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Dayton Bankruptcy Attorney Personalized Debt Relief Solutions If you are overwhelmed by debt, you may feel as though no one can help you. However, there is help available, and the sooner you take advantage of it, the sooner you will find debt relief solutions. Speaking with a knowledgeable bankruptcy attorney is an easy first step …

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Should I use my retirement savings to pay down debts in Ohio?

Should You Use Your Retirement Savings to Pay Off Debt?

When you’re in a financial bind, it can be tempting to think about all of the assets you have and how you can use them to support you in the short term. This is especially true if you’re receiving harassing phone calls from creditors.

Making the Creditor Calls Stop: Should I Use My Retirement Funds?

Perhaps a creditor has convinced you that getting started on a payment plan can allow you to get back on track, and desperate to stop the phone calls, you consider pulling some funds out of your retirement account in order to make that first payment.

You might come across the idea of using your retirement accounts and borrowing against them in order to pay off debts innocently, but you need to realize all the potential implications of moving forward with this. This can be really tempting when you’re facing a financial struggle and it feels like you have no options.

Exemptions in Bankruptcy

If you’re in a financial bind, you might be thinking that you’ll have to give everything up if you eventually file bankruptcy. It is true that if you do have assets and you decide to file bankruptcy, some of these may be used to pay off creditors. What’s important for you to research ahead of time, however, are whether you can use any exemptions. It is not true that the bankruptcy trustee can take everything you own out from under you in order to pay down creditors. Although certain pieces of property are accessible through the bankruptcy court, both federal and state laws may protect certain items or accounts, including your retirement accounts.

Retirement accounts are almost always exempt in a personal bankruptcy case. This means you can file a case, discharge debt, and emerge on the other side with your retirement intact.

What Happens to My Retirement Funds in Bankruptcy?

Years spent building up your retirement savings, however, can easily fall apart if you attempt to cash out of a retirement account. This option can be even more tempting if you have recently lost your job and you have the option of rolling over your IRA to a new job or pulling the funds out. Bear in mind that there are also potential tax consequences of withdrawing the money from an IRA so you should always speak to your accountant first before doing this. You should weigh down how much you might be able to earn by keeping the money invested in an IRA against the cost associated with carrying credit card debt.

Reasons to Leave Your Retirement Funds Untouched

Taking money out of your retirement fund in order to pay down debt can also lead to other negative consequences. For example, if you pull the funds out of your retirement fund in order to get a creditor off your back, this seems like it addresses the issue in the short term but it can actually cause more problems down the road.

For example, if you are in so much debt that you are unable to get on top of the matter or if you withdraw so much out of your retirement account that you are facing tax penalties or other fees, you may find yourself worse off than you were before.

Another major benefit of leaving the funds inside your retirement account is that these funds are almost always protected in the form of bankruptcy exemptions. This means that even if you ultimately do need to file bankruptcy, your retirement funds will stay intact, giving you peace of mind that you will have access to those funds in the future even if you have to give up other assets in the discharge process. As you can see, there are significant costs associated with using your retirement funds in order to pay down debts.

It is generally not a good idea.

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Income Guidelines to Qualify for Chapter 7 Bankruptcy in Ohio

Ohio Chapter 7 Means TestUpdated June 1, 2016. 

There’s no way around it – dealing with debt is just plain hard. But there are a number of ways to handle it and get your financial health back on track. One of those ways is bankruptcy. It allows you to wipe out your debts and start over fresh. It’s not an easy decision to make and it’s not right for everyone, but it can really make a difference in the amount of debt you have to deal with. You may even end up debt free!

One of the first questions you need to tackle when filing for bankruptcy is whether to file under Chapter 7 or Chapter 13. Under Chapter 13, you’ll work with the bankruptcy trustee to create payment plan for the next five years, after which your remaining unsecured debt will be discharged. You’ll also have to repay your secured debt up to the value of the collateral. Chapter 7 bankruptcy is commonly referred to as “liquidation.” In Chapter 7, the bankruptcy trustee will liquidate, or sell, your non-exempt assets to pay back your creditors.

If you have large amounts of unsecured debt and few assets, you might want to file for Chapter 7. However, the court wants to ensure that only those truly in need of Chapter 7 relief file under that chapter. If you can pay back your creditors in a meaningful way, Chapter 7 is not for you. In other words, you may make too much money to file under Chapter 7. The court will make that decision based on the “means test.”

