The Utah Supreme Court gave debtors a lump of coal for Christmas in the form of its opinion in Gladwell v. Reinhart, 2012 UT 82 (December 4, 2012), a case certified to it by the Tenth Circuit Court of Appeals in Denver to answer a question of state law. The issue arose in Dr. Reinhart's bankruptcy. Dr. Reinhart claimed an exemption in 75% of the wages owed to him but unpaid as of the date of his bankruptcy petition. This is common practice among bankruptcy attorneys in Utah and it had been universally recognized. Occasionally a trustee would demand the other 25% that wasn't exempt under Utah's exemption statute, but most of the time the debtor kept 100% of any unpaid wages as of the filing date.
In the Reinhart case, the Chapter 7 trustee challenged the claim of exemption. The bankruptcy court denied the trustee's objection, following the practice that had been in place for years. The district court upheld the bankruptcy court. On appeal to the Tenth Circuit, the Court of Appeals certified the case to the Utah Supreme Court. "Certification" is a process by which a federal court, called upon to answer a previously unanswered question of state law, can ask the highest court of the state to determine the answer.
On certification the Utah Supreme Court held that the exemption statute in question, Utah Code section 70C-7-103, does not to allow a debtor in bankruptcy to claim an exemption for 75% of the wages owed to him but unpaid as of the date of filing. In other words, 100% of what a debtor is expecting in his next paycheck after he files is subject to being taken by the bankruptcy trustee as "property of the estate."
In the past most debtors' attorneys have timed the filing of the bankruptcy petition to a date just before a payday so that what is in the debtor's checking account at the time of filing is almost nothing, relying on section 70C-7-103 to exempt what is owed to the debtor. With the ruling in Reinhart debtors risk losing their entire next paycheck after they file. And, if they wait and file the day after payday, so that what is owed but unpaid is a small amount, any money still in their account from that paycheck on the day they file is subject to being taken. The Utah Supreme Court has effectively ruled that the debtor's last paycheck before filing is forfeited to his estate, meaning debtors will have to skip a payday in order to file.
Utah being the debtor-unfriendly state that it is, don't expect the Utah legislature to correct this problem any time soon.
Thursday, January 10, 2013
Friday, January 4, 2013
Is Best Buy Headed to Bankruptcy?
In 2008 Circuit City filed bankruptcy, leaving Best Buy as the remaining entity under the business model both had used: Selling consumer electronics in large retail stores. Best Buy has survived but it hasn't thrived. Store sales have fallen in each of the last eight fiscal quarters. Many observers feel it's only a matter of time before Best Buy faces the same fate as Circuit City.
The problem Best Buy faces is the same as that faced by most large retailers, that of competition from online retailers such as Amazon, eBay and even Walmart.
If you got a Best Buy gift card for Christmas you might want to use it soon. If Best Buy files bankruptcy, holders of gift cards become unsecured creditors and the likelihood of getting anything back as an unsecured creditor is virtually nil.
The problem Best Buy faces is the same as that faced by most large retailers, that of competition from online retailers such as Amazon, eBay and even Walmart.
If you got a Best Buy gift card for Christmas you might want to use it soon. If Best Buy files bankruptcy, holders of gift cards become unsecured creditors and the likelihood of getting anything back as an unsecured creditor is virtually nil.
Friday, December 28, 2012
Using Your Tax Refund Wisely
As 2012 draws to a close many of us are looking forward to getting a tax refund for the year. Many have already decided how to spend it, some have already spent it five or six ways in their mind. As you look forward to 2013, now is a good time to think hard and realistically about that refund. Here are some things to bear in mind.
1. If your refund is over $2,000, you are having too much withheld. A refund is exactly what it says, a giving back to you some of your own money. By getting a large refund you have made the IRS an interest free loan during 2012. Look at it this way: a $6,000 refund means you had $500 per month too much withheld from your pay. What would that extra $500 a month have done for you? Now is a good time to use one of the calculators you can find on the IRS website (www.irs.gov) to see how much you should have withheld.
