Category Archives: Bankruptcy Do’s & Dont’s

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Can I keep my jewelry if I file for bankruptcy in Michigan?

You can use Michigan bankruptcy exemptions to keep jewelry, watches, and wedding rings, up to a certain dollar amount.

Whether you can keep jewelry, watches, and wedding rings in Michigan depends on what type of bankruptcy you file (Chapter 7 or Chapter 13), whether you use the Michigan or federal bankruptcy exemptions, how much the jewelry is worth, and whether you need to protect other assets as well.

Keeping Jewelry in Chapter 13 Bankruptcy in Michigan

In Chapter 13 bankruptcy, often called a reorganization bankruptcy, you enter into a repayment plan for three to five years. Your creditors get paid through the plan – some in full and some in part. Although a Chapter 13 plan requires a long commitment, the advantage is that you get to keep your property, including jewelry.

If you have very expensive jewelry however, that will probably affect how much you will be required to repay unsecured creditors.

Keeping Jewelry in Chapter 7 Bankruptcy in Michigan

Chapter 7 bankruptcy works differently. In Chapter 7, you must give up certain items of property. The bankruptcy trustee sells this property and uses the proceeds to repay (at least in part) your unsecured creditors.

Michigan Bankruptcy Exemptions

Not all of your property is up for grabs, however. Michigan (and all of the other states) has enacted laws that protect certain types of property. These laws are called exemptions. Some property is exempt no matter what the value, and other property is exempt only up to a dollar amount. The idea behind exemptions is that someone filing for bankruptcy should not be stripped of basic things needed for living – like shelter, clothing, furniture, a car, and the like. (Learn more about how bankruptcy exemptions work.)

In Michigan, you can choose to use either the Michigan bankruptcy exemptions or another set of exemptions called the federal bankruptcy exemptions (17 other states and the District of Columbia also allow you to use the federal exemptions). Whichever set you choose, you must stick with it — you cannot mix and match from each set. For this reason, it’s important to review all of the exemptions in each system. You wouldn’t want to pick one system in order to keep jewelry, only to lose your house. (Review the Michigan bankruptcy exemptions and the federal bankruptcy exemptions.)

Keeping Jewelry, Watches, and Wedding Rings Under the Federal Bankruptcy Exemptions

There are several provisions of the federal bankruptcy exemption system that you can use to keep your jewelry. If you are married and filing a joint bankruptcy, you can double these amounts.

  • Jewelry exemption. You can keep up to $1,550 of your jewelry.
  • Wildcard exemption. You can keep up to $1,225 of any type of property, including your jewelry. If you don’t want to use the wildcard to protect other property, you can put the full $1,225 towards your jewelry.
  • Unused homestead exemption.  If you don’t use the homestead exemption, or only use part of it, you can use up to $11,500 of the remaining amount for anything you want, including your jewelry. The federal homestead exemption is $22,975.

Keeping Jewelry, Watches, and Wedding Rings Under the Michigan Bankruptcy Exemptions

In Michigan, you can keep jewelry using the below exemptions. If you are married and filing a joint bankruptcy, you can double these amounts.

  • Jewelry exemption. Michigan allows you to keep up to $600 per item of the following: appliances, books, furniture, household goods, and jewelry. The only caveat is that the combined total of these items cannot exceed $3,775. This means that if you want to keep an antique sofa worth $3,700, you’ll only have $75 left for jewelry.
  • Wearing apparel. Michigan allows you to exempt wearing apparel. A few courts across the country have included watches in the definition of wearing apparel. If you want to use this exemption to protect a watch, check with a local bankruptcy attorney to see what your local court might do.

How to Value Jewelry in Bankruptcy

The value of your jewelry for exemption purposes is the amount you would have to pay on the date you file for bankruptcy to replace each item with a used item of similar age and in similar condition. There are various methods of determining the replacement value, but for expensive jewelry you will almost always need an appraisal. (Learn more about how to value personal property in bankruptcy.)

