Do Non-Citizen Debtors Get All the Benefits of Filing Bankruptcy?

In my last blog I said that non-citizens—legal or not—can file bankruptcy. All they need is appropriate identification. But that begs two questions: 1) Would that non-citizen receive all the benefits from that bankruptcy that a citizen would receive?  2) And would filing the bankruptcy hurt a legal non-citizen’s efforts to become a citizen, or would it increase an illegal immigrant’s risk of deportation?  

I’ll address the first of these questions now, and the second one in my next blog.

Two benefits of bankruptcy pertain here:

1. The protection of assets from the bankruptcy trustee (and thus from the creditors) through “exemptions.”

2. The granting of a discharge of debts.

Exemptions:

The rules about what property of a debtor is exempt do not directly change with the debtor’s citizenship status, but there are potentially very important indirect effects.

Bankruptcies filed many states use that state’s own set of exemptions. So the federal bankruptcy court has to interpret that state’s definitions of those exemption definitions. Some of those definitions and the court’s interpretations of them can disqualify some immigrants. For example, Florida has a very generous homestead exemption, but In order to qualify for it, a debtor must be a permanent resident of the state with the intent to make the property in question his permanent residence. This residency requirement can be satisfied by a non-citizen only if he or she has gotten permanent resident status–a “green card”—as of the date of the filing of the bankruptcy. In a recent case, the immigrant was in the process of getting his permanent residency and in fact received that status three months after filing bankruptcy, but he was still deemed not to be a permanent resident at the time of his bankruptcy filing and so was denied a homestead exemption.

Discharge:

Again, the rules about what debts can be discharged and which cannot are the same regardless of citizenship. But some non-citizens have debts which were incurred in another country, leading to the question whether those debts can be discharged in their U.S. bankruptcy case.

It depends.

First, assuming that the creditor is given appropriate notice of the bankruptcy, and the debtor successfully gets a discharge of his or her debts, that creditor will no longer be able to try to collect that foreign in the U.S.  

But second, there is a good chance that the U. S. bankruptcy court’s discharge of this debt does not result in the discharge of the debt under the laws of the original country. If so, then that debt can continue to be collected according to the laws of that country, presumably against the debtor’s assets in that country, and perhaps in other countries outside the U. S. This depends on complicated international issues like treaties between the U.S. and that country, and whether they have “comity”—an agreement to respect each other’s laws—specifically in the area of bankruptcy. Otherwise, if the debtor has property outside the U. S., or intends to return to the other country, even just to visit, these issues should be investigated very closely, likely with both your U. S. bankruptcy attorney and one in the other country. In some situations, it even may be necessary to file the appropriate form of bankruptcy in the other country, assuming that exists and the debtor qualifies to do so.

 

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Can Non-Citizens File Bankruptcy?

The answer is simple: Yes.

The Bankruptcy Code does not limit who may file based on citizenship status. It states that “only a person that resides or has a domicile, a place of business, or property in the United States… may be a debtor… .”  The “person” is simply defined to include an “individual” (as well as a “partnership and corporation”). The point is that there is no requirement about needing to be a citizen, or even to being legally in the country. So everyone, citizen or non-citizens, legal or illegal, can file bankruptcy.

But the person must meet one of the above categories of who may be a “debtor.”

One often used category is to have a “domicile,” meaning simply being physically present in one location with the intention of making that place the person’s present home. Generally the longer the person has been in one place and the more he or she has put down roots—such as getting a state drivers license—the easier to show intent to establish a domicile.

Having any meaningful amount of property, such as bank or other financial accounts, or a vehicle, would itself likely be sufficient to qualify as a debtor.

Any other requirements? The bankruptcy filing documents ask for a Social Security number, but there is nothing in the Bankruptcy Code which requires that. If the person filing bankruptcy has a legal Social Security number appropriately issued by the Social Security Administration, it should be used. Otherwise, the person should get an Individual Taxpayer Identification Number (“ITIN”) from the IRS, and use that. The “IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs.”

