The Woodlands TX Bankruptcy Attorney » Rich Shea

Inherited IRA Included in Bankruptcy Estate

Rich Shea — Sun, 27 Jun 2010 19:17:28 +0000

Property you own is included in your bankruptcy estate unless your Woodlands Bankruptcy Attorney manages to find a legal basis for exempting it. One of the common exemptions people take advantage of is the exemption for retirement accounts. Unfortunately, this exemption is not without limits and a recent case reminds us of the boundaries of this bankruptcy exemption within the federal bankruptcy exemption rules.

Janice Chilton, a debtor in a bankruptcy case, claimed the IRA she inherited from her mother is exempt under §522(d)(12). The discussion that follows is limited to the federal exemption for retirement accounts and not the Texas exemption.

Section 522(d)(12) of the Bankruptcy Code allows your Woodlands Bankruptcy Lawyer to exempt “[r]etirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457 or 501(a) of the Internal Revenue Code of 1986.” In order to determine whether funds are exempt under §522(d)(12), the Court must engage in a two-part test. First, the Court must determine whether the funds are “retirement funds.” Second, if the funds are retirement funds, the Court must determine whether the funds are exempt from taxation under the applicable provisions of the Internal Revenue Code.

The Retirement Funds Test

Janice Chilton’s bankruptcy attorney argued to the Court that the funds in the inherited IRA are clearly retirement funds since they are in a retirement account. The court in this case stressed that adopting that interpretation of “retirement funds” would be much broader than intended by Congress and would in fact exempt any property in a retirement account and not just “retirement funds.”

The Court looked to the whole statutory text and all the words of §522(d)(12) in determining the plain meaning of “retirement funds.” It found Congress repeatedly used the word “retirement” in §522 to qualify the types of funds and accounts that may be exempted from the bankruptcy estate. Although the Bankruptcy Code does not define “retirement,” the term is generally understood as “withdrawal from one’s position or occupation or from active working life.” The Court concluded that, viewing the words “retirement funds” in their entire context, they cannot reasonably be understood to authorize an exemption of an inherited IRA. The funds contained in an inherited IRA are not funds intended for retirement purposes but, instead, are distributed to the beneficiary of the account without regard to age or retirement status.

The Exempt from Taxation Test

Even though the Court found an inherited IRA did not pass the “retirement funds” test, it went on to consider the “exempt from taxation” test in this case.

Janice Chilton’s bankruptcy attorney argued that the inherited IRA is an eligible rollover under Internal Revenue Code §402(c)(11) and, therefore, is exempt from taxation under §408(e)(1).

The Court ruled an inherited IRA, which is a vehicle for receiving distribution from a tax exempt account, does not fit within the definitional scope of §408(e)(1) and as a result that section cannot be used to claim a bankruptcy exemption.

The court completed its analysis by noting inherited IRAs are controlled by Section 402(c)(11) of the Internal Revenue Code. The tax status of an inherited IRA controlled by Section 402 is not a recognized basis for exempting the account under Section 522(d)(12) of the Bankruptcy Code.

Get Help

The Shea Law Firm is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t risk losing property you may be able to keep. Call (832) 426-3913 and speak with a Woodlands bankruptcy lawyer today.

LoneStarBankruptcy.com provides the latest news and information on Chapter 7 and Chapter 13 bankruptcy in the Southern District of Texas. The Federal Bankruptcy Court for the Southern District of Texas covers many communities including: Houston, Spring, Conroe, The Woodlands, Montgomery County, and Harris County. If you need legal assistance with a personal bankruptcy matter speak with a Woodlands Bankruptcy Attorney today at (832) 426-3913.

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2010 Federal Bankruptcy Exemptions

Rich Shea — Tue, 22 Jun 2010 21:05:32 +0000

Every three years the federal bankruptcy exemptions are adjusted for inflation. The adjustment for 2010 applies to cases filed on or after April 1,2010. The federal bankruptcy exemptions are:

Homestead: $21,625
Vehicle: $3,450
Household Goods: $11,525 total with no single item exceeding $550
Jewelry: $1,450
Wild Card: $1,450
Tools of the Trade: $2,175
Unmatured Life Insurance: $11,525
Personal Injury Claims: $21,625
IRA: $1,171,650

Remember these are only the federal exemptions. Texas also has its own set of bankruptcy exemptions which you may be entitled to keep. Exactly which set provides you with the most protection depends on your unique circumstances. Your bankruptcy lawyer can review your situation and help you pick to best exemption rules.