Step One: Median Income Comparison

The first step of the means test compares your average monthly income over the last six months to the median income in your state. For cases filed after May 1, 2016, the median income for a single earner in Ohio is $44,849 per year, or $3,737 per month. For a 2-person household, it’s $55,771 per year, or $4,648 per month. For larger households, check this chart on the Department of Justice’s website for official median income information.

Now, add up your income over the last six months and divide it by six. If the result is less than $3,737, you qualify for Chapter 7 bankruptcy. If not, you must continue to the next step of the means test.

If you earned more than the median income in your state for the six months prior to filing for bankruptcy, the court is concerned that you might actually be able to pay some of your debts, making liquidation unnecessary and unfair to creditors. To prove that you do, in fact, need to file under Chapter 7, you’ll need to show that you don’t have enough disposable income to make payments under Chapter 13.

Step Two: Disposable Income

Start with your average monthly income from the first step. You’ll subtract your allowable expenses to find your disposable income. Allowable expenses are based on national standards for living, health care, and car ownership costs and local standards for housing and transportation costs. For a single person, national standards allow $570 per month in living expenses for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses. That’s further broken down into $307 for food, $30 for housekeeping supplies, $80 for apparel and services, $34 for personal products, and $119 for miscellaneous expenses. A single person under the age of 65 can also deduct $54 for out-of-pocket medical costs and a single person over 65 can deduct $130. For larger families, you can find the allowed living expenses here.

For a single person in Miami County with a mortgage and a car, you can deduct $740 for your mortgage or rent and $457 for other housing expenses, like property taxes and maintenance.  and $226 for vehicle operating costs. Here’s the data for other counties and larger families.

You can also take out a deduction for the cost of a car. It’s $471 for a single car and $942 for two cars. If you have one car, you can deduct an additional $191 for the associated expenses; the deduction for two cars is $382. That’s meant to cover things like gas and insurance.

Finally, you can deduct payroll taxes, childcare expenses, court-ordered payments, and certain insurance expenses.

Step Three: Disposable Income and Unsecured Debt

Take your monthly disposable income from the first step and multiply it by 60. This figure represents the total amount you could pay to creditors through a Chapter 13 plan. Then, add up all of your unsecured, non-priority debt (credit card debt, medical debt, etc.). Divide the total by four; this is the court’s standard for significant repayment of your creditors. If the first number is less than the second, meaning that you will not have enough disposable income to repay 25% of your unsecured debt over 5 years, you qualify for Chapter 7. If you will have enough to pay the 25%, you’ll have to file under Chapter 13.

Totality of the Circumstances

Calculations aside, the court may examine your Chapter 7 filing by evaluating the totality of the circumstances surrounding your case. For example, you may drive a luxury car and live in big loft downtown; you might qualify for Chapter 7 by the numbers but you don’t actually need it. The court will probably require you to file under Chapter 13 in that situation. On the other hand, you may have more than $207 in official monthly disposable income and still demonstrate your need for Chapter 7 bankruptcy (due to a family or health matter, for example). In that case the court will allow you to file under Chapter 7 even if you fail the means test by the numbers.

Filing for bankruptcy is complex and you don’t want to make any mistakes. Check out an online means test calculator to see if you might be eligible for Chapter 7 bankruptcy. Before you file, talk to an experienced attorney to make sure you’re filing the right way.

 

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Death Of A Spouse: What Happens To Your Debt When You Die?

 

What happens to your debts when you die? Dealing with the death of a spouse is difficult enough even without the financial issues involved – like the debt you spouse left behind. Managing debt while grieving can seem insurmountable. Many surviving spouses must learn how to navigate the payment of their deceased spouses’ debts, including learning which debts affect the surviving spouse and which debts the surviving spouse is not responsible for paying. So, what happens to your debt when you die? And what does that mean for your spouse?

Personal Debts

When a person passes away, he or she typically leaves some bills behind. Credit card bills, phone bills, and other debts for money spent on personal items and care are generally not the responsibility of a deceased person’s spouse. Money owed to creditors for these individual debts is collected from the deceased spouse’s estate, not directly from the surviving spouse. For example, if a wife uses a credit card in her name to purchase clothes and the bill is unpaid upon her death, the credit card company must collect from her estate, not directly from her widower.

Joint Accounts, Joint Responsibility

There are some cases in which a surviving spouse, not the estate, may be responsible for unpaid bills. Jointly-held accounts, such as credit cards or other debts in both spouse’s names, remain the responsibility of the surviving person whose name is on the account or statement. If the surviving spouse’s name is also on the bill while both spouses are alive, he or she is jointly responsible for paying it before the unfortunate death of the spouse and remains responsible for the debt after the spouse passes away.

