Ed Magauran Consumer Bankruptcy Blog

Social Security Income excluded from projected monthly disposable income in Hawaii Chapter 13 Bankruptcy

Edward D. Magauran — Wed, 05 Dec 2012 00:11:28 +0000

We hate to see people who have worked hard all their lives use their Social Security earnings to try to pay down high-interest credit card debt. So we’re pleased that another appellate court has weighed in favorably for retirees on the question of whether Social Security income must be included in calculating the monthly payments that chapter 13 filers must make in their debt consolidation plans.

The Fifth Circuit Court of Appeals is the latest to hold that a chapter 13 debtor’s Social Security income is not included in determining the debtor’s “projected disposable income” available for repayment of credit card and other unsecured debts. In re Ragos, — F.3d —, 2012 WL 5292949 (5^th Cir. Oct. 29, 2012). The Tenth Circuit Court of Appeals had issued a similar ruling just a few days prior. In re Crammer, — F.3d —, 2012 WL 5235365 (10^th Cir. Oct. 24, 2012). Both courts also held that a chapter 13 debtor’s exclusion of Social Security income from the debtor’s projected disposable income in proposing a chapter 13 plan does not demonstrate a lack of good faith.

Our own Ninth Circuit Bankruptcy Appellate Panel has also held that a chapter 13 plan could not be determined to be in bad faith solely on the basis of the debtors’ exclusion of Social Security income from the calculation of disposable income. In re Welsh, 465 B.R. 843 (B.A.P. 9^th Cir. Feb. 17, 2012).

We think the plain language of the Bankruptcy Code makes this an easy question to settle. The Code provides that a chapter 13 plan cannot be confirmed over the objection of an unsecured creditor or the bankruptcy trustee if the debtor does not devote all “projected disposable income” over the life of the plan to payment of unsecured creditors. 11 U.S.C. § 1325(b)(1)(B). The Code in turn defines “disposable income” as “current monthly income” minus reasonable expenses. 11 U.S.C. § 1325(b)(2). “Current monthly income” is the average income a debtor received in the six months before filing for bankruptcy. 11 U.S.C. § 101 (10A)(A). The Code expressly provides that “benefits received from the Social Security Act” are excluded from the calculation of “current monthly income.” 11 U.S.C. § 101(10A)(B).

Congress has demonstrated a clear policy preference for encouraging retirement savings over repayment of credit cards and other general unsecured debt. The Bankruptcy Code protects tax-exempt retirement savings up to $1 million from the reach of creditors. 11 U.S.C. § 522(d)(12), 522(n). Repayment of 401(k) loans is also excluded from the disposable income calculation in chapter 13. 11 U.S.C. § 1322(f). And the “means test” that determines eligibility for chapter 7 expressly excludes Social Security payments from income calculations. 11 U.S.C. S 707(b)(2).

These policy choices make economic sense. Society as a whole is worse off if a retiree has to get extra support from friends, family or the government because of unwieldy credit card or other debt. Congress has made a calculated decision to give our kupuna a break, through the Bankruptcy Code. For those on the edge of eligibility for chapter 7, this can make a critical difference and allow for a payment-free fresh start. For those whose household earnings rule out chapter 7 relief, the exclusion of Social Security income can mean an affordable debt consolidation plan that ensures a comfortable retirement.

If debt is interfering with your ability to enjoy your twilight years, call us today at 808-585-1000 for a free no obligation consultation. The Law Office of Edward D. Magauran serves clients on all Hawaiian Islands, including Oahu, Maui, the Big Island, Kauai, Lanai and Molokai.

Can I Keep My car in Bankruptcy?

Edward D. Magauran — Thu, 08 Nov 2012 23:26:05 +0000

Can I keep my car in bankruptcy?

We’ve heard the question more times than you’ve cursed the traffic on our Island roads and highways. And we understand why: Next to our homes, our cars are our most precious material asset. We count on them to get us to work, to haul our groceries, and to carry our most precious assets of all — our kids.

The fear of having to give up a safe, dependable and comfortable vehicle is enough to keep some people from even inquiring about the possibility of filing bankruptcy. Such fears are almost always unjustified, though. In the vast majority of cases, you can keep your car — even multiple cars — in bankruptcy. What’s more, for many bankruptcy filers, it is even possible to retain a vehicle on more favorable terms than the car loan provides.