Other Ways to Keep Jewelry in Michigan Bankruptcy

If you want to keep nonexempt items of jewelry, the trustee may accept other items of exempt property in exchange for the jewelry. The trustee would then sell these items instead of your jewelry to repay your creditors.

Similarly, if you have some cash, you may be able to reimburse the bankruptcy trustee for the value of the jewelry you want to keep. Again, the trustee would use this money (instead of selling the jewelry) to repay unsecured creditors.

Firebaugh & Andrews can help call them today to set up a free consultation 734-722-2999

 

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Should you file for bankruptcy before or after a divorce?

Many people cite divorce as a leading reason for their bankruptcy filing.  However, planning ahead can make both your bankruptcy and your divorce less complicated and more cost effective.  Whether you should file a bankruptcy before or after a divorce depends on where you live, how much property and debt you have, and what type of bankruptcy you wish to choose to file.

Bankruptcy and Divorce Costs

Bankruptcy filing fees are the same for joint and individual filings.  So filing a joint bankruptcy with your spouse before a divorce can save you a lot on court fees.  Also, if you decide to hire a bankruptcy attorney, your attorney fees will likely be much lower for a joint bankruptcy than if each of you filed separately. However, you should let your bankruptcy attorney know about your upcoming divorce as there may be a conflict of interest for him or her to represent you both.

Filing for bankruptcy before a divorce will simplify the issues regarding debt and property division and lower your divorce costs as a result.

Chapter 7 vs. Chapter 13 Bankruptcy

A Chapter 7 is a liquidation bankruptcy designed to get rid of your unsecured debts such as credit card debt and medical bills.  In a Chapter 7, you usually receive a discharge after only a few months.  So it can be completed quickly before a divorce.

In contrast, a Chapter 13 bankruptcy lasts three to five years because you have to pay back some or all of your debts through a repayment plan.  So if you were looking to file a Chapter 13, it may be a better idea to file individually after the divorce because it takes a long time to complete.

Property Division

Wiping out your debts jointly through a bankruptcy will simplify the property division process in a divorce.  However, before filing a joint bankruptcy you must make sure that your state allows you enough exemptions to protect all property you own between you and your spouse.  Certain states allow you to double the exemption amounts if you file jointly.  So if you own a lot of property, it may be a better idea to file a joint bankruptcy if you can double your exemptions. 

If you can’t double your exemptions and you have more property than you can exempt in a joint bankruptcy, it may be more advantageous to file individually after the property has been divided in the divorce.  Also, keep in mind that if you file bankruptcy during an ongoing divorce the automatic stay will put a hold on the property division process until the bankruptcy is completed.

Allocation of Debts

Litigating which debts should be assigned to each spouse in a divorce can be a costly and time consuming process.  Further, ordering one spouse to pay a certain debt in a divorce decree does not change the other spouse’s obligations toward that creditor.

For example, let’s say your ex-husband was ordered in the divorce to pay a joint credit card you had together.  If he doesn’t pay it or files bankruptcy then you are still on the hook for the debt and the creditor can come after you to collect it.  If you end up paying the debt, you have a right to be reimbursed by your ex-husband because he violated the divorce decree. This holds true even if he filed bankruptcy because he can discharge his obligation to pay the creditor but he cannot discharge his obligations to you under the divorce decree.

However, trying to collect from your ex will usually mean spending more money to pursue him in court.  As a result, it may be in both spouses’ best interest to file bankruptcy and wipe out their combined debts before a divorce.

Income Qualification for Chapter 7

If you intend to file a Chapter 7, the decision to file before or after a divorce can come down to income if you maintain a single household.  If you wish to file jointly, you must include your combined income in the bankruptcy.  If your joint income is too high, then you may not be able to qualify for a Chapter 7.

This can happen even if each spouse’s income individually is low enough to qualify on his or her own.  This is because Chapter 7 income limits are based on household size and the limit for a household of two is not twice that of a single person household (it’s usually only slightly higher).  In that case, it may be necessary to wait until each spouse has a separate household after the divorce to file bankruptcy.