Similarly, if a surviving spouse signed an agreement to be responsible for his or her deceased spouse’s bills, the surviving spouse may be liable for those unpaid bills upon the spouse’s death. These agreements are often called financial obligation forms and are signed before services, such as medical procedures, are rendered. A surviving spouse will often be aware that he or she signed such a form. If not, the form that the surviving spouse signed should be shown to the surviving spouse as proof that he or she took on responsibility for the deceased spouse’s debts using a contract.

Ohio Doctrine of Necessaries Exception

While the debts of a deceased spouse generally do not pass to the surviving spouse, there are certain exceptions. Ohio law contains an important exception related to debt of a deceased spouse: the Doctrine of Necessaries (sometimes called the Doctrine of Necessities).

Historically, the Doctrine of Necessaries was the legal embodiment of the idea that spouses should provide necessary items for each other (or, in some states, that husbands should provide necessary items for their wives). This doctrine maintained that, because spouses should support each other and the health of their family, one spouse can “borrow” for necessaries against the other’s “credit,” even if this credit was not set out in a formal contract or other instrument.

The Doctrine of Necessaries in Ohio says that a spouse may be responsible for debts incurred by a deceased spouse for things that are “necessities”, or essential to providing for the family as a whole, since a spouse’s health is a critical part of the entire family’s wellbeing. Ohio Rev. Code § 3103.03(c). Necessities have been defined by various courts to include food, clothing, shelter and medical expenses of the deceased spouse. In some situations, creditors can collect from the deceased spouse’s estate, as in typical collections scenarios, before holding the surviving spouse responsible for any remaining debts for necessaries. In other situations, the surviving spouse is responsible as if the spouses were on a joint account. Due to the complicated nature of the Doctrine of Necessaries, it is wise to consult with a bankruptcy attorney when figuring out which bills one may or may be liable for in the state of Ohio.

Doctrine of Necessaries and Medical Bills

Medical bills are in a gray area under the Doctrine of Necessaries. If a spouse was sick or hospitalized for a long time prior to passing away, medical bills may have piled up. And trying to pay them is often the farthest thing from a spouse’s mind during the grieving process.

Medical debts often come into question because, while they seem individual in nature, a spouse’s medical debts incurred during marriage may also be considered essential to providing for the family. Because of this, a surviving spouse may potentially be held liable for a deceased spouse’s medical bills in Ohio under the Doctrine of Necessaries. Again, this is a complex issue and should be handled by an experienced bankruptcy attorney.

Other Necessaries

Other common debts may also run into trouble under the Doctrine of Necessaries. These include a couple’s mortgage and a couple’s utilities. Remember that “necessaries” were historically determined to be elements that a family needed to survive and support its members. Sometimes, a telephone company seeking to collect from a surviving spouse may have difficulty proving that telephone service is a “necessity”, since telephone service is not essential to a family’s survival even though virtually every family does have a telephone. Similarly, the Doctrine of Necessities is not crystal clear with respect to mortgages or other home-related debts in Ohio. An experienced bankruptcy attorney can help you navigate these debts and avoid paying more than you have to under the law.

What happens to your debts when you die?

Deciphering what happens to debts after the death of a spouse can be complicated and confusing. In Ohio, the Doctrine of Necessities makes matters even more complicated, adding the need to determine whether an outstanding debt was for a “necessary” and therefore the responsibility of the surviving spouse. To make matters easier on a surviving spouse, you may consider consulting with an estate planner to make decisions about what happens to your debt when you die before it happens – you can rearrange assets and set up contracts to protect your spouse as much as possible from your debts.

 

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Ohio Homestead Exemption: Can I Keep My Home in Bankruptcy?

Ohio Homestead Exemption BankruptcyLast updated March 30, 2017.

Your home is one of your largest assets. Your mortgage is probably the largest loan you’ll ever take out. If you’re struggling to pay your bills, it’s also probably your biggest worry. Bankruptcy might be your best option, but what happens to your home when you file?

Ohio Homestead Exemption

The Ohio homestead exemption provides protection for homeowners during a bankruptcy. Essentially, it prevents a bankruptcy trustee from uprooting you from your home and selling it during your bankruptcy proceeding.

There are two main ways to file bankruptcy as an individual that offer protection of your home, depending on which you qualify for: Chapter 7 or Chapter 13. Although bankruptcy either clears your debt or puts you on a payment plan for it, it doesn’t just give you a free home.

