Lien stripping: Removing a second mortgage in Chapter 13

One of the benefits of Chapter 13 bankruptcy over Chapter 7 is flexibility. There are just lots of ways we can help your financial situation in a Chapter 13 that we just don't have the power to do in Chapter 7. One of the big ones is lien stripping--wiping out an underwater second mortgage.

1. What is lien stripping? Lien stripping is a way of removing an underwater second mortgage on a house in Chapter 13. If the house has two mortgages, and the second mortgage is fully unsecured, it may be removed. Here's an example:

- The house is worth $250,000

- The first mortgage balance is $251,000

- The second mortgage balance is $50,000

We can strip the second mortgage because it is completely unsecured.

2. How do I know my second mortgage is fully unsecured? You will most likely need to order an appraisal of your house. But the first step is to look at your property tax appraised value. During the housing boom, tax values used to be lower than the true value of the house. But now that housing prices are depressed, property tax appraisals are routinely higher than the appraised value of the house. If you have questions, we're happy to give you a referral to a licensed real estate appraiser.

3. If I can lien strip, what happens to my second mortgage? Instead of classifying the second mortgage as secured debt, which would need to be paid in full over the life of a Chapter 13 plan, a stripped second mortgage is classified as unsecured debt, meaning that it merely needs to be paid prorated with your other unsecured debt. In most Chapter 13 plans, this money comes out of the same pot that will already be allocated to your other unsecureds, such as credit cards and medical bills, so the second mortgage won't cost you any extra money over the plan. At the end of your plan, if you've made all your payments, the court issues an order that removes the second mortgage lien from your house, and you only have one mortgage to deal with.

4. Does Minnesota law allow lien stripping? Minnesota was the only state that did not allow lien stripping until August 29, 2011. The 8th Circuit Bankruptcy Appellate Panel, an appeals court that oversees Minnesota bankruptcy cases, issued its decision in Fisette v. Keller, allowing lien stripping in Chapter 13 cases filed in Minnesota. Since Fisette, we've stripped plenty of second mortgages. An experienced bankruptcy lawyer can advise you whether your second mortgage can be stripped.

If you want to know more about lien stripping, give us a call.

Can I discharge student loan debt in bankruptcy?

This post describes how to deal with student loan debt in bankruptcy.

One of the only types of debt that can't be discharged in a bankruptcy is a student loan, and even then, there are exceptions. But student loan debt in bankruptcy can be discharged in relatively rare situations of "undue hardship"--where the debtor cannot pay back the student loan and probably won't be able to pay it anytime in the future. Under Minnesota (8th Circuit) caselaw, courts consider: (1) The filer's past, present and future reasonably reliable financial resources; (2) a calculation of the reasonable living expenses of the debtor and his/her dependents; and (3) any other relevant facts surrounding the bankruptcy case.

1. How to discharge student loan debt in bankruptcy. To attempt to discharge student loans in bankruptcy, the debtor can file an adversary proceeding, which is a lawsuit-within-a-bankruptcy, against the student loan company. Starting an adversary proceeding is no biggie--there's no court filing fee, and you just file a summons and complaint and send it to the creditor. After that it's pretty much like any other lawsuit.

2. Undue hardship is based on your ability to earn money to pay off your loans.

• - Determining undue hardship has a lot to do with your past and present earning power. The court will look at your job qualifications and earning history. If you have had a long history of low earnings, that might play in favor of discharge.

• - Your ability to earn money in the future is even more important. The court may consider your future job prospects, especially as compared to the size of your loan. If there's no foreseeable way to make a dent in the loan, this will play in favor of discharge.

• - Age may also be a factor. While a fresh-faced 22-year old has an entire life of indentured servitude ahead of him to pay his loans, a 65-year old may be considering retirement and won't have the same long-term earning potential.

• - Disability also plays into the determination. Debtors with disabilities may have less earning potential in some cases. This is evaluated along a spectrum--a permanent and total disability that renders someone completely unable to work may be an easier discharge case, while a partial disability that reduces earning power will probably not be the basis for dischargeability on its own.

3. If there's no money in your budget, there's no money to pay off student loans. The court will look at your monthly income and reasonably monthly expenses, and determine if there's any room for repayment of student loans. If your monthly budget is in the red, this will play in your favor.

The court may also look at your eligibility for various loan repayment programs, such as Income Based Repayment (both for federal loans only). If you can afford to make a reduced payment, that might be a factor against discharge. But even if you can afford a reduced payment, it's not a discharge dealbreaker where the loan will continue to accumulate interest and grow even though you're making payments.

If you're struggling with student loan payments and you think some of the above criteria may apply to you, give us a call.

What are the Minnesota bankruptcy exemptions?

In this post we list the Minnesota bankruptcy exemptions. Post updated January 2018.

