The Social Security Act has always protected retirement, survivor's, and disability benefits from garnishment by creditors (other than the IRS and State child support agencies). But in spite of this very clear law, banks have disrupted the process for years by allowing creditors to garnish bank accounts without first looking to see whether the money in the account was protected. This resulted in a LOT of unjust deprivation of crucial funds for people unable to work and unable to afford a lawyer to help them defend their meagre assets.
Here is what would happen: Old Lady on Social Security gets sued by a credit card company. Her only source of income is her monthly benefit. The creditor cannot take that money directly from the government (the way they garnish paychecks), and they aren't supposed to be able to take benefits from a bank account. But they can take non-benefit funds from a bank account. So they would sue you, get a judgment, serve a garnishment on the bank account, and the bank would then either a) hand over all of the money or b) "freeze" all the money in the account until the old lady contested the garnishment in court. Unless the Old Lady happens to be a lawyer who knows how to contest a garnishment, there really was not much difference between the two practices. So for years, creditors ended up getting money they had no right to take. This certainly was not what Congress intended when it created the Social Security system decades ago.
It took about 40 years for the government to finally fix the problem. Unsurprisingly, the solution did not come from Congress, but from the Social Security Administration. Beginning on June 28, 2013, banks who are served with garnishments must take specific measures to ensure that protected funds remain protected:
1. They must review the past 2 months of bank account transaction history to see if any federal benefits were deposited into the account during that period. If so, then the amount of those deposits (or whatever is left in the account if the account balance is less) is protected and cannot be given to the creditor.
2. They CANNOT freeze your money. Nor can they charge a "garnishment fee" to your exempt money.
3. They must notify you of your rights to protection of exempt funds.
The combined effect of these rules is a HUGE help to struggling retired and disabled Americans. This debt collection loophole has been effectively closed. If you have questions about your Social Security benefits, give us a call.
We get about 5 phone calls each week from agitated Chapter 13 clients who have just received a Trustee's Motion to Increase Plan Payments. These can be very alarming, but most of the time, there is something we can do about it. Why would the trustee do this? Don't they already know that you're barely making ends meet? Honestly, the trustee doesn't care. They have thousands of other cases to administer and they don't look too deeply into the individual facts of your case before filing motions like this.
But here are a few reasons it may happen to you:
1. New claims have been filed in your case. This is the case about 60% of the time. Your creditors are supposed to file their claims within 90 days of your filing bankruptcy, but sometimes they com late and the trustee may try to pay it. It is up to you to object to the claim. Most normal debts can be objected to if not filed on time, and thereby preventing the need for an increased payment. But sometimes, you cannot. Taxes and missed mortgage payments, for instance, must be paid once added to your case. And remember that you only have 5 years to complete your plan, so if you add $2000 of taxes 10 months before your 5 years runs out, then that is $200/month extra you''ll have to shell out.
2. You missed payments. If you miss 2 payments of $500, then you are behind $1,000 on your case. You can either come up with $1000 now or increase your plan payment to catch up what you missed. If you've missed bankruptcy payments, you probably cannot avoid an increased payment.
3. You failed to disclose everything at the beginning of your case. You are required to be completely honest about your assets and liabilities when you file a bankruptcy. If, for instance, you "forgot" to list a $50,000 piece of land you inherited from you grandmother, then if the trustee finds out, they'll move for an increase at the very least. Failure to list assets can be a federal crime, so you if you've done that, an increased payment is the least of your worries.
What to do if you receive a Motion to Increase Plan Payments:
1. Don't panic. Your attorney has a copy of the motion and will review it and do what is necessary to keep your payment as low as possible.
2. Call your lawyer and ask what can be done. Maybe we can object to some claims. Maybe we can move for a reduced payout to unsecured creditors. Maybe you can surrender some collateral. If there is a way, we'll find it.
3. Listen to your lawyer's advice. If you are paying for a $25,000 dodge charger even though you have a perfectly fine Civic that can get you to work, when your attorney tells you that you should surrender the Charger, surrender the charger.
