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cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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This is the latest in a series of questions that I have raised

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This is the latest in a series of questions that I have raised on this matter, dating back to March 2010. I now am having $940 per month garnished from my salary for about the next 18 months in settlement of a court-ordered payment of a portion of my ex-spouse's attorney fees from a court case that settled in 2010. This is the largest monthly amount that could be garnished based upon my gross salary of $5,833 per month and applicable withholdings. (I also receive a retirement payment of $2,700 per month that has not been touched as yet.) I am required to pay my ex-spouse $1,000 per month in support payments; until death do that much of my money and I part. I have more than $100,000 in unsecured debts aside from the attorney fees, to about 6 different banks, and I am no longer able to make the minimum payments (more than $2K per month) on all of the debts. (It would have taken more than 6 years to pay them off at my pre-garnishment level of income.) I am short-paying my largest creditor (more than $45K owed) now; they have taken no action other than to have their billing agent contact me once per week and suggest that I engage the services of a debt management company. My credit score, obviously, is going down, about 100 points in the past few months - currently at about 600. It has been suggested to me that I file Chapter 13 bankruptcy; but I do not have money in the bank to pay for a good attorney, and am concerned that it is a five-year program that would require changes within 18 months for sure, but also if I do not keep my job for 5 years. (I am 58 years old and work for the State of California, which is a very risky employer at this point; I might wind up having to file Chapter 7 within 5 years.) I own no real property; I am paying on a loan on a car in which I have no equity. I think that this is all the pertinent information regarding my situation. What are my best legal options at this point? Thanks.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 6 years ago.

Hi JACustomer,

Most attorneys will allow the debtor to pay their fee over the life of the plan - including these in the monthly payments - so that you would not need to have the entire amount upfront.

If your income changes drastically during the 5-year plan period, you may be able to convert your case to a Chapter 7.


I think this is what you wanted to know. If not, please let me know.

Thank you!

Customer: replied 6 years ago.
Don't know if my next set of questions reached you; it is not displaying on my screen...
Expert:  cfortunato replied 6 years ago.
No - I don't see them either.
Customer: replied 6 years ago.

OK, let me try again - knew I should have saved what I typed before I clicked "Reply"...


I am concerned about the word "may" in your second paragraph. I suppose one of my options is to hold off on Chapter 13 until the garnishment is done. In that case, I can't pay everyone else what they want to get for 18 months. So what could happen to me if:


1. I stop paying my ex-spouse? What effect would court action by her have on the

garnishment or my other creditors? (Or my retirement pay?)

2. I continue to short-pay my largest creditor?

3. I stop paying all of my unsecured creditors until they agree to better terms for the

next 18 months?

4. I take my retirement check and move it around to different bank accounts? Can

my creditors catch up with me and seize my accounts?

5. I quit my job and file Chapter 7 now?


I don't want to go to jail, obviously - or add additional financial penalties on top of everything else I owe. For $18 a month, I don't know how much information I can expect to get; anything else you add is appreciated...

Expert:  cfortunato replied 6 years ago.
I should have used "should" instead. I would not use the verb "can", because there is nothing in this realm that is 100%. If your income drops below the state median, I don't see any reason why you would not be able to convert to a Chapter 7, as this a Chapter 13 Bankrutpcy filer does have the right to convert to a Chapter 7 at any time that his or her income drops below the state median.
1) If you stop paying your domestic support obligation, your paycheck and pension funds can be garnished.
2) With a judgment, your creditor can also get a garnishment order - but only of your wages, not the pension funds.
3) No more than 25% total of your take-home pay can be garnished. The first creditor to get a judgment and a garnishment order takes precedence, and can get the entire 25%. The rest would have to wait until the first creditor's judgment is satisfied.
I do not know if the 25% is applied before or after a domestic support garnishment is taken out of one's pay.
4) Retirement funds are exempt from collection as long as they can be identified as such.
5) You can quit your job now, and you should then be able to file a Chapter 7.
Customer: replied 6 years ago.

Very helpful - thank you so much! Of course, more information raises more questions:


1. How do I find out what is the median income for California? Is retirement pay

counted toward such income?

2. If I file Chapter 7, I believe that the spousal support payments are unaffected. What

about the court-ordered attorney fee payments that are now being garnished?

