Trustee Garcia’s free financial management course has been discontinued.

All bankruptcy debtors must complete two counseling courses – one in credit counseling in order to be eligible to file bankruptcy and a second in financial management in order to be eligible to receive a discharge.

For years, Trustee King (retired) and his successor Trustee Garcia have offered a free financial management course to Chapter 13 debtors who have been assigned to them.  I have not charged my Chapter 13 clients for the financial management course on the assumption that they would enroll in this free course.

However, on account of dropping attendance figured, this free course is being discontinued.  The last course will be held in Oshkosh next month.  Accordingly, those who have not yet completed the second counseling course (or those whose cases aren’t even filed yet) will need to take the course through a different provider.

Trustee Garcia’s Financial Management Course

As a policy, my clients who file for Chapter 13 Bankruptcy are not charged for the second counseling course under the assumption that they will take the free version offered by Trustee Garcia’s office.  This policy has been in place almost as long as the course has been offered (back when Trustee King’s office implemented it) because it is (1) free and (2) better – in my opinion – than the online versions of the course that are available out there.

Due to declining attendance, Trustee Garcia’s office is considering discontinuing the course in the near future.  Although no final decision has been made yet, this is a possible and even likely scenario.  Those of you who have already filed your Chapter 13 bankruptcy case (Chapter 7 debtors are ineligible for the free course) but not yet taken the second counseling course, please do so immediately, before the program is discontinued.

Some 2017 dates have been announced.

Oshkosh location (Chapter 13 office):
Thursday, February 23, 2017             12:00PM – 4:00PM
Wednesday, April 12, 2017                8:00AM – 12 Noon
Monday, June 19, 2017                     12:00PM – 4:00PM
Friday, August 18, 2017                    8:00AM – 12 Noon
Thursday, October 12, 2017              12:00PM – 4:00PM
Monday, December 4, 2017               8:00AM – 12 Noon

Green Bay Location (NWTC):
Friday, January 13, 2017                    8:00AM – 12 Noon CC 145
Monday, March 20, 2017                   12 Noon – 4:00PM CC 145

Wait – which one is my Trustee?

I suppose this was inevitable, but I’m surprised it took this long for questions like this to surface.  This post has a very limited audience.  It applies only to the Chapter 13 cases filed in the Eastern District of Wisconsin who are assigned to Trustee Rebecca R. Garcia.  There are two Rebeccas in the Chapter 13 Trustee’s office, and that has caused a tiny bit of confusion.
Rebecca R. Garcia is the Chapter 13 Trustee.  She took over last December when Thomas J. King retired.
Rebecca Quiroz is one of two staff attorneys (the other being Jennifer Marchniowski) who work for Trustee Garcia.  The confusion may arise because both staff attorneys regularly conduct the § 341 hearings and conduct the financial management courses.
Rebecca Garcia and Rebecca Quiroz are not the same person.  Plan payments should be made out to “Rebecca R. Garcia, Chapter 13 Trustee”.

Cases of Note: Harris v. Vieglahn

Last week, the U.S. Supreme Court handed down a decision in Harris v. Viegelahn.

Question: Whether funds held by the Trustee at the time of conversion from Chapter 13 to Chapter 7 were to be returned to the Debtor or, alternatively, distributed to creditors.

Held: Funds go back to the Debtor.

You can read the full decision here and listen to oral arguments here.