Will Filing Bankruptcy Cut Off My Utilities?
Short answer: No.
BUT - If you want to keep the lights on and the water runing, you will have to catch up the bills. Unpaid utility bills are regular old unsecured debts - they can be discharged like any other - but the Bankruptcy Code does not force anyone to continue doing business with you without getting paid. So basically, you have two options when it comes to utility bills in bankruptcy:
a) leave them alone and keep paying;
b) quit paying them and discharge the debt.
Which option do you choose? Well that depends on whether or not you need that utility provider's services any more. If you don't then you can discharge them. But if you do, you'll have to catch the bill up and keep paying.
Example: Debtor owes Comcast $400 for past cable bills, $800 to Verizon for an old cell phone that has been disconnected since 2009, and $300 to Alabama Power. Since he no longer owns a verizon phone, he doesn't need them anymore and can discharge that debt. Comcast will have to be paid if he wants to keep Cable, but he can save that $400 by just switching to satellite or Public TV. If Debtor lives in Alabama, Alabama Power has a monopoly on electric service, and he has no choice but to pay their $300 or move out of the state.
So to summarize, you have the right to discharge it all, but you only want to exercise that right if you don't need those particular utility services any longer.
In today's economy, a lot of people are forced to move from place to place - maybe you've lost your home in foreclosure, maybe your rent is too high, maybe you lost a job and found another one elsewhere. Now, when you have been sued, you must be notified of the lawsuit before it can proceed. That means that the person (or credit card company or bank or debt collector) must show that the lawsuit summons has been personally delivered to you - or at least to your actual home or mailing address. Unfortunately, there are a LOT of dishonest debt collectors and unethical collection lawyers who will not bother to make sure they've sent the summons to the correct address, and they will proceed with a lawsuit even though notice was never properly delivered to you.
This means that you could have a judgment against you and never even know about it! That is - until they find out where you work and bank and garnish all of your bank accounts and 25% of your paycheck - out of nowhere!
So what do you do when a judgment has been entered against you and you never knew about the lawsuit?
In Alabama, you can set aside a default judgment if you have a good reason: for instance, if you were never served with the lawsuit. But you have to sign a sworn affidavit stating the circumstances of the default, and you also have to be able to show that you may have had a chance at winning if you are given a new trial. This is not hard to do - most collectors ask for more money than you legitimately owe or that they can prove, and so at least the amount of damages can be in dispute.
What it really does is protect your money while you can take some time to make a plan - maybe you can settle with that creditor, maybe you can file bankruptcy and get rid of your debt in an orderly fashion. But if you've been hit with a default judgment that you never saw coming, you need to contact a debtor's attorney immediately. Rule 55(c) of the Alabama Rules of Civil Procedure makes it much easier to undo a default judgment if you file a motion within 30 days of the judgment being entered.
If you live in South Alabama and have been hit with a default judgment, contact us to learn about your options for dealing with this - we can help you prevent a financial disaster for your family.
A lot can happen to a debtor during the 5 years of your bankruptcy plan. Including, unfortunately, death. What happens to a Chapter 13 case when the debtor dies before it is completed? It may not seem obvious why it matters, because your creditors can't follow you to the Hereafter. But for your loved ones remaining on Earth, you may have had assets tied up in the bankruptcy that they have to deal with. For instance, you may have filed bankruptcy to stop a foreclosure and catch up mortgage payments, and if the bankruptcy were dismissed, you could lose a valuable home to the bank. In this case, it may be advisable to continue the Chapter 13 case. Federal Rule of Bankruptcy Procedure 1016 provides the Court with authority to allow a bankruptcy to continue long after the person who filed it died, where it is practical and in everyone's best interest to do so. If someone you love has died while in Chapter 13, their decedent estate can continue the bankruptcy case as if the debtor were still alive. You (or whoever state law grants authority over the decedent estate) just have to keep making their payments and fulfill the other duties of a debtor in bankruptcy. The first thing you should do is call their bankruptcy attorney. He will be wondering what to do with the case and will be very glad to hear from you.