The Dangers of Facebook to Your Bankruptcy

Laptop KeyboardIf you’re reading this blog post the chances are good that you have a Facebook profile or account. If so, you’re not alone. Recent statistics reported by The Blog Herald indicate that there are now over 500 million Facebook users. Of those 500 million users, half of those users log in to their Facebook account every day. The average Facebook user has 130 friends and there are a staggering 30 billion pieces of content added each month. To fully understand that amount 30 billion looks like this when written out: 30,000,000,000.

So Why Does Facebook Matter to Your Bankruptcy?

Facebook is a window into your personal life. A bankruptcy Trustee, after filing bankruptcy, has the right and ability to look into that window.

When you file a bankruptcy you are required to disclose your assets and other important acts within certain time periods. If you fail to disclose the required information in your bankruptcy petition then you are committing a federal crime of perjury. You could face jail time and be fined large sums of money. Do I have your attention yet?

More and more bankruptcy Trustees are looking up debtors’ (people who file bankruptcy) social media accounts. It is so quick and easy to pull up information on social medias, it has become a logical part of the due diligence research that a Trustee’s office will complete.

Death Of A Bankruptcy Case Via Facebook

Let’s look at a common example. Husband and wife Donnie and Debra Debtors file a bankruptcy together. They fill out their bankruptcy petition and file it with the court. However, they chose not to list down some of their assets because they don’t want the courts to take it because they hope to give it to their children some day. Specifically, they don’t list down a 1957 Chevrolet Bel Air that has be restored and a whole life insurance policy with a substantial cash surrender value. Donnie and Debra show up to the creditors’ meeting and quickly realize they have some real problems.

Tom Trustee, who represents the people Donnie and Debra owe money to, has started paying a part time high school student to go online and after school and look up different debtors who have filed bankruptcy and see if they are showing assets that aren’t listed in their bankruptcy petition. Well, low and behold, the 16 year old high school student searching on Facebook has found some important information for the bankruptcy Trustee. Donnie and Debra have posted pictures on Facebook showing their newly restored 1957 Chevrolet Bel Air winning as “Best in Show” at a recent car show located in Charlotte, NC. In addition to that, Debra responded to one of her friend’s posts asking how to pay for college tuition by explaining that she and Donnie are withdrawing the cash surrender value from their whole life insurance policy to pay for their daughter’s freshman year in college.

Tom Trustee asks Donnie and Debra if they need to add anything else to their bankruptcy petition and they explain that it is accurate and complete. At that time, Tom Trustee begins to ask them about the assets not listed down in their bankruptcy petition, the car and whole life insurance policy. Stunned, Donnie and Debra first try to deny they have those assets but then the Trustee presents them with pictures printed off of their Facebook page. They eventually admit their failure to properly disclose assets.

Several weeks later Donnie and Debra are indicted and face federal charges of fraud and a fine of $150,000 by the federal government – money they don’t have because the Trustee seized both their “Best in Show” car and whole life insurance policy. Because Donnie and Debra didn’t tell their attorney about the assets they didn’t realize they could have protected both assets. The whole life insurance could have been fully protected because their children were the beneficiaries and the vehicle could have been exempted using a combination of their motor vehicle exemptions and “wild card” exemptions.

The Lessons To Be Learned

There are two important take-aways from this example. First, and most important, you should fully disclose your assets and be completely honest and forthcoming in your bankruptcy petition. The consequences of not doing so are not worth the perceived benefit. Second, tell your bankruptcy attorney about everything. Keep no secrets. If they would have discussed the concerns they had about their assets with their experienced bankruptcy attorney they would have known they could have protected their assets.

The Bottom Line: The purpose of this post is not to tell you to take hidden assets down but, instead, to encourage you to list the assets you have and discuss those assets with your bankruptcy attorney. Facebook and other social media sites are now used to confirm that you are being forthcoming within your bankruptcy petition.

What is the Homestead Exemption in Bankruptcy?

Happy Family Giving PiggybacksOne of the first questions we often hear from our client’s is “what will happen to my property in bankruptcy?”  It is often a confusing process and can be difficult to understand, which is why it is important to have a good bankruptcy attorney leading the way.

Most of the time your property is protected in bankruptcy. Federal and state laws allow us to use what are called “exemptions” to help protect certain amounts of a family’s real and personal property.  This may include a home, vehicle, retirement savings, bank accounts, furniture and any other property you may have.  Obviously, one of the most important pieces of property to protect is a family’s home if they want to continue to stay in their residence. So, how is a residential property protected in bankruptcy? By using a tool called the homestead exemption.

The Homestead Exemption:

An individual or family’s home can be protected with what is called the homestead exemption in bankruptcy.  An important thing to keep in mind is “homestead” means your residence at the time of filing bankruptcy and is utilized for those clients who have a residential property.  In other words, if you are renting you will not likely come across the homestead exemption in your bankruptcy because you don’t have any equity in the property since it is only a rental.

