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Former Knox County Sheriff Files for Chapter 7 Bankruptcy

Tim Hutchison, former Sheriff for Knox County, filed for Chapter 7 bankruptcy on July 5.  His petition lists personal property valued at $8,150, including cash, appliances, furniture, and firearms.

The petition also lists Mr. Hutchison’s pension income of $90,000 in 2011, $93,000 in 2012, and $47,914 year-to-date.

Every person who files a Chapter 7 bankruptcy must file a document with their petition called the Statement of Current Monthly Income and Means Test Calculation.  The Means Test, put simply, determines if you qualify for either a Chapter 7 liquidation of debts or a Chapter 13 repayment of some or all debts.  Generally, if you earn below the median yearly income for a similarly-sized household in your state,  you may file a Chapter 7.  Those earning above this amount may have to file a Chapter 13 and spend the next three to five years paying off creditors.

With his pension income nearly double the median ($48,617), how will Mr. Hutchison qualify to file a Chapter 7?  The answer may be that he claims his debts of $336,800 are primarily business debts.  Debtors with primarily consumer debts (defined by the Bankruptcy Code as “debt incurred by an individual primarily for a personal, family, or household purpose”) must complete and “pass” the Means Test.  Debtors with primarily business debts do not.

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Preferential Payments in Bankruptcy

The period of time before you file bankruptcy can be just as important as the time afterwards.  For example, you plan to file bankruptcy on September 1.  You meet with your bankruptcy attorney and she asks you about any preferential payments you have made recently.  She explains that preferential payments are payments to any one creditor that totaled $600 or more in the last 90 days.

You remember that you opened a line of credit at Jumbo’s’ Fireworks on July 1 and charged $1,000.00.  Satisfied with your July 4 fireworks display, you pay off your line of credit in full on July 15.  Jumbo’s accepts your payment and is happy that, despite the rain, they have enjoyed another profitable holiday.

The U.S. Code states that a trustee may avoid (set aside) any transfer made by the debtor within 90 days before the date of the filing of the petition over $600.  This power is given to the trustee to ensure that, to the extent possible, unsecured creditors are treated “equally” in a bankruptcy.  Equality would not be achieved if Jumbo’s received full payment but your other unsecured creditors (credit card issuers, medical service providers) received nothing.

Plainly speaking, Jumbo’s may be out of luck – they could be asked to return your payment to your bankruptcy estate.  Or, the trustee could ask you for the property. Which wouldn’t work out very well in this hypothetical scenario.

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Basic Introduction to the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act, or FDCPA, is a law that prohibits debt collectors from using tactics considered to be unfair, deceptive, or abusive.

Here is a list of what a debt collector generally can and can’t do:

  • A debt collector can’t use obscene or profane language.
  • A debt collector can’t contact you before 8:00 a.m. or after 9:00 p.m.
  • A debt collector can’t contact you at work if you tell them (orally or in writing) that you are not allowed to get calls at work.
  • A debt collector can’t contact you directly if you have hired an attorney to represent you regarding the debt.
  • A debt collector can’t contact a third party to discuss your debt, but they can contact a third party to find out your address, your home phone number, or where you work.
  • Debt collectors must send you written validation of (a) the amount you owe; (b) to whom it is owed; and (c) how you may proceed if you don’t agree with the debt.  This written validation must be sent within five days of contacting you by telephone.
  • A debt collector can’t threaten you with violence or harm.
  • A debt collector can’t tell you that you will be arrested if you don’t pay your debt.
  • A debt collector can’t threaten to take or sell your property, unless it can legally be done and they actually intend to do so.
Note that some of the items on the list require you to take some action to invoke the protection.  If you have been contacted by a debt collector and believe they have violated the FDCPA, please contact us.  You may have a right to sue the collector in state or federal court, and you may be reimbursed for attorney’s fees and court costs.

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Can My Debt Be Discharged?

The list of dischargeable vs. nondischargeable debts can be lengthy and complex.  Here are a couple of examples of debts you will need to discuss with your lawyer about how to handle.

Court Costs

Sometimes your resolution of a criminal charge involves paying certain costs back to the court.  Or, you have been through a civil matter such as a divorce and you receive a bill for court costs.  Court costs are not dischargeable in bankruptcy. You will still be responsible for paying these, even if you receive a discharge on other debts that you list in your bankruptcy petition.

Automobile Accidents

Having an accident while driving uninsured or underinsured can result in huge bills.  Debts incurred as a result of driving drunk are not dischargeable.  Likewise, debts incurred while you were acting willfully and maliciously are not discharegeable, and some creditors may argue that certain auto accidents fall into this category.  Generally, though,  property damage and even many medical bills resulting from an auto accident can be discharged.

Just because you believe in advance that a debt will not be discharged, you must still disclose ALL of your debts to your attorney.  Don’t try to categorize or “diagnose” your debt situation on your own.  Leaving information out, even if you think it’s not important, can have serious consequences.  Your attorney will know how to handle each debt that you tell her about.

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Bankruptcy & Credit Counseling

Are you contemplating filing bankruptcy?  All bankruptcy courts require that you complete a credit counseling course within 180 days of filing.  Your certificate of completion will be filed with the court along with your bankruptcy petition.

Before you sign up for your course, confirm that the provider is “approved” by your judicial district.  Your judicial district is determined by the state and county in which you live.  For example, if you live in Knox County (Knoxville), Tennessee, you will file your bankruptcy petition in the Bankruptcy Court for the Eastern District of Tennessee.   If you live in Shelby County (Memphis), you will file in the Bankruptcy Court for the Western District of Tennessee.

To determine your judicial district, click here.

Once you have determined your judicial district, click here to find providers approved by your district.

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