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Money and Bankruptcy – April 2016 Interview

Katherine: Hello everyone. It is time for our time with attorney Peter Daigle, and we’re talking money and bankruptcy. Now Peter, I want to say welcome back of course because you always get our questions answered, but it’s about the money this month. We’re in tax season and people are worried about how are things going to affect their money overall, so welcome back, Peter.
Peter Daigle: Hey Katherine. I’m happy to talk to you again.
Katherine: Starting with this first question, how does filing bankruptcy affect my tax refund, and let me say this, these are questions, most of I got from people on social media. They were sharing with me. I think one of them I actually pulled from your book, but the rest of them, I put a post out there and people wanted to know how does this affect my money because bankruptcy automatically mean broke, penny-less, zero, no money, so I wanted us to get some clarification on some things. This first question is how does filing bankruptcy effect my tax refund?
Peter Daigle: It doesn’t affect it in the slightest. Has nothing to do with it. Even if you owe the government money at the time that you file, they’re not going to be able to grab your refund if you’re in active bankruptcy. The money’s going to have to go to you.
Katherine: Why is that? You said active bankruptcy, so explain that.
Peter Daigle: Let’s assume for a second you’re in a chapter 13. I’m going to give you two examples, one, chapter 13, which means you’re paying back the government. Let’s say that you owe the government $5,000. In chapter 13, you say, “I’m going to pay this $5,000 over 3 years or over 5 years.” That’s your plan. During your plan period, which is the 3 years or the 5 years, the government can’t garnish you, they can’t take your refund, and you are going to be allowed to pay the money back without any penalties and very, very low interest rate. That’s part of your plan.
If you file for chapter 7, you’re not going to have the benefit of paying the government off over a period of years, but you do have the benefit while you’re in the bankruptcy that you can’t be garnished and the refund can’t be taken. That’s during the pendency of the case, which is only about 3 or 4 months. You’ll get a brief summary from them based upon chapter 7.
Katherine: Now you brought up garnishment, let me skip down our list a little bit. What about wages being garnished?
Peter Daigle: Same thing. Any kind of bankruptcy, chapter 7 or chapter 13, wages cannot be garnished. They’re automatically suspended, same day you filed, the moment that you file.
Katherine: Now I’ve heard some people, and this may not be our topic but I won’t know till I ask you, I’ve heard some people, it seems like the government or the bank’s get your attention when they freeze your account. What’s going on at that point, do you know?
Peter Daigle: Just so the basic rule of bankruptcy, while you’re in bankruptcy, you have protection from all creditors, whether it be child support, or the IRS, or garnish creditors for non-payment of debts, whatever. Any type of garnishment is automatically suspended while you’re in your bankruptcy and it includes everything. There’s nothing whatsoever that’s not covered.
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Katherine: What about my retirement account? Now this is one of the topics you cover in your free book that you give away, The Truth About Bankruptcy in Massachusetts by Peter Daigle esquire. This is one of the topics that you cover in the book. Talk to us about bankruptcy in our retirement account.
Peter Daigle: Whenever you file for bankruptcy, you get to keep, or protect, or exempt legally certain assets. Those assets are not part of the bankruptcy estate, what’s called a bankruptcy estate. In general terms, they are your house, your car, your furniture, your jewelry, your clothes, your retirement accounts, your dog, your golf clubs, those types of things are exempt from bankruptcy. They’re off limits. The trustee would have no power to take those retirement accounts.
There is a limit though. I think the limit on the IRA account is a million dollars, so if you have more than a million in your IRA, you might be subject to part of that, but not if you’re under a million. If you’ve got a million dollars in your IRA, you’re probably not filing bankruptcy.
Katherine: Chances are, you’re right. Like I said, all of our questions today are about money, so let me go down here. If I’m someone who receives child support, alimony, would that still fall in that category of no garnishments?
Peter Daigle: The arrears, what you owe, let’s assume for a second that former husband owes wife $10,000 in arrears. He got behind, he lost his job, whatever. That $10,000 in arrears then can be put into the bankruptcy and it can be termed out over 36 or 60 months, so if a former spouse is struggling to pay his child support or pay the back child support, then it can be paid into the bankruptcy, but it’s got to be paid 100% cents on the dollar and it has to be paid either over 3 or 5 year period. It does not affect going forward though. Any type of wage, not wage garnishment, like an offset to income for child support going forward would continue, but the past money, the overdue arrears from back years could be put into the bankruptcy and paid off over time.
Katherine: Let me clarify, are you saying it can be put into the bankruptcy and it’s wiped out, or that’s giving them a little bit of a deferment?
Peter Daigle: Well, it’s giving them a deferment. If they’ve got the Sheriff so to speak knocking on the door saying, “You’re going to get locked off if you don’t make your child support payments because you are so much behind,” the arrears, the money that’s been built up can paid for the bankruptcy to get protection, but the bankruptcy is not going to protect you going forward, so whatever is owed in the past, it can be paid over time but going forward, you’ve got to make your payments timely, otherwise you don’t get protection from the bankruptcy court.
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Katherine: Say I’m the one that had the filed bankruptcy, would this give me a decrease, can I petition the court to get a decrease in how much I pay out for alimony or child support?
Peter Daigle: The bankruptcy has no power to reduce child support. You’d have to go back to the family court judge and then plead your case there like you’re not working, the kids graduated college, whatever. All those family court matters are not dealt with at the bankruptcy level. They’re dealt with at the family court.
Katherine: One other question about the alimony and child support, would I need to, if I’m the one receiving the alimony or child support, would that be affected by bankruptcy?
Peter Daigle: You cannot bring in your former spouse or boyfriend, girlfriend, into court to try to have the family court judge enforce the back payments, so let’s just use an example of $10,000. If your former husband got behind, you could not bring him back to family court to enforce it to be paid. The bankruptcy court, the bankruptcy trustee would resume control, so you lose your rights to collect for past money due. You will be paid, but you’re paid over time. What you don’t lose your rights for is to enforce any current order going forward.
Katherine: I know people were worried about their money, saying, “Katherine, ask him about my money.” Bankruptcy is protecting us from having our assets garnished, our paychecks garnished, our tax refund intercepted, as long as it’s during the active processing of the bankruptcy. They can definitely, you’re going to give your information in a bit so I don’t get them too confused here, so they can talk more specifically about their situation with you, but these are some of the general questions that came to me.
One last question before we wrap up, what if I receive something from a deceased love one, an inheritance or some asset, they leave me something?
Peter Daigle: That is not protected. It’s protected a certain portion, but only around $12,000 in the bankruptcy. If you want to file bankruptcy and someone passes away, that money that you receive is only protected up to say $12,000. If you had a large inheritance, you should be paying off your creditors. You shouldn’t be filing bankruptcy and wiping out your credit and getting to keep all the money. The law allows you to keep certain things, your house, your car, your furniture, your jewelry, your retirement account, your dog, your golf clubs, you get that stuff to keep, but you don’t get to keep a large inheritance if it’s more than $12,000. You are going to lose a portion of it to your creditors.
Katherine: Well, this has been good and informative as always. Peter, tell people how to get in touch with you outside of This Needs to be Said, and how to get a copy of your book.
Peter Daigle: Sure. Yes, Catherine, thank you. You can access a copy of the free book on my website at, or you can reach me on the phone at 508-771-7444.
Katherine: Awesome. Thank you, and until next month, Peter, have a great one.
Peter Daigle: Okay Katherine, thank you. We’ll talk to you soon. Bye, bye.
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