By convention, most trustees make disbursements on a monthly basis.  As a result, between the time the Trustee receives payments from the Debtor and when the Trustee makes disbursements to creditors, there are funds held by the Trustee.
In this particular case, the majority of funds were to go to Chase Bank to cure arrears on a defaulted mortgage.  At some point in the Plan, the debtor defaulted again with Chase Bank, which sought and was awarded relief from stay to proceed with foreclosure.  Under the terms of the Plan (and statutory law), funds received after secured claims were satisfied were then to go to unsecured creditors.  Rather than immediately pay unsecured creditors, the Trustee held funds for a few months while the Debtor attempted a loan modification with Chase outside of the bankruptcy process.  That loan modification ultimately failed and the Debtor then converted his case to Chapter 7, as his purpose for filing Chapter 13 had been defeated.  At the time of conversion, the Trustee had accumulated roughly three months’ worth of wages and subsequently made a disbursement to unsecured creditors.
Much of the debate centered around three questions: what was property of the bankruptcy estate in Chapter 13 vs property of the bankruptcy estate in Chapter 7, whether the Trustee had any continued duty to make disbursements upon conversion, and whether the right to the funds vested in the creditors upon receipt of funds.
The justices lamented the fact that the statutes provided no clear guidance.  At one point, Justice Scalia wondered why Congress would “adopt a rule that depends so much on happenstance?”  In other words, why should this question hinge on whether the Trustee makes disbursements at the end of each day or holds funds for several months?

(To which I respond – Congress doesn’t think these things out.  It boggles my mind that we continue to endow Congress with an intelligence and thoughtfulness that it simply does not have.  And as we continue to elect officials who campaign on being the “common man” and bash the “ivy elites” the problem of poorly-written laws will continue to get worse.)

Another point made was that the Chapter 13 Trustee’s duties do not terminate completely upon conversion.  No one argued that the Chapter 13 Trustee ought to keep the money.  No matter what – a check was going to have to be written – a duty of disbursement had to be fulfilled.  The question was whose name goes on the check – the debtor or the creditors?
Ultimately the Court chose to have funds returned to the Debtor.
One thing that bothered me about oral arguments was the discussion re: Congress’ intent to encourage people to try Chapter 13 instead of Chapter 7, and that if they adopted a rule that funds are to be distributed to creditors, that such an action would “punish debtors” and make them more likely to proceed under Chapter 7 initially.
This argument is specious and it only fosters a commonly held misconception that Chapter 13 is something that needs to be incentivized, because it’s not as good for the Debtor.  On the contrary – Chapter 13 confers benefits upon Debtors that Chapter 7 does not.  For many people, Chapter 13 saves more money in the long run.  Yes, there is a monthly payment to the Trustee in Chapter 13 whereas there is not a monthly payment to a Chapter 7 Trustee.  However, even Chapter 7 Debtors may have monthly payments after they file bankruptcy – but instead of a Trustee, those payments are made to their mortgage lenders, auto lien holders, and student loan creditors (to name the most common post-filing payments).  In Chapter 13, there are powers we have that may make those payments cheaper.
Is Chapter 13 better for everyone?  Of course not.
But it’s better for more people than most people realize.  Read here for more information.

Misconceptions of Authority – the Judge and the Trustee

In recent weeks, I’ve gotten a number of e-mails from Chapter 13 clients — commonly concerning their plan payments or payments of tax refunds, that they’re going to be a little (or a lot) late.  They worry that the Trustee is going to dismiss their case.
On the one hand, it is wise to be concerned about dismissal due to late or missing payments because yes – of course that can happen.
But the Trustee isn’t the one who makes that call.  The Trustee has no authority to dismiss your bankruptcy case.  That’s the judge’s job.
Most people who file for bankruptcy – whether Chapter 13 or Chapter 7 – will never meet the bankruptcy judge.  Many disputes in bankruptcy are resolved outside of the courtroom.  Of those disputes that do go in front of a judge, many of them only require the presence of the attorneys.  If you are ever required to appear before the judge, it sometimes (but not always) means that something has gone horribly wrong.
Even though the Trustee is likely to be the only person you meet who even remotely resembles an authority figure in the bankruptcy process, it is important to remember that the Trustee is not a judge.
If your case is going to be dismissed for a default in plan payments, the Trustee files a motion with the court.  A motion is basically a request from one party to have the judge do something.  So, a “Motion to Dismiss” is a trustee’s request that the judge dismiss your case.  The Trustee isn’t dismissing your case, merely asking the judge to dismiss it.  And even then, the judge won’t dismiss your case without giving you an opportunity to argue for why the case should not be dismissed (by filing an “Objection” within a proscribed deadline – typically 21 days.
If no objection is filed before the deadline, the judge will typically grant the moving party’s request.  If an objection is filed, then all sorts of things can happen.  Usually the court will schedule a hearing.  The motion could be withdrawn (if, after reviewing the objection, the moving party believes their motion is no longer appropriate).  The motion could be withdrawn if both parties – outside of the courtroom – stipulate to resolution.  If there is no resolution, then a preliminary hearing is usually held and in many cases, a decision is made.  If the judge wants further evidence or testimony, the judge may schedule an evidentiary hearing, and that’s when your appearance may be required.
So, that’s how motions work.  The point?  The trustee is not the judge.  The trustee cannot dismiss your case.  If the trustee wants your case dismissed, notice will be given and you will have a short period of time to respond to the trustee’s motion and argue to keep your case open.