First of all, let’s dispense quickly with the idea that the bankruptcy judge is going to demand that you hand over the keys to Old Betsy before he grants your bankruptcy discharge. Remember, the whole idea of the Bankruptcy Code is to provide a fresh start to the “honest but unfortunate debtor.” Congress and the courts understand that a car is essential to most people’s livelihoods and to getting that fresh start. There are generous exemptions that protect cars and other essential items of property, up to certain values, from being liquidated by a bankruptcy trustee. Rarely in our practice do we encounter an individual who is unable to exempt the full value of their vehicle. And when we do, the Bankruptcy Code offers other options for retaining the vehicle, including filing a chapter 13 bankruptcy case where no property is ever liquidated.

One of the worst mistakes a person can make is to transfer their car title to a friend or relative soon before filing bankruptcy in hopes of avoiding having the car sold by a bankruptcy trustee. The bankruptcy trustee has the power to undo such transfers, and when he or she does, the bankruptcy filer most likely will lose the exemptions that would have protected the car from liquidation had the transfer not occurred.

If you are still paying the bank for your car and want to keep it, the Code gives you several options for doing so. One attractive but rarely used option for those who are upside down on their car loans — as most borrowers are — is to “redeem” the vehicle in a chapter 7 case by paying the lender the fair market value of the car and discharging the balance through the bankruptcy case. Since this requires a lump sum payment, few bankruptcy filers are able to take advantage of this option, but we are pleased when circumstances allow for it.

In a chapter 13 case where the car loan was taken out more than 910 days before the filing of the bankruptcy case, the loan can be modified so that the principal is reduced to the current retail value of the car and is paid over a three to five-year period at an interest rate that presently stands at 4.75 percent. Even newer car loans can often be modified in a chapter 13 bankruptcy to reduce high interest rates to the current court-set rate of 4.75 percent. Don’t miss our video on this subject at http://www.youtube.com/watch?v=VVAr10-LLfw.

For those borrowers who simply want to keep paying for their cars under the original loan terms and can afford the payments, the Code allows them to do so in any chapter. In a chapter 7 case, however, Code changes made in 2005 allow the lender to repossess the vehicle if the borrower does not sign an agreement reaffirming the car loan. Signing a reaffirmation agreement means that the reaffirmed amount will not be discharged in the bankruptcy case. Sometimes, we are able to negotiate a reduction in principal or interest rate as a condition of signing a reaffirmation agreement. Some of our clients prefer to forego signing a reaffirmation agreement altogether and take the chance that the lender will not exercise its right to repossess the car as long as the loan payments are made on time.

With or without a reaffirmation agreement, timely car loan payments can help rebuild credit scores after bankruptcy.

For those who don’t want or can’t afford to continue making payments on their car loan, there is the option of surrendering the vehicle and discharging the loan in the bankruptcy case.

So don’t let your love affair with your car keep you from getting advice from an attorney about whether bankruptcy is right for you. With our combined twenty-six years of legal experience, we can help you escape the credit rat race and get you on the road to financial security.

Call us today at 808-585-1000 for a free no obligation consultation. Dump the debt and get a fresh start.

The Law Office of Edward D. Magauran files bankruptcies from our Honolulu office on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!

Bankruptcy Hawaii and Co-signed Debt

Edward D. Magauran — Mon, 27 Aug 2012 22:09:01 +0000

Money regrets. Who doesn’t have them? Among the poor and even among the rich, not to mention everyone in between, you’ll find that each person has more than a few. Some can be remedied.

One of the deepest and most frequently expressed money regrets we encounter in our practice has to do with co-signing loans. These statements of money regret come from both the “principal” borrowers and the co-signers who have lent them their good name and credit history.

Maybe you were the “principal” borrower who was too young to have established credit, or maybe you were already starting your descent in the debt spiral and needed help to qualify for a car loan to help you get to work, or a student loan to help you better your earning capacity, or a personal loan to help you try to consolidate your unwieldy debt. A trusting and creditworthy friend or relative was willing to come to your aid by affixing his or her signature on the promise to pay the creditor back. Now life has handed you setbacks in employment or health, and you cannot make good on all your financial commitments, no matter how hard you try. You’ve learned that bankruptcy will let you dump most or all of your debts, but you wonder, “What will happen to that loan my mother/brother/best friend co-signed for me?”

