Bankruptcy Relief Recently, I met with a man who was running a small business out of a storefront. Well it turned out that he was unable to survive at that current location. The problem was that he had a lease that expired five years into the future. So here he was with a business that+ Read More The post Not Everyone Qualifies For Chapter 7 Bankruptcy Relief appeared first on David M. Siegel.

Bankruptcy Avoidance Powers The chapter 7 bankruptcy trustee is the individual appointed by the Department of Justice to oversee the administration of your chapter 7 bankruptcy case. The trustee’s main duty is to examine the debtor under oath in a section 341 meeting of creditors and determine whether or not there are any assets to+ Read More The post Chapter 7 Trustee Has Bankruptcy Avoidance Powers appeared first on David M. Siegel.

Chicago Utilities You can file bankruptcy on your past-due utility bills. You may owe money to Comed and are close to a shut off. You may owe money to Nicor gas and are close to a shut off. You may owe money to AT&T and are already shut off. No matter what your situation, if+ Read More The post Filing Bankruptcy On Your Chicago Utilities appeared first on David M. Siegel.

Joint Bankruptcy Filing a joint bankruptcy makes perfect sense when you are married and both you and your spouse have either joint debt or separate debt. Since the means test is going to take into consideration your entire family income, you might as well try to eliminate your entire family debt in one fell swoop.+ Read More The post Filing A Joint Bankruptcy: When Does It Make Sense? appeared first on David M. Siegel.

Pre-Bankruptcy Planning It is best to file bankruptcy after you have had a chance to plan for your filing. Most people have thought long and hard about whether or not to file a bankruptcy case long in advance of the actual filing. It is true that some people bury their heads in the sand and+ Read More The post Smart, Pre-Bankruptcy Planning appeared first on David M. Siegel.