If your home is exempt through the bankruptcy proceeding, you will still need to pay the mortgage as usual. Chapter 7 bankruptcy will discharge your personal liability under the mortgage, but will not extinguish the bank’s claim on your property. In other words, the bank won’t be able to sue you for collection but will still be able to repossess and sell it if you don’t make payments.

See also: Will Filing for Bankruptcy Stop Foreclosure in Ohio?, What Factors Influence Your Mortgage Interest Rate?

Chapter 7 Bankruptcy and Your Home

Chapter 7 is a “liquidation” process. All of your assets temporarily become a part of your bankruptcy estate. Your bankruptcy trustee will then sell those assets and distribute the proceeds to your creditors.

If you qualify to file under Chapter 7, which is based on your income, the fate of your home will depend on the amount of equity you have in your home (the difference between the value of your home and the amount you still owe on it). In Ohio, if you have less than $125,000 of equity in your home (or $250,000 for married couples filing jointly), it’s exempt and can’t be touched by the trustee. If you have more than that in equity, the bankruptcy trustee may try to sell your home, pay you $125,000, and distribute the rest to creditors.

Chapter 13 Bankruptcy and Your Home

Under Chapter 13, you’ll work with creditors and your bankruptcy attorney to create a 5-year repayment plan. Your plan will need to include full payment to your secured creditors (or allow for continued payments after the end of the 5-year term) and as much of a payment as possible for your unsecured creditors.

The Chapter 13 payment plan is based on your levels of disposable income. Under Chapter 13, as long as your mortgage is included in the plan and you keep making payments, you’ll be able to keep your home.

Chapter 13 bankruptcy also can help prevent foreclosure by allowing debtors to pay back mortgage arrearages in manageable increments.

See also: Should I Refinance My Mortgage?, How to Negotiate with Your Mortgage Loan Servicer

Get Help from an Experienced Bankruptcy Attorney

Bankruptcy can be pretty complicated, especially when you’re dealing with a lot of assets, like a home you’ve put a lot of work into or bought as your dream house and want to keep. In Ohio, bankruptcy is a common solution to relieving debt — in fact, it’s one of the top 10 states for bankruptcy filings.

At Cope Law Offices, we will work with you on creative debt solutions and help win your bankruptcy case. Contact us today for a free case review.

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What Happens If The Trustee Moves to Dismiss My Bankruptcy Case?

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Under Chapter 7 bankruptcy law, the court may dismiss your case if it believes that relief is unwarranted based on your financial circumstances. 11 USC § 707(b)(1) reads:

After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under Chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter.

If the trustee or the judge moves for dismissal of your case, the court will inquire into your financial situation and choose one of three remedies:

1) you are entitled to Chapter 7 relief;

2) your case does not warrant Chapter 7 relief, but may be converted to a Chapter 13 case; or

3) you are not entitled to any bankruptcy relief.

SEE ALSO: Do I Qualify for chapter 7 bankruptcy in Ohio?

In re West

The case of In re West, 324 BR 45 (S.D. Ohio 2005) provides a nice example of what can happen when a trustee moves to dismiss a case. Here are the facts:

Mr. and Mrs. West earned almost $93,000 per year, or about $5700 monthly. The Wests were having difficulty keeping up with multiple mortgages and car payments and a luxurious lifestyle, so they filed for Chapter 7 bankruptcy. According to the Wests’ bankruptcy schedules, they had only $14 left over from their monthly income after expenses.

Because their debts were mostly consumer debts and because they maintained a relatively high income, their bankruptcy trustee moved to dismiss the Wests’ case under § 707(b)(1), claiming that relief would be an abuse of the bankruptcy system.

The “Substantial Abuse” Test

The court noted that dismissal of a case under §707(b)(1) requires evidence that allowing Chapter 7 relief would be a substantial abuse of the bankruptcy laws. To make that determination, courts examine the totality of the circumstances surrounding the debtors’ case.

Generally, a court can dismiss a Chapter 7 case for either of two reasons: 1) The debtors are guilty of fraud or misrepresentations relating to their bankruptcy schedules; or 2) Even if there has been no fraud, the debtors have been irresponsible with their spending, and thus bankruptcy can be avoided by changes in lifestyle.