Anything else? In most places, the bankruptcy filer will also need to show proof of identity at the so-called Meeting of Creditors, to allow the bankruptcy to verify that the person present there answering the questions under oath is a real person and the one who filed the bankruptcy documents. This aims to prevent identity scams. Proof of identity generally requires two things: 1) a document showing your SSN or ITIN—such as the original Social Security card it that’s available, or some other paper received from the government or from an employer showing the number; plus 2) some form of photo identification—such as a driver’s license or passport.  

So is that it? Well, yes, with these conditions met the non-citizen can file for bankruptcy. But two big questions remain that just can’t get swept under the rug—

1. Would a non-citizen potentially have problems qualifying for any of the benefits of bankruptcy, such as getting a “discharge” (legal write-off) of the debts, or claiming property exemptions in order to keep the property?

2. Does filing the bankruptcy harm a legal non-citizen’s efforts to become a citizen, or does it increase an illegal immigrant’s risk of deportation?  

Sorry for keeping you in suspense, but I’ve covered enough for one day and so l’ll address have to these important questions in my next two blogs.

 

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Buying Just Enough Time for Your Home with a Chapter 7 Straight Bankruptcy

What if you are under threat of foreclosure, don’t want to keep your house, but just need a little more time to find another place to live? Or if you just need to finish a pending sale before the scheduled foreclosure happens?

Or maybe you don’t want or need the extra benefits of Chapter 13. Or you just want to put it all behind you in a few months instead of going through a 3-to-5 year Chapter 13 Plan. A Chapter 7 “straight” bankruptcy may give you just the right amount of help.

A Chapter 7 case:

1. Stops a pending foreclosure sale, at least temporarily. Depending on your situation, and the aggressiveness of the mortgage lender, it may buy you an extra few weeks or an extra few months. Chapter 7 does give you much less control over the situation than a Chapter 13, but the extra time it gives you may be enough in your particular situation.

2. It temporarily stops not just foreclosures by your mortgage company, but also by other creditors. This includes foreclosures for unpaid property taxes, homeowner assessments, or judgment lien creditors.

3. Prevents, at least briefly, most kinds of liens from attaching to your house, such as income tax liens, or judgment liens by creditors who have sued you and have not yet gotten a judgment.

So if you have a pending sale of a house which has less equity than your allowed homestead exemption, and need to buy enough time to close the sale before the foreclosure or before a new lien eats into your equity, and need to file some kind of bankruptcy to deal with your debts, filing Chapter 7 may be your best option. Or if you have resigned to losing your house but need to postpone the foreclosure to give you time to save money for rental and moving costs, again Chapter 7 could well be the best tool for you.

Because the amount of time a Chapter 7 will gain for you depends a great deal on the facts of your case, the anticipated actions of your creditors, and sometimes the behavior of your Chapter 7 trustee, be sure to discuss this thoroughly with your bankruptcy attorney. Find out if the comparatively modest help a straight bankruptcy provides is enough help for you.

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Keep Your Vehicle In Spite of Paying Less Every Month

What if you really need to hang on to your car or truck, but can’t afford the monthly payments? Or if you’ve fallen behind and just can’t catch up?

“Straight bankruptcy”—Chapter 7—won’t help you here. Most of the time, you have to either quickly catch up or you lose the vehicle. And very few vehicle lenders will negotiate about the payment amount in a Chapter 7 case. With rare exceptions, it’s take it or leave it.

BUT, if you meet two conditions, you may have the option to KEEP your car or truck, NOT make up any missed payments, all while LOWER your monthly payments. This even REDUCES the total amount you must pay before the vehicle is yours free and clear.

The two conditions you must meet:

1. You got your vehicle loan at least two and a half years ago.

2. You owe more on the vehicle than it’s worth.

If so, through a Chapter 13 vehicle loan “cram-down,” we can re-write the terms of that vehicle loan. First, we can reduce the balance down to the fair market value of the vehicle. This can sometimes shave thousands of dollars off the balance. That in itself would reduce the monthly payment. But then also, depending on how many months of payments remained on the vehicle loan compared to the projected length of your Chapter 13 Plan, we may be able to stretch out the term of the loan. If so, that would lower the monthly payment even further.

