ACC/NCR & LSNV

Pro Bono ClinicBankruptcy Assessments

Training Agenda

Big Picture

Chapter 7 Bankruptcy

Income

Assets

Debts

Assessment for Chapter 7 Bankruptcy

Bankruptcy Advice for Candidates

Advice for Non-Candidates

The Big PictureWho is LSNV, why we need your help, and the purpose

of this clinic

What is LSNV?

Legal Services of Northern Virginia (LSNV)

Non-profit public interest law firm

Mission: to promote justice by providing free,

high-quality legal advocacy and information for

elderly, disabled, and low-income individuals

and families who face the loss of a

critical need, such as personal safety,

income, housing, medical benefits, education,

or family stability.

The Justice Gap

Justice Gap – Nationwide, the essential legal needs of the low income populations are not being met

Turn away 50% of applicants due to lack of resources

Less than 1 in 5 legal problems are addressed

1 legal aid attorney per 6,415 low-income people.

(compare -1 private attorney per 429 individuals above LSC poverty threshold)

150,000 people in Northern Virginia qualify for legal aid. So despite LSNV helping thousands of people each year LSNV cannot meet the legal need of our eligible clients alone

How does this Clinic Fit in?

Bankruptcy Justice Gap – VA Legal Aids Identify Bankruptcy

as 3rd highest unmet need

Why?

Supply & Demand

Clinic Fix -> Expand resources by allowing us to

meet with more clients faster

Client mistaken self-diagnosis

Clinic Fix-> Identify true bankruptcy clients and

redirect for help with other consumer issues

Note – we are being paternalistic. Some of the pre-condition are

our LSNV criteria but not a legal bar to filing. Insistent applicants

can always hire a private attorney.

What Bankruptcy Can & Can’t DoCounterintuitive at first glance - Bankruptcy will help someone who is back on their feet, whose debt has peaked and who is ready for a fresh start. Has the debt peaked?

- Bankruptcy – Chapter 7 Debt Liquidation it will

Provide immediate relief from creditors – Automatic Stay

Wipe out some obligations

Give someone a fresh start

- Bankruptcy Cannot

X Correct money management problems

X Correct financial problems created by insufficient income

X Force a loan modification (Chapter 7)

X discharge all types of debts i.e. taxes, student loans, child support, criminal fines

X discharge co-signers

X discharge post-petition debts

- Bankruptcy is:

• Time-consuming

• Expensive - $389 to file

• Matter of public record

• Takes at least 2 years to fix your credit

The Bankruptcy World

8

1. Debtor’s

income/assets

and debts go into

the case upon

filing

2. Property claimed as

exempt and non-

dischargeable debts

come out of the

bankruptcy

Secured Collateral

Non-Exempt Income/Assets

Dischargeable Debts

How will you Assess?

Step 1 - VA Attorney or VA Corporate Counsel + Paralegal

Step 2 - Interview Client

Step 3 - Checklist Income, Assets, Expenses, Debts

Step 4 - Make Assessment

Step 5 - Discuss with LSNV Staff

Step 6 - Make Recommendation & Give Advice

Step 7 - Fill out Closing Reports -> In Detail

Clinic

Diagnosis

Applicant

Chapter 7

Bankruptcy

Eligible

Not

Bankruptcy

Eligible

Chapter 7

Bankruptcy

Advice &

Referral

Consumer

Advice &

Referral

Advice

No

Referral

Handouts

- Budget/living expenses checklist

- Garnishment table

Breaks down the amount of disposable earnings that can be garnished from each paycheck (from 0-25 %)

- NCLC debt collection brochure

Handout for clients with general information containing a sample cease and desist letter

- Credit counseling information

List of local agencies

- Closing Report

ClientsWhat they’ve been told

Bankruptcy Assessment Apt. – not guaranteed a bankruptcy

Be aware of Financial Situations – budget, assets, debts, etc.

But because of obstacles client expectations may be different

Possible Obstacles

Indigent – Max 200% Poverty Level

Physical or Mental Impairment

Immigrants may need Interpreter

May be in Trauma, Stressed and/or in Crisis

Various levels of sophistication and education

What to Expect

They are not going to want to hear no, but it is important to not give false hope and the run around.