Tax Return Reminder

This is a reminder for all people who are in a pending Chapter 13 Bankruptcy case…
All debtors must submit a copy of their 2014 federal and state income tax returns to the Chapter 13 Trustee REGARDLESS of whether you are required to submit any portion of your tax refund.  (If you are not sure whether you are required to submit part of your tax refund, contact my office to confirm.)
My clients should send a copy of their tax return to my office prior to April 16, (or an explanation for the delay) so that my office has a record of the tax return submission.  I will then relay your tax return to the trustee’s office.

Trustee Retirement

Chapter 13 debtors here in northeast Wisconsin should be aware that Thomas J. King, the standing Chapter 13 Trustee here, is due to retire in November.
On a personal note, I wish to express my profound sadness that he is retiring.  He has been a mentor and taught me a great deal ever since I began my practice.
At this time, Tom’s replacement has yet to be announced.  Although we expect minimal disruption to pending cases, I do not know if the new trustee will continue to offer the free financial management course that Tom’s office is currently offering.  Pending Chapter 13 clients should try to arrange to take that course immediately, or be prepared to pay for one of the online or telephonic courses.

What is the “Bankruptcy Estate”?

Last week, I had a client who had just recently filed for bankruptcy under Chapter 7.  Her intention was to reaffirm on her mortgage so that she could retain her home.  When she contacted her creditor to make arrangements for the reaffirmation agreement, she heard an automated message that sent her into a panic.
She called my office to ask me what they meant.  I set-up a conference call with the number she had called so we could both listen to the message together.  The number turned out to be a special number that people who had filed bankruptcy were supposed to call, and the automated message warned the callers that all of the client’s assets were part of the bankruptcy estate.
Technically, there was nothing inaccurate about the automated message.  When a debtor files for bankruptcy, all of their assets do indeed become part of the bankruptcy estate.  The problem was how the message was worded, and the fact that the message made any reference to the bankruptcy estate at all.  The message was worded in such a way (and in retrospect, I think it was done so intentionally) to prey on the relative naiveté of a typical debtor in bankruptcy and cause unnecessary panic.
First of all, most people filing for bankruptcy struggle with making distinctions between assets and debts, and  understanding the difference between disclosing a debt and having a debt discharged.  In fact, most people refer to it as “including or not including” debts, and they think that including a debt is synonymous with disclosure and discharge, when in fact, it is not.
So, as a result of that common misconception mixed with the cryptic automated message, my client believed that her mortgage lender was telling her that she had forfeited her home in the bankruptcy.  She hadn’t, of course.  But that brings us to today’s topic.  What is the “bankruptcy estate”?
The bankruptcy estate is one of those concepts that most people remain oblivious to because – in 99% of cases – its effects are not readily observable.  It’s a sort of behind-the-scenes concept, but one that plays a very crucial role in bankruptcy.
When a bankruptcy case is filed, all assets of the debtor (including real estate, motor vehicles, personal property, financial accounts, and legal ownership interests of all other kinds) become property of the bankruptcy estate (with a few exceptions).  This is laid out at 11 U.S.C. § 541.
The reason most debtors are unaware of this is because there is very rarely any manifestation of this transfer.  Debtors retain physical possession of all of their assets, including the ability to use and dispose of said assets (although technically, because of the bankruptcy estate, they are not supposed to dispose of assets – this is really only relevant when it comes to larger assets).
The bankruptcy estate is analogous to a probate estate, which is the legal entity or “thing” that owns the stuff of a dead person until the probate process runs its course and the assets of the decedent have been passed on to his/her heirs.
In fact, the existence of the bankruptcy estate is one of the key components necessary to making the automatic stay function at all.  One of the reasons that your creditors cannot garnish wages and repossess vehicles or foreclose property while a bankruptcy case is pending is because – technically – the assets are not yours, but instead they belong to the bankruptcy estate.  And there they will remain while the case is pending, which allows the trustee and the court to review your finances without the interruption of creditors going after assets.
The existence of the estate is also a necessary component to allow the trustee to liquidate assets that may be non-exempt.
In most cases, assets are never seized by the trustee, and so the client remains blissfully unaware that although they retain possession and use of their stuff, that their stuff is technically not theirs.
But fear not!  Like a probate estate, a bankruptcy estate is not permanent.  After the case is no longer pending, the bankruptcy estate is dissolved and ownership interests revest back upon the original owner (you).  Again, it’s very unceremonious, and chances are you’ll never notice that anything actually happened.  In Chapter 7 cases, the revestment typically happens at the same time you receive your discharge.  In Chapter 13, it can happen either at discharge or at confirmation of the plan (and there are strategic reasons to choose one over the other, in terms of legal protections).

