Q:       What is the role of a trustee in a consumer bankruptcy case?

A:        In a Chapter 7 consumer bankruptcy case, assets are liquidated to pay creditors. In such a case, a trustee is appointed to investigate the debtor’s financial affairs and determine if any unencumbered, non-exempt assets can be liquidated and paid to creditors. The trustee may sell non-exempt assets and bring lawsuits against the debtor or creditors. The trustee also reviews the debtor’s filed bankruptcy papers to make sure they are accurate and complete. The trustee convenes and presides over the meeting of creditors, and reviews any claims filed by creditors. If appropriate, the trustee will file an objection to any claim that appears to be invalid.

            In a Chapter 13 bankruptcy case, the debtor proposes a repayment plan based on the debtor’s monthly budget. This repayment plan can last up to five years. The trustee presides over the meeting of creditors in a Chapter 13 bankruptcy case, just as in a Chapter 7 case. The trustee also examines the debtor’s bankruptcy papers, paying specific attention to the debtor’s proposed budget and Chapter 13 plan to make sure all of the debtor’s disposable income is being paid into the plan and that the plan meets all Bankruptcy Code requirements. The trustee can refuse to confirm a proposed repayment plan and object to proofs of claim, if appropriate.

Q:       What limitations and rights do creditors have in a consumer bankruptcy case?

A:        Whenever a bankruptcy case is filed, there is an automatic “stay.” This means that creditors cannot take or continue any collection actions against a debtor. For example, a creditor cannot make or send collection calls and letters, file a lawsuit or continue to pursue a pending lawsuit, or take any action, such as garnishing wages, to collect a judgment. Most creditors can never collect a debt that has been discharged in bankruptcy. However, in most cases, secured creditors can keep their lien/mortgage rights after a bankruptcy, and the debtor keeps some debts, such as certain taxes and spousal or child support obligations.

            Creditors have these rights in a bankruptcy case:         

·       to attend the creditors’ meeting and question the debtor;

·       to file proofs of claim in the bankruptcy case and participate in any bankruptcy payments;

·       if there are grounds, to file a lawsuit in the bankruptcy court claiming that the debtor should not receive a discharge or that the creditor’s debt should not be discharged.

Also, secured creditors may seek relief from the automatic stay in order to preserve and to liquidate their collateral.

Q:       What do the trustee and creditors do at the meeting of creditors?

A:        The Bankruptcy Code requires a meeting of creditors in every bankruptcy case. In both Chapter 7 and Chapter 13 bankruptcy cases, the trustee conducts the creditors’ meeting. At the meeting, the trustee examines the debtor, whose lawyer is generally present. The debtor testifies under oath about the bankruptcy, and the testimony is recorded. The trustee asks the debtor about assets, liabilities and other financial matters, and tries to determine if there are any assets that the debtor has not disclosed. 

            Creditors may, but are not required to, attend this meeting. Once the trustee has finished questioning the debtor, any creditors present at the meeting will be allowed to examine the debtor. Secured creditors often ask about the status of their collateral—its location, condition and whether it is insured. A creditor may also ask questions about the possible discharge of its debt. In most consumer bankruptcy cases, however, creditors do not attend the meeting of creditors.

Q:       What does a trustee expect from the debtor?

A:        In Chapter 7 and Chapter 13 cases, trustees expect debtors to fully disclose their assets, liabilities and income. They expect debtors to appear, on time, with legal counsel and all required documents, at the meeting of creditors. Trustees also expect debtors to fully cooperate as the case proceeds. If a debtor in a Chapter 7 case fails to cooperate or to provide additional information and documents, the trustee can ask the court to require the debtor to appear for an examination under oath and can object if the court issues a bankruptcy discharge. A Chapter 13 trustee can refuse to confirm the debtor’s bankruptcy plan or ask the court to dismiss the bankruptcy case due to the debtor’s lack of cooperation.

This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association (OSBA). It was prepared by Columbus attorney Kenneth M. Richards. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What is an Ohio Legacy Trust (OLT)?

A:        The Ohio Legacy Trust (OLT), also known as a “domestic asset protection trust” (DAPT), is an estate-planning tool used to protect assets from future creditors. Ohio is one of 14 states in the United States that allow DAPT trusts. A person (the “trustmaker”) can create an OLT, fund the trust with his or her own assets, and be a beneficiary of the trust. Future creditors cannot access the trustmaker’s OLT assets if the trust was properly formed.

