bankruptcy blog
Protecting Your Property in Nebraska Bankruptcy Part 1 of 3: House and Vehicle.
When faced with the prospect of bankruptcy, you want reassurance, knowing what will happen with your property. In an overwhelming majority of Chapter 7 bankruptcies, the person filing retains all of his or her property, including house and vehicle. In Nebraska, there are laws called exemptions that you can use to protect your real and personal property in a Chapter 7 bankruptcy.
For Nebraska exemption laws, changes are on the way. In early February 2018, the Nebraska Unicameral passed Legislative Bill 105 by a vote of 47-0, which significantly changes exemption laws (Nebraska Revised Statutes 25-1552 and 25-1556). The bill is waiting on the governor’s signature to be made law. In a three part series, I will discuss the exemptions as they are now and the presumed impact of the new law.
House
In Nebraska, the homestead exemption allows the person filing the Chapter 7 bankruptcy to protect up to $60,000 of equity in his or her primary residence (Neb. Rev. Stat. § 40-101). It also allows for the protection of up to $60,000 of sales proceeds from the sale of the primary residence for a period six months as long as those proceeds are not commingled (Neb. Rev. Stat. §§ 40-113, 40-116). In short, most individuals filing for Chapter 7 bankruptcy retain their homes because all of the equity is protected. The new law does not impact the homestead exemption.
Example 1: Your primary residence is worth $150,000 with a mortgage owed of $100,000, meaning you have $50,000 of equity. You are able to protect your home because the homestead exemption allows you to protect equity in your home up to $60,000. If this were, however, a rental property that you do not live in, you would not be able to protect the home using the homestead exemption.
Example 2: The sale of your primary residence closes on February 28, 2018. From the sale, you receive net proceeds of $40,000. Instead of using those funds to purchase a new home, you deposit them into an account where no other funds get deposited. You file Chapter 7 bankruptcy three months later. You are able to exempt the entire $40,000. If you deposited that money into an account where you also have your paycheck deposited, you would not be able to protect those funds with the homestead exemption.
Vehicle
In Nebraska, there is currently no specific vehicle exemption. In order to protect your vehicle, you have to use a combination of the “tools of trade” exemption (Neb. Rev. Stat. § 25-1556(4)) and the ”wild card” exemption (Neb. Rev. Stat. § 25-1552). The tools-of-trade exemption allows you to protect up to $2,400 of equity and the wild card exemption allows you to protect up to $2,500 of equity. If you are filing with your spouse, you each have available your own exemption. In order to utilize the tools of trade exemption on your vehicle, you must use the vehicle as work transportation or in your business.
Example 1: Your truck is worth $10,000 with a vehicle loan owed of $8,000, meaning you have $2,000 of equity. If you use the truck as transportation for work, you can protect the $2,000 of equity because the tools-of-trade exemption allows you to protect equity up to $2,400.
Once the new exemption law goes into effect, there will be a vehicle specific exemption where you can protect up to $5,000 in a vehicle. Gone is the requirement that the vehicle be used as work transportation or in your business. This significantly benefits the elderly and disabled who do not work or run a business. Additionally, the wild card exemption has doubled from $2,500 to $5,000. The wild card exemption can be used on any personal property. If you are filing with your spouse, you each have available your own separate vehicle and wild card exemptions.
Example 2: Now let’s say your truck is worth $18,000 with a loan owed of $8,000. With equity of $10,000, you’d lose your vehicle under the current law because you’d only be able to protect $4,900 of the equity. However, under the new law you’d be able to protect your vehicle because you’ll have $10,000 worth of exemptions ($5,000 vehicle exemption and $5,000 wild card exemption).
Rest assured that you most likely will be able to protect and retain all of your property. The trustee, the person assigned to liquidate assets in a Chapter 7 bankruptcy, most often cannot claim any property because you are able to exempt or protect it. However, each situation is unique.
What to Expect in Your Bankruptcy
Filing for bankruptcy does not have to be stressful. Hiring an experienced bankruptcy attorney can ensure that your path towards a fresh start is a smooth one.
Getting Started
The first step is to schedule a free initial consultation with one of our experienced bankruptcy attorneys. During the consultation, the attorney will listen to your story, addressing your questions and concerns regarding your financial distress. By the end of the consultation, you will find relief knowing your bankruptcy options for dealing with your debt, which are typically a Chapter 7 or Chapter 13 bankruptcy.
Attorney’s Fees and Filing Fee
In a Chapter 7 bankruptcy, the attorney’s fees and filing fee must be paid prior to drafting and filing your case. In a Chapter 13 bankruptcy, only a portion of the attorney’s fees and the full filing fee are due prior to filing your case. The majority of attorney’s fees are paid as a part of your Chapter 13 repayment plan. Our Accounts Manager will take the time to ensure that you understand the fees to be paid and the scope of our representation.