Get Help

The Shea Law Firm is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t risk losing property you may be able to keep. Call (832) 426-393 and speak with a Woodlands bankruptcy lawyer today.

Why You Need to Choose Texas or Federal Exemptions Carefully

Rich Shea — Mon, 17 May 2010 21:16:48 +0000

Every Woodlands Bankruptcy filer faces a choice to use the Texas or Federal Bankruptcy property exemptions. They each have their pros and cons. Exactly which exemption rules are better depends entirely on your unique case. Once you choose to use either the Texas or Federal Bankruptcy exemptions you may not be allowed to change your choice later on even if your circumstances change after your case is filed. The wrong choice can result in you losing property that you may have been able to keep through Bankruptcy. That is what happened to the Schellenbergs. Do not let it happen to you, call (832) 426-3913 to speak with a Woodlands Bankruptcy Attorney today.

Background

The Schellenbergs filed a Chapter 13 Bankruptcy petition on February 2, 2009. The purpose of the filing was to protect from foreclosure a horse ranch that the Schellenbergs had built that was to serve as their homestead and horse training business. The Schellenbergs had borrowed $772, 000 from First State Bank of Central Texas (“FSBCT”) on or about August 10, 2006. On the date of their bankruptcy petition, the Schellenbergs owed the full amount of the Note plus accrued interest in the amount of $802, 045.06.

At the hearings on FSBCT’s Motion for Relief from Stay, Mrs. Schellenberg testified that it was her life’s dream and ambition to operate a horse business. She further testified that the Chapter 13 filing was to halt foreclosure and to find alternative financing. The Schellenbergs were unable to find alternative financing and the Court granted FSBCT’s Motion for Relief from Stay which allowed FSBCT to conduct a foreclosure on August 4, 2009.

On or about March 5, 2009, the Schellenbergs filed their Schedules. The Schellenbergs’ homestead property was listed as exempt with a value that exceeded the debt by roughly $575,000. The Schellenbergs claimed state exemptions and, as such, the homestead property was completely exempted.

After FSBCT conducted its foreclosure, the Schellenbergs converted their case to Chapter 7 on September 10, 2009. The Schellenbergs then filed Amended Schedules on October 30, 2009. The Schellenbergs switched the basis of their exemptions to federal exemptions. Notably, the Debtors did not list their homestead property or its purported equity in their Amended Schedules because the property had been foreclosed.

Because the Schellenbergs had switched from state to federal exemptions upon conversion to Chapter 7, and also because the Schellenbergs no longer claimed a homestead exemption, the Schellenbergs were able to exempt property after conversion to Chapter 7 that they did not exempt when they filed Chapter 13. Specifically, the Schellenbergs now exempted four checking and one savings account in the aggregate amount of $3,068.55. Further, they have exempted a personal injury award with a stated recovery of $15,000.10 and some miscellaneous items in the amount of $225.

The Objection

The Chapter 7 Bankruptcy Trustee filed his Objection to Debtors’ Amended Schedule C Property Claimed or Exempt on November 25, 2009. The Chapter 7 Trustee does not dispute the Debtors’ right to file amendments to their Schedules. That said, the Trustee argues that the Schellenbergs have already removed real property from the bankruptcy estate by exempting the real property under Section 522(b)(3). In doing so, the Schellenbergs also removed the purported equity of over $568,000 in the property. The fact that the property was foreclosed does not change the property’s exempt status. Now the Schellenbergs wish to exempt even more property from the estate by using federal exemptions. The Trustee asserts that switching exemptions is prejudicial to creditors.

The Response

The Schellenbergs contend that there is no prejudice to the Chapter 7 Trustee because they claim that the Fifth Circuit focuses on whether there is prejudice to a creditor who relied on the Debtors’ exemptions before conversion. As such, because the Chapter 7 Trustee was not a party during the Chapter 13 bankruptcy, there can be no detrimental reliance by the Chapter 7 Trustee. Moreover, the Debtors contend there is no prejudice to the Chapter 13 Trustee because she cannot liquidate property.

Also, the Debtors that contend even if the Court were to analyze the matter from the perspective of a hypothetical unsecured creditor, there is still no prejudice because it was unlikely that the Debtors could have sold their homestead for the stated equity. Moreover, FSBCT did foreclose on the property, leaving no equity to anyone. The Debtors also contend that there has been no showing that any party/creditor detrimentally relied on the Debtors’ initial exemptions such that they are prejudiced by the amended exemptions.

