Driver's License Most states, including Nebraska, have financial responsibility laws that suspend a driver’s license if a person causes an accident and lacks insurance to fully pay the resulting damages.

Filing bankruptcy may allow a person to immediately reinstate their license in most cases, but there are special rules that apply.

  • No alcohol or drugs contributed to the accident.
  • The accident was not intentional.
  • The license was not suspended for failure to pay child support.
  • The license was not suspended as part of a criminal penalty or restitution.
  • The license was not suspended for any other reason than a failure to pay money.

 

It is extremely important that the bankruptcy creditor list include notice to the Nebraska Department of Motor Vehicles, Financial Responsibility Division, and to the other parties involved in the auto accident.  Before the DMV will reinstate the license they will require proof of notice to the DMV and to the other drivers involved in the accident.  If a lawsuit resulted as a result of the damages, notice of the bankruptcy should be filed in that lawsuit as well.

Can I drive again right after filing bankruptcy?

No.  Before you can drive again you must receive a “Letter of Abeyance” from the DMV which allows you to drive until the bankruptcy is final.  It takes about a week after filing bankruptcy for the DMV to issue this letter. You will also be required to provide the DMV with proof of insurance.  Once the bankruptcy Discharge Order is entered at the end of the case, the DMV will issue a permanent license. 

 

What happens if a person fails to list a debt on their bankruptcy case?  That exact question was presented to the Nebraska bankruptcy court when debtor Peggy Gonzalez failed to list her landlord as a creditor in a Chapter 7 case (Nebraska Bankruptcy Case 09-81123).  After the bankruptcy case was completed, the landlord sued Ms. Gonzalez for $6,000 of unpaid rent and in response she applied to reopen her bankruptcy case to add the debt.  The landlord objected to reopening the case and argued that since the debt was not listed it was never discharged and that it had the right to sue for the unpaid rent.

In a previous posting I had written about how the Nebraska bankruptcy court ruled that a debt intentionally concealed in a Chapter 13 case was therefore not discharged, however Ms. Gonzalez filed a Chapter 7 case and there were no non-exempt assets claimed by the Trustee in her case, so creditors received no payments at all. 

Bankruptcy Judge Timothy J. Mahoney ruled that since creditors receive no payment in a “no-asset” Chapter 7 case, the landlord’s debt was therefore discharged even though the debt was not listed and the landlord received no actual notice of the bankruptcy.

The Court was careful to limit is ruling to the following situations:

  1. The case must be a Chapter 7 case. 
  2. No non-exempt assets must be available to pay creditors.
  3. The debt cannot be a non-dischargeable debt specified in Bankruptcy Code Section 523(a)(2), (4) or (6)  (i.e. debts involving fraud, misrepresentation or malicious injury).

The Court went on to say that it is not even necessary to reopen the bankruptcy case if the above factors are present.  The debts are simply discharged–whether listed or not–unless the creditor can show that had it received notice the outcome would have been different.

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I keep reading these stories about how great the Nebraska economy is and how low the unemployment rate is low compared to other states, but based on what I am seeing and hearing in my office these days I have a hard time believing the news.  Yet, they keep reporting the Nebraska unemployment rate at 4.5% while the average rate for the county is 9.3%.  Nevada leads the nation’s unemployment rate at 13.6%.

According to Mary Engel in her MSN Money article, the U.S. Bureau of Labor Statistics also tracks a broader measure of the nation’s real unemployment rate called the U-6 rate.  This rate is also includes the “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”  In other words, it includes those who have stopped looking for work, those marginally employed in part-time jobs, and those short-term contract workers without benefits.

The U-6 unemployment rate does not include those workers who are marginally self-employed, and if those workers were included the true unemployment rate would be even higher, perhaps as much as 3 to 4 percent higher. 

Nebraska’s U-6 Unemployment Rate for the 2nd quarter of 2011 stands at 8.4% while the U.S. rate is at 16.3%.  If you factor in another 4% for marginalized self-employed workers, then the true rate of misery is closer to 12% in Nebraska and 20% nationwide.  That figure tends to compare to what I’m seeing with clients today.

 

The Nebraska Bankruptcy Court has ruled that an unmarried debtor who resided in his home with his long-time girlfriend cannot protect the equity in his home under the Nebraska Homestead Exemption.  See In re Chrisman, Nebraska Bankruptcy  Case 11-41281-TJM.  The debtor, Mark Chrisman, filed Chapter 7 in May of 2011 and listed a home located in Scottsbluff, Nebraska worth $58,000.