Financial Information and Documentation
In any bankruptcy, you are required to provide information pertaining to property you own, debts, income, and expenses. Typical information to provide includes pay stubs, bank account statements, and tax returns. Also, you will be required to complete a Credit Counseling Course within 180 days prior to filing. Once all requested information has been received, the bankruptcy paperwork can be drafted and reviewed with your bankruptcy attorney.
Case Filed
After you sit down with your bankruptcy attorney to review and sign the paperwork, you are ready to file your bankruptcy. Once filed, your creditors receive notice and the bankruptcy laws prohibit them from contacting you or otherwise attempting to collect a debt. You will have to appear one time at court for the First Meeting of Creditors. The bankruptcy trustee, who is assigned to oversee your case, conducts the meeting. We support you to answer the trustee’s questions regarding the documents that we will have reviewed prior to filing.
The Discharge Eliminates Your Debt
At the end of your case, the goal is to discharge or eliminate as much debt as possible. Some debts cannot be discharged, including student loans, some tax debts, and domestic support obligations (child support and alimony). In a Chapter 7, the court typically discharges your debt approximately three months after you file. In a Chapter 13, the discharge is entered once you make the final payment of your 3 to 5 year plan.
The Pitfalls of Micro-Spending
We are all guilty of it. You go to Target for that one pack of batteries. Next thing you know, you’re at self-checkout, the total incrementally increasing as you scan each item and place it in the bag. Before you know it, you’ve spent $30. Some days it is $15. Other days it is $50. Over the course of a month those trips to Target can really add up.
I once had a client who would go out to eat or buy a Starbucks coffee every day. I asked how much they estimated they spent daily on those items. It was around $15. To keep the math simple: 52 weeks in a year x 5 work days in a week x $15 =$3,900. My client was surprised to discover they were spending around $330 per month or about $4,000 per year on these small expenses.
In many instances, micro-expenses are often overlooked or not thought about when creating a budget. However, it is these small items that make a big impact on your budget. Most budgets I see don’t take into consideration miscellaneous monthly expenses. Including a buffer in your budget for micro-expenses will help.
The best place to start taking control of micro-expenses is by reviewing your monthly bank statements. You may not even realize how much you are spending on multiple transactions of less than $5. Another tip is to set a fixed budget for the micro-expenses. Cash is still king. Withdraw a fixed amount of cash for the week or month to be spent on certain items. Once you run out of the cash, you stop spending. If you can’t live without your Diet Coke, that is cool. Maybe it makes more sense to buy it in bulk instead of picking one up every day at the convenient store.
We could replace Starbucks or Diet Coke with new clothes for your growing child, school supplies for that class project, or cough drops for your ailing spouse and the same principles still apply. It is amazing how $5 spent here and there impacts your overall financial well-being. Living is expensive. Being mindful and aware of where your money is going will help you make those day-to-day financial decisions.
We all know the big expenses we have to pay every month like the rent or mortgage payment, insurance, car payment, etc. Make it a priority to understand the micro-expenses in your life as well. Life can change in big ways in a flash. If and when that occurs, you or someone you know may find it difficult, if not impossible, to keep up with the expenses of everyday life.
Solutions for Farmers with Financial Troubles
Nebraska farmland spreads out in beige-grey sheets all around us. Cows graze in the winter cornfields. Grain elevators pepper the vistas like statuesque farmers awaiting a harvest. The terrain looks like it is bracing for a dark stormy winter with gusts of winds approaching 50 mph.
On our trip from Omaha to Davenport, Nebraska, my father-in-law Howard Duncan and I discuss his growing up on a wheat farm in Southern Kansas. He knows what it means to put in a 14-hour day bailing hay and working the field. He knows what it means to have your livelihood at the whims of a hail storm or a lightning fire.
As bankruptcy attorneys, we have been discussing the financial distress that Nebraska farmers and rural residents are experiencing. During the first quarter of this year, Nebraska had the slowest growing economy out of any state. The leading cause was our distressed agribusiness sector. Corn prices are low. Farm cash rental rates are relatively high. Farmers have run out of working capital and borrowed operating cash against their land, which is a recipe for disaster.
As we sit in the Davenport Community Center, you get the sense that the farmers and bankers are holding their breath, bracing for tough times ahead. It is not a matter of if a crash will happen but when it will happen. One of the speakers comments that we are not at the breaking point…yet. The two farmers at our table audibly laugh, echoing the word “yet,” almost acknowledging to each other that they are at or past the breaking point.
Like so many other rural communities, the grocery store closed within the last year or two. Businesses in town have a tough time keeping their doors open. Money flows out of the community. People are holding on. In many rural Nebraska communities, there is limited or no access to an attorney to advise or assist when financial distress rears its ugly head.
Whether you are a rancher, farmer, or person living in a rural community, we are here to help you.