Most Americans don’t save enough money for retirement.   However, the Supreme Court recently dealt with the opposite situation—what happens when someone saves more than they need and their heirs receive the money (and then file bankruptcy).   This is the third time that the high court has considered what happens to retirement funds in bankruptcy.  In Patterson v. Shumate, 504 U.S. 753 (1992), the Court held that funds in an employer's pension plan were not property of the estate. In Rousey v. Jacobsen, 544 U.S. 320 (2005), the Court ruled that non-inherited IR As were included under the exemption for “a stock bonus, pension, profitsharing, annuity, or similar plan or contract” under 11 U.S.C. §522(d)(10)(E).  This time, the Court held that an inherited IRA does not constitute “retirement funds” under 11 U.S.C. §522(b)(3)(C) and 522(d)(12).    Clark v. Rameker, Trustee, No. 13-299 (6/12/14).    The opinion can be found here.   While the opinion denies the exemption under two subsections of the Bankruptcy Code, it does not address exemptions under state law.   As will be discussed below, this makes a big difference for Texas debtors.   What HappenedThe facts are pretty straightforward.   Ruth Heffron established a traditional IRA in 2000 and passed away the next year.   Her daughter and beneficiary, Heidi Heffron-Clark, received the IRA and elected to take monthly distributions from it.    In October 2010, she and her husband filed bankruptcy.    She claimed the $300,000 in the inherited IRA under both Wisconsin law and 11 U.S.C. §522(b)(3)(C).    The Bankruptcy Court ruled against her on both grounds.   In re Clark, 450 B.R. 858 (Bankr. W. D. Wisc. 2011).   The District Court reversed, but the Seventh Circuit reinstated the Bankruptcy Court’s ruling.  In re Clark, 714 F.3d 559 (7th Cir. 2013).    The Supreme Court granted cert to resolve the conflict between the Seventh Circuit and the Fifth Circuit’s decision in In re Chilton, 674 F.3d 486 (5th Cir. 2012).    Exemption Statutes and Types of IR AsRetirement accounts can be broken into two main categories:   employer plans and individual retirement accounts (IR As).   Employer plans are required to contain anti-alienation language which the Supreme Court previously held was sufficient to keep them from ever becoming property of the estate.IR As do not have the same anti-alienation protection.  As a result, they come into the bankruptcy estate and only come out if there is an applicable exemption statute.    Prior to 2005, IR As could be exempted under state law under 11 U.S.C. §522(b)(3)(A) or under 11 U.S.C. §522(d)(10) in the handful of states that permitted use of the federal exemptions.   Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Congress allowed Debtors electing state or federal exemptions to claim: retirement 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 1986.11 U.S.C. §522(b)(3)(C) and (d)(12).   The effect of this amendment was that all debtors could keep those funds so long as they were “retirement funds” and were in a fund or account exempt from taxation under the listed sections of the Internal Revenue Code.    IR As are governed by 26 U.S.C. §§408 and 408A.   As a result, they fall within the enumerated sections.    According to the Supreme Court, there are three types of IR As.   Under a conventional IRA, contributions are tax deductible, while under a Roth IRA, qualified distributions are tax free.    Both types of accounts are subject to a 10% penalty if funds are withdrawn prior to age 59 ½.     (Remember when you were a kid and you were quick to point out that you were 7 ½ as opposed to just 7?   With IR As, your half-birthday becomes important once again).   The third type of IRA is an inherited IRA.    If the beneficiary is the deceased’s spouse, they can roll the funds over into their own IRA account in which case, they become part of the conventional or Roth IRA.   However, if the beneficiary is not a spouse or if the spouse elects not to take the roll over, they can be treated as an inherited IRA.    Funds can be withdrawn from an inherited IRA at any time without penalty.   The beneficiary must either withdraw all of the funds within five years or elect to take minimum distributions on an annual basis.   The beneficiary cannot make additional contributions into the account.   The Supreme Court’s RulingEngaging in its role as dictionary of last resort, Justice Sonia Sotomayor’s opinion explored what it meant for funds to be “retirement funds.”   Because the relevant statutes do not define “retirement funds,” the court attempted to divine the term’s “ordinary meaning.”  Opinion, p. 4.Justice Sotomayor found three reasons why inherited IR As were not “retirement funds”:Three legal characteristics of inherited IR As lead us to conclude that funds held in such accounts are not objectively Three legal characteristics of inherited IR As lead us to conclude that funds held in such accounts are not objectively set aside for the purpose of retirement. First, the holder of an inherited IRA may never invest additional money in the account. 26 U. S. C. §219(d)(4). Inherited IR As are thus unlike traditional and Roth IR As, both of which are quintessential “retirement funds.” For where inherited IR As categorically prohibit contributions, the entire purpose of traditional and Roth IR As is to provide tax incentives for accountholders to contribute regularly and over time to their retirement savings.Second, holders of inherited IR As are required to withdraw money from such accounts, no matter how many years they may be from retirement. Under the Tax Code, the beneficiary of an inherited IRA must either withdraw all of the funds in the IRA within five years after the year of the owner’s death or take minimum annual distributions every year. See §408(a)(6); §401(a)(9)(B); 26 CFR§1.408–8 (Q–1 and A–1(a) incorporating §1.401(a)(9)–3 (Q–1 and A–1(a))). Here, for example, petitioners elected to take yearly distributions from the inherited IRA; as a result, the account decreased in value from roughly$450,000 to less than $300,000 within 10 years. That the tax rules governing inherited IR As routinely lead to their diminution over time, regardless of their holders’ proximity to retirement, is hardly a feature one would expect of an account set aside for retirement.Finally, the holder of an inherited IRA may with draw the entire balance of the account at any time—and for any purpose—without penalty. Whereas a withdrawal from a traditional or Roth IRA prior to the age of 59½ triggers a 10 percent tax penalty subject to narrow exceptions, see n. 4, infra—a rule that encourages individuals to leave such funds untouched until retirement age—there is no similar limit on the holder of an inherited IRA. Funds held in inherited IR As accordingly constitute “a pot of money that can be freely used for current consumption,” 714 F. 3d., at 561, not funds objectively set aside for one’s retirement.Opinion, pp. 5-6.Because “plain meaning” analysis is never quite so plain as its proponents contend (especially if the case has made its way to the Supreme Court), the Court buttressed its ruling with policy considerations.    Among them, the purpose of an exemption is to allow the debtor to meet “essential needs.”   Encouraging (although not requiring) debtors to keep their funds in an IRA until after age 59 ½ sort of aligns with the goal of ensuring that debtors have sufficient funds to support themselves in their golden years and do not become a burden on society.   On the other hand, inherited IR As can be freely withdrawn and could be used on “a vacation home or sports car immediately after her bankruptcy proceedings are complete.”   Opinion, p. 7.   This conclusion seems a bit strained.   Funds in a conventional or Roth IRA could also be used for wild living once the bankruptcy was over; it’s just that there would be tax consequences if the person was under age 59 ½.   Further, in an age when the full retirement age is 67 and rising, being allowed to utilize fund at age 59 ½ means that they will likely be used as a stopgap to carry the person to retirement rather than funding actual retirement costs.Another factor which was not mentioned in the opinion was that the Debtors had $300,000 in the inherited IRA and had unsecured debts scheduled of $311,000.    As a result, the Debtors could have used the funds to settle with their creditors and likely had money left over.   Instead, they tried to file bankruptcy and keep it all.  While there is nothing wrong with using the tools made available by the law, avoiding a windfall to the Debtors at the expense of the creditors could have been rolling around in the back of the justices’ minds.Thus, inherited IR As cannot be retained in a bankruptcy proceeding—except for the cases in which they can.What It MeansThe Court’s opinion only addressed 11 U.S.C. §522(b)(3)(C) and (d)(12).    It did not address either exemptions under applicable state law.    In the Clark case, the Bankruptcy Court had ruled that Wisconsin law did not include an exemption for inherited IR As.   However, the relevant Texas statute provides:(a) In addition to the exemption prescribed by Section 42.001, a person's right to the assets held in or to receive payments, whether vested or not, under any stock bonus, pension, annuity, deferred compensation, profit-sharing, or similar plan, including a retirement plan for self-employed individuals, or a simplified employee pension plan, an individual retirement account or individual retirement annuity, including an inherited individual retirement account, individual retirement annuity, Roth IRA, or inherited Roth IRA, or a health savings account, and under any annuity or similar contract purchased with assets distributed from that type of plan or account, is exempt from attachment, execution, and seizure for the satisfaction of debts to the extent the plan, contract, annuity, or account is exempt from federal income tax, or to the extent federal income tax on the person's interest is deferred until actual payment of benefits to the person under Section 223, 401(a), 403(a), 403(b), 408(a), 408A, 457(b), or 501(a), Internal Revenue Code of 1986, including a government plan or church plan described by Section 414(d) or (e), Internal Revenue Code of 1986. For purposes of this subsection, the interest of a person in a plan, annuity, account, or contract acquired by reason of the death of another person, whether as an owner, participant, beneficiary, survivor, coannuitant, heir, or legatee, is exempt to the same extent that the interest of the person from whom the plan, annuity, account, or contract was acquired was exempt on the date of the person's death. If this subsection is held invalid or preempted by federal law in whole or in part or in certain circumstances, the subsection remains in effect in all other respects to the maximum extent permitted by law. (emphasis added).Tex.Prop.Code §42.0021(a).    The language specifically including inherited IR As was added to the statute in 2013 after a Texas Bankruptcy Court concluded that inherited IR As were not exempt under state law.   In re Jarboe, 365 B.R. 717 (Bankr. S. D. Tex. 2007).  (Given the dysfunctional nature of the Texas legislature, Judge Bohm should be proud of the fact that his opinion prompted them to do something, even if it was to legislatively overrule his decision).  The fact that the Texas legislature amended the statute to add specific language about inherited IR As is pretty good evidence that they really intended these accounts to be exempt.     The practice tips for Texas debtors are: If you are in financial difficulty, leave the money in the inherited IRA.   If you pull it out, it may lose its protection.If you have an inherited IRA, always choose Texas state exemptions.If you don’t live in Texas, move here and wait two years (but please don't move to Austin as there are too many people here already).If you can settle with your creditors and then withdraw the funds, you might want to do so.   The best bankruptcy you can ever have is sometimes the one you don’t file.Hat-tip to Quincy Long with Quest IRA, Inc. who pointed out the new language in the Texas Property Code to me.