Would they need to continue, or would they cease because there is nothing to


3. If I file Chapter 7, would I need to give up the car that I am making payments on?

4. If I file Chapter 13, would the attorney fees that I pay monthly be counted toward the

expenses that reduce what I can pay my creditors?

5. If I file either Chapter 7 or 13, and I later get married, can my creditors go after my

spouse for any debts that I didn't have to pay, or have yet to pay?

6. If I continue on as I am, would my unsecured creditors have to seek a garnishment

first, then seek to seize my bank accounts, as two separate actions? What notice

would I receive in each situation?


I again appreciate any information you are able to provide!!

Expert:  cfortunato replied 6 years ago.
1) For a household of one in California, the median income is $4,001 gross per month. This figure includes absolutely all income - including retirement income - except any funds that come from Social Security or from Unemployment.
2) If you file a Chapter 7, and if the debt is owed to the attorney, and not to your ex-spouse, that debt can be discharged in the Bankrutpcy.
3) No - you are allowed to keep at least one car.
4) Yes.
5) Creditors of your pre-marital debt can never try to collect that money from your spouse, as those debts will (this is 100%) remain separate debts throughout your next marriage.
6) Before garnishing your wages and/or your bank account(s), your creditors must first go to court to get a judgment. You are supposed to be served notice of this court proceeding. After a creditor receives a judgment, you can expect a garnishment of your wages within about one month.
Customer: replied 6 years ago.

Thank you for all the information you have provided! I have a much better understanding of my situation and options now. Guess I have one more question:


If I file either Chapter 7 or Chapter 13 at this stage of my life (58 years old), will there be any SUBSTANTIVE difference between the two in the negative impact on my credit and my ability (if ever) to rebuild it?

Expert:  cfortunato replied 6 years ago.
The overall reduction in your credit score will be the same for both. However, a Bankruptcy stays on one's credit report for 10 years after the Bankruptcy is discharged. This means a Bankrutpcy stays on one's credit report longer if one files a Chapter 13.
Customer: replied 6 years ago.

OK, makes sense - and of course I thought of one more thing after I sent my LAST last question:


I currently have two cars, one that is 10+ years old with about 250K miles on it. Could I give that car to my 20-year-old daughter (title passes to her as well as the insurance responsibility) before I file Chapter 7, or is that a legal no-no?

Expert:  cfortunato replied 6 years ago.
What is the current market value of the car? Any loan balance?
What is the current market value of your other car? Any loan balance?
How much equity - if any - does your home have?
Customer: replied 6 years ago.

Sorry that I didn't get back to you yesterday - was at work and had to leave. The 10+ year old car has a market value of less than $500. It is paid off. My newer car was purchased in December for about $20K, and I financed all of it. I lease an apartment, and do not own any other real property.


I did have another question after doing some more thinking about Chapter 7 last night. I read on-line that my pension (in my case, from the State of California) is protected in a Chapter 7 filing, as are "public funds" deposited into a bank account. Would I be able to begin to save my pension checks in a separate account, not have my creditors be able to touch it, and be able to keep the amounts saved in a Chapter 7 filing?

Expert:  cfortunato replied 6 years ago.
1) Since the older car has minimal equity, you would be able to keep that car - in addition to the newer car - or give it to your daughter without impunity.
2) If you file a Bankrutpcy, you would be able to keep up to $21,825 in any property, including pension funds. For Bankruptcy purposes, pension funds are exempt (protected) as "necessary for support". If you are putting that money in the bank, it can be hard to prove you need the money for support.
Customer: replied 6 years ago.

I keep thinking of things to ask here - I truly appreciate your patience and detailed responses. The new car actually was purchased using $4,000 on a credit card, with the balance financed through a bank. Does this mean that the car has value that may be counted toward the $21,825?


Also, I would not be able to hold onto all of my pension funds each month; but given that they are largely being used to pay my unsecured creditors, I would imagine that I would stop paying all of them at some point and start hanging onto the available funds. I am concerned that if I stop paying my unsecured creditors (but continue to pay my car loan), begin to accumulate pension money in the bank (separate account) while I continue to have my wages garnished, then quit my job, then file Chapter 7, I might be viewed as abusing the system. Is this a valid concern?

