Frequently Asked Questions
Q: If I decide to file a bankruptcy, will I still be able to keep my home and my car?
It depends. In Nevada, you are able to exempt (protect) your primary residence and one vehicle up to certain allowed values ($550,000 for your residence and $15,000 in your vehicle.) So, assuming you own your home and car outright, then as long as the values of the home and vehicle do not exceed $550,000 and $15,000, respectively, then you will be able to keep those assets without any difficulty.
What if you do not own the assets free and clear? You will still be able to keep the home and vehicle, assuming you want to, as long as you are current on the payments. You have the ability to keep debts in a bankruptcy. You will, however, be required to sign a “reaffirmation agreement” with the secured creditor in order for you to keep the asset. A reaffirmation agreement is a document that a debtor executes effectively promising that he or she will continue making payments on the asset and will continue to do so until the debt is paid off. The debt will not be discharged in the bankruptcy and the debtor is still liable for the debt after the bankruptcy is concluded. Should the debtor default on the loan after the bankruptcy, then the debtor will not only lose the asset, but will still be potentially responsible for any deficiency.
Q: Will I be responsible for paying taxes on debts that are discharged?
No. Sometimes a bank or some other collector will threaten you with a 1099-C. The C stands for cancellation of debt. If you have debt canceled by a creditor that is not discharged in bankruptcy, they could send you a 1099-C and force you to declare the amount of debt as income providing you with an unexpected tax burden as a prize for doing business with them. This is a common creditor threat, but one that does not ring true in bankruptcy. Even if the creditor cancels the debt or issues a 1099-C, you do not have to declare this as income if it is discharged in bankruptcy.
Many times you will receive a 1099-C after the discharge of your bankruptcy. These are easily defended, but it requires legal counsel to keep the creditors honest. Don’t fight the good fight alone. You are only going to declare bankruptcy once. The attorney’s fees are inexpensive for something that affects your life this much.
Q: What types of income are subject to garnishment?
Generally, one’s wages, commissions, salary, bonus, overtime, tips, etc. are subject to being garnished. In Nevada, a creditor can garnish up to 25% of your net income. Social Security benefits, unemployment benefits, child support, alimony support, money received from a pension, annuity payments (up to $350.00/month), and money received from a qualified retirement plan (401(k), IRA, Roth IRA, 403(b), etc.) are not subject to garnishment. A creditor cannot unilaterally garnish your wages. The creditor must first file suit against you, alleging that you are responsible for a given debt and that you have defaulted against that debt. The creditor must then be awarded a judgment against you for that debt. And then the creditor must file a writ of execution and writ of garnishment with your payroll department and with a local sheriff or constable’s office to enforce and administer the writ of garnishment. This process may take up to several months before a garnishment could occur.
However, all garnishments and any attempts to garnish will cease upon filing your bankruptcy. So if you are currently being garnished or are faced with an impending garnishment, please contact my office so that you can fully protect your income.
Q: How much money can I make to qualify for a Ch. 7 bankruptcy?
In order to file a Ch. 7 liquidation bankruptcy, one has to earn below a predetermined state median income level based on his or her family size. (Please check your state’s median income levels to determine the exact amount as each state is different.) In Nevada, debtors can earn the following amounts (these figures based on NV gross figures published as of 3/15/10):
- Household of 1: $46,151
- Household of 2: $60,234
- Household of 3: $66,813
- Household of 4: $70,851
- For each additional household member, add $6,900.
If a debtor’s individual or combined (for married debtors) gross income exceeds the state medium levels, then you may be forced to file a Ch. 13 Reorganization. Of course, there are several deductions available to reduce your gross downward in order to still qualify for a Ch. 7, but you will need to discuss these deductions with your bankruptcy attorney. Please call my office today and schedule an appointment so that we can determine your best course of action.
Q: Do I have to take classes?
Yes, but they are on the internet and there is no test. You will have to take a credit counseling class before you file to learn about the bankruptcy process and alternatives. You will have to take a debtor education class before you are discharged to learn about debt and how to use it wisely. The first class can be completed in about 20 minutes. The second class is a little longer but usually only an hour. The two classes together should cost less than $100 and must be completed by every debtor.
Q: I repaid a loan to my mother right before I filed. Is that ok?
No. Any money you repaid to an insider or family member within a year before filing has to be disclosed and can be undone by the trustee. For example, if you repaid $1000 to your mother right before filing for a loan she made to you, the trustee could seek to get that money back from her. Also be careful about allowing your mother to secure against one of your assets to protect the debt. Any security must be a contemporaneous exchange of assets for security. If you have repaid a loan to a family member or allowed a family member to take a security interest in any property you must be sure to raise this issue with your attorney. There are many things that will mitigate the damages, but you should have a bankruptcy lawyer to do so. Insider loans and repayments to family members are nothing to mess with in bankruptcy.