ANNOUNCER: Welcome to Lawyers.com Radio brought to you buy Lawyers.com the free service providing accurate and reliable profiles of over one million lawyers and firms worldwide and a wealth of information to help users better understand the law and make more informed personal legal choices and identify high quality legal representation. Find them on the web at Lawyers.com. And now here’s your host Damien Allen.
DAMIEN ALLEN: Good afternoon and welcome to Lawyers.com Radio. I’m Damien Allen in the studio and joining me today via the telephone we have Mr. Michael D. Siegel of Siegel & Siegel PC New York, New York. And they specialize in bankruptcy, commercial litigation, estate planning, probate and estate administration and real estate law. Michael D. Siegel is in practice with his wife Sharon. They’re the co-owners of Siegel & Siegel PC and today we are discussing finances and debt on today’s program. And good afternoon and welcome to the show Michael.
MICHAEL SIEGEL: Thanks for having me Damien.
DAMIEN: Well there’s been a lot of things in the news surrounding Michael Jackson and his death and one of the questions would happen to be what happens when there is a death and the estate appears to be deep in debt?
MICHAEL: One of the things that is interesting is that to file for bankruptcy you have to be a living person. So, if you become deceased and you have a lot of debt then the local probate court, which in some cases called surrogates court, depending upon your jurisdiction will actually handle your estate and divvy up property to pay off your debt. If you happen to die during the pendency of a bankruptcy Federal bankruptcy law allows you to complete the case and get a discharge of your debts after you are dead.
One of the things that’s interesting about Michael Jackson, or people who a lot of different investments in businesses, is that those corporations, LLCs and other entities, actually are deemed a different legal entity from the person itself. So, one of the things that’s very important when you form a LLC or corporation is to have in the incorporating documents some succession plan so that somebody can step in and take control of the business and either liquidate it or continue to operate it. If you don’t have that then not only does your representatives have to go to the probate court to get authority, but then they might have to go back and file a bankruptcy for that corporate entity which makes things much more complex and takes more time.
DAMIEN: Now, there’s many different kinds of bankruptcy. What kind of bankruptcy would someone, say like Michael Jackson, be looking at?
MICHAEL: Well, again individuals can file Chapter 7, Chapter 13, or Chapter 11. A wealthier person with a lot of different business interests might file Chapter 11, which is the reorganization form of bankruptcy used by corporations, but when there’s a lot of inter-dealing between person and the entity the person himself might want to file that way. That’s not going to be the way that most approach bankruptcy. Most individuals are looking at Chapter 7 or Chapter 13 if they want to file for bankruptcy.
DAMIEN: And what are the differences between Chapter 7 and Chapter 13? Which would be better?
MICHAEL: Well, which one is better depends on a persons circumstance. The easiest way to start is with Chapter7.
Chapter 7 is, what we call in bankruptcy law, a straight liquidation. Basically at the moment you chose to file all of your assets and all of your debts, at that moment, are taken account of and your assets are sold to pay your debts and if there are any debts left over those are deemed to be discharged which means cancelled. You don’t have to pay them.
In the event that you require property after you file or acquire new debt those new assets and new liabilities aren’t a part of the case and you have to deal with them as if you haven’t filed for bankruptcy at all. There are certain exceptions to that for example if you get a windfall, like a lottery winning or an estate inheritance after you file, that money might be able to be captured for the bankruptcy.
Now, not all of your assets are going to be sold by the bankruptcy trustee. In every state there is a list of property that’s exempt from sale by the trustee. In the ideal situation your property will be worth less than the total amount that is exempt and you will be deemed to have no assets for purposes of a Chapter 7 bankruptcy which means that all of your debts can conceivably be discharged. Now, when the people formed the bankruptcy code that is in effect now, they formed Chapter 13 to deal with the situation where you want to keep property that might not otherwise be exempt primarily, someone’s residence.
Chapter 13 historically works for people who have large rears on a mortgage and wish to retain their house. The deal with Chapter 13 is unlike Chapter 7 where there’s line in the sand that I talked about. In Chapter 13 you have to pay your regular mortgage payment as it becomes due as if you weren’t in bankruptcy and the on top of that over three to five years pay a pro-rated percentage of the mortgage that was in rears. One of the problems with that is that people who file for bankruptcy generally have financial difficulty paying their regular mortgage payment or they wouldn’t have the rears and therefore wouldn’t have the difficulty paying their regular payment plus an additional amount. And that’s why the failure rate for Chapter 13 cases is very high. So, you have to be very careful if you’re considering that option, because if you aren’t able to complete your payment plan you might actually wind up worse then you were before.
In 2005, Congress realized that there was an overemphasis on assets and debt in the bankruptcy system, but not enough emphasis on income and expenses. So, a lot of people who were living above their means with very high income, but also very high expenses were using Chapter 7 to discharge an inordinate amount of debt. So, Chapter 13 also became now used for people who can’t pass the Means Test.
When you file for bankruptcy now, you have to declare all of your income and expenses. For people who make in the top half of the income for their region, they have to complete a test which analyzes all of their expenses. Some expenses are allowed, some expenses aren’t allowed. If you’re income is more than $100/month over your expenses then you’re forced to file Chapter 13 and pay that differential, which is called surplus income, for the duration of a five year plan to pay something back to your creditors. Again, the problem with that is people who have expenses which might be above the statutory maximum might have difficulty cutting back on those expenses during the course of a Chapter 13 and meeting their plan obligations.
So, it’s very important that someone looking at filing Chapter 13 meet with their accountant and meet with their lawyer and really analyze very carefully whether they can meet the payment obligations over the term of a plan.
