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FREQUENTLY ASKED QUESTIONS (continued)...

"How much money do trustees make on bankruptcies?"

It depends on the trustee and the type of bankruptcy. For Chapter 7 cases, a trustee will typically make only $60 per case. However, if he finds an asset that is not exempt, he can sell it for the benefit of the unsecured creditors. When he sells a non-exempt asset, he gets a third of its value for his trouble. So every Chapter 7 trustee is on a treasure hunt. In Chapter 13, the trustee gets an administrative fee - a percentage of all money that goes through his hands to pay creditors- typically, about 10%.

"Can I keep cash during bankruptcy?"

Generally, yes. You have several exemptions and you can keep cash up to a certain amount. The amount depends on what state you live in and on any other items you may wish to exempt which might use up that amount. You need cash to live. Cash is good.

"Can I keep my paid off car?"

Unless it's a brand new car, which might be treated as a luxury purchase, usually, yes. You have an exemption for at least part of the car's value. Cars go down in value as soon as you drive it off the lot. In New Jarsey, your wildcard exemption will often cover the rest of the car's value if you are not using it for something else, like cash or your house. In New York, the state now lets you use Federal exemptions so the result is the same as in New Jersey. In a Chapter 13, you can keep your car as long as you pay the non-exempt portion of the car's value into the plan to your creditors over a five year period, so it's not all that bad.

"After you file Chapter 13, can you start to get some credit like cell phones?"

Yes, if you put the new expense in the plan. Any major new expenses, however, will require permission from the Court. Some creditors may not want to extend credit to someone in bankruptcy, but many will. I have seen some cell phone companies just open up a new account for the debtor without even asking the debtor first. This technically violates the automatic stay, but since debtors want to have the new account and keep the cell phone, usually they don't complain.

"Is there a maximum amount you can earn if you want to file bankruptcy?"

Some types of bankruptcy have debt limits and income ceilings. Others do not. For example, in Chapter 13, under the restrictions found in 11 USC 109(e), the current debt limit to file Chapter 13 for 2016 is $383,175 for unsecured debt and $1,149,525 for secured debt (usually mortgage and car loan debt). Due to the lack of inflation, these are the same amounts as in 2015. This is tricky because if your house value dropped significantly, the unsecured portion of the mortgage (or a second mortgage) gets counted with the credit card unsecured debt and the combined debt may be higher than the debt limit for a chapter 13 bankruptcy. There is a mathematical calculation called the means test which helps figure out the answer to that question. Even if you make more than the means test "median income" amount for your state, there are often ways to fit someone into some type of bankruptcy.

"Is it fraud if you go into bankruptcy on purpose?"

Almost everyone goes into bankruptcy on purpose. Unless someone files a bankruptcy against you - an involuntary bankruptcy (which is rare) - it's a deliberate choice and a deliberate filing. What I think you are asking is "can you run up your bills on purpose and then file bankruptcy to get rid of them?" The answer to that situation is 'no,' because there is a "good faith" requirement to file bankruptcy. Generally, you can't discharge debts on expensive luxury items you bought just before you filed bankruptcy. Use common sense - do you think someone can take an expensive Hawaiian cruise on their credit card, then go home and file a bankruptcy on that debt? Section 523 of the Bankruptcy Code lists the types of debts that can't be discharged. However, sometimes I can cure that problem in special circumstances; for example, if you got back from vacation and your employer suddenly fired you, it's not bad faith. In many cases you can plan a bankruptcy in advance and do some pre-bankruptcy planning with a lawyer to maximize what you keep, so long as you are not greedy or trying to cheat people. You need a lawyer to do this type of pre-bankruptcy exemption planning because it's more art than science.

"How do you protect your cash during Chapter 7?"

Put it in your pocket. All states have an "exemption" schedule allowing you to keep things, including money. Generally, the money you make after filing chapter 7 is yours, provided there isn't a sudden increase in income. You can file bankruptcy and keep some things. You can file bankruptcy and make and keep some money after filing. The better job I do, the more you can keep.

"What happens if you forget to list taxable income?"

That's really a tax question - but generally, accidentally leaving out income is different from deliberately leaving out income. Do it on purpose and you can go to jail. Do it accidentally, and you owe penalties and interest, and you can still go to jail if the IRS doesn't believe you did it by accident. Not listing income on a bankruptcy can be a real problem. One, it may be used to deny you a discharge. Two, the extra omitted income may screw up your means test. Your schedules are signed under oath. If there is a tax problem, I usually deal with it before the actual bankruptcy filing so I can put accurate numbers on the schedules.

"What about an inheritance in bankruptcy? Is the original total debt due when an inheritance is received during a Chapter 13 plan?"

Inheritance and bankruptcy create a special situation. If you get an inheritance during the plan, the money is considered to be part of your disposable income and will go towards paying your creditors. So make sure your rich relatives stay healthy, or that they give you the money before they die, and you won't have to file in the first place. Bankruptcy is not about cheating your creditors if you can suddenly pay your bills; it's for honest people who fell behind in their bill payments and need court help to either get a fresh start or to reorganize the payment of their debts with the money they have.

"Can I keep my car in bankruptcy?"

Usually, yes, you can keep your car in bankruptcy, with some exceptions. But bankruptcy doesn't give you a free car, or everyone would be doing it. If you still owe money on the car, you might even be able to reduce the amount you pay back on the car if you bought it more than 2 1/2 years ago and file Chapter 13. But the court knows you need the car to drive to work, etc., so you can "exempt" (keep) some or all of the value of your car. The monetary value of the car that you can keep varies from state to state and whether they allow federal exemptions or "opt out" and only allow you state exemptions This is somethng to discuss with your lawyer in your state.

Some of the answers above may vary from state to state and the law can change based on a single court case, so don't rely on this. This is basic legal information, but it is not formal legal advice and should not be relied on. Only a lawyer admitted in your state can give you proper legal advice for your particular situation. See my disclaimer/legal notice link below. Congress says I have to say I'm a debt relief agent - I say I'm a bankruptcy lawyer - I have a higher standard.