An example will make this clearer. Say you were 4 years into a 6-year vehicle loan (meeting the 2-and-a-half-year condition), with a balance of $11,000 but the vehicle worth only $7,000 (meeting the owe-more-than-it’s-worth condition). Further, say the regular monthly payments were $498, with 24 months of them to go. Under a cram-down rewriting of the loan under a 3-year Chapter 13 Plan, the balance to be repaid would reduced to $7,000, and the term stretched to the 36 months of the Chapter 13 case. So now the monthly payment would be reduced to about $220, less than half the $498 regular monthly payment. Even though in this example it’s taking three years instead of two to pay it off, you’re saving close to $4,000. Plus we’re reducing the monthly payment to something much more affordable.

The difference in the balance on your vehicle loan contract and the reduced amount you would pay through your Chapter 13 Plan (the $4,000 or so in the example) would be treated as unsecured debt. It would be lumped in with the rest of your unsecured debts, and would be paid through your Plan at whatever percentage all your unsecured creditors were being paid. This can be a low percentage and sometimes even nothing. It would usually be determined by how much your budget says you can afford after living expenses.

So if your vehicle loan meets the two conditions above, you will likely be able to reduce both your monthly payment and the total amount needed to pay off your vehicle. All without having to cure any previously missed payments, and without risk of repossession as long as you fulfill the terms of your Chapter 13 Plan.

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The Great Recession More Than Wipes Out a Quarter-Century of Gains Made by Blacks and Hispanics in Household Wealth

I had no idea that the recession had such a worse impact on minorities. The gap in median household wealth between whites and each of the two largest minority groups has not only gotten tremendously wide, in fact this gap almost doubled in only four years.

This is according to a report just released on July 26, 2011 by the Pew Research Center’s Social & Demographic Trends project.

During the twenty years up through 2004, the wealth of black and Hispanic households compared to the wealth of white households did not change much. But even then, before the recession, the wealth disparity between racial groups was already astounding huge. In 2004 the median white household’s assets were worth about seven times that of the median Hispanic household’s, and about eleven times that of the median black household’s assets.

But then only four years later, by late 2009, after the official end of the recession, these ratios had virtually doubled, with the white household’s assets being worth fifteen times more than the Hispanic household’s, and nineteen times more than the black household’s.

 

© 2011 Pew Research Center, All Rights Reserved

What is the cause of this massive increase in wealth disparity among these races in such a short time? Simple: depreciated residential housing values. Blacks, and even more so Hispanics, have their wealth disproportionately tied up in their housing.

From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145…. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.

White and black homeowners also saw the median value of their home equity decline during this period, but not by as much as Hispanics. Among white homeowners, the decline was from $115,364 in 2005 to $95,000 in 2009. Among black homeowners, it was from $76,910 in 2005 to $59,000 in 2009.

This Pew Research does not get into what this increased disparity among the races means for our society. I suspect it is part of the broader picture of the overall widening gap between the wealthy and the rest of us. Overall reduced upward mobility strikes at the heart of our national identity. Add to that this racial disparity, and the suddenness with which it has occurred, and we are looking at profound economic shifts with very serious consequences.

Excerpts and graph: © 2011 Pew Research Center, Social & Demographic Trends Project
“Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics”
http://pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics
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The U. S. Trustee — the Behind-the-Scenes Bankruptcy Administrator and Hope-You-Never-Meet Enforcer

In most consumer bankruptcy cases you hardly hear about the United States Trustee (UST). But when you do, he or she can make a lot of noise. And carries a big stick. All the more reason to understand this most easily misunderstood player on the bankruptcy stage.

As my title suggests, the UST has two primary roles—case administrator and bankruptcy law enforcer. These are reflected in this agency’s stated mission: “to promote integrity and efficiency in the nation’s bankruptcy system by enforcing bankruptcy laws, providing oversight of private trustees, and maintaining operational excellence.”

