An attorney and his client came up with a novel, but ultimately unsuccessful, way to file immediately and pay attorneys' fees -- and nothing else.
In In re Buck, 2010 WL 2746217 (Bky.D.Mass. July 9, 2010), the problem for the Bucks was they couldn't pay the attorneys' fee of $2,000 for a Chapter 7 bankruptcy. They wanted immediate relief from the harrassing collection efforts they were subject to, but, understandably, their attorney wouldn't file for them until they paid his fee. So they agreed to file a Chapter 13, which cost $4,000, but those fees would be paid through the plan, at $130/month. This allowed them to file immediately. Sounded like a good plan.
That was until the bankruptcy court determined that the plan was not filed in good faith. It turns out that all of the Bucks' property was exempt and all of their debts were dischargeable in Chapter 7. As a result, no one other than the attorney would have received a distribution under the plan. The bankruptcy judge said that this was not a "good faith" plan, it exposed the debtors to 36 months of payments and delayed their discharge by that same time. As a result, he refused to confirm the plan. The Bucks converted to Chapter 7 and the court ordered that the attorney could not receive fees for either the Chapter 13 or the Chapter 7.
Friday, August 13, 2010
Thursday, July 15, 2010
Steinbrenner 1, IRS 0
George Steinbrenner, the bombastic boss of the New York Yankees, died this week. Many people only know George Steinbrenner from Seinfeld episodes, but to many baseball fans, he was the undisputed face of the Yankees from 1973 until his death. Steinbrenner was famous for hiring, firing and then re-hiring managers and meddling in their day-to-day operations.
By dying in 2010, Steinbrenner (actually his heirs) gets to keep an estimated $632 million from his reported $1.15 billion estate that otherwise would have gone to estate taxes. As Kelly Phillips Erb, a/k/a The Taxgirl, writes on her blog, that sum is enough to pay the entire budget of the Small Business Administration for all of 2009.
Congratulations George, you won another one.
By dying in 2010, Steinbrenner (actually his heirs) gets to keep an estimated $632 million from his reported $1.15 billion estate that otherwise would have gone to estate taxes. As Kelly Phillips Erb, a/k/a The Taxgirl, writes on her blog, that sum is enough to pay the entire budget of the Small Business Administration for all of 2009.
Congratulations George, you won another one.
Wednesday, June 23, 2010
Providing for Pets
Many people have pets that become a part of the family. To some, a pet might be the only family they have. What can be done to provide for pets upon the owner's death?
Contrary to what TV might show, most states don't allow a person to leave money or property directly to a pet. However, there is nothing wrong with making provision for a pet in a trust and leaving money to the trust.
If a pet is to be provided for in a will, there are a couple of documents that, at a minimum, are necessary. First, obvioulsy there has to be a will that makes provision for the pet. Remember that you can't leave anything directly to the pet, so if there is a fund established for the pet, it will have to be given to a trust. And the will should provide for someone to take the pet. Make sure that person is willing to accept and care for the pet. Money given directly to an individual with instructions to use it for the pet is probably not enforceable. So you might want to consider establishing a trust. Finally, there should be a durable power of attorney that specifies that the attorney in fact named has the ability to decide what to do with the pet. Everyone should have a durable power of attorney in case they become incapacitated, anyway.
Contrary to what TV might show, most states don't allow a person to leave money or property directly to a pet. However, there is nothing wrong with making provision for a pet in a trust and leaving money to the trust.
If a pet is to be provided for in a will, there are a couple of documents that, at a minimum, are necessary. First, obvioulsy there has to be a will that makes provision for the pet. Remember that you can't leave anything directly to the pet, so if there is a fund established for the pet, it will have to be given to a trust. And the will should provide for someone to take the pet. Make sure that person is willing to accept and care for the pet. Money given directly to an individual with instructions to use it for the pet is probably not enforceable. So you might want to consider establishing a trust. Finally, there should be a durable power of attorney that specifies that the attorney in fact named has the ability to decide what to do with the pet. Everyone should have a durable power of attorney in case they become incapacitated, anyway.
Thursday, June 17, 2010
Is Bankruptcy Moral?
A lot of people struggle with this question. Most people are fundamentally honest and the idea of not paying their just debts doesn't sit right with their upbringing. There is a lot of guilt associated with filing bankruptcy.