In an earlier post we told you about what items were exempt in a Chapter 7 bankruptcy (meaning you get to keep them).  Items that are not exempt may be taken by the trustee to pay your creditors. Although the great majority of Chapter 7 cases are no-asset, meaning that the debtor loses no property, people are often concerned about whether their property is exempt. In Minnesota, you can choose either the Minnesota bankruptcy exemptions or the federal exemptions, depending on which are more advantageous to you. In this post, we compare the two sets of exemptions for some of the most common property items:

Item

Federal exemption

Minnesota exemption

Your home

$23,675

$390,000

Wildcard (any property)

$11,850–$13,100

None

Household goods and clothes

$12,625

$10,350

Jewelry

$1,600

$2,695 (only wedding rings)

Motor vehicle

$3,775

$4,600

Tools of the trade

$2,375

$11,500

Life insurance policy with loan value

$12,625

$9,200

IRA or Roth

$1,283,025

$1,171,150

Personal injury compensation payments

$23,675 (with exceptions)

Unlimited

Social security benefits

Unlimited

Unlimited

Child support

Unlimited

Unlimited

*Some exemptions can be doubled in a joint case, some cannot.

By the way, the exemptions change every so often, so these may not always stay the same. The Minnesota bankruptcy exemptions are complicated, and don't always apply exactly how they would appear to. Consult a bankruptcy attorney to find out whether a particular item of yours would be exempt in a Chapter 7 case.

Five reasons to sue a debt collector who violates the FDCPA

• Up to $1,000 in statutory damages. If you successfully sue a debt collector, the court will award you up to $1,000 in statutory damages. These damages are provided by law as a penalty against a debt collector that violated the FDCPA and you don't have to prove that you suffered any actual harm to be awarded statutory damages. Although there are rare cases where a court awards a consumer less than $1,000, in most cases the consumer is awarded the full $1,000.

• Provable actual damages. If a debt collector's abuse has caused you to cry or lose sleep or if the collector's harassment has affected your relationship with your loved ones or your performance at work, you may be able to recover actual damages. Not every consumer will suffer actual damages due to a collector's conduct, but if you can successfully prove that you've suffered tangible harm, you're entitled to compensation for that suffering.

• A free attorney. Probably the most important remedy under the FDCPA is the fee-shifting provision. This means that if you win your case, the collector has to pay your attorney fees. Because of this, most consumer attorneys will sue a debt collector on a full contingency fee, which means that you don't have to give your lawyer any money up front. Your attorney gets paid by the debt collector or gets a percentage of any out-of-court settlement.

• Your litigation costs are covered. Litigation can be expensive. The costs for filing fees, service fees, deposition transcripts, etc. can quickly add up. But if you win your FDCPA case, the debt collector has to pay all of your court costs.

• Hold the debt collector accountable. When the FDCPA was enacted, Congress gave each individual consumer the right to sue a debt collector for violating the Act. The idea was that consumers and their attorneys would act as "private attorney generals" by holding debt collectors that violate the FDCPA accountable for their conduct through private lawsuits. Debt collectors love to lecture consumers about taking "personal responsibility" for paying their bills. An FDCPA lawsuit is a chance to turn this argument right back around at the debt collector and force them to take responsibility for their illegal debt collection tactics.

How much will my Chapter 13 payments be?

For people behind on their mortgage payments and looking to keep their home, or people who make too much money to file Chapter 7, Chapter 13 can be a good solution. As we described in an earlier post, Chapter 13 involves paying your disposable income to creditors over a three or five-year period. Whatever isn't paid during that period is discharged (wiped out). But to figure out whether this makes sense, the question for many clients is: how much disposable income do I have to pay in my Chapter 13 payments? Here are a few guidelines.

1. Your payment plan is based on your projected disposable income. To figure out your Chapter 13 payment, first we figure out your projected income. Your income over the past six months can a starting point for this calculation, but if you've recently taken a pay cut, or you know you won't be receiving the same amount of overtime, we need to bump your income downward.

2. Next, we subtract all reasonable and necessary expenses. To get from just-plain-income to disposable income, we need to subtract your expenses. Here we look at all the expenses that are necessary to take care of your family's needs, such as food, rent/mortgage, car payment, utilities, etc. We also look at things that you know you will be spending , such as car repairs, home maintenance or dental work. Then we look at things you should be spending on, but haven't because you've been in financial trouble. This can include health insurance and other medical expenses, 401(k), life insurance, etc. If there's something that's not on our list of ordinary expenses, that doesn't mean we can't deduct it, as long as it's reasonable and necessary. Once we count all these expenses, we subtract them from income and we get an idea of your disposable income.

