Elderly Debtors Win in Fourth Circuit Appeals

The first of July was a red-letter day for senior citizens considering whether to file for Chapter 13 bankruptcy. The Fourth Circuit Court of Appeals held in Ranta v. Gorman (In re Ranta), No. 12-2017 (July 1, 2013) that debtors who file for Chapter 13 bankruptcy are not required to list their Social Security income as part of their projected disposable income for purposes of the Chapter 13 means test.


In general, the Chapter 13 means test requires that debtors who wish to file Chapter 13 bankruptcy must make payments for 5 years – 60 months – unless their average gross income is less than the median income for similar households in the state. In the event that their average gross income is less than the median household income, they may make payments on a plan for only 3 years – 36 months.


For debtors, a shorter payment plan under Chapter 13 is better than a longer one. In fact, Chapter 13 debtors who fall below the median household income figure stand to save thousands of dollars and, literally, years of frustration, anxiety and stress. Thus, one of the critical questions in a Chapter 13 filing is whether a debtor’s projected disposable income exceeds the median household income for his or her state. This question, in turn, is dependent upon simple arithmetic: namely, adding up a debtor’s projected income.


Enter the Ranta decision. By excluding Social Security income as part of the projected disposable income calculus, the Fourth Circuit made it easier for Chapter 13 debtors to qualify under the Chapter 13 means test and, consequently, enter a 36 month plan rather than a 60 month one.


Want to find out more about Chapter 13 bankruptcy and the case law that may make easier – or more difficult – for you to successfully restructure your personal finances. The dedicated and experienced attorneys at the Dallas law firm of Fears Nachawati may be able to help you. For your free consultation, contact us today.

Will I Lose My Security Clearance if I File Bankruptcy?

Many federal employees ask, “Will I lose my security clearance if I file bankruptcy?”

The unsatisfying answer is, “It depends.”

The federal government makes security clearance determinations on a case-by-case basis. The Department of Defense has published Guidelines for Determining Eligibility For Access to Classified Information which sheds light on these individual determinations. Within this publication is Guideline F: Financial Considerations, which lists several “conditions that could raise a security concern,” including:

• inability or unwillingness to satisfy debts;
• frivolous or irresponsible spending;
• deceptive or illegal financial practices;
• failure to file tax returns;
• unexplained affluence; and
• compulsive gambling.

By itself bankruptcy is not a condition that could raise a safety concern and is not listed amongst the factors for which one can be denied a security clearance. In fact, the federal law prohibits a governmental entity from discriminating against a bankruptcy debtor, and Section 522 specifically states that the government may not:

“deny, revoke, suspend or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under the Bankruptcy Code… solely because such bankruptcy or debtor is or has been a debtor under the Bankruptcy Code.”

The “depends” part comes from the conditions that led to the bankruptcy. For instance, a pattern of ignoring your debts and changing your telephone number or address to avoid creditors may seriously impact your security clearance, whether or not you file bankruptcy! Everyone makes mistakes, which is an important reason why Congress enacted the federal bankruptcy laws in the first place. The best advice is to act responsibly and honestly if you have incurred more debt than you can handle.

Guideline F also addresses several “conditions that could mitigate security concerns,” including:

• behavior from long in the past, or infrequent behavior;
• conditions beyond the applicant’s control, such as medical emergency, business downturn, or divorce; and
• good-faith effort to repay or otherwise resolve debts.

Filing bankruptcy, especially a Chapter 13 bankruptcy, may be a responsible way to legally deal with your financial difficulties. In fact, the United States Air Force Academy Legal Office says this about bankruptcy:

“The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer there, with one exception: It never hurts to have a good reputation with your co-workers and your chain of command.”


Put the Brakes on Your Car's Repossession

If you’ve fallen behind on your monthly car payments, your lender likely has the legal right to repossess your vehicle. From your lender’s perspective taking action may make sense. If your creditor doesn’t think that you can make timely payments, the value of the car may be the only thing standing between him and a bad debt.


From your perspective, of course, losing your car is the last thing you need. If you’re like most Texans, your car isn’t a luxury. It’s a necessity. To get to work in the morning, go home at night, or to buy groceries on the weekend, you must have your car. Losing access to your car – even temporarily – may cost you thousands of dollars in lost time, lost wages, and lost opportunity.


To tap the brakes on your car’s repossession, exercising your state rights and remedies may be required. To repossess your car, your creditor must have an attached, enforceable security interest in your car. If the creditor has fallen short in executing the necessary steps for an attached, enforceable security interest, you may be able to keep your car. Additionally, your creditor cannot breach the peace in the act of repossession. So, there may be practical limits on his repossession efforts, too.


To slam the brakes on your car’s repossession, filing for personal bankruptcy may be necessary. The Bankruptcy Code’s automatic stay and other powerful provisions may give you the ability to retain your car. By filing a Chapter 13 plan, you may be able to restructure your note, reducing the size of your monthly payments, and moving toward a more acceptable debt structure.


Need to find out more information about how to manage your creditors expectations and, if necessary, protect your legal rights and interests? The attorneys at the law firm of Fears Nachawati are prepared to help you do just that. With years of experience, we’re prepared to give you the advice you need to navigate the challenges you face.


Secured versus Unsecured Creditors

At first glance, bankruptcy may seem like a fight between a debtor and his creditors. The reality, however, is often more complicated. A debtor’s bankruptcy frequently gives rise to fights among creditors, too.


Why are creditors fighting amongst themselves? In situations in which there are more mouths to feed than food to distribute, creditors will clamor in court to receive a greater percentage of the debtor’s assets. Ultimately, the distribution of a debtor’s assets is determined by the Bankruptcy Code’s priority scheme.