Q:       How do I create an Ohio Legacy Trust?

A:        To be valid, an Ohio Legacy Trust must: 1) be in writing; 2) appoint an Ohio trustee; 3) be irrevocable; 4) have a “spendthrift” clause (making the trustee responsible for distributions so that trust beneficiaries cannot assign trust assets and creditors cannot access trust assets); and 5) be subject to Ohio law. At the time your assets are contributed to the OLT, a “solvency affidavit” is also signed; it states that you are and will still be solvent after contributing your assets to the OLT.   

Q:        How might I use an Ohio Legacy Trust?

A:        An OLT is an estate planning and/or business planning tool. Normally an OLT includes estate planning distribution provisions for your heirs and beneficiaries similar to those of a will or revocable trust. An OLT does not replace a will, heath care power of attorney, living will, financial power of attorney or revocable trust, and you must coordinate the OLT’s terms and provisions with your other estate and business planning tools. Typically, OLT beneficiaries will include you (the trustmaker), your spouse and your children, but you can also name a charity, grandparent, parent or friends as beneficiaries. 

Q:       How does an Ohio Legacy Trust differ from a revocable trust?

A:        Unlike a revocable trust, the Ohio Legacy Trust is irrevocable (cannot be changed). Also, because you give up control of your OLT assets to an independent trustee, you should put only a small percentage of your assets or your excess assets, in the OLT.  The assets should not be encumbered by personal guarantees, liens, claims or lawsuits.

Q:       Who can form an Ohio Legacy Trust (OLT)?

A:         Any adult, business, corporation, out of state resident or out of state business can form an OLT.

Q:       What kinds of assets can I place in an OLT?

A:        Investment or financial accounts, mutual funds, investment real estate, shares of stock, LLC membership interests, artwork or personal property can be put into an OLT. IRAs and retirement accounts cannot be put into an OLT. Also, make sure the assets are titled in the name of the OLT.

Q:       How are OLT trust asset distributions made?

A:        You ask the independent trustee, in writing, for a distribution. Normally there is no limit to amount or the number of times you can request a distribution, but you can request a distribution only if: 1) proper steps were taken to form and fund the OLT; 2) the independent trustee has custody and control of the OLT assets; and 3) 18 months have passed without any threatened, existing or filed claims against you or the trustee.

Q:       Must the OLT’s independent trustee grant my distribution request?

A:        No. The trustee can refuse to distribute your OLT assets. This can be frustrating, but it helps to protect your  OLT assets from creditor claims.  

Q:       Can any creditors access OLT assets?

A:        If properly formed, and the required time period has passed (18 months) with no claims, future unknown creditors cannot access funds in the OLT. Ohio law does provide exceptions to this rule for child and spousal support (alimony). 

Q:       How much can I put into an OLT?

A:        Generally, you can fund your  OLT with assets not needed for monthly bills, loan payments, expenses or longer-term debts. Because OLT distributions are made by an independent trustee, you may not be able to get your money out, so don’t put in more than you can afford to lose.

Q:       Who can be an OLT trustee?

A:        An independent trustee should not be related to or under the control of the trustmaker or any of the beneficiaries. Independent trustees may include, for example, corporate bank trustees, institutional trustees, professional trustees, accountants, attorneys or financial planners.

Q:       Does a trustmaker need an attorney to form an OLT?

A:        Yes. Because the formation of  OLTs involve, giving up rights to assets, creditors’ rights, beneficiary rights and tax and estate planning issues, it is wise to engage an attorney experienced in OLT matters.  

This "Law You Can Use" consumer legal information column was provided by the Ohio State Bar Association. It was prepared by D. Bowen (“Bo”) Loeffler, Esq. of Port Clinton/Sandusky. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       I am overwhelmed by credit card and medical debt. Will my wages be garnished unless I file for bankruptcy?

A:        Wage garnishment is a possibility. If you are employed and earn more than minimum wage, a creditor who has obtained a judgment against you can file a wage garnishment. This will take up to 25 percent of your take-home pay, which will be paid to your creditor rather than to you until the judgment is satisfied. It may be possible, however, to avoid both garnishment and bankruptcy.