Analysis

The Court finds the Chapter 7 Trustee is correct in his arguments. The Fifth Circuit held in In re Williamson that exemptions, for purposes of when they are determined in a case converted from Chapter 11 to Chapter 7, are determined on the petition date. The Fifth Circuit did, however, recognize that amendments under Rule 1009 are liberally construed if there was no bad faith or prejudice to creditors. Similarly, in In re Sandoval the Fifth Circuit held that a homestead exemption in a case converted from Chapter 13 to Chapter 7 is determined on the petition date.

As the Trustee points out, exemptions are determined on the date of petition, not conversion. Further, although Rule 1009(a) does allow for liberal exemptions, exemptions can only be allowed under applicable law. The Schellenbergs elected to file Chapter 13 and protect their perceived equity in their homestead. The Chapter 13 case failed. The conversion to Chapter 7 affords the Chapter 7 Trustee the ability to administer non-exempt assets. As such, the Schellenbergs ‘ cash, personal injury award, and miscellaneous personal property are subject to administration. The Schellenbergs are incorrect in their assertion that there is no prejudice – both the Chapter 13 and 7 Trustees relied upon the original claim of exemptions as did the creditors. To allow the Schellenbergs to amend their exemptions gives them the ability to exempt more property than was originally claimed and was originally exempt. The Court granted the Trustee’s Objection.

Get Help

The Woodlands Bankruptcy Attorney is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t risk losing property you may be able to keep. Call (832) 426-393 and get help today.

In re Schellenberg, 09-10272-CAG

The First 15 Days of Your Chapter 7

Rich Shea — Wed, 27 Jan 2010 12:58:33 +0000

Each Woodlands Bankruptcy case has their own timeline. However, there are certain court imposed deadlines that you must meet. Your case can be dismissed if you do not provide the required information to your Woodlands Bankruptcy Attorney in time to meet these deadlines.

Here is what must be taken care of in the first 15 days of your Chapter 7 case. This is the bare minimum, depending on your circumstances additional filings may be required.

Filing Fee of $245. This must be paid when your case is filed, unless you file a request for installment payments or a waiver.
Administrative fee of $39 and trustee surcharge of $15.
Voluntary Petition. Names and addresses of all creditors of the debtor. These documents must be filed WITH the petition.
Notice to Individual Debtor with Primarily Consumer Debts under 11 U.S.C. § 342(b). Your Woodlands Bankruptcy Attorney must give you this notice before your case is filed and it must be certified on your original petition or within 15 days.
Statement of Social Security Number. This must be submitted with the original petition.
Individual Debtor’s Statement of Compliance with Credit Counseling Requirement. Exhibit D must be filed with your petition. The certificate itself can be filed with the petition or within 15 days.
Statement of current monthly income. This must be filed with the petition or within 15 days.
Schedules of assets and liabilities. This must be filed with the petition or within 15 days.
Schedule of executory contracts and unexpired leases. This must be filed with the petition or within 15 days.
Schedules of current income and expenditures. This must be filed with the petition or within 15 days.
Statement of financial affairs. This must be filed with the petition or within 15 days.
Copies of all payment advices or other evidence of payment received by the debtor from any employer within 60 days before the filing of the petition. These must be filed with the petition or within 15 days.

Get Help

The Woodlands Bankruptcy Attorney is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t risk the judge dismissing your case because you missed a deadline. Get help today.

Your Duties in Chapter 7 Bankruptcy – Part 5

Texas Bankruptcy Exemptions – Jewelry

Rich Shea — Wed, 06 Jan 2010 12:39:14 +0000

Exempt property is the property you can keep in a Chapter 7 case without having to turn over to the bankruptcy trustee. Any property you have that your Conroe Bankruptcy Attorney does not claim as exempt or that does not qualify as exempt is subject to being turned over to the bankruptcy trustee and liquidated to repay debts. Texas law provides for several property exemptions. Today we will examine the exemption for jewelry.

Sections 42.001(a) and 42.002(a)(6) of the Texas Property Code allow an exemption for jewelry not to exceed 25 percent of the aggregate limitations prescribed for exempting personal property. As of this date, the personal property exemption limit is $30,000 for an individual or $60,000 for an individual that qualifies as head of a family unit.

How Does the Jewelry Exemption Work?

In a case where you can exempt $30,000 of exempt personal property, the jewelry exemption is limited to $7,500.