Bankruptcy Trustees If you live in Chicago and file a chapter 13 bankruptcy, the trustee appointed to your case is either going to be Marilyn Marshall or Tom Vaughn. Although each trustee follows the same bankruptcy laws and processes, each has a different standard or structure when it comes to confirming cases. In general, cases+ Read More The post Chapter 13 Bankruptcy Trustees In Chicago appeared first on David M. Siegel.

Bob needs to do a blog on this. Here’s this on confidentiality. http://www.scbar.org/MemberResources/EthicsAdvisoryOpinions/OpinionView/ArticleId/834/Ethics-Advisory-Opinion-10-04.aspx. It’s an ethic violation for lawyer to sign–client can sign and direct lawyer to keep his mouth shut. That’s the same opinion I’ve cited on non-disparagement.The post Settlement Agreements, Confidentiality and Non-Disparagement by Robert Weed appeared first on Robert Weed.

People are understandable concerned about obtaining credit after filing for bankruptcy.  It is a real concern for many people.  We have become so used to credit and the leeway that it provides in making purchases.  The good news is that you will be able to obtain credit within a very short time after filing bankruptcy. + Read MoreThe post Credit After Bankruptcy appeared first on David M. Siegel.

Personal Bankruptcy Filing Fees As of today, the court filing fee for a chapter 7 bankruptcy case is $335. The court filing fee for a chapter 13 bankruptcy case is $310. You should plan on having those funds available at the time you meet with your lawyer. The lawyer that you meet with is going+ Read MoreThe post What Does It Take To File Personal Bankruptcy In Chicago? appeared first on David M. Siegel.