bankruptcy blog
Nebraska Flood Relief: How a Bankruptcy Can Help
With the devastating floods hitting Nebraska, many individuals are left wondering how they are going to deal with the financial distress that the flooding has caused. Even with flood insurance, some policies may not cover the type of flooding that occurred. Farmers have lost entire herds of livestock. People have lost homes. Businesses have lost entire fleets of trucks. It can be overwhelming.
When dealing with the financial distress exacerbated by a flood, bankruptcy may be the ideal solution. A bankruptcy does not mean you are giving up, it helps provide the tools to move forward.
Chapter 7 Bankruptcy
With a Chapter 7 Bankruptcy, you are able to eliminate your legal obligation on your home mortgage, car loans, credit cards, and medical bills. Wherever you are in Nebraska, you can move forward debt free so that you can focus on rebuilding your life after the flood. The Chapter 7 Bankruptcy process from filing to discharge of debt takes 3-4 months.
Chapter 13 Bankruptcy
With a Chapter 13 Bankruptcy, you are able to handle your debts through a voluntary 3-5 year repayment plan. The Chapter 13 Bankruptcy works well for individuals impacted by the flooding in Nebraska, who have fallen behind on house or car payments, but want to cure the default payments.
Chapter 12 Bankruptcy
For the farmer facing financial hardship because of the flood, a Chapter 12 Bankruptcy is designed to provide assistance through a plan of reorganization/liquidation. One of the main benefits is that any income tax liabilities incurred through liquidation are handled just like a credit card or medical debt.
Chapter 11 Bankruptcy
For the small business owner in Nebraska, the flood may have destroyed equipment, facilities, and vehicles. It may impact customers who no longer have the ability to pay for goods or services. It may impact labor that is unable to make it to work. This all impacts the bottom line and the ability to service debt. A small business in Nebraska may use a Chapter 11 Bankruptcy to restructure/reorganize its business, using the benefits of the bankruptcy laws to do so.
Non-Bankruptcy Debt Resolution
For those experiencing flood-related financial distress in Nebraska, your lenders or the bank may be more willing to work with you to restructure your debt or provide temporary relief.
Bankruptcy & Foreclosure in Nebraska
In Nebraska, most home foreclosures start with the mortgage company filing a Notice of Default with the Register of Deeds in the county where the home is located. The homeowner then receives the Notice of Default by certified mail. Thirty (30) days after mortgage company files the Notice of Default, it will, through its attorney, publish a Notice of Sale for a minimum of five consecutive weeks. The home is then sold at a foreclosure auction.
This process, called a Trust Deed Foreclosure, is quick because Nebraska state law does not require that your mortgage company file a lawsuit to foreclose as there is not right of redemption. This means that once the foreclosure sale takes place, you cannot reinstate or take back ownership of your home.
A Chapter 13 bankruptcy can be a useful tool if you wish to retain your home. As long as the bankruptcy is filed prior to the foreclosure sale, you will be able to retain your home by paying the mortgage arrearage through a Chapter 13 bankruptcy repayment plan. In Nebraska, you will also be required to make your regular monthly mortgage payment.
For example: You were unemployed for eight months and could not pay your mortgage. You are now $8,000 behind and you have received the Notice of Default. You are now back to work and have started making regular mortgage payments. Because of your current income, you do not qualify for a loan modification. Coming up with $8,000 to bring your loan current is not in your budget. You can file a Chapter 13 bankruptcy, stop the foreclosure, and cure your $8,000 mortgage arrearage through a 3-5 year plan.
If you are facing a foreclosure and do not wish to retain your home because you owe more than it is worth, it needs costly repairs, or you can no longer afford the mortgage payment, filing a Chapter 7 or Chapter 13 bankruptcy can protect you from the risk of your mortgage company suing you for potential deficiencies.
Chapter 7 Bankruptcy: Five Common Misconceptions
1. Chapter 7 bankruptcy will ruin my credit for 7 years
It is true that the bankruptcy is reported for up to 7 years after you file your bankruptcy. However, it does not negatively affect you for that long. At the end of your Chapter 7 bankruptcy, you will be debt free (with some exceptions like student loans), which positively impacts your credit. I’ve had clients finance car and home purchases without issue after their bankruptcy cases.
2. I’m going to lose my house and car
This almost never occurs . In Nebraska, you can protect and keep your home as long as you are current on payments when you file and your home has $60,000 or less in equity.
As for your car, you can retain and keep it, if you’re current on payments and your vehicle has less than $10,000 in equity. This is because in Nebraska, you can use the vehicle exemption, which is $5,000, and the wild card exemption, which is $5,000, to protect one vehicle. For a couple filing the Chapter 7 bankruptcy jointly, those amounts can be doubled.