The Nebraska Homestead Exemption protect up to $60,000 of the equity in a home for the following debtors:

  • Married couples, with our without children.  This protection continues even if one spouse dies or if the couple divorce.  If you ever resided in the home as married person the Homestead Exemption remains in effect.
  • Individuals who are age 65 or older.
  • Single persons who qualify as “Head of Family.”

Nebraska Statute 40-115 states that “[t]he phrase head of a family . . . includes within its meanings every person who has residing on the premises with him or her and under his or her care and maintenance:

  1. His or her minor child or the minor child of his or her deceased wife or husband;
  2. A minor brother or sister or the minor child of a deceased brother or sister;
  3. A father, mother, grandfather, or grandmother;
  4. The father, mother, grandfather, or grandmother of a deceased husband or wife;
  5. An unmarried sister, brother, or any other of the relatives mentioned in this section who have attained the age of majority and are unable to take care of or support themselves; or
  6. A surviving spouse who resides in property which would have qualified for a homestead exemption if the deceased spouse were still alive and married to the surviving spouse.”

To claim the Homestead Exemption a debtor must actually live in the home on the date the bankruptcy petition is filed.  The Courts often struggle with the issue of whether a debtor actually had supported a dependent in the home, and the Courts often look to such evidence as tax returns and other legal documents to see if the debtor claimed another person as a dependent prior to filing bankruptcy. 

Since Chapter 7 cases involve the liquidation of nonexempt property, a debtor should be absolutely certain of whether they qualify for the Homestead Exemption prior to filing a case.  Keep in mind that there is no liquidation of assets in Chapter 13 cases and that might be a better alternative if the exemption is in doubt.

Chapter 13 cases involve a payment plan over 3 to 5 years.  No case may be completed in less than 3 years (unless an undue hardship exists), nor may the plan extend beyond 5 years.

Since 2005, the Bankruptcy Code now requires that debtors whose income is above the median family income levels to remain in Chapter 13 for 5 years.  Median family income is based on data collected by the US Census Bureau and the Internal Revenue Service, and the United States Trustee (the government agency that oversees bankruptcy cases) publishes updates to those income levels  on their website. 

For cases filed after March 15, 2011, the following median income levels apply in Nebraska:

Household Size

Median Family Income

1

$ 38,915

2

$ 54,124

3

$ 65,486

4

$ 71,097

 

* Add $7,500 for each individual in excess of 4.

 

 

 

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The 8th Circuit Bankruptcy Appellate Panel has allowed a debtor who was ineligible to receive a discharge in a Chapter 13 case to strip wholly unsecured liens filed against a debtor’s homestead.  In the case of In re Fisette, No. 11-6012 (8th Cir. BAP Aug. 29, 2011), the debtor was ineligible to receive a discharge because he had received a discharge in a Chapter 7 case filed within four years of filing Chapter 13.  Bankruptcy Code Section 1328(f) prohibits a court from granting a Chapter 13 discharge if a debtor had received a discharge from a previous Chapter 7 case filed within 4 years of filing Chapter 13. 

This case is significant for two reasons:

  1. The case settles a disagreement among the bankruptcy courts of the 8th Circuit (Minnesota, North Dakota, South Dakota, Missouri, Iowa, Nebraska and Arkansas) as to whether bankruptcy courts could strip wholly unsecured second mortgage liens (i.e., the home is worth less than the balance of the first mortgage). 
  2. Lien Stripping is allowed even in cases where a debtor is ineligible to receive a discharge because of a prior Chapter 7 bankruptcy.

Michael Fisette owned a home that he valued at $145,000 on his bankruptcy schedules, but the balance of his first mortgage loan exceeded the value of his home.  He also had a second and third mortgage loans that caused the home to be worth substantially less than the loans against it.  Given the nationwide trend of lower home values, it made little sence for Mr. Fisette to keep his home unless the 2nd and 3rd mortgage liens could be terminated.

Lien Stripping is a power that exists in Chapter 13 cases but not in Chapter 7.  The ability to strip a junior mortgage lien is one of the critical factors to consider when deciding what type of bankruptcy to file.  The ability to strip a junior lien is often the key factor in deciding whether to keep a home.

Bankruptcy attorneys should give special attention to cases where it appears that very little if any equity is attached by a second mortgage.  In cases where the value of the home is almost equaled by the balance of the first mortgage, the debtor should be encouraged to obtain an appraisal of the home.  Other significant factors to consider include the following:

  • Tax Assessment value of home.
  • Date the home was purchased.
  • Purchase price of the home.
  • Amounts invested to improve the home.
  • Significant repairs required.
  • Sales prices of homes in nearby neighbors.
  • Condition of adjacent homes.