3. Our job is to fight for your way of life. The Trustee evaluates the reasonableness of your expenses, trying to cut them down so that there's extra money for you to pay to your creditors. Our job is to protect the money that is necessary for you to take care of yourself and your family. So we ask for two things: 1) verification of your expenses, so we can prove that you actually need to spend that money; and 2) information on why your expenses are reasonable and necessary. For example, one client had an $800 monthly bill for auto fuel. This seems exorbitant, until we realized that the client drives a gas guzzler and lives 60 miles from where he works. If we can explain to the court why an expense is reasonable, there is a better chance it will be allowed.

4. The plan must pay off certain required debts. Your Chapter 13 payments must be large enough to make certain required payments. For example, if you are trying to get current on a mortgage, your total plan payments must cover the amount of your mortgage arrears. Plan payments also must cover any secured debt (car loans) that end within the plan period. Also, plan payment must cover any priority debt, such as some tax debt or government penalties within the plan period. If the total plan payments are enough to pay all of these required debts over the plan period, your plan can survive.

 5. The plan must be in the "best interests" of your unsecured creditors. If you have unexempt property that you are looking to protect in a Chapter 13, your Chapter 13 payments must be at least the value of your nonexempt property. In other words, in Chapter 13 your unsecured creditors can't receive any less in the plan than they would have received in Chapter 7 if your nonexempt property was liquidated.

These rules can be tricky, and Chapter 13 almost definitely cannot be done without the assistance of an experienced bankruptcy lawyer. Give us a call if you want to run a scenario by us.

A simple test for figuring out whether a debt collector violated the FDCPA

The easiest way, perhaps, to figure out whether a debt collector has run afoul of the FDCPA is to think about the Act broadly. Without getting into specifics, the FDPCA prohibits debt collectors from doing anything that is (1) unfair; (2) untrue; or (3) harassing or abusive. Obviously, the Act lists a number of specific debt collection tactics that fall into these three categories. But the FDCPA also makes it very clear that any debt collection conduct--whether specifically listed in the Act or not--that is unfair, untrue, or harassing and abusive is a FDCPA violation.

So rather than poring over the text of the FDCPA or reading dozens of articles on the internet, just ask yourself this question: did the collector do something that was unfair; untrue; or harassing or abusive? If your answer to this simple question is yes, there's a good chance that the debt collector violated the FDCPA and your next move should be to contact a consumer rights lawyer.

Can I keep some debts out of my bankruptcy?

Bankruptcy clients often wonder whether they can leave off certain debts on their bankruptcy filing. The short answer is "no." The long answer? Also "no." This usually comes up where you have a #1 favorite credit card (triple bonus miles!) or a debt you owe to a friend or family member that you don't want to wipe out. But the rules for unsecured nonpriority debts (credit cards, personal loans, etc.) don't allow you to keep any debts out of your bankruptcy case, and leaving them out on purpose can ruin your case. So here are a couple of things you might need to know:

1. If you owe a balance, we have to list it. You can leave a credit card out of your bankruptcy only if there's no debt owed on the card. If you owe even a dollar-fifty, we have to list in your papers. But chances are, whether there's a balance on the credit card or not, the card issuer will close your account--many credit card companies check your credit report regularly and they'll know if you've filed even if they weren't listed in your bankruptcy.

But this doesn't mean you should rush to pay off debts on credit cards so you can keep them. Payments made to a creditor in the 90 days before filing are called preferences, and they can be recovered by the trustee and distributed to other creditors. So any money you might pay to a creditor right before filing might end up costing them when they have to defend a preference lawsuit by the trustee. The lesson? You should probably just hold onto your money.

2. Friends and family you owe money to will have to be listed. When we ask a client to list their creditors, people often forget to list friends and family that they've borrowed money from. Or sometimes, they don't want these people to know that they're filing bankruptcy and they leave them off. This is a bad move. If you intentionally leave off a creditor from your filing, you may be denied discharge for withholding information from the bankruptcy court. Also, that stuff I mentioned about preferences a minute ago? Repayments to friends and family may be preferences (meaning the trustee can sue that creditor) if made a full year before filing.

Instead of letting you jeopardize your case, we'll give you pointers on how to have that tough conversation with your mother-in-law where you tell her you're wiping out your debt to her. (Tip 24: Leave the car running for a quick getaway)

3. You can pay back any debt you want after bankruptcy. Your bankruptcy case will wipe out your legal obligation to pay most debts. This means that once your case is filed, the creditor can't take action against you (not even a "pretty please") to collect the debt. However, if you want to pay a debt after your bankruptcy, nobody's going to stop you. It's none of the Bankruptcy Court's business if it's done after your case has ended.

The moral of the story? No secrets allowed if you want to make it through bankruptcy without any problems. Tell your attorney about any of the pitfalls that might be getting in your way and you should sail through bankruptcy smoothly. If you have any questions, just let us know.

Domestic partnership and bankruptcy: An update

UPDATE: As of August 1, 2013, same-sex couples can now file bankruptcy together in Minnesota. In an earlier post, we explained that in Minnesota, same-sex domestic partners cannot file a joint case in bankruptcy, even if they were married in another state. This is still true.