3. Filing bankruptcy is only for people that are behind on making payments
You don’t have to be behind to file bankruptcy. Actually, the best time to look into whether to file is prior to or soon after defaulting on payments.
Example: Your monthly minimum payments are $1,000. You were able to keep up with the payments until your former girlfriend decided she was going to move out. With less income coming into your household, you won’t be able to make next month’s credit card payments.
4. I make too much money to file Chapter 7 bankruptcy
The bankruptcy law includes something called the Means Test, which takes an average of your monthly income for the last six (6) months from all sources (excluding Social Security income), annualizes it (multiplies by 12), and compares it to the median income for your household size. If you’re below the median, you are good to go with a Chapter 7 bankruptcy. If you are above median, you usually are not. However, the Means Test has a 2nd step if you’re above median income that takes into account qualified and allowed expenses (i.e. child support payments, taxes, child care, etc.). Sometimes you may still qualify for a Chapter 7 bankruptcy after this 2nd step even though initially your income was “too high”.
5. If I file, my spouse has to file bankruptcy with me
You are allowed to file a bankruptcy without your spouse. Sometimes this makes a lot of sense. Two common scenarios are when your debt was incurred prior to marriage or you have business-related debt that is only in your name. If you are married and decide to file Chapter 7 bankruptcy without your spouse, you may still have to provide your spouse’s income and assets. However, your spouse’s identifying information, such as Social Security number and name do not have to be disclosed.
There is a lot of misinformation and fear on the internet regarding Chapter 7 bankruptcy, much of which is false and keeps people from using a viable solution to address their debts and move forward.
Learn more about Chapter 7 bankruptcy.
Bankruptcy as a Financial Planning Tool
You want to save more for retirement. You want to save for your kid’s college. You want to plan for your financial future and set financial goals. Standing in the way is your debt. You can’t seem to get ahead or make a dent on the amount of debt you have. It is the ever growing gobstopper. Each month your debt seems to mount even though you never miss a payment. You are current on everything. However, that $50,000 credit card debt is now sitting at $75,000. Everything is maxed out.
As is human nature, we have two immediate responses fight or flight. For the fighters out there, you start searching for ways to solve this problem head on. You start looking at what you have that you could turn into cash to throw at the debt. Maybe it is your retirement account or the equity you have in your house. Maybe it is your mother’s wedding ring. Whatever it is, you’re willing to part with it to deal with the debt problem that you are faced with. That may be a shortsighted response.
A much overlooked financial planning tool is a personal bankruptcy. A bankruptcy is an opportunity for a fresh start, a new financial beginning. It allows you to address your debt and move forward with setting and achieving your financial goals. You no longer feel stuck.
Example 1: John is 50 years old, married, and the guardian of his two minor grandchildren, ages two and five. He qualifies for a Chapter 7 bankruptcy. He has $50,000 in credit card debt and is current on making the payments. However, he has now maxed out all of the cards and is stuck. He and his wife have a goal to start saving something for their grandkids college, but can’t because of their debt. He has $50,000 in a retirement account that he is thinking of withdrawing to pay down his debt. If he does this, he will have $0 saved for retirement and will have to pay taxes on the amount withdrawn. Alternatively, he could file a Chapter 7 bankruptcy and be debt free in as little as 3-4 months. At the same time, he could keep his retirement account in place because it is exempt (protected). The money he was spending making minimum monthly payments on credit cards can now be used to save for his grandchildren’s college.
Example 2: John has $250,000 in his retirement account and a house with $60,000 of equity. He has $100,000 in credit card debt and does not qualify for Chapter 7 bankruptcy because his income is too high. Rather, he qualifies to file a Chapter 13 bankruptcy, which involves a five (5) year repayment plan where he will pay some or all of his debt back. The amount paid on debt depends on John’s income and the value of his assets. At the end of the plan, he will be debt free. John gets to keep all of his assets, including his retirement account and his house, which will most likely continue to accrue value.
If you or someone you know is in financial distress because of debt, bankruptcy should be considered as a viable solution. Liquidating an asset may ultimately do more harm than good. A bankruptcy may allow you to move forward with setting and achieving your financial goals.
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My Chapter 13 Bankruptcy is Filed, Now What?
Plan Payment
- Wage Withholding. The Chapter 13 Trustee will contact your employer to set up the wage withholding to ensure the plan payment is made each and every month. The plan payment will then be withheld from each paycheck you receive. To calculate how much will be withheld from each paycheck use the math in the chart below.