As a bankruptcy case administrator, the Office of the UST appoints and supervises the Chapter 7 and Chapter 13 trustees. It monitors cases so that they are “administered promptly and efficiently.” It reviews and can raise objections to fees charged by attorneys and other professionals in the bankruptcy process.

But it’s the enforcement role we care about, which arises mostly in Chapter 7s. We hear from the UST mostly when there is a question about whether a person in a Chapter 7 case should instead be in Chapter 13. This is mostly a matter of income, and whether the case meets a complex set of rules called the “means test.” The UST may assert that the case is an “abuse” of Chapter 7 law and should either be “dismissed” (thrown out) or “converted” to Chapter 13.

The rest of the time we hear from the UST usually involves some kind of alleged misrepresentation by the person filing bankruptcy. This can arise in many ways, but usually involves apparent contradictory information between the bankruptcy documents and other evidence, or between documents and your oral statements at the “meeting of creditors.” The UST may even receive information from outside parties, such as an ex-spouse or ex-business partner, or from public sources, such as real estate or vehicle ownership records.

Lots of times when we do hear from the UST about any of these things, the matter can be resolved favorably. Assuming that you have been completely honest with us, often we can anticipate and address these issues effectively if and when the UST contacts us. But especially if the challenge comes unexpectedly, it’s crucial to address it quickly, honestly, thoroughly.

Our goal is to have your bankruptcy case go as smoothly as possible, but when for whatever reason it does not, we are in your corner to advise and protect you.

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The Chapter 13 Trustee — A Trustee of Many Hats

Your Chapter 13 trustee plays a huge role in the success or failure of your Chapter 13 case. Except he or she actually has at least a half-dozen different roles. Some of which are contradictory. Let me explain.

1) The trustee serves as the gatekeeper of your case, forcing us to play by the rules before allowing your Chapter 13 Plan to be approved by the bankruptcy judge.

2) As part of that role, the trustee’s job is to make you pay as much as possible to your creditors. Because each individual creditor often doesn’t have all that much to lose or gain compared to the cost of each of them hiring an attorney, the trustee is the creditors’ advocate in your case.

3) The trustee is your disbursal agent, taking in your money and paying it out exactly as your court-approved Plan specifies.

4) During the course of your case, the trustee is your Plan overseer, monitoring your Plan payments and your other obligations, and complaining to the court if you’re not in compliance.

5) The trustee is also your income monitor throughout the course of your case, mostly through annual tax returns that you must file on time and provide to his or her office, and sometimes through additional documentation. If your income rises significantly in a way not provided for in your Plan, the trustee can propose an “Amended Plan” to account for the increase.

6) Through all of this, believe it or not, the trustee is also legally required to be your helper through the Chapter 13 process. The Bankruptcy Code specifically says that the “trustee shall—advise, other than on legal matters, and assist the debtor under the plan.” Different trustees do this quite differently, taking on this helper role more or less seriously. At different points in your case, my staff and I may well suggest that you interact with the trustee’s office in certain specific ways. Always remember that they have a bunch of other roles besides helping you. But also note that on a personal level, the trustee genuinely wants you to have a successful Chapter 13 case, and can sometimes be a good resource to help get you there.

Here’s a good final word on this, from the website of one of the Chapter 13 trustees:

“The role of the chapter 13 trustee is unique. The trustee does not take into his or her possession or control property of the estate. The trustee does not operate the debtor’s business. Rather, the trustee receives payments from the debtor, and disburses those payments to the debtor’s creditors pursuant to the debtor’s plan. The chapter 13 trustee does, however, counsel with and advise the chapter 13 debtor on all matters relating to the plan other than legal matters. In short, the chapter 13 trustee is an amalgam of social worker and disbursing agent.”

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A Happy Chapter 7 Trustee Means a Happy Chapter 7 Case

My goal with our Chapter 7 clients is to provide a smooth path through bankruptcy to a fresh and clean start. The way to get there is to do what it takes to keep your Chapter 7 trustee happy. We keep the trustee happy by making it easy for him or her to do his or her job.