Lien stripping in Nebraska requires the bankruptcy attorney to file an Adversary Proceeding in the Chapter 13 case.  Basically, you have to sue the junior mortgage company to request the Court to determine the value of the home and the amount of each lien.  I see too many debtors blindly filing Chapter 7 cases without considering the tremendous benefit of stripping that home equity line of credit or debt consolidation second mortgage. 

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Somewhere between 30 to 50 thousand civil lawsuits are filed in Nebraska each year.  Unfortunately, very few people actually bother to respond to the lawsuit and therefore suffer a Default Judgment being entered against them.  I would estimate that over 90% of the debt collection lawsuits result in uncontested default judgments.

Here is what you should know if you are ever sued in civil court for an unpaid debt:

  1. File a WRITTEN REPLY to the lawsuit with the Clerk of the Court.  The Summons you receive says that an “appropriate response” must be issued within 30 days.  What that vague statement means is that the reply must be written, it must be signed, and it must be filed with the Clerk of the Court within 30 days. 
  2. There is usually a standard form available from the Clerk of the Court called an Appearance and General Denial.  Simply enter your name, address, phone number, case number and then sign the form. Have the clerk review the form and have them file it.
  3. If a creditor obtains a Default Judgment they will then have the power to garnish up to 25% of your paycheck and all of the money in your bank account.  By filing a written answer with the Clerk of the Court you will prevent a Default Judgment from being entered.
  4. Demand a copy of your contract.  If you are being sued on a credit card debt, demand the creditor provide you with a copy of the signed credit agreement.  If the creditor cannot provide a copy of a signed agreement you win the lawsuit.
  5. Demand an Accounting.  You have the right to review all the charges to your account.
  6. Request all Documents.  You have the right to request all the documents relevant to the case, including the contract, billing statements, correspondence, etc.  Review all their documents, both paper and electronic.
  7. Affirmative Defenses: In your written reply you may want to include certain affirmative defenses, such as the Statute of Limitations which bars claims that are too old.  In Nebraska the Statute of Limitations on a written contract is 5 years from the date of last payment and 4 years on a verbal contract.
  8. Countersuit: If you were sued by someone who owes you money or who caused you damage, you have the right to assert that claim for damage against them. If the hospital is suing for unpaid medical bills but they also dropped you after surgery resulting in a broken leg, you may want to mention that in your reply.
  9. Seek Legal Advice:  If possible, have an attorney review your written reply.  The courthouse is packed with smart attorneys.  Show your written reply to one of them and ask for advice.  Believe it or not, most attorneys are really good people who are willing to give you some free advice.

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Over the past few years we have been hearing stories of phony legal documents used by foreclosure firms.  As a bankruptcy attorney I receive a lot of literature about how banks have “lost” thousands of mortgage documents and that many of the foreclosures conducted in the country are illegal since there is no written proof that the foreclosing bank actually owns the loan.  Recently I saw a 60-Minutes show on this very issue, and even though I was well acquainted with these stories, I was astounded at the depth–not to mention the incredible stupidity–of the fraud.  The 60-Minutes reporter provided interviews of the individuals hired by the largest mortgage firms in America to falsify loan documents so that the banks could foreclose their loans.  A single employee would sign thousands of fraudulent mortgage papers per day.

The existence of these phony documents places an additional burden on bankruptcy attorneys to examine the claims filed by mortgage companies in the bankruptcy case.  How can we be sure the bank owns the loan?  Very commonly a debtor will default on the mortgage payment during the bankruptcy case, especially during Chapter 13 cases which are open from 3 to 5 years, and the bank’s will file a request with the Court to resume the foreclosure process.  The question the Court used to ask was what proof did the homeowner have that payments were made.  Now the question has become, what proof exists that the bank owns the mortgage? 

How do you prove that the bank owns the mortgage?  Typically the bank that originates the loan will then sell the loan, along with hundreds of other loans, to an investment trust comprised of thousand of mortgage loans.  Frequently, the loans are sold from trust to trust.  However, each time the loan is sold the owner must sign a written Assignment of Mortgage to transfer ownership of the mortgage to the new owner.  In a rush to sell loans, the banks skipped over the important step of signing mortgage assignments, thus beginning the process of signing phony assignments when those loans defaulted and proof of the assignments were required in the foreclosure proceedings. So, a key job of the bankruptcy attorney is to examine the “chain of title” by reviewing each assignment of the loan.  How do you verify that the assignment is not phony?  Really, that is an incredibly difficult question, but the 60-Minutes story makes me wonder if we now must require live testimony of each individual that signs a mortgage Assignment document.