2. Pay down high interest debt, especially any payday loans you might have. High interest debt hurts in several ways. First there is the actual monetary cost of the debt. Then there is the emotional cost of worrying about making payments. Finally there is potential risk to your credit score or even the chance of defaulting.
3. Build up your emergency fund. Ideally you should have enough money set aside for three to six months' worth of normal living expenses (including your house payment).
4. Beef up your IRA or 401(k). Check with your plan administrator about the maximum contributions and if you haven't reached those, consider using some of your refund to add to your retirement account.
5. Save for something you have wanted. Maybe it's a new house or a new car or some renovations to your home such as new carpet. Your refund can jump start your ability to reach that goal.
1. If your refund is over $2,000, you are having too much withheld. A refund is exactly what it says, a giving back to you some of your own money. By getting a large refund you have made the IRS an interest free loan during 2012. Look at it this way: a $6,000 refund means you had $500 per month too much withheld from your pay. What would that extra $500 a month have done for you? Now is a good time to use one of the calculators you can find on the IRS website (www.irs.gov) to see how much you should have withheld.
2. Pay down high interest debt, especially any payday loans you might have. High interest debt hurts in several ways. First there is the actual monetary cost of the debt. Then there is the emotional cost of worrying about making payments. Finally there is potential risk to your credit score or even the chance of defaulting.
3. Build up your emergency fund. Ideally you should have enough money set aside for three to six months' worth of normal living expenses (including your house payment).
4. Beef up your IRA or 401(k). Check with your plan administrator about the maximum contributions and if you haven't reached those, consider using some of your refund to add to your retirement account.
5. Save for something you have wanted. Maybe it's a new house or a new car or some renovations to your home such as new carpet. Your refund can jump start your ability to reach that goal.
Thursday, December 20, 2012
Defamation Lawsuits to Rise?
The growing number of websites such as Yelp and Angie's List, where consumers can post reviews of local businesses, may have the effect of increasing the number of defamation lawsuits that are filed. Defamation includes the similar torts of libel and slander. Historically, libel was defamation in written form while slander was oral defamation. Both involve publishing (whether by word or mouth) false or misleading statements about another.
Defamation lawsuits in the United States are fairly uncommon due to the First Amendment, which guarantees freedom of speech. In Great Britain, libel and slander suits are much more common. But the growing use of the Internet, the prospective reach of the Internet and the relative anonymity of the Internet are all pointing to signs in a rise of such suits. Here's how it works: A consumer gets what she feels is shoddy service from a local business. Instead of complaining directly to the business (or perhaps after doing so without getting satisfaction) she posts a scathing review on one of the websites devoted to that or to her Facebook page. The fact that she can do so from her own home without immediately being subjected to any contrary feedback might prompt her to embellish the "facts" a bit. The shoddy workmanship might become an intentional attempt to rip her off. The business might be described as crooked. All of a sudden her rant gets spread to hundreds or thousands of readers.
Businesses, who rely on word of mouth and reputation, are becoming pro-active in attempting to squelch negative images. For example, a Chicago plastic surgeon sued when a former patient accused him of giving her "Frankenstein breasts." The woman might suddenly find herself a defendant in a defamation suit. While it's true that truth is an absolute defense, that vindication might come only after the expenditure of thousands of dollars in legal fees. And there are cases of consumers losing. A California technology company was awarded $1.5 million against a blogger who accused the firm of cheating associates. A Florida woman won an $11.3 million verdict over claims she was a "crook" and a "con artist."
Before you hit the "publish" button, stop and think what the effect of your rant might be.
