Citation to Discover - The Hearing you Never Want to Miss!

Oftentimes, client's will come into my office with a stack of bills, primarily credit cards and several unpaid default judgments.  However, the court hearing that usually makes them come in an deal with the bills and unpaid judgments is the "Citation to Discover".  The real name for this hearing should be "Garnishment Alert - You've got about one month until 15% of your gross paycheck starts to Disappear".

Bottom line - what is a "Citation to Discover".  Put simply it is a hearing that demands your presence to learn about all of your assets and your place of employment.  Unlike simply seeking a garnishment, a "Citation to Discover" seeks to also learn about the location of your bank accounts and any other assets you may have.

What's the result of not showing up?  A body attachment which is a nice way of saying a warrant is out for your arrest so that you can appear at this hearing and explain why you are in contempt of court.....for not showing up at the scheduled "Citation to Discover" hearing.

So if you show up - what happens:  You tell the creditor the location of your employer/s and your bank account/s.  Depending on the size of the unsatisfied judgment, all of your bank accounts will be emptied and the remaining balance of the unsatisfied judgment will be taken as a garnishment.  A garnishment is 15% of your gross income until the judgment is satisfied.

What if I already have two other garnishments occurring?  No Problem, the court simply allows the first two garnishments to complete.  Then when those judgments are fully paid, your new garnishment starts automatically.  In effect, you always see 15% of your gross pay deducted for garnishments all of the time until all three unsatisfied judgments are paid off.

Conclusion:  You should always show up at a "Citation to Discover" hearing.  You should meet with a bankruptcy attorney about one to two weeks before the hearing to determine whether a bankruptcy is good alternative to being garnished.  You should also consult with an attorney regarding any balances that you have in your bank accounts because shortly after your testimony at a Citation hearing, all balances in your accounts will be taken by the creditor just before the garnishment starts.

Chapter 13 Bankruptcy is a great solution to the "Citation to Discover" Trap.  Let's say you have no savings, are already in a garnishment and now face the prospect of two more garnishments.  In this situation, you already are putting out 15% of your gross income towards the garnishments.   Most Chapter 13 plans only pay out 10% to unsecured creditors - that's all creditors with all of your debts discharged in five years or less.  In a garnishment you pay 15% and not all of your debts are cleaned up.  Chapter 13 is less costly and globally solves all of your debt issues.

For more information about how to deal with "Citation to Discover" Hearings, Garnishments and Chapter 13, please call our office at 877-GO-GO-NLO or email to schedule an appointment:  Email Bankruptcy Consultation

Tax Refunds in Bankruptcy - Why are they great and dangerous?

We are just winding down the tax refund season here in June.  By now most people have filed their 2010 taxes and have gotten their refunds.  However, for the debtor who files their bankruptcy within 180 days of receiving the tax refund, the benefit of receiving a tax refund can be put in jeopardy.

Here's how it works.  Say you receive a $6000 tax refund in April and use it to file a bankruptcy in May.  In June, the bankruptcy trustee will ask your attorney for information about how much your tax refund was and how it was spent.  So here's how it goes:

Jane spent here tax refund on:

Bankruptcy Attorney $2200.00
Pay off loan from Mom:  $2000.00
Paid off Macy's Charge Card:  $1800.00

Here's what the trustee would say:  The amount of money spent by Jane on the bankruptcy attorney is exempt and cannot be seized by the trustee.  However, the loan to an "insider"  is not exempt.  Neither is the payment to Macy's.  Bottom line, Jane is consider to have received $3800 in cash that is subject to the jurisdiction of the trustee.

Here's the problem, Jane needs an exemption to keep this money - so how does she do it?  Well....she can use the Illinois "Wildcard" exemption for $3800, but now she only has $200 left and still needs to exempt about $2000 of her furniture and other personal possessions.  Bottom line, in this case, Jane ends up "paying" the bankruptcy trustee $1800 because she doesn't have enough exemptions to keep her tax refund.

What's the morale of the story - tell your bankruptcy attorney how much you are expecting in tax refund, file your taxes promptly and provide a tax return copy to your attorney so that he or she can counsel you on how to spend or save your tax refund.

For more information about bankruptcy email:  info@nelsonlawoffice.com

Why is the "Right of Set-Off" So Dangerous?

Here's the bottom line, it means the bank can take your assets without a court order.  Here's an example:

Sam has $1000 in a Savings Account at US Bank.  Sam owes US Bank $20,000 on a credit card.  Sam hasn't paid the credit card in 3 months and is in default.  One day, Sam notices that the $1000 in his savings account has been taken by US Bank as payment on the $20,000 credit.  This is the right of set-off.

Most commonly, people who file bankruptcy experience the effect of "set-off".  Commonly debtors will owe $5000 to a credit card issued by Chase Bank and also have their checking account at Chase.  Sometimes a debtor will file bankruptcy on Monday and receive their paycheck on Friday.  Chase can "take" the entire balance of the checking account including the paycheck without warning as a set-off against the credit card because the filing of bankruptcy immediately puts the credit card in default..

Recommendation:  If you are considering filing bankruptcy, make sure to get rid of all of your asset checking and savings account from a bank that you owe money to.  This will ensure that the right of set off does not occur.