In a case where you can exempt $60,000 of exempt personal property the jewelry exemption is limited to $15,000.

Both of these figures are aggregate amounts, meaning all of your jewelry combined cannot exceed the above dollar amounts. It is not a per item exemption.

Get Help

Your Conroe Bankruptcy Attorney is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Keep all the property you are entitled to keep with your exemptions. Get help today.

In re Fink, Case No. 07-36827-H3-7 (Bankr. S.D. Tex. 9/17/2009)

File Your Case Faster

Rich Shea — Tue, 05 Jan 2010 22:13:40 +0000

A lot of information is required for your Conroe Bankruptcy Attorney to prepare your case. Until now, much of the information had to be gathered by filling out a printed questionnaire which could be very time consuming and inconvenient.

As of today, LoneStarBankruptcy.com is proud to feature an online questionnaire to allow you to submit the information needed to prepare your bankruptcy case to your Conroe Bankruptcy Attorney online. This new process will allow you and your bankruptcy attorney to get your case filed much sooner than before. No more handwriting out creditor addresses or waiting for papers to go back and forth in the mail. The online questionnaire is free and you can get started by using the button on the right of the screen.

The printed form is still available if desired.

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What Is Your Current Monthly Income?

Rich Shea — Tue, 29 Dec 2009 00:36:06 +0000

Last time we began to look at the Means Test your bankruptcy attorney must prepare for your case if you are attempting to qualify for the benefits of Chapter 7 bankruptcy. A vital component to the Means Test is the calculation of your Current Monthly Income. In order to determine your Current Monthly Income (CMI), your Conroe Bankruptcy Attorney will average certain income that you (and in a joint case, your spouse) received in the six months before your bankruptcy filing.

CMI includes:

income from all sources, whether or not taxable, and
any amount paid by an entity or person other than you (or your spouse in a joint case) on a regular basis for your household expenses, your dependents, and (in a joint case) your spouse if not otherwise a dependent.

What Must Be Included?

The following types of income will be included in your Current Monthly Income. Additional items may be included depending on the circumstances of your case.

Gross wages (before taxes, salary, tips, bonuses, overtime, commissions
Income from the operation of a business, profession, or farm.
Rent and other real property income
Interest, dividends, and royalties.
Pension and retirement income.
Regular contributions to the household expenses of the debtor or the debtor’s dependents, including child or spousal support.
Unemployment compensation.
Income from all other sources.

Is Anything Excluded?

The federal Bankruptcy law excludes from your CMI “benefits received under the Social Security Act” and certain payments to victims of terrorism, war crimes, and crimes against humanity.

Get Help

Your Conroe Bankruptcy Attorney is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t let a mistake in calculating your Current Monthly Income or another issue harm your pursuit of debt relief. Get help today.

The Chapter 7 Means Test

The Chapter 7 Means Test

Rich Shea — Mon, 21 Dec 2009 14:46:22 +0000

The Means Test was created in the Bankruptcy Reform Act of 2005. It may be the most important test you are facing right now. If you fail it you may not be eligible for a Chapter 7 discharge of debts. If you pass it, then you can pursue a Chapter 7 discharge with the help of your Montgomery County Bankruptcy Attorney.

What is the Means Test?

The Means Test is an income test to determine if your are eligible to file a Chapter 7 bankruptcy. Your bankruptcy attorney must complete several steps to complete your Means Test. First, we look back and average your income over the six month period prior to filing the case. Next, your bankruptcy attorney compares your income to the median household income in your county for a household of a similar size. If your income is below the median income, your are presumptively eligible to file a Chapter 7.

If Your Income is Too High

If your income is above the median, it requires additional analysis to determine if you are eligible to file Chapter 7. You may still be eligible, but your bankruptcy attorney will need to build a case for you based on your expenses. The IRS has developed certain allowances for housing, transportation, medical expenses etc. which may be deducted from your income. There are also additional IRS allowances based on taxes, insurance, child care, telecommunications, charitable contribution etc. In addition, your Conroe Bankruptcy Attorney may also subtract payments for secured loans such as mortgages, vehicles and other secured property. Priority debts such as child support and alimony may also be deducted from your income.

If You Fail the Means Test

You can fail the means test if after deducting all of the allowable expenses from your average current income you have approximately $100.00 or more available to pay creditors. Failing the means test creates a presumption that the case should not be eligible for Chapter 7. The U.S. Trustee will generally bring a motion to dismiss the case. The motion can be defended against by showing special circumstances. Special circumstances can be a reduction in income or job loss. Other special circumstances could be a long commute, high medical bills, student loan payments etc.