Inspiring full disclosure – FBI investigates bankruptcy crimes

Chapter 7

BankruptcyLegal Services of Northern Virginia

What is a Chapter 7

Debt Liquidation Plan – discharges most debt of the

petitioner due to inability to pay like unsecured loans

/credit cards, medical bills, most damages awarded in

a lawsuit

Who Can File - Any individual who lives in the US or has

property or business in the US can file a chapter 7

bankruptcy

US citizenship not required - normally does not impact a

pending immigration case. However, consumers with

pending immigration matters should consult immigration

attorney first

Must be married to file jointly

Quick Note on Chapter 13:

Wage Earner Plan

Debtor has significant disposable income or

equity in assets

Allows consumer to reorganize debt and get on a

payment plan

Consumer repays most or all of the debt through

a payment schedule that is individually tailored

Rights of creditors can be modified

Most plans last between 3-5 years

Income What is Exempt and subject to collection?

Monthly Income

By Source

a) Wages

b) Public Assistance

c) Social Security

d) Other

Total Monthly Income

Exempt Income:

Public Benefits & Others

Social Security – Retirement &

Disability

SSI

Unemployment compensation

Workers compensation

TANF

Veteran benefits

ERISA

Income: Wage Garnishment

Is the income vulnerable to a garnishment?

Writ and Garnishment Summons

Garnishee = EMPLOYER

Order to withhold wages

Hold up to 25% of disposable income that is income after mandatory deductions (i.e. taxes, Social Security but not retirement, health insurance)

Can last up to 6 months

Garnishee Worksheet

AssetsWhat is exempt and what is subject to collection?

Assets

Savings

Checking

Retirement Account (401k, IRA, 403b)

Real Estate Equity

Motor Vehicles Titled in Your Name

Tax Refund

Other (i.e. security deposits, deposits in dormant savings

accounts, pledged goods at pawnbrokers, possible legal claims,

cash value life insurance, pension plans, burial plots, inherited

property )

Total Assets

The Bankruptcy Estate

All property -> Intangible, contingent, & future property

(i.e. anticipated tax refund)

Nothing Stays Out – can’t pick and choose

Debts that family or friends owe you (this is an asset)

In chapter 7 cases, estate does not include property

acquired post-petition, except –

certain types of property acquired within 180 days

after filing:

by bequest or inheritance;

through a spousal property settlement or divorce

decree; or

as a life insurance beneficiary

11 U.S.C. § 541(a)(5)

Petition

Date

Post-

petition

Assets

Pre-

petition

Assets

NOT

included in

dischargeIncluded in discharge

Commonly Missed Assets

Tax refunds (when?)

Alimony or support

arrearages

Security deposits

Deposits in dormant

savings accounts

Anyone that owes you

Money

Personal injury or other

legal claims --any

possible claims, even

though law suit not filed

(risk of judicial

estoppel)

Cash value in whole life

or universal insurance

policies

Exempt Assets/Property -

Tenancy by entirety property interest, is protected from individual debts

Property exempt under Federal non-bankruptcy law (e.g. Social Security benefits)

Most retirement funds can’t be touched by Chapter 7

IRAs, Roth IRA, etc. – exempt to a limit (that limit is way more than our clients will have)

401k, 403(b), 457(b) cannot be touched

11 U.S.C. §§ 522(b)(3)(B) and (b)(3)(C)

Exempt Assets - Homestead

Exemption

- Must affirmatively file

- $5,000 lifetime exemption in any real or personal property of debtor’s choice

65 or older: $10,000

Certain disabled veterans: additional $10,000

Additional $500 for each dependent

- Separate exemption for spouse

- Note – only tool to protect non t/e property

Exempt Assets - “Poor

Debtor’s” Exemptions

Bible

Wedding/engagement rings

Household furnishings < $5,000 (determined by FMV)

Clothing < $1,000 (determined by FMV)

Medically prescribed health aids

Trade tools < $10,000 (determined by FMV)

Car < $6,000 (determined by FMV)

Pets

Tax Refund by EITC and child credit

-

Calculating Exemptions

Exemptions only apply to equity in the property

Equity: $2,000Car loan balance: $8,000

The Poor Debtors’ Exemption would fully exempt this car

and the remaining could be put toward a debtor’s second

car

Car worth: $10,000

Bank Account Garnishment

Ask if bank account is vulnerable to a garnishment?

