Future Income and Bankruptcy Fraud
What is Bankruptcy Fraud?
Bankruptcy fraud occurs any time someone lies or misstates income, assets or liabilities when filing for bankruptcy. Committing bankruptcy fraud can result in the bankruptcy case being tossed out of court and your creditors coming back with a vengeance for their money. Mistakes on bankruptcy filings can result in allegations of bankruptcy fraud. Efforts to shield assets by transferring them to heirs before filing for medical bankruptcy or sell items at a loss to relatives to pay off personal loans may trigger allegations of bankruptcy fraud. Always consult with a legal professional when you begin to see bankruptcy as your only option. Giving away property to mollify relatives or sell items below market value to raise cash to make this month's debt payment could endanger your bankruptcy case later on.
What Is Future Income?
Future income is the money you will receive or earn in the future. This money can come from a salary, sales commissions, the sale of property, inheritances, insurance payouts, royalties and any number of sources.
When Is Future Income Related to Bankruptcy Fraud?
Failing to report future income is a form of bankruptcy fraud. You are not always aware of future income. If you have been trying to sell a book manuscript for years and then hit it big a year after your bankruptcy, no fraud has occurred. If you were in negotiations to sell the rights and didn't tell your creditors this during the bankruptcy proceedings, you have committed bankruptcy fraud. If you quit your job to lower your income in order to qualify for bankruptcy or spite creditors (or an ex-spouse), you are open to charges of bankruptcy fraud if you pick up a good paying job after the bankruptcy is discharged. Failing to report deferred compensation to a bankruptcy court is bankruptcy fraud. Not reporting lump sum payments at retirement like unused vacation time and sick time is also bankruptcy fraud.
Your retirement accounts are generally protected from liquidation during bankruptcy. So are public employee pension plans, Social Security payments and disability benefits. However, failure to report these plans and any income you receive from them is bankruptcy fraud. If you can make payments to creditors but do not do so, they can request that the bankruptcy case be thrown out. While your pension payments may not be garnished, you have a legal and moral obligation to pay your creditors if you can. Failing to report pension income or future retirement plan benefits during bankruptcy is fraud.
Another form of bankruptcy fraud is selling rights for less than they are worth or transferring rights to someone else. If you sell an oil and gas lease for pennies on the dollar to a family member, future income from that lease could have been used to pay creditors. Transferring royalties for a book or patent to an ex-spouse to prevent increased demands for child support or alimony could be construed as bankruptcy fraud. Signing a quit-claim deed on a rental property to a family member or former spouse can also be mistaken for bankruptcy fraud. Always consult with a legal professional before giving up sources of future income.
--About the Author
Michael Bolinske is a Minnesota Chapter 7 bankruptcy lawyer helping people file bankruptcy the right way.
Cramdowns, Foreclosures, Second Mortgages and Bankruptcy
Primary mortgages are rarely modifiable, even in bankruptcy court. However, your bankruptcy attorney can work with your first mortgage holder to enter a payment plan to make up missed mortgage payments or enter a longer mortgage term to make the monthly payments more manageable. Unsecured second mortgages have more flexibility, both inside and outside of bankruptcy court.
Keeping Your House With a Second Mortgage
For those entering Chapter 13 bankruptcy, the second mortgage can be added to the debt repayment plan along with the primary mortgage. You must include the second mortgage in the bankruptcy petition, whether it is a secured loan or unsecured debt. Then you will need to make the monthly payments on time and in full. At the end of the payment plan, the debt is paid off, payments continue under the mortgage terms reaffirmed by the court or the remaining second mortgage balance is discharged by the bankruptcy court. It is possible that the second mortgage balance is discharged even while the primary mortgage remains. However, you must speak with a bankruptcy attorney to find out if this is an option where you live.
You can save your home from foreclosure even if you have two or mortgages on it. However, you need legal representation to properly renegotiate these loans or enter a payment plan to be able to keep your home. Without legal representation, you may inadvertently agree to become liable for a deficit if the house is later sold in a short sale or foreclosed upon.
Second Mortgages, Foreclosures and Short Sales
If your home is sold to pay your mortgage debts, the second mortgage is paid after the first mortgage is paid. If there is not enough money to satisfy the second mortgage, the remaining debt may be paid out of the money raised by liquidating your assets or it is dismissed when the bankruptcy is discharged. If you sell your home, you can also choose to enter a payment plan to pay off the second mortgage balance.
If the mortgage holder forecloses on the property before you file for bankruptcy, they can take the house regardless of the repayment terms you would like to enter. The balance remaining with the first and second mortgage holders becomes unsecured debt and will need to be included in your bankruptcy petition.
A bankruptcy court in rare instances will force mortgage holders to accept a cram down or reduction in principle, where the court forces the creditor to modify the mortgage agreement to accept less than was originally agreed without reclaiming the asset or forcing its sale. This happens more often with second mortgages than first mortgages. It is rare for a court to cram down or modify a first mortgage. Seek the advice of a legal professional to find out if this is an option in your state. However, your attorney can negotiate with the creditors to turn a 15 year mortgage into a 20 year mortgage or refinance it into a lower interest rate loan. If the home is sold at a loss, as happens with many underwater properties, you need legal representation to prevent a crushing debt load or massive tax bill on the forgiven balance.
Never send back the keys and hope that this will satisfy the mortgage company. While "jingle mail" may be emotionally gratifying, it does not resolve the problems associated with unpaid bills, outstanding mortgage balances or collection efforts.
--About the Author
Michael Bolinske is a Minnesota bankruptcy lawyer at Bolinske Law, helping people improve financial troubles.
What To Do About a Bankruptcy Notice
A bankruptcy notice (technically, a "proof of claim form") lets you know that someone who owes you money has filed for bankruptcy, and gives you a deadline by which to reply if you wish to file a claim against the debtor's assets. It is sent by the court to every creditor the debtor has informed the court of (presumably all creditors, since only the listed debts will be discharged).
How likely you are to actually get paid depends on the type of bankruptcy. In a chapter 7, where most debts are discharged, assets may be discovered that can be used to partially pay off the debts, but generally you're unlikely to receive much. In a chapter 13, the debtor's payment plan will require him to pay you at least part of what you're owed. In either case, if you can show that you have security in some asset, this will move you to the front of the line to get paid.
Once you have the notice, if you're owed enough for it to be worth your time, you need to file a proof of claim to be included in the bankruptcy proceedings and collect whatever portion of the debtor's assets you're entitled to. The notice also lets you know that you can no longer attempt to collect the money owed, as the debtor is now under bankruptcy protection.
In some cases, it's possible that the bankruptcy notice may reach you after the deadline has already passed. According to section 342(g) of the United States Bankruptcy Code, notice given is not effective notice until it is brought to the attention of the creditor, which means that if the notice does not reach you due to being sent to the incorrect address or similar reasons, you may be able to dispute the missed deadline.
Bankruptcy is one of those things that nobody wants to think about, something that should be reserved for losing players in the game of Life (the board game, that is). Unfortunately, sometimes people get into a hole that they aren't sure how to dig themselves out of, and it seems as if bankruptcy is the only option. Here are some things to consider before going that route.