So, which creditors win and which lose – and why? Although there are a number of fine divisions between types of creditors, the single greatest separation is whether a creditor is secured or unsecured. Secured creditors are those who have an attached, enforceable security interest in the debtor’s property.


In some cases, a creditor may successfully establish a secured interest by taking possession of the underlying collateral. Possession may be actual, such as driving the car from in front of your house. Possession may also be constructive, such as acquiring the key to a house.


More commonly, a creditor will establish a secured interest by acquiring a contract with the debtor that outlines the terms of a financial arrangement and subsequently filing that contract with a state registration office. In this manner, both the debtor and other creditors are on notice that the debtor’s assets are not entirely his own, but the creditor’s.


However securitization occurs, the bottom line is that secured creditors will often receive the value of the underlying collateral in the event of bankruptcy rather than the unsecured creditors’ lot: a pro rata distribution of the debtor’s available assets. Frequently, the difference between specified collateral and the pro rata remainder is significant.

Do you have questions about what kind of interests your creditors hold in your property – and whether their status might give you leverage as you consider your financial obligations? The attorneys at Fears Nachawati are prepared to help you answer these and many more questions. Find out how we can help you by contacting us today.

Are Social Security Benefits At Risk In Bankruptcy?

The Tenth Circuit Court of Appeals recently held that Social Security benefits are not part of a debtor’s “projected disposable income” for determining monthly payments in a Chapter 13 repayment plan. The case, In re Cranmer, No. 12-4002 (10th Cir. Oct. 24, 2012), involved a Chapter 13 debtor who committed only a part of his $1,940.00 monthly Social Security benefit to repaying his creditors. He also excluded the entire Social Security sum when figuring his total monthly disposable income through the means test Form B22C.

In plain English, the debtor claimed that he could choose to use his Social Security benefit to repay some creditors, like a house or car payment, but the bankruptcy trustee could not force him to pay other debts (like medical or credit cards) with the Social Security benefit. The Tenth Circuit agreed, citing that the Bankruptcy Code excludes Social Security benefits from the debtor’s disposable income and projected disposable income calculations.

Social Security benefits are generally protected during bankruptcy. Social Security checks are not subject to garnishment or seizure from non-government creditors. Consequently, Social Security income does not drive up a retiree’s gross income for purposes of the bankruptcy means test, and the trustee (who stands in the creditor’s shoes during bankruptcy) cannot compel the debtor to pay creditors out of Social Security income. This strategy is a great benefit to many older Americans who need bankruptcy relief without committing all of their retirement income to debt repayment.

If you receive Social Security benefits and need debt relief, speak with an experienced attorney about your bankruptcy options. You could be eligible to discharge many burdensome bills, retain your home or cars, while keeping all or most of your retirement income.

Can A Creditor Take My Social Security?

Many retired Americans live on fixed incomes. If you are in this group, you know there is little room in your budget to pay an unsecured creditor like a medical bill or credit card. Unfortunately, no matter how carefully you budget, a large unexpected expense can wreck your personal finances.

Fortunately, the federal law does not allow the typical unsecured creditor to garnish from your Social Security benefits. Federal banking regulations also require your bank to take precautions to ensure that Social Security funds are not taken from you. When the bank receives a garnishment order, it must review your account to determine if Social Security payments have been directly deposited. The bank must protect two months of directly deposited federal benefits. For example, if your Social Security direct deposit is $2,000 each month, the bank will protect $4,000 from garnishment. Anything more than the $4,000 can be seized.

If you owe the federal government, your Social Security may be intercepted for an offset. For instance, if you owe federal taxes, the IRS can garnish from your SSA check. Federal regulations allow the IRS to take either 15% of your check, or everything above a minimum exemption (which depends upon your withholding status). Any federal tax refund check will also be intercepted to pay your federal debt.

The federal bankruptcy law can protect you from creditor harassment, wage garnishment, and bank seizure. Once you hire a bankruptcy attorney, third party collectors can no longer contact you directly. This includes collection agencies and attorneys. Once you file bankruptcy, the federal law stops all collection action, and can even stop the federal government from taking your Social Security check.

If you are receiving Social Security and need bankruptcy protection, speak with an experienced attorney to learn how the federal law can help you. In most cases you can discharge your debt, protect your SSA check and regain your peace of mind.

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Discharging Social Security Overpayments

Many common events trigger a decrease in monthly Social Security benefits, including a change in the number of people in your home, or an increase in income. The Social Security Administration (SSA) requires that you report changes within 10 days after the month the change occurred. If the SSA does not get your reported change in time, you may receive an overpayment. Over time these overpayments can amount to a debt you cannot afford to repay.

When an overpayment is discovered by the SSA it will request that you send payment within 30 days. You are entitled to request a waiver and, if the waiver is denied, you may ask for a hearing with an Administrative Law Judge. The SSA will look at whether you acted honestly in making its decision to waive the overpayment.

If the waiver process fails, you may consider a bankruptcy. Social Security overpayments are treated like any other unsecured debt in bankruptcy. The debt can be discharged at the end of a Chapter 7 or Chapter 13 case. However, the SSA may file a timely objection to the discharge of the debt. The most common reason for objecting to the discharge is that you committed fraud by keeping additional benefits when you knew you were not entitled to them. If the SSA is successful in proving fraud, the debt will be excluded from the discharge.

In a fraud case the issue generally boils down to one question, "Did you know you were not entitled to keep the extra money from the SSA?" These cases are seldom cut and dry because of the SSA's complex rules, especially when dealing with return to work issues. The SSA seldom files objections in bankruptcy cases, but each case is different.

Social Security overpayments are serious business and require a serious response. If you fail to take action, the SSA will begin taking money from your monthly check 60 days after you receive notice of the overpayment. Your best response is to consult with an experienced attorney. Your attorney can help you weigh your legal options and develop a plan to deal with this debt.

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