Think about the trustee being the green-yellow-red lights at two intersections in a row. The first intersection is about assets. The second one is about getting a “discharge,” a legal write-off of your debts. In most cases you’re going to get through both intersections—the trustee will claim none of your assets for distribution to your creditors and the trustee will raise no objections to your discharge. But you want to make sure you get through those intersections, and do so without any worry or delay. That’s our goal—two easy green lights.

The trustee can hit you with yellow caution lights or even prolonged red lights if you do not deal responsibly with your case. You may even lose assets that you did not expect to or, in unusual circumstances, lose your right to a discharge of your debts altogether. Here’s how to keep the trustee happy, and turning on those green lights:

1. Be completely honest and thorough with your attorney. If in doubt, tell me about it. Take the weight off your shoulders and tell me if you’re worried about something. I am on your side. That’s my job. I cannot do my job to protect you if I am blindsided by unexpected facts. And you can imagine how much the trustee is going to trust you if he or she sees that you’re not being honest with your own attorney.

2. When you review and sign the bankruptcy documents, don’t forget to take the “review” part of that very seriously. You are signing most of those documents under penalty of perjury. The trustee relies on their accuracy, and will be quite unhappy to later learn that they are incomplete or inaccurate in some material way. If in doubt about anything, ask me or my staff.

3. Provide information or documents we request from you as quickly as possible. Some of those go directly to the trustee. In most cases the trustee gets paid a measly $60 per case out of your filing fee. Helping to make the job easier for the trustee simply by getting the paperwork to him or her on time goes a long way towards having a happy trustee.

4. At the “meeting of creditors” (which is usually just a short hearing with the trustee), again be completely honest in answering the trustee’s questions. If you have any doubt, ask your attorney who will be with you there.

5. Finally, do what the trustee says. And do so by the deadline provided.

Let’s sail through your Chapter 7 case with two green lights!

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Who Is the Bankruptcy Trustee and How Can He or She Help or Hurt Me?

The three kinds of trustees in consumer bankruptcy have tremendous power over you. So it’s important to know what they do, and how to stay in their good graces. I’ll introduce them in this blog—the Chapter 7 trustee, the Chapter 13 trustee, and the United States Trustee. Then in the next three blogs I’ll tell you more about each of them.

1. Chapter 7 Trustee: Determines either that you have no “non-exempt” assets to collect or else pursues any such assets in order to liquidate them and pay the proceeds to your creditors. Reviews your documents and presides at your Meeting of Creditors for this purpose. Can conduct other investigation such as reviewing the public record. Can also pursue “fraudulent transfers” or “preferences”—money or assets either that you gave or sold to someone or that creditors got or took from you within a certain amount of time before the filing of your bankruptcy case.

2. Chapter 13 Trustee: Determines if your proposed Chapter 13 Plan meets legal requirements, raises objections, and works with your attorney to adjust your Plan to satisfy any such objections. The trustee or a staff attorney usually presides at your Meeting of Creditors. You send your Plan payments to the trustee (or a designated collection office), who disburses these funds to your creditors according to the terms of your Plan. The trustee and his or her staff cannot give you legal advice, but will provide you some help in completing your case successfully.

3. U.S. Trustee: Is part of the U.S. Department of Justice, overseen by the U.S. Attorney General. The U.S. Trustee (“UST”) appoints and supervises the group (“panel”) of Chapter 7 trustees and the “standing” Chapter 13 trustees. Each regional UST, through a staff usually including an attorney and/or accountants, monitors the administration of bankruptcy cases, most closely with Chapter 11 business cases. They are most often involved in consumer cases in raising objections to the eligibility of debtors to file Chapter 7 cases. In rare cases, they can refer potential bankruptcy crimes to the U.S. Attorney for investigation and prosecution.

Again, in my next blogs I’ll tell you more about each one of these trustees, especially how to avoid worrying about them by taking the right steps in your bankruptcy case.

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