Kentucky Bankruptcy Law

Counsel with Care

Crazy you say? Bigger garnishment may be better

This is absolutely counter-intuitive, I know, but it may actually be better to wait a little bit longer to file a Chapter 7 or a Chapter 13 bankruptcy if your wages are being garnished. This is because of the operation of two different statutes in the bankruptcy code. First, we have to look at 11 USC Sect 522(h) which allows the Debtor to avoid (get back) transferred property if the property could be exempted and if the trustee could have gotten it back. Second, we turn to 11 USC Sect. 547 which says, in a very circuitous way, that any transfer aggregating more than $600.00 to an unsecured creditor in the ninety (90) days prior to filing the bankruptcy can be recovered by the trustee (see 547(b) and 547(c)(8)).

So, if you had only $599.99 garnished from you wages in the ninety (90) days prior to filing your bankruptcy, then you cannot touch that money; you cannot avoid or get back the transfer. But, if you wait just one more pay-check so that the amount garnished is $600.00 or more, then you can go after the money. You need to make sure your attorney knows your pay-checks are being garnished and you must have enough “wild card” exemption (see 11 USC Sect. 522(d)(5)) to cover the amount, but this usually is no problem.

The first step for your attorney is to make sure the amount garnished during those ninety days exceeds $600.00. Then, he or she must list that money as an asset and exempt it. After filing the petition, they should send a demand letter to the creditor and the creditor’s attorney demanding the money be returned. The creditor will want to wait and see if the trustee abandons the property as exempt, and then they will likely offer somewhere around 75% return. The reason is that many districts require an Adversary Proceeding (a lawsuit within the bankruptcy) to be filed in order to recoup the funds. This means litigation costs to you, the Debtor. Then you decide if you want to take the offer or push the matter further.

November 5, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Exemptions, Garnish, garnishment, Planning, Pre-filing planning, Property (exempt, The estate | , , , , , , , , , , | Leave a comment

Bankruptcy and tax returns

The new year also ushers in tax season. Instead of sugar plums we have receipts of deductions dancing in our heads. This season creates some additional concerns pertaining to bankruptcy. If you are trying to file a Chapter 7 and you just squeak in under the means test, pay special attention to your deductions. If you have claimed too few tax decutions on your W-4, then the trustee might object that the presumption of abuse actually does arise (“presumption of abuse” is legalese in the bankruptcy code for “doesn’t qualify” for a Chapter 7). Another related issue is the size of your tax refund. If you have claimed too few deductions then you will likely have a refund coming to you.

Even if you pass the means test regardless of under-deducting, you still need to be mindful of your refund. If you receive your refund prior to filing your petition, it would be wise to spend in on household necessities like groceries or repairs that are long passed due, but which will not substantially increase the value of your home or automobile. If you will not receive the refund until after filing, be sure to ask your attorney to see if there is a “wild card” exemption available that can cover it. Otherwise, you may have to surrender some or all of your refund to the trustee.

In general, it is not good to claim too few deductions. Sure, you and most people enjoy having the refund once a year, but you are essentially making an interest free loan to the government when you under-deduct. Along with that issue, add the concern about the means test and possibly losing your refund in a Chapter 7 and it is just wiser to claim the actual number of deductions availabel to you.

January 11, 2010 Posted by | Bankruptcy | , , , , , , | Leave a comment