However, in states where same-sex marriage is legal, the pendulum may start to swing the other way. In the Central District of California, 20 of the 24 bankruptcy judges signed onto an opinion ruling that the Defense of Marriage Act is unconstitutional insofar as it prevents same-sex legally-married couples from filing joint bankruptcy petitions.

This is not likely to have an immediate effect outside the Central District of California (Los Angeles and the surrounding area) but if other courts follow suit, it may eventually mean that same-sex couples who were married in a state that recognizes same-sex marriage may file joint petitions in any state.

While this is good news in terms of equal protection, it may be both a blessing and a curse under bankruptcy law. There are advantages to filing jointly, such as the fact that you only have to pay one filing fee to the court. The downside? Under current bankruptcy law, same-sex partners are treated like roommates, so the filing partner does not have to include their non-filing spouse's income on the means test. If partners were treated the same as married couples, then we would need to count the non-filing partner's income on the means test, then subtract amounts that don't go to support the household. It may seem nuanced, but it's kind of a big deal.

Even though the law hasn't changed here in Minnesota, we still stand by our principles. We offer clients in domestic partnerships the same discounted price that we would offer a married couple filing bankruptcy, even though we have to file two separate cases.

Dealing with payday loan collectors

Many of us, if we're lucky, have been living paycheck to paycheck. Sometimes the paychecks don't come soon enough and we're forced to swim with the sharks of the payday loan industry. These loans are terrible for myriad reasons. For instance, the interest rates on these loans can be as high as 900%. No, that is not a typo. NINE HUNDRED PERCENT!!! This extreme interest can make it nearly impossible for struggling people to ever break free from the clutches of a payday lender. The main issue I wanted to touch on today is what can happen in the months and years after you've paid off a payday lender. We're getting a lot of calls lately from people who've received harassing phone calls. The callers claim that the individual owes a debt to a payday lender, though they rarely identify who the lender is. They then proceed to threaten that criminal charges are pending and the only way to avoid jail is to pay up immediately. Or they say they will send someone to the debtor's residence to seize money or goods. Definitely a menacing prospect.

We think most of these calls are flat-out scams. The payday lenders have either sold their customer information to shady third parties or their data has been hacked. The callers often have a lot of information about the individuals, including their addresses and social security numbers. They often use this information to convince people of their legitimacy. They also prey on the fact that people who've used payday lenders in the past know from experience that these debts are difficult to pay off in full and that even a $1 balance can skyrocket quickly.

Whatever you do, don't agree to pay these collectors over the telephone. Do not give them any personal information about yourself or any of your financial accounts. Demand that they tell you the name of the payday lender you allegedly borrowed this debt from and that they put their demand in writing and mail it to you. Also, take notes on the call. Write down the number they've called from and the name the caller gave you (99 times out of 100, this will not be his/her real name). Note whether or not they spoke the phrase, "This call is from a debt collector and is an attempt to collect a debt," and make sure to write down any specific threats the caller made.

As soon as you are off the phone, we recommend contacting a consumer attorney or the state Attorney General's office. If the call is a scam, either should be able to tell you that and advise you on next steps.

Stop foreclosure with Chapter 13

Often people come to see us after they've done everything they can to stop foreclosure. Many try to get loan modifications from their lenders, but after lots of runaround, most are denied. For some strange reason, the lender just won't allow the borrower to get out of default and get back to making payments. With a foreclosure sale (often called a sheriff's sale) on the horizon, many people are looking for a way to stop foreclosure and force their lender to accept payments. Chapter 13 reorganization can be a fix in this situation. Here are some of the advantages:

1. The automatic stay will stop foreclosure. The automatic stay protects you from creditors and prevents foreclosure from taking place, even if the bankruptcy case is filed just minutes before the sheriff's sale. If the clock is ticking on your foreclosure sale and you're out of options to stop foreclosure, filing bankruptcy may give you the time you need.

2. You can force a lender to accept overdue payments over time. Chapter 13 involves repaying a portion of your debt over time to stop foreclosure. In a Chapter 13 case, you pay your mortgage arrears back over the life of the plan. To figure out if this is feasible, we do some simple math. We take the overdue amount on the loan (arrears), and divide it over the length of your Chapter 13 plan (three to five years). Let's say your mortgage payment is $1000/mo and you are overdue $10,000 on your mortgage. In a five-year Chapter 13 plan, we would divide the $1,000 arrears by 60 ($166.67). If you can pay your regular mortgage payment plus an extra $166.67 per month (for a total of $1166.67/mo), the lender will have to accept your repayment plan.

