10 Important Things to Tell Your Detroit Bankruptcy Lawyer: Part 2

important things to tell your bankruptcy lawyer part 2

In our last blog post here, we discussed the first 5 of 10 important things to tell your Detroit bankruptcy lawyer. In this post, we continue with the next 5 important things you will need to discuss with a bankruptcy attorney.

As noted in our prior post, when you file for bankruptcy in Michigan, you are entering a voluntary legal process that will require an enormous amount of information from you. Your bankruptcy lawyer will be the first person who asks certain questions about your income, debts, expenses, and your assets.

But your lawyer will not be the last in the process to do so.

Your Metro Detroit Chapter 7 or Chapter 13 bankruptcy process will work out far better for you if your lawyer knows all of this information in advance. If your lawyer is learning, for instance, that you own a gold-plated Lamborghini for the first time in your 341 Meeting of Creditors hearing, bad things will happen.

The relationship between client and attorney is based on disclosure, confidentiality—and trust.

You need to trust that your bankruptcy attorney is asking about these important topics for a reason.

1. Who You’ve Paid

In Part 1 of this short series of articles, we noted that what you earn and what you owe are 2 very important things to tell your Detroit bankruptcy lawyer.

Likewise, your attorney will need to know who you’ve paid.

This may seem counter-intuitive because paying creditors and others to whom you owe money is the “right” thing to do, isn’t it?

This may be true, but, when you are planning to file Chapter 7 or Chapter 13 bankruptcy, it can complicate your case. It can even aggravate the lives of your loved ones, if any of them happen to be people to whom you’ve repaid personal loans.

It’s important to bear in mind, first, that there is no difference between a personal loan based on verbal agreement and, say, a credit card governed by a loan application or promissory note. You must disclose debts owed per verbal agreement with your grandmother as you would any other.

It is, and, yes, it must.

You must disclose repayment of “personal loans” as well as commercial and other “paper-driven” debts because the US Bankruptcy Code requires it.

The Code requires disclosure of debts for a number of reasons.

Preference Payment Recovery

The Chapter 7 Trustee can recover “preference payments” in Chapter 7 bankruptcy.

A “preference payment” is, in short, a payment you’ve preferred to make to 1 creditor to the disadvantage of your other creditors. The Bankruptcy Code defines a preference payment as any payment in total amount of $600 or more made to a single creditor over the 90 days prior to the filing of your bankruptcy case.

The look-back period is 1 year, not 90 days, when the creditor is someone person to you.

When the creditor is personal, this is an “insider preference payment.” Hurrying to repay a debt to your grandmother can create this problem. Your Chapter 7 Trustee may sue her to recover those funds for your other creditors.

Fraudulent Transfer Recovery

The Chapter 7 Trustee will also recovery property transferred fraudulently. This includes cash.

The Bankruptcy Code defines a fraudulent transfer as a transfer of property for less than it is worth and outside the usual course of the debtor’s business within 2 years of the filing of the bankruptcy case. A Chapter 7 Trustee can also rely on Michigan state law in alleging a fraudulent transfer. Under Michigan law, the fraudulent transfer look-back period is 6 years.

This is where your, “But there isn’t any paper!” exclamation works against you.

Without any documentary evidence of the nature of and repurpose for the repayment, who is to say that payment to your grandmother 1.5 years ago wasn’t a fraudulent transfer rather than an insider preference payment?

If you have made repayments to your grandmother or any other “insider,” especially, this will be a very important thing to tell your Detroit bankruptcy lawyer about.

Creditor Claims Review

You may think you’ve paid a creditor off, but what if the creditor disagrees? Your bankruptcy lawyer may want to schedule the debt as “disputed.” But he or she needs to know about it first.

In Chapter 13 bankruptcy, this is a vital consideration. Creditors must file a form called a “proof of claim” in Chapter 13.

The creditor’s proof of claim form includes the amount owed, as well as other information and documentation proving.

Proof of claim forms are frequently wrong and sometimes fraudulent. Your bankruptcy lawyer reviews each proof of claim filed to ensure accuracy.

But your lawyer needs that information to begin with.

2. What You Own

The property that you own, its location, and its value one of the most important things to tell your Detroit bankruptcy lawyer about.

The ideal Michigan bankruptcy process discharges debt but leaves your assets intact. However, in order to protect your assets, your Detroit bankruptcy lawyer must know what they are.

Property can be liquidated in a Chapter 7 bankruptcy if it is not exempted. However, most who file Chapter 7 in Livonia, Westland, Farmington Hills, Redford, Inkster, Ann Arbor, or elsewhere in the Detroit area do not lose any property.

This is because your bankruptcy lawyers has the ability to “exempt” your property from seizure and liquidation by the Chapter 7 Trustee. However, again your lawyer must know about the property in order to do that.

Property that is not disclosed essentially belongs to the Chapter 7 Trustee and your creditors.

In Chapter 13 bankruptcy, assets are never liquidated. However, their value can, through a mathematical formula known as the “liquidation analysis” or “best interest of creditors test,” require that you pay more to your creditors through your Chapter 13 plan than you might have without those assets.