DAMIEN: So, I find myself in a position where I am going to lose my home, they’re threatening to foreclose, there’s no way for me to catch up on my stuff, should I file for bankruptcy before or after the foreclosure comes?
MICHAEL: That’s a really good question for right now, because a lot of people are facing that situation. One way to think about a foreclosure is that there’s really two entities that owe a debt. There’s your personal debt, which is represented by the note, and the debt that you’re property itself owes, which is represented by the mortgage. Bankruptcy doesn’t deal with the property that the mortgage covers. That is to say the lean that is on the property from your mortgage will stay there whether you file or not. What you’re discharging of the bankruptcy is any debt that might be owing after the value of the property is considered. Therefore, if you’re in a foreclosure situation you need to consider whether or not it is really in your best interest to retain your home. If there’s no equity in the home, although it’s an emotionally difficult decision, you really might be better off letting your home go and saving money to buy the house next door at a lower price.
Once a deficiency in a foreclosure is determined, that is that you owe more money than the property is worth, the procedure varies state to state, but in general there is a procedure whereby a court will fix the deficiency, the amount that you owe, and turn that into a regular judgment. It doesn’t matter along the entire process where you file for bankruptcy. A judgment is just as dischargeable as the expected deficiency if you file at the beginning of the foreclosure process. Therefore, my recommendation is to wait and see whether or not there is a deficiency, because real estate values are always fluctuating and see whether a court determines if there’s a deficiency, if the only debt that you’re worried about is the debt that involves your home.
DAMIEN: And with most people in today’s economy the three biggest things that are on everybody’s mind is: am I going to be able to make my house payment, am I going to be able to pay my medical bills, and of course there is also, for those of us who are trying to catch up and better our lives, what about student loans. I’ve taken all of this money out so that I can further myself through the collegiate system, I’m filing bankruptcy will my student loan be forgiven? Or am I still going to have to come up with the money to fill that out?
MICHAEL: Right. Bankruptcy doesn’t do anything with respect to student loans.
There’s a very, very narrow hardship exemption with respect to student loans which rarely ever applies. So, basically the way to think about it is that student loans aren’t going to be a part of the bankruptcy. Now, fortunately people with large student loan debt do have other options. The U.S. Department of Education has a program called the Ford Program which financially can consolidate and then modify the payment of your student loan based upon your own financial profile. So, you submit to the Department of Education asset, income, and debt information and then the Department offers you a monthly payment amount which will also be much lower than the amount that you’re paying currently. After 25 years, if you haven’t paid off the full balance of your loan then the rest maybe forgiven by the Department of Education. But, this is done outside of bankruptcy.
Actually, just yesterday the Department of Education announced that this kind of program might be accelerated so that the payments would actually be lower than they have been under the Ford Program on a monthly basis and the amount of time that one would have to make payments will be reduced perhaps to as low as ten years. So, if you have student loan troubles, again that’s your only debt issue, bankruptcy isn’t going to be the option for you, it’s going to be dealing directly with the Department of Education.
DAMIEN: Now, if I file bankruptcy does my spouse have to file as well? Or can I just do it on my own?
MICHAEL: Bankruptcy cases can be filed jointly or individually. That is, for one filing fee a married couple can file a single bankruptcy case or if one spouse has all the debt, one spouse can file alone. What people often ask me is, ‘If I file alone, can my spouse be kept out of the case?’ Because, their credit is good or they don’t want to be involved in the case. And the answer to that is no.
Unfortunately, under the means test I was speaking about earlier is, as well as some of the other bankruptcy forms, there’s a question about your spouses income and expenses, so that a household total can be developed. So, even though a person filing alone will not be declaring their spouse as a co-debtor for bankruptcy purposes, that spouse is going to have to participate to the extent of providing income information, like pay stubs, and also expense information for expenses they may incur for the household. So, the spouse will have to participate, but the filing will not be on the credit report of the spouse as a bankruptcy filing.
Now, if a husband and wife owe any debts jointly then the fact of the bankruptcy of one co-debtor will be listed on the credit report of the other spouse as a bankruptcy and will adversely impact the credit score of the non-filing spouse.
So, again when you meet with a lawyer to discuss whether or not to file for bankruptcy a lawyer should conduct a careful review of all the debts to make sure which debts are owed by spouses individually and which debts are owed by them together.
DAMIEN: Well Michael, if someone’s looking for more information on how to file bankruptcy or the things that are involved with it, where should they go?
MICHAEL: Well, the place to start to conduct your own research on Lawyers.com you’ll find a lot of different articles and some other resource materials that you can look at to get familiar with the various Chapters of the code, the kinds of information that you’re going to have to bring to a lawyer, or to the trustee if you file, and some of the terminology that is important to discuss when you meet with a lawyer.
After that, on Lawyers.com you could search for a lawyer in your area who will be familiar with bankruptcy law. Hiring the lawyer is just like anything else, you should certainly interview multiple lawyers not just for price, but also to determine their level of experience and to get some of their ideas about how they may handle your own case, because not every lawyer will handle every case the same way.
DAMIEN: Indeed. And we thank you very much for joining us today and sharing all of this information with us. We’ve been speaking with Michael D. Siegel of Siegel & Siegel PC in New York, New York; specializing in bankruptcy, commercial litigation, estate planning, probate and estate administration, and real estate law. Thank you very much for joining us today Michael.
MICHAEL: Thank you, Damien.
DAMIEN: You’ve been listening to Lawyers.com Radio. I’m Damien Allen in the studio. Everybody have a great afternoon.
ANNOUNCER: This netcast is powered by Vertio.net. Vertio.net optimizing your brand and web presence worldwide. Vertio.net be heard, be seen, be found.
Return |
||||||||||
|
|