3. In some cases, we can "strip" your second mortgage. We can "strip" a second mortgage that is fully underwater. Here's how lien stripping works--if you have two mortgages, and the balance of your first mortgage is more than the current value of your house, then your second mortgage is "unsecured" because there's no equity in the home to back it up. When that's the case, the lien can be removed and the value of the second mortgage is paid pro rata with the rest of your unsecured creditors (medical bills, credit cards, etc.) Because you only pay the unsecured debt you can afford in a Chapter 13, and the remaining debt is wiped out after the plan has ended, this can save you truckloads of money.

Lien stripping be a huge benefit to borrowers over-stressed by two mortgages. If you're facing a sheriff sale and feel like you're out of options to stop foreclosure, give us a call.

Can a debt collector leave messages on my voicemail?

The Fair Debt Collection Practices Act (FDCPA) makes it illegal for a debt collector to communicate with any person other than you or your attorney about your debt. When a debt collector leaves a message on your answering machine (does anyone have these anymore?) or voicemail, it runs the risk that other people will overhear that a debt collector is contacting you. Embarrassing, right? According to FDCPA case law here in Minnesota, if a debt collector leaves a voicemail and mentions that you owe a debt, it may be breaking the law if a third party overhears it. If so, you may be entitled to $1,000 statutory damages plus any actual damages you incurred (such as emotional distress damages for invading of your privacy). The best part? You get your attorney's fees from the debt collector.

Proving your expenses in bankruptcy - sending money to family abroad

Family is important to everyone. We work with a lot of people who moved to the United States specifically because it provided them the opportunity to earn a better living, which in turn allowed them to support family in their native country. Unfortunately, this does not make them immune from the same issues that often cause people to consider bankruptcy (divorce, major medical expense, and job loss). When we file bankruptcy for a client, one of the things we need to demonstrate to the Court is that the expenses our client claims are accurate. This can be tricky when one of their major expenses is sending money back to their home country to support family members (or buying phone cards to call them). People often use wire transfer services such as Western Union to send money to places in Latin America, Eastern Europe, and Africa. Our clients often send their families some amount of money each time they get paid. The wire transfer companies provide a paper receipt, but generally don't keep records by customer (at least that they've seemed willing to release to the customer). When it comes to international phone cards, the buyer doesn't often get a receipt at all.

We know it's easy to toss or misplace receipts, particularly when they aren't for goods you are likely to return. That said, good record keeping is really important, especially if you need to file bankruptcy. We suggest picking up an accordion folder or other organizer and making a habit of placing receipts for all regular expenses in it. We also advise keeping all used phone cards rubber-banded together, separated by month of use, if possible. We can't guarantee that all your expenses will be justifiable to the Court, but having documentation will help us make the best case possible.

If you're in the Minneapolis area and have questions about bankruptcy or any other financial challenge you're facing, please call us anytime. We provide free consultations.

Can a second mortgage company sue after foreclosure?

In the wild heyday of mortgage lending, many people were offered two mortgages when buying a house. The first mortgage was a traditional mortgage for 80 percent of the value of the home. But for borrowers who wanted to buy without a down payment, lenders also offered a second mortgage to cover the down payment and help the borrower avoid having to pay private mortgage insurance (PMI). These were called piggyback loans. Man, did this backfire. When housing prices started to take a dive, the traditional 20 percent of equity borrowers used to have as security in their house wasn't there, since it had been leveraged by the second mortgage. Without this cushion, when a borrower needs to sell his house or can't make the monthly payment, the selling price won't cover the mortgages and so the borrower can't pay them off.

In most Minnesota foreclosures, the first mortgage company can only collect whatever it can get from the sale of the house. If the selling price doesn't cover the mortgage and there's still debt owed, it's wiped out by the foreclosure. It's a different story for second mortgages. Under Minnesota law, a second mortgage company can collect a deficiency (the amount owed beyond the balance that's paid off by the foreclosure.) This means many people after foreclosure are still being chased by second mortgage companies for balances somewhere in the tens to hundreds of thousands.

So what do people do when they are in danger of being sued for a deficiency judgment? Here are some ideas:

1. Do short sales work? Sometimes. A short sale is where the lender agrees to sign off on the sale of a house and take a reduced amount on their loan so that they don't have to go through the foreclosure process. We've heard of some short sales where the second mortgage lender accepts some modest amount of cash and agrees not to pursue the borrower for any remaining debt. But these are becoming more infrequent. In other cases, second mortgage lenders are taking the cash and signing off on the sale, but reserving the right to go after the borrower for the difference. Short sales can be risky, and there are lots of sharks in the real estate industry, so we recommend doing this only if you have an attorney you trust looking over the deal.

2. Can I negotiate with the second mortgage lender after the foreclosure? Sure. Considering the huge amount of money some mortgage lenders are collecting on a deficiency, many times they know they don't have a prayer of collecting their money. That's why they might be willing to take a fraction of the amount owed just to get something from you. When mortgage companies are willing to settle, we've seen the best deals when borrowers are willing to pay a settlement in one lump sum rather than lots of smaller payments.