Q:       How can I avoid a wage garnishment?

A:        There are two options that may give you some breathing room in your budget while avoiding wage garnishment.

            The first option is to enter into trusteeship in the municipal court where the creditor has obtained the judgment against you. The trusteeship requires you to pay to the court the amount that would have been taken by a wage garnishment. This sum would be divided among all of your listed creditors (not including your mortgage and/or car payment), rather than being paid to only the one creditor threatening garnishment.

            The second option is to enter into a debt scheduling agreement with a nonprofit consumer credit counseling agency. In Ohio, Apprisen (www.apprisen.com) is one such nonprofit organization with a number of offices across the state. If you choose this option, a credit counselor would contact your creditors to arrange monthly payments and may be able to convince your creditors to keep interest from accumulating. Creditors are not required to participate in this program, but many of the larger creditors such as banks, hospitals and utilities do participate. Nonprofit credit counseling services provide free initial comprehensive and confidential financial counseling sessions and charge modest fees if a consumer enters into a debt repayment program.

Q:       I am retired and my only income comes from Social Security and PERS from my years as a public employee. If I do not pay my creditors, will I be forced to file a bankruptcy?
A:        No. Your creditors cannot take these funds because they are considered exempt from attachment. (An “attachment” is a court order instructing your bank to pay money from your account to the court.) If your only sources of income are Social Security and PERS (or SERS), you may be considered “uncollectible” or “judgment proof.” If an attachment of your bank account is filed, however, you must request a hearing to show the court the source of your income and that it is exempt from attachment. If you fail to do this, the creditor may be able to keep the money that is attached.

Q:       How can I decide whether I need to file a bankruptcy?
A:        Consult with a bankruptcy attorney or nonprofit consumer credit counseling agency. An attorney or credit counselor will review your specific situation and help you decide the best course of action.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Akron attorney Terry D. Zimmerman of Kaffen & Zimmerman Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What is a judgment debtor exam?

A:        A judgment debtor exam is a court-ordered meeting between you and a creditor held after that creditor already has a judgment against you. At this post-trial meeting, the creditor can ask you a wide variety of questions about your assets (i.e., cars, homes, job, bank accounts, etc.) and you must take an oath and give truthful answers. If the case against you is not over and there is no judgment, the creditor is not entitled to a judgment debtor exam, but be aware that the creditor may have other ways of getting relevant information.

Q:       Do I have to attend the judgment debtor exam?

A:        Yes! Although it may seem pointless, especially if you know you have no assets or ability to pay the judgment, you must attend the judgment debtor exam. Because it is a court-ordered proceeding, it is wise to show up, even if you don’t have much to tell the creditor. If you cannot make the scheduled exam, try to contact the creditor’s lawyer to reschedule. If that doesn’t work, contact the court and ask for a continuance.

Q:       What happens if I don’t attend the exam?

A:        If you fail to show up, you may be summoned to appear before the judge and explain your reason for missing the scheduled exam. Even worse, the judge might issue a “capias” letter (similar to a warrant) for your arrest. This means that if you are stopped by the police for any reason in the future, the warrant will show up in the police department’s system and you could be arrested and detained until the exam is completed. You could also be fined and held in contempt of court for failing to appear.

Q:       What happens at the exam?

A:        Usually, you will arrive at the courthouse at the scheduled time and meet briefly with the creditor’s attorney. After this introduction, you will take an oath. In most instances, you will then go to a private conference room where the examination will be conducted. At this private meeting, the creditor’s attorney can ask you about anything related to your ability to pay the judgment. This includes questions about your bank accounts, job, house, cars, jewelry, tools, insurance policies, retirement savings and any other personal property. Keep in mind, if the judgment against you is solely for a personal debt, the creditor usually cannot ask you about business assets.

Q:       Do I have to answer every question?

A:        Yes, and you must abide by your oath to tell the truth during the exam. Just as you wouldn’t lie on the witness stand, you shouldn’t lie at the debtor exam. If you are caught lying, you could be charged with criminal perjury. If you refuse to answer a question, you could be held in contempt. If you think that a question is improper, you can ask the magistrate to rule on the appropriateness of the question before you answer. Keep in mind, however, that the magistrate cannot give you legal advice.

Q:       I am worried about my privacy. Will other people hear my answers?