Chapter 7 Exemption Planning & Strategizing

Before I begin this blog post, I just want to assure you that asset cases (what is described below) are relatively rare in the State of Wisconsin due to fairly generous exemption options.  Just based on informal observation, I’d estimate that fewer than 5% of cases have non-exempt assets that could be administered by a trustee, and fewer still are actually administered.  I say this now so as to not induce panic.  Filing for bankruptcy does NOT necessarily mean that you will lose property.  It is certainly possible, but an experienced attorney can estimate with a reasonable degree of certainty whether your case might have an exemption issue during a free initial consult, before you’ve invested a single dime into bankruptcy.  And worst case scenario, you can always file under Chapter 13 and avoid losing assets altogether.  This article below applies to only a very small number of cases.
So, you’re getting ready to file Chapter 7 Bankruptcy.  You’re at your attorney’s office, and he’s punching his keyboard furiously – polishing off the last of the exemption math.  Then he turns to you and says, “You have $10,000″ in non-exempt equity.”
Perhaps you knew this was coming.  Perhaps this news came out of the blue.  Either way, you have non-exempt assets.  So what does this mean?
Well, if we’re going to get technical and grim about it, it means that you either have to cough up $10,000 to give to the Chapter 7 Trustee, or you have to be prepared to lose whatever asset(s) are exposed.
In reality, you’re not in nearly as much trouble as it looks like on paper.  Over the years, I have filed dozens of what appeared – on paper – to be an “asset case” – sometimes with thousands or even tens of thousands of dollars in non-exempt equity.  And in many cases, the trustee still filed an asset report.  Here are just some of the factors weighing on the trustee’s mind when he decides to pursue or abandon a non-exempt asset…
  1. How much is the trustee going to get paid?  The trustee retains a percentage of the assets he recovers for the work he must perform in distributing the assets.  If the only thing he can go after is $100, the costs of administration will far outweigh the mere pittance he will recover.
  2. How much are the creditors going to get paid?  $10,000 is a lot of money if the unsecured claims are only expected to be $25,000.  Even after administrative costs, creditors would still likely get paid over 33% of what is owed them.  But if you owe $200,000, the percentage is a lot less (less than 5%).
  3. How easy will it be to liquidate?  Is the trustee seizing money in a bank account?  If so, that is easy to convert and use to pay creditors.  But what if the exposed money is in household furniture and appliances?  Even if the trustee realized the full market value that you estimated your stuff to be worth, he still has to go through the process of selling the stuff, and that costs money.  And the likelihood of him selling your stuff for even a fraction of what you think it’s worth is still pretty low.
  4. Is the asset contingent?  Sec. 541 of the bankruptcy code describes “property of the estate” and includes contingent assets – or assets that you are entitled to possess, but do not yet possess.  There are tons of contingent assets.  Rights to tax refunds are the most common.  Unresolved lawsuits, inheritances, and residual income are all examples of possible contingent assets (depending on the specific circumstances).  Okay, so you have a lawsuit pending against someone else for $5,000.  Does that mean the trustee wants to hold open your case for months or years, waiting for it to resolve?  Sometimes he will, but often times, he won’t bother.