Example: Let’s say your plan payment is $400/month. Your employer will withhold the following based upon your pay frequency:
Frequency of Pay
Amount withheld per paycheck
The Math
Weekly
$95
=(Plan Payment*12)/52
Bi-weekly
$185
=(Plan Payment*12)/26
Twice per month
$200
=(Plan Payment*12)/24
Monthly
$400
=Plan Payment
- Direct Payment. The main reasons for making the plan payment directly are that you are self-employed, unemployed, or receive your income from non-wages (i.e. Social Security, retirement, disability, alimony, etc.).
If you are making a direct payment, you must make the payment via certified funds i.e., money order, postal order, cashier’s check, or certified check made out to Kathleen Laughlin, Chapter 13 Trustee. The Chapter 13 Trustee’s Office will not accept cash payments, personal checks, or wire transfers. You will need to reference your case number.
The payment address:
Kathleen Laughlin, Chapter 13 Trustee
P.O. Box 3287
Omaha, NE 68103-0287
- ACH/Withdrawal from Bank Account. At this time, Nebraska does not have a system for you to make your payment from an automatic withdrawal or ACH payment.
Mortgage Payment
- Pre-filing Arrears. If you were behind on your mortgage payments, then your plan will cure the default and pay the arrears through the plan.
- Post-filing Payments. Your regular monthly mortgage payment is not paid through your plan. You are required to make your post-petition regular monthly mortgage payment directly to your mortgage company.
Vehicle Payment
- Pre-filing Arrears. If you were behind on your car loan payments, then your plan will cure the default and pay the arrears through the plan.
- Post-filing Payments. Your car loan payment will be handled through your plan. You should not make any payments directly to the car lender once you file your bankruptcy.
- You must keep your vehicle insured. From time-to-time, the car lender may request proof of insurance.
Keep your Attorney Informed
- Change in Employment. Your attorney will inform the Chapter 13 Trustee’s Office so that your new employer can be informed to set up the wage withholding for the plan payment.
- Change in Household Size. A change in your household size may impact your household income and/or expenses, which may require an adjustment to your plan payment either temporarily or permanently.
- Temporary Increase in Expenses/Decrease in Income. You need new tires for your car or you had a larger than normal medical bill arise. In these situations, you may have the option to temporarily stop or reduce your plan payment.
- Need a replacement vehicle. Before you finance a replacement vehicle, you will need to file a pleading, asking for the court’s permission to incur the new debt.
Plan Confirmation
- Certification Regarding Domestic Support Obligations. Your attorney will provide you with a certification regarding court-ordered domestic support obligations (child support and/or alimony). If you have a domestic support obligation, then you have to state that you are current on your post-filing domestic. If you don’t have a domestic support obligation, you simply state as much. The reason why this is necessary is that you have to be current on post-filing domestic support obligations in order to have your plan confirmed.
- Tax Returns. In order to have your plan confirmed, you must have filed all required tax returns. If you have not done so, you will need to prepare and file your tax returns as soon as possible after filing.
- Your creditors, the Chapter 13 Trustee, and other parties in interest have an opportunity to review and object to your plan. The Chapter 13 Trustee almost always finds a reason to object to the plan.
- You have an opportunity to provide a response to any objection. Your attorney will prepare and provide this to you and file it with the bankruptcy court.
- The ultimate goal is to have your Chapter 13 bankruptcy plan confirmed. Sometimes your attorney will have to prepare and file an amended plan to address the issues presented in any objection. Once the court confirms your plan, it will remain in place for the next 3-5 years unless it is modified. More on that next.
Attend First Meeting
Now that your bankruptcy case is on file, you will have to attend the First Meeting of Creditors. The Meeting is typically a fairly straightforward ordeal. We will support you with answering the Trustee’s questions regarding the bankruptcy documents that we have reviewed with you prior to filing In order to reduce your stress about going to court, we want to let you know what to expect by providing you with the most common questions and answers.
Plan Confirmation
- Certification Regarding Domestic Support Obligations. Your attorney will provide you with a certification regarding court-ordered domestic support obligations (child support and/or alimony). If you have a domestic support obligation, then you have to state that you are current on your post-filing domestic. If you don’t have a domestic support obligation, you simply state as much. The reason why this is necessary is that you have to be current on post-filing domestic support obligations in order to have your plan confirmed.
- Tax Returns. In order to have your plan confirmed, you must have filed all required tax returns. If you have not done so, you will need to prepare and file your tax returns as soon as possible after filing.
- Your creditors, the Chapter 13 Trustee, and other parties in interest have an opportunity to review and object to your plan. The Chapter 13 Trustee almost always finds a reason to object to the plan.
- You have an opportunity to provide a response to any objection. Your attorney will prepare and provide this to you and file it with the bankruptcy court.
- The ultimate goal is to have your Chapter 13 bankruptcy plan confirmed. Sometimes your attorney will have to prepare and file an amended plan to address the issues presented in any objection. Once the court confirms your plan, it will remain in place for the next 3-5 years unless it is modified. More on that next.