Garnishee= BANK

Order to freeze bank account

Up to judgment amount plus court costs and interest

Can last up to 3 months

Can the funds be reclaimed?

Exemptions i.e. social security, disability, child support

Note Homestead Deed

Joint account? Presumption: in proportion to net contributions; 50/50 ownership if married. Can be shown otherwise by clear and convincing evidence/ Notice required to both account holders

DebtsIs the Debt Dischargeable or not in bankruptcy?

Dischargeable Debt (typically)

Credit Card

Medical Debt

Store Credit Cards (Best Buy, Macy's, etc.)

Rent from Prior Landlord

Deficiencies (Automobile Loans, Mortgages, etc.)

Personal Loans

Other (co-signed loans, rent to own contract damages, payday

loans, utility bills, loans on retirement funds, campground and

timeshare contracts)

Other

public benefit overpayments

Possible non-dischargeable debt? Yes No

Tax Debt

Student Loan Debt

Outstanding Support Obligations

Court Fines (parking tickets, traffic fines, criminal restitution)

Secured Loans Yes No

Car

Mortgage

Computer/Entertainment

Other

Is client current

If not, is client willing to surrender collateral?

Whose Debt? Applicants and

Special Case of Necessaries

Doctrine Common law rule – spouse liable for the other spouse’s

necessary debts (usually medical)

Parents may be liable for children’s necessary debts (usually medical)

Doctrine is ratified by statute for spouses

Limits - Spouses permanently living separate and apart

Chapter 7 Typically Non-

Dischargeable Debts

- Alimony

- Child support

- Taxes

- Student loans

- Secured loans if collateral is retained

- DWI/DUI

- Debts obtained by fraud

Unsecured Debt

Unsecured – an obligation based on a promise to pay, or a statutory and/or other legal obligation. Normally must take you to court in order to collect on the debt obligation. Typically dischargeable

Credit cards

Doctors bills

Deficiencies from secured loans – car, mortgage, etc.

Personal loans – including family members – can’t prefer creditors

Law suit damages

Utility bills

some court judgments

Secured Debt

What is a Secured Debt? borrower has pledged some property that the creditor can take if the borrower does not repay the debt

Department store credit cards – maybe “retain & pay”

Credit union loans - maybe

Car Loans

Mortgage

usually can reclaim the collateral without going to court

Car repossession

Mortgage foreclosure

General rule: secured creditors stay secured

Personal liability is wiped out (no deficiency after foreclosure, i.e.)

Lien survives bankruptcy (unless ordered otherwise)

Secured Debt in a Chapter 7

Options for Collateral

Surrender property and debt discharged

Redeem property if already repossessed

Pay creditor current resale value of property

Must pay entire amount in one payment

Done by motion in bankruptcy court

Debt owed above value of property discharged

Reaffirm debt/sign reaffirmation agreement

As if bankruptcy didn’t happen

Must be in debtor’s best interest/court approval

Secured Debt - Mortgage

If client can afford the mortgage

payments he/she may be able to

retain the home, provided …

Payments are made

Little or no equity

If ample equity in the home

may be required to sell it to pay

your creditors, or

file a Chapter 13 bankruptcy.

AssessmentTo File or Not to File – that is the Question

Reasons to Wait/Not File

Has debt peaked? Will more debt accrue post discharge? Debtor may still incur additional debt, especially if expenses exceed monthly income or client has no health insurance

a debtor may not obtain another chapter 7 discharge for eight years

Debtor Collection Proof - If debtor is unemployed or has only protected income (for example, Social Security benefits and most pensions), there is no rush to file

Tax debts that may become dischargeable

SOL – old debt or defense to single debt

Different state exemptions may apply if debtor has moved recently

Ability to use nonexempt assets prior to filing

Dismissal of one or more prior bankruptcy case(s) within past year (resulting in a limit on the automatic stay)

Gift or transfer of property within past 2 years (or longer, depending on state fraudulent transfer statute)

debtor has within past 90 days: made payments to an unsecured creditor totaling more than $600 that would be preference

debtor has within past 1 year: made payments to insider totaling more than $600 that would be preference

tax refund - it might be better to wait until debtor can receive the money and spend it before filing on ordinary expenses and exempt property

*If you advise client to wait, make sure to explain that the debtor should not incur debts she has no intention to pay – may be declared nondischargeable!