Expert:  cfortunato replied 6 years ago.
1) It doesn't matter how you paid for the car. What matters is how much equity the car has. Equity is simply the current market value minus the balance of any loan(s) that is secured by the car (car loan). You are allowed to have one car with equity up to $3,300 in addition to the $21,825 wildcard exemption which can be applied to any property.
2) The scenario you described will not be construed as abusing the system. You are allowed to continue to pay your secured creditors, while not paying the unsecured creditors. Abusing the system is basically incurring more debt after you have decided to file a Bankruptcy, or otherwise with no intention of re-paying the debt.
Customer: replied 6 years ago.

Wow! Chapter 7 is looking like a more viable option all the time.


Would it make sense at this point to establish a new bank account and have my retirement check from CalPERS direct-deposited into it?


Would it help (or is it possible) for the account to have a special name like "XXXXX XXXXX CalPERS Retirement Distributions", and to deposit ONLY that monthly check into it - transferring money as needed to my existing checking account for monthly expenses?


I want to begin to establish a record that clearly identifies and segregates my pension funds so that any court can see that these funds are exempt from creditor actions, while allowing the balance to accumulate to a point where I can hang onto it in a Chapter 7 filing. What are your thoughts on this?

Expert:  cfortunato replied 6 years ago.
Yes - if there are currently any funds in the same account as your pension funds, it would be a good idea to open a new account into which only the retirement funds are deposited.
cfortunato and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 6 years ago.
I can't tell you how helpful you have been! I seem to have run out of questions. (For now, anyway.) But I know who I would want to answer any new ones I come up with! Thank you SO much!!
Expert:  cfortunato replied 6 years ago.

You're welcome!

And thank you for accepting my answer(s) - and for the bonus!

Customer: replied 6 years ago.

I knew I hadn't thought of every question I could ask! Two more that I thought of:


1. Assuming that my median income falls below $4,001 per month because I quit my

job, allowing me to file for Chapter 7, am I limited to that amount of monthly income

in the future? What happens if I were to get another job after the decision - or even

work fewer hours in my current job so as to drop below $4,001 per month?


2. As part of the bankruptcy filing process, do all of my income tax filings have to be

current? Is it possible for me to have less than the maximum allowable amount of

property prior to filing, then exceed that amount after the Chapter 7 bankruptcy is

finalized because of income tax refunds?


These may sound like devious questions - probably because they are to some extent. But I hadn't thought about what could happen after the Chapter 7 process is completed. Thanks again for your responses!

Expert:  cfortunato replied 6 years ago.
1) You can file a Chapter 7 when your average monthly income has been $4,001 or below for the 6 months before filing. When you do file, you will be asked whether you anticipate that your income will substantially increase over the next 12 months. If you answer "yes", the Bankrutpcy trustee can keep your case open for up to 12 months to see if your income goes above the median. If you answer "no", that is the end of the inquiry.
2) You have to be current on your income tax filings for the 2 tax years before filing.
If you receive an income tax refund after you file, that refund will become part of the Bankruptcy estate. Whether or not the Bankruptcy court can take the refund depends on how much else is in the estate.
3) Actually, those questions do not sound devious, at least not compared to some others.
Customer: replied 6 years ago.
OK - good to know! How does the "Bankruptcy estate" to which you referred work? Would the trustee periodically be monitoring the amount of property I have, and if so for how long? What would be my responsibilities in regard to recordkeeping, reporting, estate preservation, etc.?
Expert:  cfortunato replied 6 years ago.
The Bankruptcy estate is simply everything you own or are entitled to own at the time that you file the Bankruptcy. Everything you acquire after the Bankruptcy is filed does not belong to the Bankruptcy estate (unless you were entitled to receive it before you filed). For example, if you buy a lottery ticket before you file a Bankruptcy, and win the lottery after you file, the winnings would belong to the Bankruptcy estate. If you purchase a lottery ticket after you file the Bankruptcy - even if on the same day you file - and win the lottery the day after you file, the winnings would then not be part of the Bankruptcy estate.
Unless you are self-employed or have a business, there is no record keeping or reporting necessary, and unless you have substantial assets, there is no estate (asset) preservation necessary.
Customer: replied 6 years ago.
Didn't want you to think that you had answered every question I could possibly have! It sounds as if I could reduce my salary and/or time base in my current job, but continue to work; and as long as my gross monthly wages plus my retirement pay (and any other income besides unemployment) totaled less than $4,001 per month, I could file for Chapter 7 protection once I had been at that level of income for 6 months. Am I understanding the rules correctly on this?
Expert:  cfortunato replied 6 years ago.
Hi again,
Yes - if your average monthly gross income - not including Social Security or unemployment - is $4,001 or less for the 6 months before filing, you can file a Chapter 7 Bankruptcy.
However, you are asked - when you file - if you anticipate that your income will increase within the one year after filing. If the answer is "yes", the Bankruptcy trustee can keep your case open for up to one year to see if your income does go above $4,001. If the answer is "no", that is the end of the inquiry.
Customer: replied 6 years ago.