Bankruptcy goes back at least to the 14th century. The term "bankruptcy" probably comes from the Italian banco rotta, which means "broken bench." It was the custom to break the bench of a merchant who could not pay his creditors. "Bankruptcy" is also figuratively description of a ruptured bank, with a resulting loss of money. England has had a formal bankruptcy law since 1542.
Even earlier, the law of Moses in the Old Testament called for the sabbath year, a year occurring every seven years when debts were forgiven.
In America, bankruptcy is one of the few laws specifically mentioned in the United States Constitution, which provides that Congress shall have power to make and enforce a uniform law regarding bankruptcy.
The purpose of this historical review is to show that throughout history, humankind has found that a process by which debtors could be released from their debts and given a fresh start has a salutary effect. Bankruptcy is legal and while filing bankruptcy may not be the most desirable outcome, there is nothing immoral about it.
Bankruptcy goes back at least to the 14th century. The term "bankruptcy" probably comes from the Italian banco rotta, which means "broken bench." It was the custom to break the bench of a merchant who could not pay his creditors. "Bankruptcy" is also figuratively description of a ruptured bank, with a resulting loss of money. England has had a formal bankruptcy law since 1542.
Even earlier, the law of Moses in the Old Testament called for the sabbath year, a year occurring every seven years when debts were forgiven.
In America, bankruptcy is one of the few laws specifically mentioned in the United States Constitution, which provides that Congress shall have power to make and enforce a uniform law regarding bankruptcy.
The purpose of this historical review is to show that throughout history, humankind has found that a process by which debtors could be released from their debts and given a fresh start has a salutary effect. Bankruptcy is legal and while filing bankruptcy may not be the most desirable outcome, there is nothing immoral about it.
Tuesday, June 15, 2010
Estate Tax Update
2010 is nearly half over and Congress still hasn't done anything about the estate tax. It expired on December 31, 2009, leaving the United States without an estate tax for the first time since 1916. It's scheduled to be resurrected in 2011 at levels unseen since the Clinton administration.
For now, someone like Dan Duncan, who died earlier this year leaving an estate worth an estimated $9 billion, can pass his estate free of any tax to his heirs. Had Mr. Duncan died in 2009, the estate would have been taxed at 45%, meaning just over $4 billion would have gone to the IRS. Had he survived until next year, when the estate tax is scheduled to come back at 55%, his heirs would have lost nearly $5 billion.
But the real losers in the estate tax mess are the merely rich, those with estates between $1 million and $3.5 million. In 2009, the estate tax exemption was $3.5 million, meaning estates under that amount didn't pay any tax. In 2011 the exemption will drop to $1 million and the 55% rate will kick in. Many of those people have set up their estate plans under 2009 rules on the assumption they would owe no tax. If they don't act quickly, they could end up losing a bundle.
For now, someone like Dan Duncan, who died earlier this year leaving an estate worth an estimated $9 billion, can pass his estate free of any tax to his heirs. Had Mr. Duncan died in 2009, the estate would have been taxed at 45%, meaning just over $4 billion would have gone to the IRS. Had he survived until next year, when the estate tax is scheduled to come back at 55%, his heirs would have lost nearly $5 billion.
But the real losers in the estate tax mess are the merely rich, those with estates between $1 million and $3.5 million. In 2009, the estate tax exemption was $3.5 million, meaning estates under that amount didn't pay any tax. In 2011 the exemption will drop to $1 million and the 55% rate will kick in. Many of those people have set up their estate plans under 2009 rules on the assumption they would owe no tax. If they don't act quickly, they could end up losing a bundle.
Thursday, June 10, 2010
Help! I don't qualify for Chapter 7 OR Chapter 13
More people are being caught between the rock of the means test under Chapter 7 and the hard place of the debt limitations under Chapter 13, finding that they can't qualify for either.
The means test under Chapter 7 says, basically, if you make above a certain income (the state median income for a family of your size), you can't file Chapter 7. There are exceptions and other tests, but the bulk of Chapter 7s are filed by people who "pass the means test" by having income under the state median, or whose debts are not primarily consumer debts, in which case the means test doesn't apply. The means test was designed to force more people into Chapter 13 so they repaid at least some of their debt.