Chapter 7 Candidate

Assessment Ideal Candidate

Monthly Income collectable

Monthly Income = Monthly Expenses plus Monthly payments for non-dischargeable debts?

Debt load peaked

Health Insurance (recommend car insurance!)

Significant dischargeable unsecured debt

Hasn’t had a discharge recently (Chapter 7 within 8 years)

Additional Considerations

Court action pending or facing collections (like a garnishment/repossession/foreclosure)

Debtor does not have nonexempt assets that debtor wants to keep

Debtor is not behind on secured debts that debtor wants to keep

Good Bankruptcy

CandidatesAdvice and Next Steps

Bankruptcy for Everyone?

Initial Bankruptcy Advice

- Bankruptcy alone will not:

X Correct money management problems

X Correct financial problems created by insufficient income

X Repairing credit can take at least two years

- Bankruptcy is:

• Time-consuming

• Expensive - $389 to file

• Matter of public record

- Attendance at a 341 Meeting of Creditors is mandatory for everyone who files

Pre Bankruptcy Credit

Counseling

Debtor must have a “briefing” from an approved, non-profit credit counseling agency within 180 days of filing petition

Agency must determine that a debt management plan not feasible and recommend bankruptcy. Approved counseling agencies are on website for the US Trustee and

most bankruptcy courts: www.usdoj.gov/ust

Chapter 7: Cost

Total Cost: $389

Petition:

$335 – Certain individuals, with income at or below 150% of the federal poverty guidelines, can apply for a waiver.

Additional Administrative Fees:

$21 Homestead Deed

$33 Electronic Data File

Note we can waive our fees but not the court’s

The Automatic Stay

Effective from day of filing

Some Prohibitions

Attempts to collect pre-petition debts

Commencement or continuation of judicial or other

proceedings to collect debts i.e. Garnishment, foreclosure

Efforts to take possession or assume control of property of

the state i.e. car

Utility Service may not be shut off

Note: some exceptions - Criminal actions, child support,

some tax determinations and proceedings, pre-

prepetition final order for possession, repeat filings

within a year

Motion for Relief from Stay

Court may Terminate, Annul, Modify or Condition the Stay

For cause, including lack of adequate protection

Lack of equity and property not necessary for effective reorganization

For example, creditor may file for relief on a defaulted mortgage to foreclose on the home

11 U.S.C. 362(d)

Post Filing Debtor Education

Course

Financial Education Course:

Instructional course concerning

personal financial management

Certificate showing proof of course

completion must be filed within 45 days

after the meeting of the creditors

Solid Start Financial Education Services,

LLC (866) 467-4147

www.cricketdebt.com.

The Timeline- Credit counseling

Certificate from a court approved agency

- File the petition

- All Debts in Order of Priority

- All Assets

- All Exemptions

- All Income

- All Expenses

- Credit Counseling Certificate

- Automatic Stay

- Debtor takes Post Filing Debtor Education Course

- Meeting of creditors (341 meeting)

Approx. 30 days after filing petition

- Debtor education

Certificate from a court approved agency

- Notice of discharge

60 days after meeting of creditors

Beware

Fraudulent Transfers – any transfer w/in the last 2 years

prior to filing

For less than reasonably equivalent value while insolvent

or

With intent to hinder, delay or defraud a creditor

Voidable Preferences

Payments made to a creditor totaling $600 or more w/in

90 days prior to filing, if transfer gives creditor more than

would have gotten

Documents to Start Gathering Credit reports from Equifax, Experian and Transunion (client to bring or give

authorization for you to pull)

Pay stubs (last 60 days before filing will have to be provided to bankruptcy court)

Debtor’s federal tax returns for past 2 years

If client owes back taxes, obtain tax transcripts for each year at issue

Bank statements for past 3 months

Domestic court orders (divorce decree, child support order)