Get Help

Your Conroe Bankruptcy Attorney is here to help you get through the bankruptcy process and protect your rights to the fullest extent. Don’t let a mistake on the Means Test or another issue harm your pursuit of debt relief. Get help today.

LoneStarBankruptcy.com provides the latest news and information on Chapter 7 and Chapter 13 bankruptcy in the Southern District of Texas. The Federal Bankruptcy Court for the Southern District of Texas covers many communities including: Houston, Conroe, The Woodlands, Montgomery County, and Harris County. If you need legal assistance with a personal bankruptcy matter speak with a local bankruptcy attorney today.

Is Your Debt Presumed Nondischargeable?

Rich Shea — Tue, 17 Nov 2009 14:04:25 +0000

One of the key features in a Chapter 7 Bankruptcy proceeding is the ability to discharge certain debts and provide a meaningful fresh start to an overwhelmed person or family. It is important to understand that not every debt can be discharged in a Chapter 7 bankruptcy. One of the significant exceptions to a discharge order are debts for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s financial condition. It may not seem like it at first glance, but some common purchases or debts can easily fall into this exception and end up not being discharged. If you want your bankruptcy attorney to discharge as much of your debt as possible, then keep reading.

As a bankruptcy attorney in the Houston federal court I see this exception to the discharge rule most often come into play in two more specific subcategories. These are:

consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.

Are all debts incurred within 90 days presumed nondischargeable?

No, the key term is “luxury goods or services.” The bankruptcy rules explain “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor. If your debt is incurred within 90 days of filing but is not for luxury goods or services then your bankruptcy attorney in Houston may help you avoid the presumption of nondischargeability.

What can you expect if you have charges within 90 days or cash advances within 70 days?

It is a growing trend among credit card companies to request the Houston Bankruptcy Court rule these debts nondischargeable in an adversary proceeding. This strategy often works when a person is going through the bankruptcy process alone and does not know how to defend himself or herself from the credit card company, or even worse, ignores the adversary proceeding entirely. Often times in those situations the debt is ruled nondischargeable and it follows the bankruptcy filer even after their other debts are discharged. The presumption is on their side unless your bankruptcy attorney can defeat or rebut the presumption.

A Woodlands Bankruptcy Attorney at your side can help you get the discharge you are entitled to. Don’t just file for bankruptcy, get meaningful debt relief at the end of your case.

LoneStarBankruptcy.com provides the latest news and information on Chapter 7 and Chapter 13 bankruptcy in the Southern District of Texas. The Federal Bankruptcy Court for the Southern District of Texas covers many communities including: Houston, Conroe, The Woodlands, Montgomery County, and Harris County. If you need legal assistance with a personal bankruptcy matter speak with a local bankruptcy attorney today.

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Discover Card Wins $8,000 Default Judgment Against Houston Bankruptcy Filer

Rich Shea — Wed, 08 Jul 2009 14:22:23 +0000

Bankruptcy in Houston is not an automatic procedure. You do not get your debts discharged simply by filing your petition no matter what anyone who is not an attorney may tell you. Bankruptcy is a legal process between you, your creditors, and the bankruptcy trustee. In order to have as many of your debts discharged as possible you must protect your rights. If you do not protect your rights nobody else will. In the case of In Re Crandall the bankruptcy filer did not have a Houston Bankruptcy Attorney, and this is what happened.

Mr. Crandall decided to do his own bankruptcy. He filed the initial petition and thought he was all set, how hard can it be? Soon after Mr. Crandall’s Houston bankruptcy petition, Discover Card filed an adversary proceeding objecting to having the debt he owed them discharged.

Mr. Crandall did nothing, thinking all he had to do to get his discharge was file the first bankruptcy petition.

With Mr. Crandall not protecting his rights, Discover Card submitted enough evidence to obtain a default judgment preventing the discharge of the credit card debt. At the end of the day, not having a bankruptcy attorney probably cost Mr. Crandall a lot more than having an attorney.

The Crandall case is important because with the help of a Houston Bankruptcy Attorney Mr. Crandall could have fought the default judgment matter and may have had the $8,000 credit card debt discharged as he desired. Do not make the same mistake Mr. Crandall did. Speak with a Conroe Bankruptcy Attorney today.

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