3. Can bankruptcy wipe out a second mortgage? Definitely. Many clients come to us facing tens of thousands of dollars in deficiency judgments, and we're able to discharge these debts in bankruptcy. This is one of the biggest reasons our clients file bankruptcy. A defaulted second mortgage is treated as unsecured, nonpriority debt in bankruptcy, which is pretty much the same as credit card debt. This means we don't generally have any trouble making it go away.

Whether you're facing foreclosure and want to figure out your best option, or if you have already been through foreclosure and you're worried that your second mortgage is going to rise from the dead and come back to haunt you, call us at (612) 564-4025 or email for a free consultation.

The automatic stay in bankruptcy

One of the biggest benefits of bankruptcy is that your filing will stop any debt collection against you. This means no more angry phone calls from debt collectors, no more threatening letters, and any lawsuits against you must stop (including pending foreclosure sales). Under the bankruptcy law, this is called the "automatic stay." There are only a few things you need to know about the automatic stay:

1. The automatic stay begins the moment we file your case. This means that a foreclosure sale at 10:00 doesn't count if you filed your case at 9:59. It also means that a creditor who calls you minutes after your case has been filed has to stop, even if they haven't received notice of your filing yet.

2.  The stay is in effect until the end of your case, unless a creditor has a good reason. In a Chapter 7 bankruptcy, the stay often lasts until your case is closed. In a Chapter 13 bankruptcy, your case may last for three to five years. The automatic stay remains in effect the entire time.

A creditor may make a motion with the court to lift the stay. This usually happens with a secured debt you're not paying--the creditor can ask to have the stay lifted in order to foreclose on a mortgage in default, for example. If a creditor does try to lift your stay, your attorney can advise you on whether it's a good idea to fight the motion and prevent that creditor from being able to collect until the end of your case.

Even though the stay does expire at the end of a Chapter 7 case, that's usually not a problem for the debtor, since the stay is replaced by the discharge injunction. The discharge injunction is similar to the stay--once a debt is discharged in bankruptcy, a creditor can't try to collect it ever again.

3. The automatic stay protects you from all creditors, even ones who will still be able to collect when your bankruptcy is finished. If you have tax debts that are nondischargeable, or unpaid student loans, the automatic stay gives you three to four months of breathing room while you figure out your finances. Even if you're going to owe the debt once the bankruptcy is finished, they can't bother you while the stay is in place.

4. You may be able to recover money damages for stay violations. The Bankruptcy Code is dead serious about protecting debtors from being bothered by creditors after a case has been filed. If you are damaged by any "willful" violation of the automatic stay, you may recover actual damages, including costs and attorney's fees, and, sometimes even punitive damages.

In general, if you're getting collection calls in bankruptcy, we may give them one free pass--we remind the creditor that you filed a case and warn them not to contact you again. If they're brave enough (read: stupid enough) to continue giving you hassle, we can sue them for damages. Any damages that you win are not considered part of the bankruptcy estate and don't need to be turned over to the trustee, meaning they're your down payment toward your fresh start.

If the agency calling you is a third-party debt collector, they may have also violated the Fair Debt Collection Practices Act (FDCPA), which can result in awards of up to $1,000 statutory damages, actual damages and attorneys fees.

If you've filed bankruptcy, notify your attorney any time a creditor contacts you, and be sure to keep a record of what calls you've received and from whom.  If you've been harassed by a creditor after your bankruptcy has been filed, get in touch to discuss your options.

Domestic partnership and bankruptcy

UPDATE: As of August 1, 2013, same-sex couples can now file bankruptcy together in Minnesota.

We often work with same-sex couples dealing with debt. A few tricky issues come up with clients in domestic partnerships that want to file bankruptcy, but for the most part, the bankruptcy law treats them exactly the same as any non-married couples. Here are some questions we get asked a lot:

1. Can we file bankruptcy together? Only married couples can file joint bankruptcy cases. An unmarried couple will need to file separate cases regardless of age, height, star sign, or gender.

2. What if we were married in another state? No dice there. The federal Defense of Marriage Act denies federal recognition of same-sex marriage. So even though same-sex marriage may confer certain benefits in the states where it's legal, this doesn't extend to the bankruptcy law.

3. Does my domestic partner count toward my household size on the means test? In determining household size for the purposes of the means test, you can count any person with whom you share a household--even a roommate counts as long as you share household expenses. If you have kids, both partners can count the kids in household size under the means test.

4. Do I have to count my domestic partner's income toward my ability to pay creditors on the means test? In counting income, we only count a partner's income if it is paid toward the household expenses of the debtor. This is usually more favorable than the way a married single-filer is treated under the bankruptcy code. If married, you have to add all your spouse's income as household income, and then subtract any money that does not go into the household as a "marital adjustment" (such as the spouse's monthly payments to debt in his/her own name). For unmarried couples, all we do is add the portion of the non-filing spouse's income that is paid toward the expenses of the debtor or his/her dependents.

