Kentucky Bankruptcy Law

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Post-Holiday Pitfalls for Bankruptcy part 3

Following Christmas comes the tax filing season. The reason this carries special significance in the post-holiday season because for many people, it creates an asset that needs to be taken into account on your schedules (lists of certain kinds of items like assets). The asset to be considered is the tax refund from state and federal governments that may be expected in January through May. A Chapter 7 filed in December will likely still be open in May and one filed in January or later certainly will remain open that long. Therefore, the refunds need to be listed and, if possible, exempted.

If your state allows the use of Federal exemptions, as Kentucky does, then the exemption used to cover the tax refunds would be the “wild card” exemption covered in 11 USC Sect. 522(d)(5). The amounts listed in that provision are adjusted for inflation and so the wild card exemption can be over $11,975.  For most people, there is sufficient 522(d)(5) exemption to cover a few thousand dollars in tax refund dollars.

The key is for your bankruptcy attorney to know the upper limit of what you might realize for tax refunds and exempt as much of that as possible. They must list it as an asset on the schedule of personal property even if it is uncertain as to the amount and then exempt it. This will allow you, the debtor, to keep those funds so long as the trustee does not object to the exemptions claimed.

The treatment of tax refunds needs to be the same in Chapter 13 cases, but if they are particularly large, the trustee in the Chapter 13 may expect the Debtor to change their withholding and pay more into the bankruptcy plan.

If you forgot to tell your attorney (or they forgot to ask) about a tax refund your expect and you have already filed the petition and schedules, it is not too late. Federal Rules of Bankruptcy Procedure Rule 1009 provides for liberal amending of the petition and schedules, so be sure to tell your attorney as soon as you realize the omission.

January 7, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Exemptions, Plan, Property (exempt, The estate | , , , , , , , , , , | Leave a comment

“Do you know how fast you were going?”

Long title, and I know it does not seem to have a thing to do with bankruptcy, but bear with me. Oh, and no I have not been pulled over lately, but in the past I have seen those flashing blue and red lights in my rear view mirror a time or two. It always perplexed me as to why the first thing the officer would ask was, “Do you know how fast you were going?” Now, after tens of thousands of dollars in student loans, I believe I have the answer.

There is a rule of evidence that allows statements a party to a criminal or civil proceeding made outside of the courtroom to come into evidence. Ordinarily such statements are “hearsay” and are not admissible. However, an “admission” by a party opponent can come in as evidence because the rule makers figured there is enough reliability to them, with the alleged maker of the statement right there to rebut the “admission”, to allow such statements in.  So, when you answer the police officer, you are making an “admission” which is an exception to the rule against hearsay as evidence.

If you say, “Why yes I do know. I was going pretty near the speed of light and it was merely fortuitous that your red and blue lights even caught up to me.” That is an admission of guilt.  If you say, as most people do, “No sir, I really haven’t the foggiest idea how fast I was going. I just lay the hammer down, bro.”  Well, that too is an admission. You are admitting that you cannot refute whatever speed they say you were going. On the outside chance that you are so bored as to ask for a trial over the speeding ticket, you will not be able to testify that you actually do know how fast your were going without the police officer damaging your credibility by repeating your admission that, “I don’t know.”

The only helpful answer to this question would be if you actually did know how fast you were going and it actually was within the speed limit. The convergence of these two events at one point in time is exceedingly rare, and the police know it. I suppose you could try to be smart and say, “Well, since the earth rotates west to east at 1,000 miles per hour (adjust for your latitude of course) and I was driving east to west at 35 miles per hour, then I was actually going 965 miles per hour backwards.” But, I doubt it will win you any prizes.

So, what does this have to do with bankruptcy. Well, at the meeting of creditors you are going to be asked questions under oath. Your answer to these questions are admissions. Not only are they admissions, they are sworn statements so you cannot even rebut them the way you would a non-sworn admission. Because of this, it is best to be honest or, like your admission of “I don’t know” to the speeding question, it could be used against you.

One basic question that some trustees ask is “Why did you file bankruptcy?” This seems as innocuous as the police officer asking, “Do you know how fast your were going?” Do not be fooled; neither one is trying to make polite small talk with you. This question is designed to elicit information that you may not have thought to tell your attorney. For example, if you filed bankruptcy because you went out on a manic spending spree buying a bunch of luxury goods and services, the meeting of creditors is not the best time to divulge that information. If you were injured due to the negligence of another driver or perhaps a physician made an error that left you out of work for a long time, those are causes of actions for lawsuits and the trustee now has them as assets of the estate (unless you can exempt them).

However, if your honest answer to the question of why you filed bankruptcy was that you were laid off, bills just started piling up, or even that you were not as careful as you should have been with spending, well those answers would not cause the trustee any consternation. Be sure to discuss the why of filing bankruptcy with your attorney so they can help figure out any of these potential trouble areas in advance and plan for them.

June 18, 2012 Posted by | Bankruptcy, The estate | , , , , , , , , , , | Leave a comment

Where Science Fiction and Bankruptcy Meet: The time traveling statute

When one files a bankruptcy, an estate is created. Essentially, everything the person filing (the debtor) owns goes into that estate so that at that moment, the moment of filing, they owe nothing and they own nothing. Now, certain debts cannot be discharged in a bankruptcy so it is not entirely accurate to say the debtor “owes nothing”. And, in fact, the discharge does not happen until the end of the process. Also, it is not entirely accurate to say one “owns nothing”.

It is true that an estate (basically a legal fiction – something that only exists as a matter of law) is created and nearly all the debtor’s possessions go into it. However, there are exemptions available (either state law exemptions or federal exemptions depending on your state of residences and some timing issues if you’ve moved – see this site for details by Attorney Max Garner). These exemptions allow you to retain property through the bankruptcy process.

This post is actually about an oddity in the law where there are certain assets that the debtor actually does not possess at the moment of filing that, nevertheless, become part of the estate. This provision is like legal time travel and causes an asset that was non-existent at filing to be sucked back into the bankruptcy as if it did exist. I am talking about 11 U.S.C. 541(a)(5). There are three assets that time travel from the future back to the filing date of the bankruptcy: 1) an inheritance, 2) assets from a property settlement subject to a divorce action, and 3) life insurance proceeds.

There is a limit to the time traveling capabilities of Section 541, and that limit is within 180 days. Some folks may be tempted to skirt around this tricky statute by avoiding actually receiving the asset until 181 days have passed, but the statute has thought of that in advance, as all time travelers should. The provision says “entitled to receive” rather than just receive. So, if your soon to be ex-spouse dies AFTER the settlement agreement is reached in the divorce that has not been finalized AND has not changed his or her life insurance beneficiary designation NOR changed his or her will AND it is only 179 days after you filed your bankruptcy, then you best contact your lawyer. Hopefully, you will have enough exemptions left to cover it all.

Now, you are astute and noticed that I said 181 days is safe and 179 days is not safe, but what if they die exactly on the 180th day? Well, that is where lawyers make their money – arguing over the definition of a single word: “within”. Does “within” include the day it references or refer to the day up until that day. Hmmm, I suppose I should research that.

It is also worth mentioning, because I am certain someone has wondered, “Well what if I just don’t mention the asset I became entitled too within 180 days?” (as if anyone thinks that way). There is a duty created by Federal Rule of Bankruptcy Procedure 1007(1) to update your schedules (where assets and other stuff is reported) if your circumstances change. Failure to do so could have worse results than just losing a few assets.

January 16, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Exemptions, The estate | , , , , , , , , , | Leave a comment