It is important to note that all of the above are pragmatic considerations for the Trustee.  That doesn’t mean that you will always get off the hook.  The trustees are also under considerable pressure from the U.S. Trustee to pursue worthwhile assets, and of course, they have a fiduciary duty to unsecured creditors.
Trustees are also human beings.  Understand that sometimes, the trustee’s decision to pursue or abandon an asset could be influenced by what kind of a day he is having and what kind of mood he is in.  For example, if he just landed a million dollar asset case earlier in the day, he probably doesn’t care too much about your thousand dollar case.  On the other hand, if you (believing that the trustee is going to screw you over and take things from you) treat the trustee with hostility and contempt – he might just exercise his full rights just to be vindictive.  Fortunately, trustees in our district are pretty good people and easy to get along with.
Younger trustees tend to scrutinize cases more to look for assets.  With age and experience, apathy tends to follow.  They know an asset case when they see one, and they don’t bother with the tiny cases.
So, what are some strategies you can use to retain as many of your assets as you can?
  1. Don’t try to hide any assets.  Anything not disclosed, if discovered later, cannot be taken as exempt – even if you had plenty of exemption to use.  And trustees WILL go after non-exempt assets, if for no other reason than to make an example of you and deter other people from lying to the bankruptcy court.  Learn from the mistakes of others.
  2. Believe it or not, I have learned that it’s actually better to over-estimate the value of your assets.  Trustees can usually tell if you’ve perhaps been a little too generous about their personal belongings.  They can also tell if you’re short-changing your schedules.  If they believe that is the case, they will scrutinize your schedules moreso, and perhaps hire their own appraiser.  If you thought you had problems with $1k in non-exempt equity, wait until the trustee gets real values and finds out that you actually have $10k exposed.  (It’s worth dispelling a common myth at this point.  Trustees do not actually come out to your home to look at your stuff.  But they can, and they will, if they have good reason to believe you have not been truthful on your schedules.)
  3. Check your exemption options.  For example, Wisconsin residents who have resided in Wisconsin for at least two years may choose between federal exemptions and Wisconsin state exemptions.  Each set has its own benefits and drawbacks, so debtors may select whichever set is most beneficial to them (though they may not mix-and-match).  Which exemptions you are entitled to depends on which state you currently reside in, and which state you have resided in during the past 730 days.  (We’ll discuss residency requirements and exemptions a different day.)
  4. You will have access to a variety of exemptions, which can only be applied toward certain types of property, and most of which have dollar limits to them.  To the extent the exemptions allow you to do so, leave exposed things that are hard for the trustee to sell, like furniture and appliances.  Cover up cash and cash-like items (aka liquid assets, such as bank accounts, whole life insurance policies, retirement accounts, tax refunds, stocks, and bonds).  Then cover up real estate and motor vehicles – yes, the trustee has to sell them, but they’re easier to sell.  Whatever is left – that is what you want to leave exposed.
  5. If there are assets secured by liens that you intend to surrender back to the bank, leave those items exposed, too.  The trustee can try to intervene in a repossession or foreclosure action if he chooses to.  But since you’re already resigned to losing the property, it’s no skin off your nose.  If you have a piece-of-junk snowmobile sitting in your backyard collecting rust that you could care less about – don’t waste exemptions on it if they can be better utilized elsewhere.
  6. Expose contingent assets.  These are things you don’t have yet, and it’s harder to miss things that you never had possession of in the first place.
  7. If the trustee is not willing to abandon assets completely, he is still likely going to be open to a settlement – particularly if you have left exposed contingent or hard-to-sell assets.  He doesn’t want to go through the hassle of administration, or leave a case open for months or years to collect a contingent asset.  He would much rather get a cash payment from you, in exchange for which, he will settle for less than what is exposed.  So, for example, let’s say you have $5k exposed in a car.  The trustee may settle for $3k and you get to keep the car.  Now, this isn’t Chapter 13, so you would be able to stretch payments out for 3-5 years.  In Chapter 7, if the trustee settles, he is going to expect payment pretty promptly.  Sometimes he may give you a month.  Sometimes 3-4 months.  The longest I’ve ever seen a payment plan for was 12 months, and that was for an extremely large asset (as I recall, $60-70k).