Defamation lawsuits in the United States are fairly uncommon due to the First Amendment, which guarantees freedom of speech. In Great Britain, libel and slander suits are much more common. But the growing use of the Internet, the prospective reach of the Internet and the relative anonymity of the Internet are all pointing to signs in a rise of such suits. Here's how it works: A consumer gets what she feels is shoddy service from a local business. Instead of complaining directly to the business (or perhaps after doing so without getting satisfaction) she posts a scathing review on one of the websites devoted to that or to her Facebook page. The fact that she can do so from her own home without immediately being subjected to any contrary feedback might prompt her to embellish the "facts" a bit. The shoddy workmanship might become an intentional attempt to rip her off. The business might be described as crooked. All of a sudden her rant gets spread to hundreds or thousands of readers.
Businesses, who rely on word of mouth and reputation, are becoming pro-active in attempting to squelch negative images. For example, a Chicago plastic surgeon sued when a former patient accused him of giving her "Frankenstein breasts." The woman might suddenly find herself a defendant in a defamation suit. While it's true that truth is an absolute defense, that vindication might come only after the expenditure of thousands of dollars in legal fees. And there are cases of consumers losing. A California technology company was awarded $1.5 million against a blogger who accused the firm of cheating associates. A Florida woman won an $11.3 million verdict over claims she was a "crook" and a "con artist."
Before you hit the "publish" button, stop and think what the effect of your rant might be.
Thursday, December 13, 2012
Beware the Purchase Money Security Interest
When filing bankruptcy, or any time you're buying on credit, beware of the Purchase Money Security Interest (PMSI). A PMSI gives the seller of the goods a security interest in whatever you purchase. This is especially sneaky when you use an in-store credit card, such as one issued by Best Buy, Sears or, in the Salt Lake City area, R.C. Willey. When you applied for credit with these companies the credit application you signed says that you grant a PMSI in whatever you buy using the card. This extends to EVERYTHING you buy, even if you bought it five years ago and think you long ago paid that purchase off. If you still owe money on the card, those items are probably collateral for the debt.
Suppose that last Christmas you used your Best Buy card and purchased a laptop and an iPod. You kept the laptop but you gave the iPod as a gift. Now you find you have to file bankruptcy and you list Best Buy as a creditor. Everything seems fine until a representative of Best Buy calls and asks if you intend to reaffirm their debt. It's a credit card, you say. I'm not reaffirming with VISA or Master Card, why would I reaffirm with them?
The simple answer is the PMSI. As a secured creditor Best Buy is entitled either to be paid the value of what you want to keep or have the merchandise returned. You probably don't want to go to whomever you gave the iPod to and ask for it back so you have no choice but to pay for it. Reaffirmation is a negotiated agreement between debtor and creditor and a creditor doesn't have to reaffirm, so if Best Buy demands that you reaffirm the entire debt if you want to keep the iPod you might have to pay the entire debt, even though you'd be happy to give back the laptop.
The reason you don't have to reaffirm with VISA or Master Card is that they are unsecured creditors. They did not get a PMSI in whatever you bought using the card so they have no right to demand anything back.
Suppose that last Christmas you used your Best Buy card and purchased a laptop and an iPod. You kept the laptop but you gave the iPod as a gift. Now you find you have to file bankruptcy and you list Best Buy as a creditor. Everything seems fine until a representative of Best Buy calls and asks if you intend to reaffirm their debt. It's a credit card, you say. I'm not reaffirming with VISA or Master Card, why would I reaffirm with them?
The simple answer is the PMSI. As a secured creditor Best Buy is entitled either to be paid the value of what you want to keep or have the merchandise returned. You probably don't want to go to whomever you gave the iPod to and ask for it back so you have no choice but to pay for it. Reaffirmation is a negotiated agreement between debtor and creditor and a creditor doesn't have to reaffirm, so if Best Buy demands that you reaffirm the entire debt if you want to keep the iPod you might have to pay the entire debt, even though you'd be happy to give back the laptop.
The reason you don't have to reaffirm with VISA or Master Card is that they are unsecured creditors. They did not get a PMSI in whatever you bought using the card so they have no right to demand anything back.