Modifying the Plan
- Limited Motion to Modify. After the plan is confirmed, you may file a Limited Motion to Modify to temporarily stop or reduce the plan payment for a period typically not longer than 3-4 months. If you have a temporary hardship arise, such as a loss of job or increase in medical bills, please reach out to your attorney to explore this option.
- Change in Household Income/Expenses. If your household income permanently decreases/expenses permanently increase during the course of your Chapter 13 bankruptcy, you may be able to file an amended plan to permanently reduce your plan payment. If your household income permanently increases/expenses permanently decrease during the course of your Chapter 13 bankruptcy, you may have to file an amended plan to permanently increase your plan payment. This is because you are required to commit your full disposable income during your 3-5 year plan.
Creditors File Claims
- Most of your creditors have 70 days from the filing date to file claims. Once the deadline passes, the Trustee will provide you with a list of creditors, designating which creditors filed and providing the amounts and treatment of each claim.
- Unsecured Creditor’s Failure to File. If an unsecured creditor (i.e. credit card) fails to file a claim by the deadline, it will receive no payment in your plan and your legal obligation will be discharged at the end of the plan as to that creditor.
- In some situations, it becomes necessary to object to a claim to have the claim disallowed in part or in full. Your attorney and the Trustee review each and every claim filed to determine if an objection is necessary.
Keep your Attorney Informed
- Change in Employment. Your attorney will inform the Chapter 13 Trustee’s Office so that your new employer can be informed to set up the wage withholding for the plan payment.
- Change in Household Size. A change in your household size may impact your household income and/or expenses, which may require an adjustment to your plan payment either temporarily or permanently.
- Temporary Increase in Expenses/Decrease in Income. You need new tires for your car or you had a larger than normal medical bill arise. In these situations, you may have the option to temporarily stop or reduce your plan payment.
- Need a replacement vehicle. Before you finance a replacement vehicle, you will need to file a pleading, asking for the court’s permission to incur the new debt.
- The interplay between bankruptcy and divorce is complex. You will want to inform your bankruptcy attorney if you or your spouse have filed for divorce.
Final Payment
- You Did It! You will want to take the opportunity to celebrate this accomplishment.
- Notice of Final Payment. Once you have made your final payment, the Chapter 13 Trustee will notify your employer to stop the wage withholding and will file a Notice of Final Payment with the bankruptcy court.
- Another Certification Regarding Domestic Support Obligations. Your attorney will provide you with a certification regarding court-ordered domestic support obligations (child support and/or alimony). If you have a domestic support obligation, then you have to state that you are current on your post-filing domestic. If you don’t have a domestic support obligation, you simply state as much. The reason why this is necessary is that you have to be current on post-filing domestic support obligations in order to have your discharge entered.
Learn more about Chapter 13 bankruptcy.
Back to School Budget Blues
Labor Day is behind us. Pools are closed for the season. And you are back in the swing of your school year routine. Now might be the first time you have had an opportunity to review your bank statements since your kids needed new clothes, shoes, school supplies, and sports gear. The expenses came at you fast and furious. Before you knew it, you had spent more than you would have wanted. You have a case of the back to school budget blues.
Do not fret. You can make some simple changes to cure the back to school budget blues.
- Write it down. You don’t have to keep track of your budget and expenses in your head. Start with an itemized list including a total budget. Keep track of expenses as you go so that you know where you need to make adjustments on the go.
- Be realistic. Don’t be over-conservative. I see this all the time. A client will state that an expense is much lower than in reality. The outcome is that the client blows past the budgeted amount, which impacts decisions and the ability to pay for another item.
- Try to stay under budget. You almost always come out better when you spend less than your budget. This is not always possible, but should be a goal.
- Want vs. Need. How many of us heard this growing up: do you want it or do you need it? You should answer this sage question when creating your budget. Provide yourself a category for wants because it is okay to treat yourself every once and awhile.
- Learn how to say “No”. We all do it, say “Yes” to avoid someone’s negative reaction if we were to say “No.” However, we can’t give more than we have. Math does not lie. If you have $4,400 net household income, spending more than that will mean tapping into savings or credit. Saying “No” is a powerful tool to ensure you stay under budget.
- Save. This is easier said than done. Recent studies suggest that the almost 50% of households in the United States couldn’t come up with $400 if they needed it for an emergency. If you work more overtime than usual, save the extra income. If you receive a bonus, save that extra income. If you receive a sizable tax refund, save it.
Over the course of the year, there are several opportunities for you to review your finances. For some it is around the holidays. For others it is right before they receive their tax refund. For people with school-aged children, it is right around the time that school starts. No matter the time of year, that review could show whether or not you are in financial distress.