Government Shut-Down & Effect on Bankruptcy

Now that the federal government shut-down is a reality, I wanted to address some common questions people might have about the government shut-down.  This is an elaboration of my previous post.
First, everyone should bear in mind that this is a federal government shutdown.  Services provided for by state and local governments should remain unaffected, except to the extent they rely on federal money or resources.  Also, the entire government does not shut down.  “Essential personnel” are retained to continue operating certain critical aspects of the federal government, though they do so without pay until Congress provides funding.
We are told that the judiciary has funds to continue operating for approximately 10 business days (until about 10/15/2013) without any noticeable effect on services.  This is the first government shutdown in about 18 years, so specific details are not yet known.  If the shutdown continues for long, I will continue to post updates as we learn of them.
Q:  Can I still file for bankruptcy?
A:  Yes.  Bankruptcy filings are done electronically through an automated online system.  Unless and until we are told otherwise, there should be no interruption here.  What I am not certain of is whether the technical staff will be retained as essential personnel beyond 10/15/2013.  The electronic case filing system could go down (as computer systems are prone to do from time to time).  Also, the queues for the 341 calendars have to be entered manually.  If that service is suspended, then to comply with the scheduling rules, filings could potentially be blocked.
Q:  I already filed for bankruptcy.  Will my 341 hearing be canceled or rescheduled?
A:  We expect the 341 hearings to continue without interruption for the next 10 days.  During these 10 days, hearings held in non-government locations, or state/local government locations should certainly not be affected.  Therefore, hearings at Green Bay City Hall, the Green Bay State Office Building, Sheboygan County Courthouse, Winnebago County Courthouse, and Wittman Airport – should not be affected.  Hearings in federal buildings (such as the U.S. Courthouse in Milwaukee) could be relocated.  Beyond the 10 days, we are less certain.  Panel trustees are not government workers, but private individuals.  We believe hearings will continue, but the message we received from the U.S. Trustee has cast some doubt over that.
Q:  Will judges continue to hold hearings?
A:  Judges’ pay is guaranteed by the Constitution, so they will continue to work.  However, their staff can only be retained to tend to essential work, and the staff won’t be paid until the shutdown ends.  We expect that currently scheduled hearings will continue uninterrupted.  It is unclear how judicial services will be affected going forward, beyond 10/15/2013.  We expect there to be certain scheduling delays.
After October 15, 2013, we certainly do expect non-essential services to be cut-off – particularly anything that requires entry into a federal building.  The judges and UST are expected to be reduced to a skeleton staff.
Q:  How will the economy be affected by the government shutdown?
A:  The shutdowns in 1995-1996 (a total of 26 days) cost approximately $1.5 billion to the government, which is about $2 billion in today’s dollars.  Current estimates are that this shutdown will cost $300 million per day – so this shutdown is shaking out to be about 5x more expensive per day.  The actual cost will, of course, depend on how long the shutdown lasts.  As for the rest of the economy, there will be an impact.  Government contracts and spending with private corporations does account for a substantial portion of our economy.  Decreased spending will have a ripple effect.  Potentially, businesses that rely heavily on government work could be forced to lay off their employees, which would decrease consumer spending and ultimately affect other industries, as well.  Also bear in mind that there are some 800,000 federal employees now not working and not getting paid.  Though they will get paid after the shutdown ends, they are in the meantime, effectively unemployed, so there will be some immediate effects on consumer spending.  This will all stifle economic growth.  Source: Bloomberg.