Thursday, December 6, 2012
Miley Cyrus Hopes to Avoid Achy-Breaky Heart
Miley Cyrus and fiance Liam Hemsworth are reportedly working on a pre-nuptial agreement in case their planned marriage should fall apart. Cyrus is reportedly worth $130 million, while Hunger Games' Hemsworth is only worth a paltry $20 million. But there's more. Cyrus is said to be equally concerned about the possible fate of the couple's six dogs in the event of dissolution of the marriage.
It isn't clear where the couple is getting married. Hemsworth is from Australia; some reports indicate a wedding in England. If so, a pre-nup might not be binding. In England a pre-nuptial agreement does not carry the same force it does in the United States. Rather than being considered as a binding contract it is merely one of several factors that a court can consider.
It isn't clear where the couple is getting married. Hemsworth is from Australia; some reports indicate a wedding in England. If so, a pre-nup might not be binding. In England a pre-nuptial agreement does not carry the same force it does in the United States. Rather than being considered as a binding contract it is merely one of several factors that a court can consider.
Tuesday, December 4, 2012
Avoid this Year-End IRA Trap
Because the Individual Retirement Account (IRA) was created as part of the Internal Revenue Code, there is nothing simple about the way it works. There are a number of traps that can end up hurting you if you're not careful.
One of this is failing to take a Required Minimum Distribution (RMD) every year after you turn 70-1/2. The RMD is first due by April 1 of the year after the year in which you turn 70-1/2. Once RMDs begin they must be taken every year by December 31. If an RMD isn't made, or is made in an amount less than the RMD required, the IRS imposes a 50% penalty on the shortage. The amount of the RMD is determined by dividing the IRA balance as of December 31 of the prior year (after that year's RMD) by one of three life expectancy factors. Be sure you use the right one!
Here's how it would work for an 85-year old whose IRA balance is $900,000 as of December 31, 2011: Using the life expectancy factor of 14.8, the RMD for 2012 would be $60,811 ($900,000/14.8). If this person failed to take any RMD the IRS would impose a penalty of 50% of $60,811, or $30,405.50. If the person took a distribution of $50,000, the penalty would be 50% of $10,811 (the shortage), or $5,405.50. Of course, you can take more than the RMD without penalty; you just have to take the minimum each year.
If you have more than one IRA the RMD is calculated on the total of all IRAs and can be taken from any or all of them. So if the person in the above example had two IRAs, one of $500,000 and one of $400,000, he could take the distribution equally from both, all from one or the other, proportionally from each or however he wants. One thing he should do is re-balance the account from which the distribution is made after he takes it.
With the year end approaching watch out for tax traps.
One of this is failing to take a Required Minimum Distribution (RMD) every year after you turn 70-1/2. The RMD is first due by April 1 of the year after the year in which you turn 70-1/2. Once RMDs begin they must be taken every year by December 31. If an RMD isn't made, or is made in an amount less than the RMD required, the IRS imposes a 50% penalty on the shortage. The amount of the RMD is determined by dividing the IRA balance as of December 31 of the prior year (after that year's RMD) by one of three life expectancy factors. Be sure you use the right one!
Here's how it would work for an 85-year old whose IRA balance is $900,000 as of December 31, 2011: Using the life expectancy factor of 14.8, the RMD for 2012 would be $60,811 ($900,000/14.8). If this person failed to take any RMD the IRS would impose a penalty of 50% of $60,811, or $30,405.50. If the person took a distribution of $50,000, the penalty would be 50% of $10,811 (the shortage), or $5,405.50. Of course, you can take more than the RMD without penalty; you just have to take the minimum each year.
If you have more than one IRA the RMD is calculated on the total of all IRAs and can be taken from any or all of them. So if the person in the above example had two IRAs, one of $500,000 and one of $400,000, he could take the distribution equally from both, all from one or the other, proportionally from each or however he wants. One thing he should do is re-balance the account from which the distribution is made after he takes it.
With the year end approaching watch out for tax traps.
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