Archive for the ‘Bankruptcy Courts’ Category
Monday, October 11th, 2010
The Case Ransom v. MNBA appeared before the Supreme Court last week and raised interesting questions about the role of the means test bankruptcy filers must pass in order to qualify for protection under Chapter 7 of the U.S. Bankruptcy Code. Here's a look at what's involved in the case and what it might mean for future bankruptcy filers.
Car Payments and Income in the Means Test
The court case involves the bankruptcy petition of man named Jason Ransom.
- No car loan: Sources note that Ransom has a car that he owns fully – that is, he is no longer making payments on the vehicle.
- Ownership deduction: In his bankruptcy petition, Ransom reportedly claimed an ownership deduction of $471 per month for his vehicle.
- Court rejection: Because he had no car payment, though, the bankruptcy court rejected this deduction in his initial case filing. An appellate court upheld the decision. The Supreme Court must make a final decision.
- IRS definition: Apparently, both the district court and the appellate court denied Ransom's deduction claim based on the Internal Revenue Service's definition of an allowable deduction for car owners, which limits such deductions to people who are currently making payments on their vehicles.
So the issue at hand is whether or not a Chapter 13 filer (that is, a bankruptcy petitioner who has above-median-income levels and so does not pass the Chapter 7 means test) can keep money each month (instead of paying it to creditors) under the car ownership deduction if he or she is not currently making payments on a car.
Why It Matters: Your Money in Chapter 13 Bankruptcy
The issue may sound fuzzy, but the Supreme Court's decision could have real impact on future bankruptcy cases. Here's a look at why and how.
- The language of the Bankruptcy Code: While the language of the U.S. tax code is clear that an ownership deduction is only available to those still making payments on a vehicle, the language of the U.S. Bankruptcy Code is a bit fuzzier.
- The cost of owning a car: As Ransom's lawyers are reportedly arguing, the "ownership deduction" should be available to those who own their cars outright because such vehicles require maintenance and repairs – especially if they're older.
- The expensive car loan argument: One of the reasons that this issue is so interesting is because it essentially rewards people who have expensive car loans and newer cars and punishes those who are (perhaps more fiscally responsibly) driving older vehicles they've already paid for.
- The freedom of extra money: If the Supreme Court decides to grant the ownership deduction to people who own their cars outright, it could mean greater financial independence for car owners who file for bankruptcy. Because they'd be able to save more money each month, they could potentially catch up on other payments more easily and possibly even build savings, thus preparing themselves more fully for post-bankruptcy life.
Posted in Bankruptcy Courts, Bankruptcy Filing Requirements, Bankruptcy Law, Bankruptcy News and Events, Chapter 13, Chapter 7, Means Test, Supreme Court | Comments Off
Tuesday, January 12th, 2010
A recent report from the Milwaukee Journal-Sentinel Online describes a potential complication that might arise during a bankruptcy filing. Here’s a look at what happened and what it might mean for other filers.
Your Records in Chapter 13 Bankruptcy
When you file for Chapter 13 bankruptcy, you’re agreeing to the following:
- Committing to a repayment plan that lasts three to five years and satisfies part or all of your secured debt
- Completing two courses (the pre-filing credit counseling briefing and the pre-discharge debtor education course) designed to help you improve your relationship with money and credit
- Making public your records of debts and payments
It’s the last item on this list that has proved problematic. In the case of some Wisconsin bankruptcy petitioners, it seems, debt and payment information in medical bills that became part of the public record included details about doctor’s visits, procedures and medicines they used.
Now, according to sources, several Wisconsin residents have filed class-action lawsuits in state and federal court against Aurora Health Care Inc., the company reportedly responsible for submitting the detailed medical information.
Beyond Embarrassment
Bankruptcy filers who see their medical history become part of public record may have reason for embarrassment, but, according to reports, that isn’t the only reason this lawsuit has gotten attention.
Certain information (for instance, about treatment for past injuries) could prevent a filer from getting hired at a job in the future or pave the way to medical identity theft. And privacy laws often protect the disclosure of such information.
Should You Be Worried?
The good news here is that, while medical records included as part of a bankruptcy filing may have the potential to hurt your career or cause you embarrassment, the odds of anyone besides your lawyer, your bankruptcy trustee and the judge on your case seeing them is slim.
After all, such information appears as part of the loads of paperwork involved with filing a bankruptcy petition – sifting through to find such details would be a daunting task.
Still, this story highlights one more reason why enlisting the help of an attorney when you decide to file for bankruptcy protection can be a crucial element of making sure you receive the protection and fresh financial start you’re seeking.
Additional Resources
2009 Medical Identity Theft Final Report (PDF)
Posted in Bankruptcy Courts, Chapter 13 Bankruptcy, class action, medical bankruptcy, milwaukee | Comments Off
Saturday, December 19th, 2009
A recent ruling by an Idaho bankruptcy judge, reported by the Des Moines Register, could mean bad news for parents with 529 tax-advantaged college savings plans for their children who file for bankruptcy.
The Ruling
The case in question apparently involved a couple who had put $14,500 into a 529 college savings account for their daughter. The girl’s grandmother reportedly contributed an additional $40,000. Ideally, the funds would have been used for the daughter’s education expenses (including textbooks, tuition, room, board and fees).
But, in this case, the girl’s parents filed for bankruptcy shortly after putting the money into the 529 account. And the judge overseeing their case ruled that the entire account (with the exception of the state’s $5,475 exemption) would be considered part of their assets and could thus be used to repay creditors.
The ruling landed this way, it seems, because the parents legally controlled the funds, and so could have used them for purposes other than their daughter’s education if they chose.
What It Means for You
So how could the Idaho bankruptcy court's ruling affect potential bankruptcy filers? If you or your relatives want to establish a 529 account for a child’s education, consider taking the following precautions:
- Invest early: Contributions made 720 days or more before a bankruptcy filing will likely be protected from the court. This provision was put in place to prevent filers from shielding their assets in 529 funds directly before a bankruptcy filing.
- Give up control: If you’re struggling financially but another family member interested in contributing education funds is not, consider keeping the account in that person’s name. That way, if you file for bankruptcy, the money will not be legally yours.
Further, the ruling in Idaho doesn’t necessarily mean that bankruptcy judges across the nation will follow suit in similar situations. While it’s likely that the same logic will be provided to other cases, it’s not guaranteed.
Besides, according to the Register, few people who file for personal bankruptcy have 529 accounts to worry about. But, if someone in your family is thinking about initiating such a fund, be sure to check with a lawyer first to make sure the money will be safe in case of a bankruptcy filing.
Additional Resources
A Guide to Understanding 529 Plans (PDF)
529 Tax Deduction Information (2009) (PDF)
Posted in 529 account, Bankruptcy Courts, Bankruptcy Laws, Idaho, college, savings accounts | Comments Off