A:        No. Generally only you, the creditor/creditor’s attorney, and possibly a magistrate or judge will hear your answers. Also, your answers will not be part of the public record and the creditor is still subject to privacy laws regarding how your information may be used. Because this is a private meeting where your answers will not be shared with the public, don’t be afraid to give account information.

Q:       Is there anything else I need to know?

A:        As long as you are truthful with the creditor’s attorney, it should be a fairly harmless process. You may even wish to use the judgment debtor exam meeting time to work out a payment plan with the creditor so you don’t have to worry about an untimely or unexpected wage or bank garnishment. Most creditors are willing to work out a payment plan, and the worst they can do is say no.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Columbus attorney Mark A. Glumac of Wiles, Boyle, Burkholder, & Bringardner Co., L.P.A. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       Is using credit cards for holiday spending a good or bad idea?
A:        Using credit cards for holiday spending is neither good nor bad. If you do not pay off your monthly balance in full, then it is no different from borrowing money at any other time of year. The danger is that it is very easy to overextend yourself and incur more debt than you can afford to repay.

Q:       Why do credit card companies seem so willing to extend me credit?
A:        Extending credit is profitable. Each time you use a credit card, you are getting a loan from the credit card issuer. Credit card issuers earn interest on the money they loan you when you do not pay off the entire balance of your credit cards each month.  The rate of interest charged by credit card issuers varies, but it is usually higher than the standard “market” rate.  Credit card issuers earn the most interest when you make only the minimum payment shown on your bills.

Q:       What are the advantages of using credit cards for my holiday purchases?
A:        The first and most obvious advantage of using a credit card is that it allows you to purchase goods and services without having to pay for them immediately.  Most credit cards allow a grace period within which you may pay for goods and services purchased on a card without paying any interest charges. This feature allows you to defer payment for your purchases, keep your funds in your savings account for an additional 30 days, and thereby earn interest on money that otherwise would have gone to purchase goods and services. In this way, purchases in December can be paid in January without costing any interest.

Q:       Are there any disadvantages in using credit cards for holiday purchases?
A:        Yes. If you do not pay off your credit card balance in full within the grace period, you are charged interest from the purchase date until the day you pay off your balance. Also, the interest rate on credit cards is greater than the market rate, so if you make only the minimum payment on your outstanding balances, you pay the maximum in interest while not greatly reducing the principal amount of your debt. If you make only minimum payments, you could still be paying for this year’s holiday when the next holiday season rolls around.

Q:       What happens if I can’t make the minimum monthly payment or pay off my credit cards?
A:        If you have charged beyond your ability to pay, the credit card issuer will take action to collect the debt. The action may be limited to reporting the debt to credit bureaus, increasing your interest rate to an even higher penalty rate, or it may involve taking legal action. If you have incurred debt, you must realize that you cannot simply ignore the problem.
            Most credit card issuers offer an option to make a “minimum monthly payment” on credit card purchases.  As long as you make the minimum monthly payment on time, and you have not exceeded your credit limit, the issuer cannot take legal action to collect the amount due.
            If, however, you cannot make the minimum monthly payment on a given credit card, or you have made late payments or have exceeded your credit limit, your options are limited. A good first step is to contact creditors directly to try to work out a payment plan. Another alternative if you have multiple credit cards is to seek help from a credit counseling service. A credit counseling service will try to help you devise a plan to pay off the debt and to budget your resources, typically for a small fee.
            If consumer credit counseling cannot solve the problem, then it may be time to consult an attorney to determine whether or not bankruptcy is an appropriate solution. You should not take this option lightly. Many attorneys will conduct an initial consultation with you to determine for no charge whether or not you are a candidate for bankruptcy.

Q:  If I charge something on a store credit card and don’t pay the bill, can the store take back what I bought?
A:  This can happen. A creditor (such as a department store, jewelry store, hardware store or electronics store) can enforce a security interest on credit card purchases. For example, if you charge goods with a store credit card but fail to pay for them, the creditor (department store, jewelry store, hardware store or electronics store) may be able to take back the goods.

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was originally prepared by Canton attorney Anthony J. DeGirolamo and Robert M. Stefancin, a principal in the Cleveland office of Ice Miller LLP. It was updated by Anthony J. DeGirolamo. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.