First of all, cast aside all popular misconception and wishful thinking. Co-signing a loan does not mean that the co-signer is only a borrower “on paper” and does not really have to pay for the loan if they never received the proceeds or got to drive the car that was purchased with the loan. In most states, including Hawaii, the creditor does not have to pursue the primary borrower before pursuing the co-signer if payments are missed. And the co-signer is not just “50 percent responsible” for the balance owed on the loan. Under the vast majority of loan contracts where there is a co-signer, each party signing is responsible for the entire loan balance. In Hawaii, if the primary borrower defaults, the co-signer can be sued for the entire balance owing and his or her wages can be garnished or his or her real estate liened upon to satisfy a judgment in the creditor’s favor.

There is good news, however. If you are unable to meet all of your financial commitments, Chapter 13 of the Bankruptcy Code will allow you to make good on that commitment to your co-borrower while paying what is often a very small dividend (pennies on the dollar) on your remaining debt. The Bankruptcy Code generally provides that all general unsecured creditors — those without collateral or special “priority” such as tax or child support creditors — must be treated equally. But the Code provides an exception for co-signed obligations for consumer debts. Those can be paid in full over three to five years through a Chapter 13 payment plan, while other creditors receive a usually much smaller dividend (again, pennies on the dollar in most cases). What’s more, co-signers on consumer debts are protected from any act to collect on the debt if a Chapter 13 payment plan that is complied with provides for full payment of the loan obligation and the person in bankruptcy is the one who benefited from the loan.

The protections for co-signers and favorable treatment for co-signed loans do not apply in Chapter 7 bankruptcy cases. In a Chapter 7 case, the person filing the case can have his or her liability on a loan discharged in full, but the co-signer will remain liable for 100 percent of the balance owing and will not be protected from the co-debtor stay that applies in Chapter 13. When a primary borrower has dumped his or her co-signed debt in a Chapter 7 case, sometimes it becomes necessary for the co-signer to file his or her own bankruptcy case if the loan is for an unmanageable amount.

Our advice: Think hard, very hard, about co-signing a loan or asking a friend or relative to be a co-signer. But if transaction has already happened and gone sour, know that the Bankruptcy Code offers protection and a way out to both the primary borrower and co-signer.

Call us today at 808-585-1000 for a free no obligation consultation. Dump the debt and get a fresh start.

The Law Office of Edward D. Magauran files bankruptcies from our Honolulu office on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!

Meeting of Creditors?

Breezy — Thu, 01 Mar 2012 22:07:11 +0000

What is a meeting of creditors when filing for bankruptcy in Hawaii?

Medical Bills?

Edward D. Magauran — Thu, 01 Mar 2012 21:50:48 +0000

What happens to my medical bills if I file for bankruptcy in Hawaii?

Bankruptcy and 401K

Edward D. Magauran — Thu, 23 Feb 2012 21:29:13 +0000

Honolulu Bankruptcy Attorney Ed Magauran tells about 401K’s and filing for bankruptcy in Hawaii.

Can I keep repaying my retirement loan?

Breezy — Sat, 18 Feb 2012 08:16:17 +0000

Honolulu Bankruptcy Attorney Ed Magauran answers “Can I keep repaying my retirement loan if I file for bankruptcy?”

Why you shouldn’t borrow from your 401k.

Edward D. Magauran — Fri, 30 Sep 2011 21:29:18 +0000

Honolulu Bankruptcy attorney Ed Magauran explains why you shouldn‚Äö√Ñ√¥t borrow from your 401k.

Call us today at 808-585-1000 for a free no obligation consultation. Dump the debt and get a fresh start.

We file bankruptcies on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!

Why a Chapter 13 needs to be Feasible.

Edward D. Magauran — Fri, 30 Sep 2011 20:51:47 +0000

Honolulu Bankruptcy attorney Ed Magauran explains why a chapter 13 needs to be feasible.

Call us today at 808-585-1000 for a free no obligation consultation. Dump the debt and get a fresh start.

We file bankruptcies on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!

Why shouldn’t I consolidate my debt?

Edward D. Magauran — Tue, 27 Sep 2011 10:23:57 +0000

Honolulu Bankruptcy attorney Ed Magauran explains why you shouldn’t consolidate your debt.

Call us today at 808-585-1000 for a free no obligation consultation. Dump the debt and get a fresh start.

We file bankruptcies on all the Hawaiian Islands, Oahu, Big Island, Maui and Kauai. Find out what we can do for you today!