North Carolina laws allow us to protect $35,000 in equity per individuals name on the deed. For a married couple that has both of their names on the deed to a residence we can exempt up to $70,000 in equity in their residence. Therefore, you can understand the importance of checking your property to see whose names are on the deed to the property. (Note: In North Carolina most married couples will have both of their names on the deed but may have only one name on the mortgage or deed of trust.)

In determining how to best use the homestead exemption we would first want to find out what the person’s situation is on their home.  Are they current?  Behind?  Are they able to get caught up before filing a bankruptcy?  The answers to all of those questions affect whether the client would be filing a Chapter 7 bankruptcy or Chapter 13 bankruptcy.  We would also look at the amount of equity in their home by finding out what’s owed on any mortgages and the current fair market value of the property.  It’s important to be sure we are reflecting accurate values on both the mortgage amount(s) and the property value.

Generally speaking, the homestead exemption allows most people to be able to keep their home.  In a Chapter 7 bankruptcy, whether a person is filing individually or joint with a spouse, the homestead exemption will likely cover what’s remaining in equity.  If you are concerned your house will exceed the exemption amounts mentioned above, we recommend consulting with an experienced bankruptcy attorney.  Chapter 13 bankruptcy could be an option for someone who exceeds the exemption amounts but you would need to consult with a bankruptcy attorney for more accurate options. The homestead exemption is important in bankruptcy because it allows families to be able to keep their homes.

In some cases we find not all clients need to use the max amount of the homestead exemption.  For example, an individual filing may have $25,000 equity in their home and therefore does not require the full amount.  A maximum of $5,000 of the $35,000 can be used for the “wild card” exemption, which can help protect equity in any type of property at all.

Let’s conclude with a short example of how we would use the homestead exemption of John and Jane Doe’s house on 123 Main St.

Fair Market Value:          $200,000

First Mortgage:                 $100,000

Second Mortgage:             $40,000

Equity:                                  $60,000

We then use $30,000 of John Doe’s homestead exemption and $30,000 of Jane Doe’s homestead to exempt the full $60,000 of equity in their residence. Therefore, there property is protected.

What Is Abandonment In Bankruptcy?

Foreclosure Sign in Front of HouseProperty that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee.  Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.

At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case.  If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property.  Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay.  At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company.  Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.)  A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.

To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions.  The Trustee reviews the estate and decides to hire a real estate agent.  The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months.  The Trustee decides to put both on the market for 6 months.  Debtor receives a discharge but not a Final Decree.  The time passes and the Trustee has not even received an offer on the land or house.  To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed.  The debtor receives a Final Decree a month later.  The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again.  The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.

The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.

Are My Tools Protected in A Bankruptcy?

Due to the recession our economy has faced, many small business owners find themselves sitting in our office discussing the possibility of filing for bankruptcy.  Legitimately, one of their main questions is how to protect their assets. One of the major assets of most small business owners is their “tools”. Tools can range from hand tools of a construction worker to the painting supplies of a painter. So, can they take your tools?

Construction Worker Carrying Lumber With Tools

The answer is not simple; this is where an attorney can be helpful.  If you are a sole proprietor then the tools are seen as your personal property and protected as any other property you have.  By default, an business is a sole proprietorship if it is owned by one person and has not been incorporated in one way or another. An example of a sole proprietor is Joe Blow’s Lawn Care; one person owns the company, owns the tools, works for himself, and files a self employment tax (Schedule C) on his taxes.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe.  If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to the garage.  If Joe were to be sued, he would need to protect those tools as he would any other asset he has from seizure.

Now, if Joe had gone to the Secretary of State and registered his company, it’s a bit of a different story.  If that were the case, Joe Blow’s Lawn Care, LLC owns the tools.  They would be included in the balance sheet (what tells other people what your company is worth) as a business asset.  The lawn mower, rakes, blower, hedgers, etc all belong to Joe Blow’s Lawn Care, LLC. If he decided to no longer run the company next week, the company still holds the assets until it is closed down with the Secretary of State (then in most cases ownership reverts back to the owner of the company).  If Joe was to be sued and he was protecting his property, until he closed the company down, those tools belong to the company in which he owns, not him personally.

The bottom line is, you can protect your tools using the “tools of the trade” exemption in North Carolina. An experienced attorney would need to look at your unique situation to determine if using that exemption is proper or not. If you own a business, whether it is large or small, we strongly suggest that you discuss all of your assets and liabilities with your attorney.  Businesses can be a tricky subject, whether owned directly by you or an entity you own, and protecting your assets are important to your success in a bankruptcy.

What is the Motor Vehicle Exemption in Bankruptcy?

Protecting your vehicle is one of the most important things that can be done within a bankruptcy. We understand your car is, in many ways, your livelihood. It helps you get to and from work, take your children to daycare and other events, get groceries as well as many of the other necessities of life.