5. Will our case cost the same as it would if we filed together? Domestic partners the same discounted price that we would offer a married couple filing bankruptcy, even though we have to file two separate cases. The only difference is that because you'd be filing two separate cases, there will be two separate filing fees ($335 per person in a Chapter 7).

There are other issues to watch out for, especially if you and your partner own property jointly. Get in touch for a free consultation if we can help you figure some of these issues out.

What does it cost to file Chapter 7 bankruptcy?

I guess it's no surprise that our chapter 7 bankruptcy clients are often cash-strapped. So one of the first things a potential client wants to know during a consultation is how much bankruptcy costs. Obviously, every case is different, but here's a rough version of what we tell clients about how much bankruptcy costs.

1. We charge a flat fee. If you're considering Chapter 7 bankruptcy, you don't want to worry about your lawyer running up the fee as he churns hours on your case. Flat fee billing gives our clients predictability--we quote you a fee before you sign up with us, and that's what you'll pay.

2. The amount of the fee depends. For a basic Chapter 7 for a single filer paid in full, we charge $2,250, including all filing fees. Our prices do increase with the complexity of your case.

Your fee will be based on our best prediction of the complexity of your Chapter 7 case. One example: if a client is above median income, involving a much more detailed analysis under the means test, that case may cost more. There are other factors that may affect the complexity of your case, so here's my advice on price-shopping--if a bankruptcy attorney can quote you a one-size-fits-all price before understanding your particular issues, run away. That lawyer probably doesn't understand just how complex some cases can be.

3. Your Chapter 7 bankruptcy fee must be paid before we file your case. If we file your bankruptcy case and you haven't paid our entire fee, the debt to us is discharged along with all your other debts. We're out of luck. You might not want to hire the lawyer who doesn't understand this concept and offers to let you pay after the bankruptcy is filed.

Last tip--you may not want to bargain-hunt on bankruptcy. The best lawyers will quote you a fair price, but the worst ones will probably discount their fees to try to take business from the good ones. You want a lawyer who's experienced enough to understand a lot of the tricks and traps of bankruptcy. You also want someone who'll be available to answer your questions, and won't blow you off because they're too busy with all their other cases. And you want someone who's willing to use the bankruptcy law creatively to help you improve your situation.

Do I have to include all my debts in my bankruptcy?

One of the questions we are asked most frequently is whether you need to include all your debts when you file bankruptcy. It often arises in the context of debts to family members or other people you wouldn't want to disappoint. The answer is YES, you must include each and every debt you have when you file. The rationale is that if you were selective about which debts to include in your bankruptcy, some creditors might be treated preferentially.  The Bankruptcy Code is written to ensure that if you are able to discharge some or all of your debts, each of your creditors is treated equally. This means that, in the event you'll be paying back some percentage of your unsecured debt (typically, this would be a Chapter 13 bankruptcy), each creditor will take a pro rata share of what you pay. If your case is a "no-asset" bankruptcy (most Chapter 7s), you may not be paying anything to your unsecured creditors, but it is still essential that they be listed on your bankruptcy schedules and that they receive formal notice that you've filed.

One thing we suggest if you owe debts to friends or family is to call them and let them know that you're filing. While bankruptcy may wipe out your legal obligation to pay back your debts, you are not freed from your moral obligations. You can tell your friends or family, if you wish, that you intend to pay them back after your bankruptcy case closes. This can be a tough conversation, but it is definitely better that you tell them rather than have them hear of it for the first time when they receive notice in the mail from the Bankruptcy Court.

It is very important that you don't pay back friends and family once you make the decision to file bankruptcy. In fact, one of the questions that you'll be asked by the Bankruptcy Trustee is whether you have paid back any friends or family in the past year. If you have, the trustee could potentially sue that person and take the money back.

As always, this isn't intended as specific legal advice.  We recommend you contact a bankruptcy attorney to discuss your situation.

Can I run up my credit cards before filing bankruptcy?

Chapter 7 Bankruptcy will often wipe out your credit card debt. But people who are looking to file bankruptcy are often still living off their credit cards, or at least using them on a regular basis. So our clients ask us, "can we use our credit cards before filing bankruptcy?" There are a couple of basic rules to follow:

1. Don't buy a jet ski on your credit card right before your bankruptcy. The bankruptcy law says a debt is non-dischargeable (meaning that it won't be wiped out in bankruptcy) if the debt was incurred under false pretenses. False pretenses may include the fact that you didn't intend to pay the debt when you incurred it. But the creditor will have to prove that you didn't intend to pay the debt, which is usually an uphill battle for them.

