BANKRUPTCY

Sent to me from Chicago lawyer Richard G. Fonfrias, Eesq., Managing Partner at Fonfrias Law Group, LLC:

"Debunked Bankruptcy Myths:

MISCONCEPTION #1: Bankruptcy is dishonest. Not true. Most people honestly want to pay their bills, but sometimes things happen that make it impossible. These things include an unexpected lawsuit, judgment or income tax bill -- a fine that was considered excessive or in dispute -- and more. Bankruptcy is a right that protects honest people from harassment, lawsuits, wage garnishment and other creditor actions. Bankruptcy allows a fresh start. The same laws that are routinely used by corporate America, and the rich and famous, can protect you, your family and your business.

MISCONCEPTION #2: I will lose all my property in a bankruptcy case. Not so. The bankruptcy laws are designed to allow a fresh start. A fresh start would be impossible if you would lose all your property. The fact is that most people don’t lose anything in their bankruptcy. The bankruptcy law allows the State government to decide what property is protected

MISCONCEPTION #3: I can’t own anything after bankruptcy. Not true. In Chapter 7 you can keep the property that is protected in the bankruptcy. A Chapter 13 or Chapter 11 allows you to keep your property and repay debts over time. Many people buy and refinance cars and homes after filing a bankruptcy.

MISCONCEPTION #4: I will never be able to establish credit after a bankruptcy. Not true. Today, many stores and banks actively market to people who have filed bankruptcy. Mortgage companies do help applicants get new mortgages with a bankruptcy after two to three years. As a practical matter, you only file a bankruptcy when you can’t pay your bills. Because of that, your credit is probably already bad. A bankruptcy won’t make it any worse. Bankruptcy puts you in a better position to pay current bills and that should improve your chances of getting new credit.

MISCONCEPTION #5: Bankruptcy gets rid of all debts. Not so. Although most consumer and business debts are wiped out in bankruptcy, some debts are not affected. Certain debts can’t be eliminated in bankruptcy. They include child support, alimony, fines, restitution, some taxes, loans obtained by fraud, student loans, debts due to a DUI, and debts resulting from “willful and malicious” harm. Some of these can be handled effectively in a Chapter 13 bankruptcy.

MISCONCEPTION #6: I can protect my property by hiding it or giving it away before I file bankruptcy. No. It’s a crime to hide property. It’s also a crime to give property away without telling the Court in the bankruptcy filing.

MISCONCEPTION #7: I will lose my job if I file bankruptcy. Not true. The bankruptcy code prohibits an employer from discriminating based on a bankruptcy filing. In nearly 10 years of helping people in bankruptcy cases, I have never even heard of someone losing a job because of a bankruptcy filing.

MISCONCEPTION #8: I filed a bankruptcy before, so I can’t file again. Incorrect. The law prohibits getting a chapter 7 discharge within 8 years of a previous chapter 7 discharge. But, even within the eight-year time period, a chapter 13 bankruptcy may be filed. Don’t hesitate to call me if you have filed a previous bankruptcy. You still have many options.

MISCONCEPTION #9: I am not allowed to have a checking account if I file bankruptcy. Incorrect. No rule stops you from keeping or opening a bank account. Most people keep the account that they had and continue to use it without interruption. In other cases, it may be smart to close an existing account prior to filing bankruptcy.

MISCONCEPTION #10: Taxes cannot be eliminated in bankruptcy. Wrong. Many taxes are eliminated in bankruptcy. There are several complex rules that apply. Eliminating taxes depends on how old the taxes are, when the returns were filed, and whether the taxes have been assessed, and the type of taxes."

NASSAU COUNTY BAR ASSOCIATION BANKRUPTCY CLINIC

Again, from the website of the Nassau County Bar Association: "NCBA members provide pro bono legal assistance to indigent individuals who cannot afford attorneys and who meet income guidelines. The clinics are held bi-monthly at the NCBA headquarters, where attorneys review the individual’s financial situation to determine if bankruptcy is the best course of action. For more information, contact
Nassau/Suffolk Law Services Committee, One Helen Keller Way, Hempstead, NY 11550-3903
(516) 292-8100"

THE DOMESTIC ASSET PROTECTION TRUST

The Domestic Asset Protection Trust (DAPT) is variously known as an Alaska Trust, Delaware Trust, or Nevada Trust, since those states have been in the lead in authoring rather blatantly anti-creditor legislation that allows self-settled spendthrift trusts. I recently read an article (date unknown) about how it is an effective tool to protect your assets from creditors. Bottom line: it isn't. The 2005 changes to the Bankruptcy Code have created a new 10-year limitations period for transfers to self-settled trusts which are meant to hinder, delay or defraud creditors. This effectively means that all transfers to domestic asset protection trusts will be suspect for the 10 years prior to the date that a bankruptcy petition is filed. Because of this, domestic asset protection trusts should not be considered for asset protection planning and, indeed, in most circumstances it might be malpractice per se for an advisor to form a DAPT for his client if asset protection is a concern.This 10-year clawback by itself should be enough to keep people for using DAPTs for asset protection. Of course, this isn't going to stop the trust companies from marketing them. Moreover, if you are a New York resident, and but is not in bankruptcy and you are still considering using one of these out of state trusts, read my July 10 blog.