Doing Research on a White Computer

When you file a bankruptcy and we protect your personal property, we are able to do so based on exemptions.   Exemptions vary from state to state and in some cases, you may use Federal exemptions.  In North Carolina you are given an exemption of $3,500 per person for motor vehicles.  We can only use the exemption if the person’s name is on the title to the vehicle. For example, if a married couple has two vehicles but both vehicles are in the husband’s name then we can only use the husband’s one motor vehicle exemption on one of the vehicles. Even though the wife also has a $3,500 motor vehicle exemption we cannot use it on either of the vehicles since her name is not on the titles. If the vehicles were both jointly owned then we could use one motor vehicle exemption on one vehicle and one on the other.

The “motor vehicle” exemption is used to protect any equity in the car.  Equity is the difference between the amount that you owe on the vehicle and the value of the vehicle.  For example, you own a car that is worth $5,000 and you only owe $3,000; you will then have $2,000 of equity to protect.

If for some reason we cannot protect all of the equity with just your motor vehicle exemption, we can also combine that exemption with your miscellaneous “wild card” exemption.  This is called exemption stacking. If you have $8,000 of equity in a vehicle we could use your $3,500 motor vehicle exemption and the “stack” your “wild card” exemption on top of it to protect up to $8,500 in equity.

We try to use the lowest reasonable value that we can fairly use, but still in some cases, no matter what, we cannot protect all of the equity in a vehicle.  At that point, whatever amount is unprotected; the bankruptcy Trustee will have the right to ask you to compensate them for it.  We never like for this to happen, but just like life, it happens.  So it is very important to make sure you have an accurate value for the amount owed on the vehicle and the value of the car to determine the equity that needs to be protected for your vehicle.  We understand the importance of having your vehicle so we will do everything we can to protect it! It’s very important you discuss your situation with an experienced bankruptcy lawyer so they can explain your different options.

Can I Take Out A 401(k) Loan After Filing Chapter 13 Bankruptcy?

Bankruptcy QuestionsAs long as your 401(k) is ERISA qualified and was exempted (protected) in your bankruptcy petition, you can most likely take a loan against the account while in an active Chapter 13 bankruptcy. However, you MUST get the court’s permission!

When you are filing for bankruptcy, one of the top concerns is to protect your assets.  There are federal and state exemptions available to protect any equity or funds in your possessions.  A 401(k) plan is a common account that should be protected from the bankruptcy creditors.  Through the case of Patterson vs. Shumate, there is no limit to the amount that may be protected under this exemption as long as the plan or account is ERISA qualified (Employee Retirement Income Security Act of 1974).  You will need to provide documentation proving the plan is ERISA qualified, such as a copy of the plan summary that includes the ERISA statement.

To obtain a loan from your 401(k) while in a Chapter 13 bankruptcy you must get the court’s permission. Your bankruptcy lawyer can do so by filing a Motion to Incur Debt. You would have to appear in front of the judge to get the judge’s permission. The judge will usually grant permission to pull from your 401(k) loan if you can provide a good reason for why you need the money. This, typically, needs to be something that is a necessity, not just a “want”. An example of this may be if you need money to purchase a vehicle after another one has broken down or if you need money to pay medical expenses that were incurred after the filing of the bankruptcy. Discuss this with your bankruptcy lawyer before starting the loan withdrawal process.

Am I Required to List Stock On A Bankruptcy?

When you start to fill out the paperwork for your bankruptcy, it can seem a bit overwhelming.  It seems you have to provide every single bit of information regarding your life and finances.  In a sense, you do.  The Bankruptcy Code states that you MUST disclose ALL of your assets to the court, including but not limited to, personal property, debt collections, and financial accounts.

Person Writing on Laptop

Stock falls along the lines of a personal account.  Think about it, if you hit hard times and needed cash, you could sell a portion (or all) of your stock to get money.  You always have to remember that if you can touch the money, then the court or bankruptcy Trustee can too.  To protect your asset you will need to make sure that it is listed in the bankruptcy and valued correctly.  To determine the value of your stock, you will need to take the current market value and multiply it by the number of shares that you own.

Protecting your stock all depends on the amount of “wildcard” exemption.  This is an exemption that can be used for basically any property that you have/own.  If the stock is able to be protected under the ?wildcard? exemption, then the Trustee will not interfere with the stock.  If the stock is not properly protected, the Trustee will have the right to seize the stock, sell it and use the proceeds to pay your creditors.

In order to protect your assets it’s important that you fully and accurately disclose your property to your bankruptcy attorney. An experienced bankruptcy attorney will be able to use bankruptcy exemptions to protect most, if not all, of your personal property.


How Do I Determine the Value of My Home If I’m Filing Bankruptcy?

The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of.  From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy.  With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.

Family in Front of House

The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth.  If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.

A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.

While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.

Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.