This is why the law gets more specific. Purchases greater than $550 made on a credit card for luxury goods and services within the 90 days before filing are presumed to be non-dischargeable—meaning that to get them discharged, you'll have to prove that the jet ski was necessary for the health and welfare of you or your family. That'd have to be one special jet ski.

2. OK, so you can't buy a jet ski, but you can probably buy diapers. "Luxury goods and services" isn't defined in the bankruptcy code, but the law does say that the term doesn't include "goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor." So although I can't promise you a judge will think your particular purchases were necessary, I'd guess you'd be able to make a strong argument that food, medicine, diapers, or gas station purchases would normally pass the test.

3. Don't take large cash advances right before your bankruptcy either. Cash advances more than $825 from a single creditor within 70 days before filing bankruptcy are presumed nondischargeable. Which brings up an important point. If you try to avoid the presumption limits (such as taking $824 in cash advances 71 days before filing your bankruptcy case) the creditor can still try to prove false pretenses generally, and if you're trying to skirt the presumptions, it may look like you're hiding something and attract unwanted attention from your creditors and the court.

4. Once you file bankruptcy, you won't be able to use your credit cards. So why not start living on cash right now? We usually recommend that our clients cut up their credit cards and see if they can make their monthly expenses for roughly three months before the bankruptcy. Living without credit can be hard after you've become accustomed to it, so it makes sense to get some practice before you file bankruptcy.

Questions about non-dischargeability? Don't make these decisions without an experienced attorney.

What happens to my credit score when I file bankruptcy?

If you're considering filing bankruptcy, you're probably concerned about what will happen to your credit--and rightfully so. Credit scores may temporarily be trashed when a client files bankruptcy, but the real question to ask is--who cares? Credit scores are based on the last 7-10 years of reporting information, but according to the credit scoring formula, things that happened in the recent past are weighted far more heavily than things that happened a long time ago. This is great news for the potential bankruptcy filer--your score may dip in the short term, but you can build your credit back quickly by opening new, positive credit accounts and letting that old stuff fade into the distance.

If you're considering bankruptcy, your credit score is probably on the brink anyway

There are alternatives to bankruptcy (working with debt management nonprofits or their more unsavory cousins, debt settlement and credit repair companies)--but anyone who tells you that these alternatives are gentler on your credit score is probably trying to sell you something. Once you have late payments, defaults and collection accounts on your credit, it's hard to get them to come off, and paying off collection accounts actually doesn't improve your score at all. Think about whether your credit score can be saved before you pay someone to save it.

it's time you and credit take a little break from each other

If you're considering bankruptcy, you're probably not planning to take out a mortgage or open a bunch of credit cards in the near future, and so you probably don't need to have a sky-high credit score right now. Your credit score may be a factor for renting apartments or finding new jobs, but having a recent bankruptcy may be less of a big deal to most people than if you haven't resolved your issues and have a bunch of debt collectors clawing after you. Sure--you'll need your credit to rebound eventually, but for now, explain your situation to a potential landlord or employer. If you're honest and upfront, you'll likely find that people are willing to overlook your earlier problems.

We have strategies for building back your credit

Remember, the recent past is much more important than the distant past when it comes to credit. The credit scoring models will reward you for opening new, positive credit accounts and paying on time every month. By stopping all new reporting on old accounts, bankruptcy cleans the slate so that your creditors don't keep dragging down your credit score month after month.

Once you file bankruptcy, you'll be inundated with new credit solicitations. But these offers aren't the ones you want--they tend to be expensive and predatory. We can point you toward safe credit building products--credit building loans and secured credit cards--that will help you build your credit back up slowly and surely. We also meet with you at no charge six months after your bankruptcy to make sure that all the negative information that was on your credit report pre-bankruptcy was cleaned up the right way. If you build new credit and pay on time, banks will begin to consider you for low-interest car loans and mortgages as soon as a year or two after your bankruptcy.

My ex is filing bankruptcy. What does that mean for me?

One of the questions we are most frequently asked is, "What happens to me if my former spouse declares bankruptcy?" The answer is, as always, it depends. Mainly it depends on whether you are obligated on any of your ex's debts. These could be credit cards, car loans, or mortgages that the two of you entered into jointly or that you are a co-signer for. A proactive first step is to pull your credit report and see if any of your ex's debts appear on it.  You are entitled to get one free copy of your credit report each year from each of the three credit reporting agencies. You can get yours online at www.annualcreditreport.com.

If you find debts on your credit report that relate to your former spouse, it may be smart to review your divorce decree and see if they were, or were supposed to be, resolved as a term of the divorce. You may want to call your divorce attorney for clarification.

If you have taken out joint debts and your ex files bankruptcy, you may be facing liability for 100% of them.  If you find yourself in this position it is probably worth your time to come in for a free consultation.  It is possible that your ex is filing bankruptcy due to an imminent creditor lawsuit.  As soon as s/he files, that creditor may turn their attention toward you.