Less known are the debt limitations of Chapter 13. Under section 109 of the Bankruptcy Code, if a debtor (and spouse, if filing jointly) owes more than $360,475 in unsecured debt, or more than $1,081,400 in secured debt, they do not qualify for Chapter 13. What this means is that for a high debt, high income debtor, she cannot file for either Chapter 7 or Chapter 13.
Consider a debtor earning $100,000/year, single, who bought a house in 2007, at the height of the real estate market. In today's market that house is worth $400,000 and she owes $750,000. Since the house is only worth $400,000, $350,000 of that debt is unsecured. If she has in excess of $10,475 in other unsecured debt, such as credit cards, doctor bills, student loans, etc. this person doesn't qualify for Chapter 13. But due to her income, she can't file Chapter 7, either (and she might not want to for various reasons). Her only option is to file a consumer Chapter 11, a very expensive and time consuming proposition.
The means test under Chapter 7 says, basically, if you make above a certain income (the state median income for a family of your size), you can't file Chapter 7. There are exceptions and other tests, but the bulk of Chapter 7s are filed by people who "pass the means test" by having income under the state median, or whose debts are not primarily consumer debts, in which case the means test doesn't apply. The means test was designed to force more people into Chapter 13 so they repaid at least some of their debt.
Less known are the debt limitations of Chapter 13. Under section 109 of the Bankruptcy Code, if a debtor (and spouse, if filing jointly) owes more than $360,475 in unsecured debt, or more than $1,081,400 in secured debt, they do not qualify for Chapter 13. What this means is that for a high debt, high income debtor, she cannot file for either Chapter 7 or Chapter 13.
Consider a debtor earning $100,000/year, single, who bought a house in 2007, at the height of the real estate market. In today's market that house is worth $400,000 and she owes $750,000. Since the house is only worth $400,000, $350,000 of that debt is unsecured. If she has in excess of $10,475 in other unsecured debt, such as credit cards, doctor bills, student loans, etc. this person doesn't qualify for Chapter 13. But due to her income, she can't file Chapter 7, either (and she might not want to for various reasons). Her only option is to file a consumer Chapter 11, a very expensive and time consuming proposition.
Tuesday, June 8, 2010
Family Meetings in Estate Planning
One often overlooked tool of estate planning is to hold a family meeting. There are several good reasons for doing this, and a few reasons why many people don't hold a family meeting.
A family meeting first and foremost should be an opportunity to make wishes and desires known and acknowledged and documented so they are carried out. This last item, documentation, may require the services of a qualified attorney. Simply writing down that mom and dad want the house to go to a certain person might not be enough. Everyone might agree that is what mom and dad wanted, but unless there is a will or other legally effective device, it might not happen.
Another reason for a family meeting is to ease anxieties about what will happen. It's a time to discuss last wishes such as funeral arrangements, burial/cremation, etc. While this is hard to do, afterward everyone feels a sense of relief.
At a family meeting, tax advantageous strategies for passing wealth can be discussed, such as family trusts, limited liability companies, life insurance policies to provide cash flow to continue a business and the like.
A very important function, and one often overlooked, is to preserve family harmony. At a family meeting, everyone's viewpoints can be aired. While it is the prerogative of those whose estates are in issue to decide where and to whom they leave things, by getting everyone together to discuss things, when the will is finally read there should be no big surprises.
Don't overlook a family meeting as part of your estate plan.
A family meeting first and foremost should be an opportunity to make wishes and desires known and acknowledged and documented so they are carried out. This last item, documentation, may require the services of a qualified attorney. Simply writing down that mom and dad want the house to go to a certain person might not be enough. Everyone might agree that is what mom and dad wanted, but unless there is a will or other legally effective device, it might not happen.
Another reason for a family meeting is to ease anxieties about what will happen. It's a time to discuss last wishes such as funeral arrangements, burial/cremation, etc. While this is hard to do, afterward everyone feels a sense of relief.
At a family meeting, tax advantageous strategies for passing wealth can be discussed, such as family trusts, limited liability companies, life insurance policies to provide cash flow to continue a business and the like.
A very important function, and one often overlooked, is to preserve family harmony. At a family meeting, everyone's viewpoints can be aired. While it is the prerogative of those whose estates are in issue to decide where and to whom they leave things, by getting everyone together to discuss things, when the will is finally read there should be no big surprises.
Don't overlook a family meeting as part of your estate plan.
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