Over 30,000 lawsuits have been filed against mortgage companies alleging foreclosure fraud, and recently Bank of America and JP Morgan Chase have offered nearly 20 billion dollars to settle these allegations.  Naturally, my concern is that it will be funded with Monopoly money.

 

 

 

How long do you have to wait to file bankruptcy if you have filed in the past?

The answer is that there is no limit to how many times you may file bankruptcy, but there are a few special rules governing how often a bankruptcy case will discharge your debts when you have filed before. Here are the rules to receive a discharge in the new bankruptcy case:

  • 8 years between Chapter 7 cases.
  • 2 years between Chapter 13 cases.
  • 4 years between a prior chapter 7 and a new Chapter 13.
  • 6 years between a prior Chapter 13 and a new Chapter 7.

The time is measured from the date the previous case is filed and not for the date the prior discharge is entered. 

The 2-year rule between successive Chapter 13 cases is silly since Chapter 13 cases normally take 3 years to complete at a minimum.  Hence, the rule almost never applies.  A person can file one Chapter 13 case after another and get a discharge in each succeeding case.  There are actually a few unfortunate people who, because of chronic medical problems and a lack of health insurance coverage, file one Chapter 13 case after another to prevent wage garnishments. 

One of the most important things to understand about these rules is that even though you may not receive a discharge of your debts in a subsequent bankruptcy case, you will still get the benefit of the bankruptcy protection that stops foreclosures, wage ganishments, collection calls, etc, while the new bankruptcy case is pending. 

For example, if you filed Chapter 7 one year ago and now your home is in foreclosure because you lost your job, you can still file Chapter 13 to invoke the bankruptcy protection to stop the foreclosure sale, although you will not receive a discharge of any debt.  Lots of people are mistakenly under the belief that you cannot file another case for 8 years, but that is not the case.  A new Chapter 13 case may not wipe out the new debt, but it will allow a person up to five (5) years to structure a repayment plan to bring the mortgage payment current. 

If you filed bankruptcy before and now find yourself in a new financial problem, contact a a knowledgeable bankruptcy attorney about your options. 

Chapter 13 is a 3 to 5 year payment plan supervised by a bankruptcy trustee designed to reorganize relatively small debtors.  Big companies or individuals with substantial debt seeking to establish reorganization plans (as opposed to filing a Chapter 7 liquidation bankruptcy) must file Chapter 11.  The streamlined procedure of Chapter 13 is limited to individual debtors with smaller amounts of debt, and the cost of Chapter 13 is significantly less than Chapter 11.

Bankruptcy Code §109(e) provides the following eligibility guidelines.

  1. Individual Debtors only.  No corporations may file Chapter 13.
  2. Unsecured, noncontigent, liquidated debts not to exceed $360,475.
  3. Secured debts not to exceed $1,081,400.
  4. The debtor must have regular income. 

The debt limits are indexed to inflation and are updated every 3 years. (Bankruptcy Code §104(b)).  The next scheduled change is set for April 1, 2013.

Student loan debts, especially for debtors with advanced degrees, when combined with credit card and medical debts can often disqualify an individual from Chapter 13 relief. 

Debtors who have personally guaranteed business debts of their company may also find themselves disqualified from filing Chapter 13.

Debtors who have personally guaranteed business debts of their company may also find themselves disqualified from filing Chapter 13.  However, pay special attention to the type of unsecured debt that is limited by §109(e).  The unsecured debt must be noncontingent and liquidated as measured on the date the bankruptcy is filed.

Bankruptcy cases tend to distinguish personal guarantees that are “absolute” from guarantees that are merely “contingent.”  For example, if a debtor owns a company with a $500,000 building or equipment loan that is personally guaranteed by the debtor, may that person file Chapter 13?  Several factors need to be considered and a close examination of the loan guarantee must be performed.  Does the bank have to liquidate the building or equipment before it may seek payment from the guarantor, or may the bank initiate collection upon a mere default of the company’s debt?  Does the bank have to accelerate the loan before the guarantor is liable? There are several factors that must be reviewed to determine whether the amount of a personal guarantee will count against the debt limits of §109(e).