The Decision

The court decided to allow the Wests to convert their case to a Chapter 13 bankruptcy. The court found that the Wests had been honest in creating their bankruptcy schedules but had been too careless with their spending. They spent far more than necessary on telephone service, food, and other expenses. The Wests could easily reduce their monthly spending by as much as $500 monthly and contribute those savings toward a Chapter 13 payment plan.

The Wests had a much higher income than most Chapter 7 filers. While a high income does not automatically constitute grounds for dismissal of the case, it does indicate that a more cautious use of financial resources could solve a financial dilemma, making bankruptcy unnecessary. Allowing Chapter 7 relief would amount to a substantial abuse of the bankruptcy laws in Wests’ case.

Practical Considerations

Both the bankruptcy trustee and the court have the power to move to dismiss a bankruptcy case for abusing the system. In order to qualify for bankruptcy, you must be both honest and sensible. Consult an experienced attorney to determine what type of bankruptcy, if any, is right for you.

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Chapter 13 Bankruptcy is Binding Once Approved

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The Binding Effect of Chapter 13 Confirmation

Under the legal doctrine of judicial estoppel, once a Chapter 13 bankruptcy plan has been confirmed, all issues relating to the confirmation of that plan have been resolved. 11 USC § 1327(a) states:

“The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.”

This means that if a party neglects to raise an argument or make an objection relating to the bankruptcy prior to confirmation, then that party has forfeited the ability to later raise such an argument or objection. The case of In re Crum presents a nice illustration of how this rule functions, and also the effect it can have on your bankruptcy case.

In re Crum

In the case of In re Crum, 479 BR 734 (S.D. Ohio 2012), Mr. and Mrs. Crum were a husband and wife involved in bankruptcy. The Crum’s were both named on the mortgage of their home, which was issued by CitiMortgage. The mortgage was for approximately $113,000, and the home was valued at approximately $105,000. A mortgage is a form of secured debt, meaning that the house acts as collateral in the event the debtor defaults on payments. Thus, even in bankruptcy, a creditor can still foreclose the home if the debtor is unable to make timely payments.

See also: the automatic stay and corporations

The Crum’s Chapter 13 Payment Plan

Accordingly, as part of their Chapter 13 payment plan, the Crum’s agreed to surrender their home to the creditor, CitiMortgage. The Chapter 13 plan stated that the home would become the property of CitiMortgage, and that any remaining balance owed on the mortgage would become an unsecured claim. Secured claims take priority over unsecured claims, which means that the unsecured claims only get paid in bankruptcy if there is enough money left over after paying off the secured claims.

The Crum’s still owed $20,000 on the home. However, the Chapter 13 plan contemplated no money to be left over for unsecured claims. Thus, when the Chapter 13 plan was confirmed, the home became the property of CitiMortgage, and the $20,000 balance became an unsecured claim that CitiMortgage would be unable to recover. CitiMortgage then sold off the property with the intention of keeping the money as satisfaction of the debt owed.

The Trustee vs. CitiMortgage

Later, however, the trustee discovered that Mrs. Crum may not be a party to the mortgage after all. Yet, Mrs. Crum still held title to one-half interest of the property. Thus, the bankruptcy trustee hypothesized that Mrs. Crum’s one-half of the interest in the property was actually an unsecured debt that could not be taken by the creditor, CitiMortgage. Accordingly, the trustee initiated a lawsuit against CitiMortgage, arguing that because the home became a part of the bankruptcy estate upon confirmation, CitiMortgage is only entitled to one-half of the money raised by selling the home, with the other half remaining part of the bankruptcy estate. The half that remained with the estate could then be used to pay off other debts.

The Court’s Decision

The trustee, the Crum’s and CitiMortgage had already accepted the Chapter 13 payment plan, and the bankruptcy court had already confirmed the plan. Because confirmation of the Chapter 13 plan is binding on all parties, the only way that the trustee could now have Mrs. Crum’s one-half interest in the property reclassified as an unsecured debt would be to modify the Chapter 13 payment plan.

However, as the court noted, the Chapter 13 plan can only be modified in a limited number of situations, most of which involve redressing some form of fraud. In this case there was no such fraud. In looking to the above-mentioned doctrine of judicial estoppel, the court decided that once an issue has been determined, it cannot later be altered. The trustee sought to allege that Mrs. Crum’s debt was unsecured, but because the parties had failed to make such a demonstration prior to confirmation, they had lost their ability to make that claim now. Thus the plan in this case could not be modified because the parties had failed to object to the fact that Mrs. Crum was classified as a party to the mortgage.

See also: Ohio Foreclosure Laws: What You Need to Know

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