When it comes to dealing with financial troubles there are both bankruptcy and non-bankruptcy options. The Chapter 12 bankruptcy is specifically designed to help the family farmer deal with financial issues pertaining to their farm. In a Chapter 12 bankruptcy, the bankruptcy “automatic stay” protects the farmer from creditors, allowing them time to propose a plan to reorganize and repay their debt. In addition to a Chapter 12 farm bankruptcy, you may be able to file a Chapter 7 or Chapter 13 to deal with personal debt. Our attorneys have been successful in restructuring or reorganizing debt by negotiating or working with your lender where we use bankruptcy as a safety net.
A Fresh Financial Start
With the year coming to an end, you may be delving into your finances. Your financial health and wellbeing may soon be at the top of your newly minted New Year’s Resolution list.
A bankruptcy fresh start may be the fix that you are looking for to jump start your financial wellness plan. One of the main goals of a bankruptcy is the fresh start. Think of it as wiping the slate clean. You could file a bankruptcy, eliminating all of your debt (with some exceptions) in the process. It is a fast and efficient way to put your financial woes behind you and start anew.
A common concern or fear that clients express is the negative impact a bankruptcy can have. I like to reframe that concern or fear into a positive.
Example: Bonnie has $50,000 in medical bills. The hospital sold the debt to a debt collector that has brought a lawsuit against Bonnie. She considers filing for bankruptcy, but is concerned that it will haunt her for 10 years. Eventually, Bonnie has a judgment against her for the $50,000 plus attorney’s fees. The judgement is reported on her credit report as unsatisfied. She sets up a payment plan with the debt collector for $350/month. She pays the agreed upon payment for 12 months, which costs her $4,200, but has had to stop making payments because her credit card debt has increased by $5,000 in the same time frame. She is running in place.
In that same period of time, Bonnie could have paid an experienced bankruptcy attorney to file a Chapter 7 bankruptcy. She would have already received her discharge and would have been debt free. Instead of languishing for years in a payment plan she could ill-afford, Bonnie could have filed bankruptcy and started rebuilding her credit sooner rather than later. The bankruptcy can free you from the constant cycle of robbing Peter to pay Paul. Think of the time and energy that you will no longer have to devote to shifting money around to make minimum monthly payments.
Bankruptcy is available to individuals and couples who need a fresh start. Yes, it is reported on your credit report for 10 years. However, the bankruptcy also shows that you have addressed your debt and have come out on the other side debt free. In most Chapter 7 bankruptcy cases, you wipe out all of your debts and retain all of your assets.Achieving financial stability and wellness through a bankruptcy may be exactly what you have been looking for. A New Year is an opportunity for a fresh financial start.
The Joys of Holiday Finances
With trick-or-treating behind us, it is time to turn our attention to the fast approaching Holiday season. During the Holiday it is easy to get carried away with spending, buying gifts for your family and friends, traveling, and purchasing food for Holiday feasts. It is such a season of giving that you may find that you leave yourself with very little to ring in the New Year. Recently, American spending and household credit card debt has been on the rise coinciding with a decrease in household savings.
When your spouse really wants that Apple Watch or your kids need a new smart TV for their room, it may be hard to turn them down. Instead of relying on a budget, you may put those purchases on an existing credit card or open up a new retail credit card to take advantage of the Holiday deals. In my experience, it may be the first time of the year that someone deeply reviews his or her finances and credit card debt accrued over the last 12 months. The realty may not be all that jolly and bright.
When approaching how to finance the Holiday, keep these tips in mind:
- Create a budget. Write it down and stick to it. Seeing how much you are planning to spend or have already spent will keep you focused. It is a lot harder to make that ultimate financial decision at the online check out without first having a plan and budget in place.
- Be okay with saying “no.” You might not be able to fulfill everyone’s wish list this year. Don’t feel as though you have an obligation to buy a gift for every friend and relative. In my family, we have decided that we will draw names for who will buy a gift for whom. That way everyone still receives a gift.
- Avoid retail credit cards. No matter how much GAP Cash or Kohls bucks are thrown your way, you need to avoid these high interest credit cards. You’ll be paying on that Xbox you buy your son with your Best Buy Credit card for way longer than had you just saved the money monthly and bought one without credit.
- Do not buy anything at a rent-to own store. That $500 TV may end up costing you up to five times that amount by the time you pay off the agreement. For a weekly payment of $50, you could have just saved for 10 weeks and purchased the same TV outright.
- Resist the urge to obtain credit through an online retailer. In recent years, I have seen an increase in clients owing places like Fingerhut for Christmas gifts they bought their children. You end up paying for those toys and tablets many times over if you ever pay off the debt in full. You may be catching a theme here.
- Start saving. It is never too early to start saving now for next year’s Holiday spending. Start setting aside an amount per paycheck or designate an amount from your tax refund that you will save for the next Holiday season.
- Get creative. There are other ways to express your gratitude for those you love. Create a special experience or take the time to personally make a gift. After all, it is the thought that counts. A gift does can cost as little as $0.
I promise I am not trying to be a Scrooge. The Holiday are stressful enough. If you have a firm grasp and control of your finances, you take one stressor off your plate so that you can be okay with eating an extra one or twelve of Grandma’s chocolate chip cookies.