Call Firebaugh & Andrews at 734-722-2999 for your free consultation.

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Bankruptcy Dos and Don’ts

DO NOT….

1. DO NOT transfer assets out of your name.
This raises a huge red flag. A bankruptcy trustee can undo a transfer of property that previously belonged to you.

2. DO NOT pay off a relative or “favorite” creditor.
If you pay off a relative or creditor within one year prior to the filing of a case, the trustee may make that person give back the money and distribute it to other creditors. (Link to Paying Debts After Bankruptcy)

3. DO NOT continue to use your credit cards.
Even though you’ll likely eliminate a large portion of your debt, charges for luxury goods and services of more than $500 within 90 days of filing are presumed non-dischargeable.

4. DO NOT take a cash advance.
If you take out cash advances totaling more than $925 within the 70 days prior to filing, the law presumes that the debt is non-dischargeable. You’ll have to prove to the court that you did not intend to defraud the creditor when you took out the cash advances. Even if the time period and total amount requirements are not met, a creditor can still sue you if it can prove you took the advance with the intent to defraud the creditor.

5. DO NOT fail to appear at court.
A court case continues until your bankruptcy has been filed, which occurs only after you have met with us and provided all the necessary information.

6. DO NOT hide information from your attorney.Our office can only provide advice based on information we are aware of. Failure to disclose assets can lead to the loss of those assets, fines, or imprisonment.

7. DO NOT mortgage your home to pay debt.
If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt you still have to pay in order to keep your home.

8. DO NOT liquidate or take a loan your retirement account

It is important to consult an experienced bankruptcy attorney (link) before borrowing any money from your 401(k) plan. If you previously borrowed money from your 401(k), repayments on 401(k) loans are not viewed as debts in bankruptcy and are not discharged in a Chapter 7.

9. DO NOT forget to start rebuilding your immediately after discharge from bankruptcy.
Bankruptcy is the first step to getting a fresh financial start. See How to Rebuild your Credit (Link to how to rebuild your credit)

10. DO NOT leave out any creditors.
It is important that all of your creditors get notice of the bankruptcy filing.

DO…

1. DO continue to make payments on vehicles which you are intending to keep.
Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default.

2. DO ask your bankruptcy attorney questions.
Filing bankruptcy is overwhelming and difficult to understand for the average person who doesn’t deal with bankruptcies everyday. We are happy to explain the unfamiliar laws and rules of bankruptcy.

3. DO tell your attorney about liens you may have on your home or unpaid judgments.
It’s possible that we can help avoid the liens or unpaid judgments.

4. DO make your house payment.
If you plan on keeping your house through the bankruptcy process (Yes, you can keep your house (link)).

5. DO file your taxes.
The court will require at least two years of tax returns to be submitted.

6. DO close or keep minimal amount in your checking and saving accounts at any banks where you also have a credit card or line of credit.
If you stop paying on your credit card or line of credit, the bank may go into your account and use funds to pay your credit card or line of credit.

7. DO adjust the amount withheld from you pay for taxes.
It’s helpful to get as close as possible to getting no refund or owning. A tax refund is an asset in Chapter 7, and your tax withholding can affect plan payments in a Chapter 13.

8. DO remind us of a garnishment.
If you get us the name, phone number, and fax number of your payroll or bank department, we’ll fax to them proof that the bankruptcy was filed and ask that any garnishment STOP as soon as possible. It is also possible that we we may be able to retrieve all of the garnished funds. (link to garnishment page)

9. DO continue to pay child support.
Child support will not be discharged in the bankruptcy process so it’s important to continue to make your child support payments.

10. DO come up with a budget.
A sustainable budget is vital to the fresh start you will achieve by eliminating your debt via bankruptcy.

Talk to Firebaugh & Andrews after reading these bankruptcy dos and don’ts. for a free consultation 734-722-2999