OK, as I thought - thanks again! But after I sent that question, I started thinking about the impact that reducing my income from employment would have on my Social Security (assuming that there is such a thing when I turn 62). It seems as if I should continue working, let the creditors take turns garnishing my wages (but not touching my pension), and file Chapter 7 when I turn 62. If I do that, do you know whether my Social Security would be affected at all by the bankruptcy? Does it matter which I do first - apply for Social Security or file for bankruptcy? This is SO complicated...

Expert:  cfortunato replied 6 years ago.

Social Security is not affected in any way by filing a Bankruptcy.

Customer: replied 6 years ago.

That's good! Now, let me combine all of these complicated things...


I have been dating a woman for two years, and want to marry her, but don't want to expose her to any of my debts. I also don't want to mess up my Social Security by reducing my income just so I can file bankruptcy. It seems as if I have to do the following things in order:


1. Turn 62, which won't be for 3 1/2 more years..

2. Retire from my job and file for Social Security; I would get 75% of my maximum


3. File for bankruptcy to escape my remaining debts - Chapter 7.

4. Get married immediately after I file for bankruptcy, so my wife is not exposed to

my debts.


I would have my creditors coming after me for 3 1/2 years; but unless they seize my bank accounts, they can't do more than take turns garnishing my wages. That does seem like a long time to dodge them, but if I try to settle with them, that would trigger tax consequences if they discharge any of my debt.


Does this sound like the proper order of actions, given my situation?

Expert:  cfortunato replied 6 years ago.

Your sequence of events does look good, and you do appear to have a firm understanding of what is involved with debt collection and Bankruptcy.

However, you do not have to use your debt as an excuse to not get married, as your pre-marital debt will always be "separate" debt, and your fiance can never become legally liable for it - whether or not you have already filed a Bankruptcy to have the debt discharged.

Customer: replied 6 years ago.

Hey, that is awesome news about the separation of pre-marital debts! Two more questions that I thought of, one regarding this issue:


1. Should we maintain some kind of detailed records as to what our assets and liabilities are prior to our marriage, and should we maintain separate bank accounts so as not to commingle funds that could be attached to pay off pre-marital debts that one or the other of us did not incur?


2. I presume that all the information that you have given me in answer to ALL of my questions is based upon current codifications of Federal and State of California law. Since I probably won't file bankruptcy for at least three more years, it is possible that those laws, and related debt collection laws, will change - and the changes may affect my plans. How do I find out what are the applicable laws regarding all of these issues?


Thanks again!!

Customer: replied 6 years ago.
An update on my debt situation, and a question: I have been depositing $500.00 per month from my retirement check into an interest-bearing account, and using the rest to pay my monthly expenses, including my unsecured debts. By the time I reach age 62, I should have accumulated in savings about the maximum amount that I can keep in a Chapter 7 filing. However, I also have had to short-pay, over the past several months, several of my creditors on accounts with balances ranging from $6,000 to $48,000. I have been having regular conversations with their credit people where I repeatedly explain the reason for my short-paying them - namely, the garnishment of my wages that began at the end of April and probably will last for another year. I am now hearing from one of the credit card companies that my delinquent accounts are nearing the time limit where they are required by law to charge them off. The effects of this charge-off, according to them, include a 7- to 10-year black mark on my credit report ("as bad as a bankruptcy", according to them), potential increases in my car insurance rates, and impacts on securing employment - because of the public nature of the charge-off. Also, they would probably turn my account over to third-party collectors whose tactics can be much different than the ones that they have been using. I want to know, first, is this all correct? Second, if I wish to avoid the chargeoff on these accounts, should I keep them at some number of months past due until my garnishment is completed in about a year? Any and all information and advice in this regard is appreciated!