Copy of client’s lease (if client is a tenant)

All bills and collection letters from all debts (including utilities)

Copies of any papers from current or past lawsuits

Prior bankruptcy filings: conduct a PACER search

Student loan info: National Student Loan Data System (NSLDS)

Home or any real property:

Conduct a title search to identify all mortgages and judgment liens

Look up home value on county tax assessor website, zillow.com, eppraisal.com; consider getting an appraisal if value is in question

Cars:

Get VIN number and make, model, year, mileage

Find value through Kelly Blue Book (www.kbb.com), the NADA Used Car Guide (www.nadaguides.com), or other sources such as www.carprices.com or www.edmunds.com

LSNV Bankruptcy Project

Refer to LSNV for Bankruptcy Apt

Services are free

Clients are responsible for filing fees and

costs

But Note – At capacity so there is a waitlist

But Note – Bankruptcy Attorney will do

additional assessment

Don’t guarantee a bankruptcy will be filed

Not a Bankruptcy

Candidate Right NowAdvice & Next Steps

Counseling Collection Proof

Debtors

If client’s income and assets are exempt under state or

federal the property cannot be attached even if

creditor gets a judgment

Social Security benefits are exempt from

attachment (other than for child support, alimony,

tax debts, student loans, and public benefits

overpayments)

But being collection-proof does not protect debtor from

being sued or receiving collection calls

We cannot do a bankruptcy for peace of mind

But there are rights under the FDCPA

Dealing with Debt Collection:

FDCPA

- Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692

Protects debtors from abusive, deceptive and unfair

debt collection practices

- Applies only to debt collectors. Not original creditor.

- Debt collectors

Collection agencies

Debt-collecting attorneys

- Calls, letters, multiple bills

- Cease & desist letter

Debt collector must stop

See 15 U.S.C. § 1692c(c)

Types of Debt Collection:

Secured Debt

Secured creditors may take action to regain their collateral without going to court

Foreclosure – has client tried a loan modification, repayment plan or other alternative? Free Housing counseling

Repossession

Cannot breach the peace

Not over protest of debtor

No actual or constructive force

Va. Code § 8.9-503

Demand payment for deficiency

Debt Collection – In Court Try

Defenses to Typical Warrant in

Debt Cases Debt buyer claims

Co. buys bad debt

Default judgments

Defenses

Missing docs

Evidence issues

Terms and conditions after debt charged off

Choice of law

Condo/HOA dues

Acceleration

Unauthorized fees

Bylaws procedure

Payment plans

Deficiency claims

Post repossession or trade/recreation schools

Unpaid rent or damages to property

Credit Cards

Contract

UCC – Shorter SOL

Medical bills

INOVA v. private care

SOL

Treatment received?

Insurance or Medicaid? 3rd party claims?

Repayment Plans

Is it in the client’s interest? Did client already break

one?

Be wary

What can client afford each month?

How long will it take?

Is client collection proof?

Financial counselor?

Are there a lot of other higher priority debts?

Alternatives to Bankruptcy

Credit Counseling

Debt Management Plan

Debtor sends monthly payment, distributed each month among creditors

Usually no cancellation of principal

Creditors may waive some fees

If plan is not affordable and debtor fails to complete it, all debts revert to original contract terms

Debt Settlement (*beware!)

For-profit businesses

Collect money from the consumer, but do not send regular payments to the creditors; hold money until a debt can be settled

Often make false or unrealistic claims about their ability to settle debts

If debts are settled for less than the amount owed, consumer may owe taxes based on cancellation of debt income (not so if discharged in bankruptcy)

Money Management Advice

- Pay bills in order of priority:

Rent/mortgage

Child support

Food

Utilities

Car payment/transportation costs

Taxes

Insurance

Not a Bankruptcy Candidate -

Next Steps

Advice

Cease & Desist Letter

Repayment plan

Defending the Lawsuit

Budget adjustments

Prioritizing debt

Insistent client can hire private counsel

Situation Changes re-contact LSNV

i.e. insurance, more income, etc.

Refer for consumer apt if applicable, i.e. pending court date, housing counseling, etc.

Thank you!Special thanks to ACC/NCR and all the VOLUNTEERS

for participating in this event