§  How long would creditors have to wait on a contingent asset?  How likely is the asset to actually be realized?
§  Limitations on Alienability
§  Environmental Hazards
·         Administrative Considerations
§  Cost of Liquidation
§  Total Amount to Distribute to Creditors

§  Meaningful Distribution – Percent Yield to Creditors

Why are debt collectors so rude?

The Problem
I will often hear from my clients stories about how debt collectors are rude to them.  It comes as a surprise to many that debt collectors are unswayed when you tell them you don’t have money to pay a bill.  You tell them that they can’t squeeze blood out of a turnip, yet they keep harassing you – screaming, threatening, and humiliating.  They call you 10… 20… 30… 40 times a day – at all hours.  Then they start calling you at work.  They start calling your family and friends – anyone whose number they can get their hands on who they think you might be able to convince you to pay the debt.  Anyone who they think you’ll be embarrassed to have find out that you’re behind on your bills.
But you’ve told them over and over again that you simply don’t have the money.  Why are they being so stubborn?
Why?  For two simple reasons: because of money and because it works.
The Explanation
To understand the influence of money, it’s helpful to know a thing or two about debt collectors.  There are generally three types.  In-house debt collectors – people who, for example, work for the hospital that you just had surgery at and whose job it is to make phone calls to try to collect on the bill.  Third party collection agencies – companies who are essentially contracted out to do the collections for a creditor and who are generally paid a percentage of the debt payments that they successfully recover.  Junk debt buyers – these are third party companies that purchase the right to a debt (giving the original creditor some immediate funds, though less than what was originally owed).
In each case – the debt collectors are highly motivated to collect the debt.  In the case of collection agencies, they usually don’t get paid unless they recover money for the original creditor.  In the case of debt junk buyers, they lose out on their investment if they are unsuccessful in recovering money to cover the purchase.  Individual employees within these companies might also be given an incentive to collect on the debt as many of them are paid a commission for what they collect.
Money is a strong motivator in all sorts of facets of life, so when a debt collection company’s livelihood hinges on getting you to pay your debt, they are understandably not going to fold just because you told them that you’re broke.  They are going to harass and badger you until they’re sure that you really don’t have any money, and then they’re going to keep at it.
In the process of explaining the influence of money, I’ve also covered a great many reasons why these tactics work.  They are harassing.  People will break open piggy banks to scrounge up some money to make a payment to debt collectors, if it means their telephone will stop ringing off the hook.  People will take loans out on their 401(k) or look to a home equity loan if it means that they won’t be outed as delinquents.  There is incredible social stigma against defaulting on your debt – with many of our parents instilling this notion in our heads that if we incur a debt, we have a responsibility to pay it.
The Consequences
A surprisingly small percentage of people who are unable to keep up on their bills ever resort to bankruptcy.  The majority of people who are suffering from harassing debt collectors will eventually cave in.  They’ll find the money, somewhere.  Many of them will (please forgive the cliché) rob Peter to pay Paul.
This is unfortunate, because in many cases where someone is struggling to pay debt, they are already past the point where they are capable of ever paying back their debt.  But they will spend several months or even years funneling money from one place to another, trying to keep up on bills, before reaching the inevitable conclusion that they must file bankruptcy.  By then, they’ve squandered thousands of dollars on debt that could have been discharged if they had sought professional advice sooner.
The Solution
Although bankruptcy is seen by many as a choice of last resort, if you are struggling with debt, you should at least consider consulting with an experienced bankruptcy attorney to determine what your rights and options are before you end up throwing more good money after bad.
People file for bankruptcy – ultimately – for the benefit of a discharge.  Meaning that debts get wiped out, and these debt collection agencies can never again call you to try to collect on them.
But even before you get your discharge, there are benefits.  For example, once your bankruptcy case is filed, most debtors receive the benefit of an automatic stay – a temporary injunction that prohibits your creditors and debt collectors from certain collection actions (including harassing phone calls, collection letters, lawsuits, wage garnishments, bank levies, utility shut-offs, repossessions, and foreclosures) while the bankruptcy court sorts through your petition and schedules to determine that bankruptcy relief is appropriate and justified.  In most cases, the automatic stay continues uninterrupted until you receive your discharge, offering a seamless transition and offering protection against most collection efforts from the moment your case is filed.
Even before you file for bankruptcy, the mere act of retaining an attorney can provide certain benefits.  Under the FDCPA, third party collection agencies cannot continue to call and harass you.  Although other legal remedies may still be available to them before your bankruptcy case is filed, most debt collection agencies will back off entirely because it may no longer be worth it to them to pursue you for the debt.
For example, a collection agency could file a lawsuit against you before you file for bankruptcy.  But, for all they know, you will file your bankruptcy case the day after they file a lawsuit in court.  In that case, they’ve wasted time and money, court filing fees and likely attorney fees, on a lawsuit that isn’t going to go anywhere.  (Bankruptcy prevents collection lawsuits from being filed and terminates any that are already in progress.)
For the same reason, original creditors (who are not covered by the FDCPA) are also likely to leave you alone once they confirm that you have retained an attorney to file for bankruptcy.
If paying back your debt is still very important to you, there are other options that we can help you with, including Chapter 13, Chapter 128, and budget counseling.