Should I File Bankruptcy?

A question lawyers get a lot is, "should I file bankruptcy." That's a question to which there isn't a right or wrong answer, and it's not a legal question, so most lawyers will say it's up to you. Many people feel that it is immoral to file bankruptcy and walk away from thousands of dollars of debt. That is their right to feel that way; it doesn't make filing or not filing right or wrong.

If you're confronted with debt that you find impossible to pay, for whatever reason, bankruptcy is an option to consider. Like any big financial decision, you shouldn't make it blindly. Talk to an attorney. Learn your options. Find out what a bankruptcy could do to your credit rating. Then consider the alternatives. Is there a way to dig out of the hole you are in without sacrificing too much? What about your ongoing obligation to support your family? How will filing bankruptcy (or not) affect that?

One thing you should not do is file bankruptcy for the sole purpose of being able to incur more debt, with the idea that you can always file again in eight years. In my view, such a course of action would be immoral.

What Is a Trust?

If you talk to anyone about estate planning, you're likely to hear the word "trust." What is a trust and what does it mean in estate planning?

A trust is simply a vehicle to hold assets. The reasons for creating trusts are varied, but usually including wanting to protect assets and avoid probate. Probate is the legal process by which title to assets are transferred upon the owner's death. By putting the assets into a trust during your lifetime, you can avoid probate.

However, merely creating a trust isn't enough. You still have to fund the trust, which means putting title to the assets in the name of the trust. Too often people create a trust but never fund it. In that case, the trust is like an empty basket. It would be more useful if there was something in the basket.

Whether or not a trust is right for you, and, if so, what kind, are questions best asked of a competent estate planning attorney.

Bad Lawyer

An Illinois lawyer appealed a trial court's award of $80,000 in legal fees against him for vexatious claims he brought against defendants on behalf of his clients. The lawyer claimed that the court shouldn't award fees because he had no assets and didn't earn very much because he really wasn't a good lawyer and people weren't willing to pay for his services. The Illinois appeals court rejected his claim, saying that if he really couldn't earn a living as a lawyer, maybe it was time to find another profession.

Tax Refunds in Bankruptcy

The question often arises about tax refunds when someone files bankruptcy. It usually arises in a Chapter 7, known as a liquidation. The rule is, if you are entitled to a tax refund at the time of filing, it belongs to your estate, which means the bankruptcy trustee might take it to pay creditors. So if you are filing before you get a refund, you should talk to your attorney about possibly delaying until you get the refund and have a chance to convert it to exempt assets. There is nothing illegal about converting cash (the refund) into an asset that is exempt from the trustee, such as buying food storage, or a new freezer. Your attorney can advise you what is best.

Even if you file after getting a refund, some trustees are now keeping your case open to see what kind of a refund you get next year (for the year in which you filed). Then they might claim a portion of it, based on what time of year you filed. For example, suppose you file on July 1, half way through 2009. When you file your 2009 taxes in 2010, the trustee might claim to be entitled to one half of that refund. Again, consult with your attorney.

Sorting Through the Mess

A well executed estate plan is very little help if key documents can't be found. The most important are the will and any trusts that may have been executed. But besides these obvious documents, financial records are just as important. The executor of your estate or the trustees under the trust need to know what they are being called on to administer.

While most people don't want to think about dying, and few people sit around thinking of what a mess those left behind might have to deal with, the fact is that besides your estate plan, you should leave detailed instructions about what assets you owned. The simplest way to deal with this is to keep a loose leaf notebook that is current in terms of what you own (real property, bank accounts, stocks, vehicles, etc.) and where it is located. Then make sure those who will deal with your estate know where to find the notebook.

New Laws

318 new laws went into effect on Tuesday, May 12. That's 60 days after the legislature adjourned and that is the usualy time period for new laws to take effect. Some of the more interesting are:

• Marriage license fees went up $10
• It is now illegal in Utah to text while driving. Talking on a cell phone is still legal.
• An adult may be guilty of harboring a runaway if he/she gives shelter to a minor. So if your son's or daughter's friend starts living with you, you might be guilty.
• It is now legal to brew up to 100 gallons of beer or wine every year in your own house.

Keeping Your House in Bankruptcy

If you file a Chapter 7 bankruptcy, you might be able to keep your house. If there is substantial equity in the house (value above the mortgages and other liens) the trustee might force a sale to get money to pay creditors. But most states have a homestead exemption of some type. In Utah, it is $20,000; $40,000 for a married couple. In today's market, that plus the mortgages probably means there is no equity for the trustee and he will abandon the house. Then the issue is between you and the bank. If you're current on your payments, all you have to do is keep making the payments. If you're not current, you will need to negotiate a reaffirmation agreement with the bank, which means you and the bank agree on how you will get current. In some cases, the bank might be willing to reduce the interest rate to avoid having to foreclose on the house.

By the Numbers

According to a 2007 survey of adult residents of the U.S. found that 55% don't have a will. Fifty-two percent of Anglos have wills, compared to only 32% of blacks and 26% of Hispanics. Forty-one percent of people have living wills, up from 31% in 2004, and 38% have designated someone as a health care attorney-in-fact, up from 27% in 2004. Ten percent of the people surveyed say they don't have a will because it's too depressing to think about. Another 9% say they don't know who to talk to, and 24% say they don't have enough assets to warrant estate planning.

Source: www.lawyers.com.

Stocks Worthless in Bankruptcy

With all the talk about GM, Chrysler and other huge American icons filing bankruptcy, the question arises, what happens to my stock in these companies if they file? The answer, in most cases, is the stock becomes worthless. Stockholders are owners of the company. As such, they come last when a company is liquidated. Creditors get paid before owners, and only if anything is left after all the creditors are paid in full do owners get as much as a penny. Even if the company goes through reorganization, which is what many airlines did and GM and Chrysler are expected to do, very often the shareholders get almost nothing for their shares.