Chapter 13 bankruptcy is always a cost-benefit analysis to be calculated between you and your bankruptcy attorney. However, your lawyer needs to know what you’ve got to determine whether your Chapter 13 will be more expensive than it’s worth to you.

Lastly, the Bankruptcy Code states that a discharge of debt through bankruptcy is available only to “good faith” and “honest” debtors.

Failure to disclosure your assets or attempts to conceal them or mischaracterize their value can result in a dismissal of your bankruptcy case.

Worse, it can also land you in jail.

A failure to disclose assets, if willful, can be criminally charged as Bankruptcy Fraud. Bankruptcy Fraud is a Federal felony that carries a 5-year potential prison sentence, as well as significant fines and penalties.

3. What You’ve Sold or Given Away

As noted above with regard to disclosing debts you’ve paid, property transferred, gifted, given away, or sold prior to filing bankruptcy in Michigan can be recovered as a fraudulent transfer.

That said, it may be that you sold property prior to making a decision to file bankruptcy, right? Nothing fraudulent about it.

The Bankruptcy Code’s definition of “fraudulent transfer” includes no “intent” requirement. It doesn’t matter if you sold your Corvette to your brother-in-law Stan to hide it from your creditors or because you really wanted to give Stan a heckuva Christmas present. If it was worth more than the $1 (or $0) that Stan gave you for it and it happened within 2 (or even 6!) years, it’s a fraudulent transfer under Federal Bankruptcy law.

Thus, this is a vitally important thing to tell your Detroit bankruptcy lawyer long before you file any Chapter 7 or Chapter 13 petition.

Stan’s means of transportation may depend upon it.

4. What You Spend

If you are only unable to repay your debts because you spend every dime (and more) sending your kid to an elite East Coast private school, you won’t be able to discharge those debts in bankruptcy.

Remember what we said above about “good faith” debtors? You will be required to itemize your average monthly household necessary expenses in your bankruptcy petition.

Those expenses will be scrutinized. If it appears that your income is frittered away on luxury-level expenditures and not simply on basic needs, such as food and rent and transportation, an agency of the US Department of Justice known as the US Trustee’s Office may file a motion to dismiss your case.

If you’ve filed a Chapter 7 bankruptcy, this dismissal motion may be resolved by converting your case to Chapter 13 bankruptcy.

In Chapter 13, your monthly Plan payment is premised upon the net income left over when your necessary household expenses are deducted from your household take-home pay.

Thus, in Chapter 13, the Chapter 13 Trustee who administers your payment plan will also scrutinize your expenses. That private school tuition will be rejected as an allowable expense. So will car payments for “luxury vehicles,” investment or vacation property that costs but doesn’t earn you money, non-profitable businesses, and more.

Further, the Means Test cannot be completed by your attorney without your expenses.

5. Whether or Not You’ve Filed Your Tax Returns

Finally, have you filed or failed to file all of your tax returns to-date?

A surprising number of people in Metro Detroit have not. This is also an important thing to tell your Detroit bankruptcy attorney.

The Bankruptcy Code requires that you have filed all tax returns before filing bankruptcy. Tax debts that have become due in the last 3 years are not dischargeable. Tax debts owed for tax years for which you have never filed (or only recently filed) a tax return are not dischargeable. If the IRS had to file a “substitute return” because you failed to timely file your tax returns for a given year, that tax debt will also be non-dischargeable.

But tax debts are sometimes dischargeable. Your bankruptcy lawyer won’t be able to analyze this complex scenario without good information.

Even if not dischargeable, a tax debt can be paid through a Chapter 13 payment plan at 0% interest, holding the IRS or Michigan Treasury at bay while you do so, over as long as 5 years.

A non-dischargeable tax debt (or child support) can be reason alone to file Chapter 13 rather than Chapter 7, under the right circumstances.

Important Things to Tell Your Detroit Bankruptcy Lawyer: Conclusion

In conclusion, these 10 topics discussed here are only 10 of quite a few more that your Detroit, Michigan bankruptcy attorney will want to cover with you.

You should be prepared to answer all questions—but also feel free to ask questions. Although this may seem overwhelming, most bankruptcy attorneys in Livonia and elsewhere in Metro Detroit have developed finely tuned processes to ensure that all required information is disclosed and that no stone is left unturned.

At the end of the day, however, it is your bankruptcy case. You will want to feel comfortable with your engagement with the process—and with your attorney.

You should feel free to ask, “Why do you need this?” or “What will this information be used for?”

There is certainly a reason and a need for all of it.

Bankruptcy Attorney John Hilla has successfully represented hundreds of clients through Chapter 7 and Chapter 13 bankruptcy processes in Livonia, Detroit, Westland, Southfield, Dearborn, Redford, Farmington, Ann Arbor, Flint, Bay City, and virtually everywhere else in Michigan.

Offering free, virtual consultations and friendly, one-on-one service from Livonia bankruptcy attorney John Hilla, we will ensure that your matter is prosecuted properly, competently—and with kindness.

Click the button below to directly schedule your free consultation or contact us at (313) 380-0492.