The very hot topic in Nebraska bankruptcy courts these days center around how courts apply changes to the homestead exemption law enacted in 2014.

The exemption protects up to $60,000 of equity in a debtor’s home, but the question is whether the exemption is limited the home or to the debtor. In the case of married debtors, do they receive a $60,000 exemption or $120,000?

In a recent court case handled by our firm (In re Hudson BK 23-80949), the Nebraska bankruptcy court clarified the limits of the exemption.

First, some background on the homestead exemption:

Neb. Rev. Stat. §40-101:  A homestead not exceeding sixty thousand dollars in value shall consist of the dwelling house in which the claimant resides, its appurtenances, and the land on which the same is situated, not exceeding one hundred and sixty acres of land.

  • The original homestead law in territorial Nebraska did not contain a dollar limitation. The dollar limitation ($2,000) was added in 1875, and that amount was sufficient to exempt the entire value of an average home.
  • To put that in perspective, the average cost of a home in Nebraska in 2024 is $282,000. 
  • The value of 160 acres of land in Nebraska can easily exceed two million dollars.
  • Over time the Nebraska legislature has watered down the homestead protection by failing to index it to inflation.

Nebraska Legislative Bill 964

In 2014 LB 964 extended the homestead exemption to protect single debtors without children.  No longer was the homestead limited to families.

LB 964 modified both sentences of Nebraska Statute § 40-102: 

  1. If the claimant is married, the homestead may be selected from the separate property of the husband claimant or, with the consent of the wife from her separate property. claimant’s spouse, from the separate property of the claimant’s spouse.
  2. When If the claimant is not married, but is the head of a family within the meaning of section 40–115 or is age sixty-five or older, the homestead may be selected from any of his or her property.

What is the homestead?

Reviewing the long court case history of the exemption law, the bankruptcy court first addressed the nature of the homestead: “What is a “homestead”? Is it the present worth of the exemption or is it the family home?”  Answer: The homestead is the home, not the exemption.

If the homestead is the exemption each debtor could claim the exemption, but if the homestead is the actual home, there is only one. The court pointed out that “the claimant does not claim the exemption. The claimant selects the homestead.” Since there is only one actual home the protection is limited to $60,000.

The bankruptcy court relied on past decisions:

  • LB 964 did not change well-established and longstanding caselaw holding a parcel of property cannot sustain two homesteads, which change must have occurred to sustain the debtors’ two exemptions.
  • It is true that a homestead cannot be occupied jointly by two families so that both will have homesteads therein. Also, it is true that if a tenant in common claims a homestead, he must occupy the property to the exclusion of his cotenants.  Luenenborg v. Luenenborg, 259 N.W. 649, 652 (Neb. 1935)
  • The Nebraska Supreme Court affirmed the nature of a homestead in 1989: Analogizing to the rule that “[a] person cannot have two homesteads, nor can he have two places either of which at his election he may claim as a homestead,” Travelers Indemnity Co. v. Heim, 218 Neb. 326, 330, 352 N.W.2d 921, 924 (1984), we note that two separate homesteads cannot exist in the same parcel of land.  Landon, 438 N.W.2d at 760

In rejecting the debtor’s contention that each married debtor was entitled to a $60,000 exemption, the court made the following observation:

  • LB 964 did not go as far as the debtor contends. The head of a family requirement was only in subsection (2) of § 40-102, which subsection never applied to a married couple.  Removal of the head of a family from subsection (2) did not change the law applicable to married couples who are, and were, governed only by subsection (1).
  • The homestead continues to be in property, not in an “interest” in property. Finally, and perhaps most importantly, the LB 964 did not change long-standing Nebraska law holding one parcel of property cannot sustain two homesteads. Section 40-102 continues to differentiate between an individual claimant and a married claimant. The debtors’ construction impermissibly ignores the differentiation.
  • Consent: The statute also retains the “consent” and “separate property” language. Under the debtors’ construction, consent becomes irrelevant. If both spouses can each separately claim two exemptions in one parcel of property, there is no need to make a claim from the spouse’s separate property. The spouse can claim the exemption on his or her own. The consent language only makes sense if the homestead remains in a singular family home, which might still be owned by one of the two spouses.

For years we bankruptcy attorneys have questioned the effect of the 2014 amendments to the homestead law, and there were rumors that perhaps a married couple could exempt up to $120,000 of their equity. However, unsuccessfully claiming a homestead exemption in a Chapter 7 case can have dire consequences, so attorneys have meekly assumed the exemption was capped at $60,000.

Our firm decided to get a ruling on the issue in a Chapter 13 case because if our challenge proved to be unsuccessful, the debtor’s home would nonetheless be protected. Although the opinion is disappointing to debtors, at least we have a clear decision on how much home equity is protected.

But good news is on the horizon. This case and others have caused our Nebraska legislature to consider an expansion of the homestead exemption, and that will be the topic of our next post.

Image courtesy of Flickr and Matt Turner

When you get sued you hang your head.  You feel like the battle is lost when the Sheriff delivers the court summons to your door. 

But getting sued is not the end of the battle. No, getting sued may be the best thing the other side did to equalize the playing field.

Yes, getting sued is a serious thing. You are out of your comfort zone and you face a professional litigator.  But there is something you are overlooking.

Lawsuits empower you to demand answers:

  • Demand an accounting of all charges and payments.
  • Demand a copy of all their documents. (“Motion to Produce Documents”)
  • Demand answers to written questions, what lawyers call “Interrogatories.”
  • Schedule face-to-face meetings with the people who sued you (the “Deposition”).
  • Ask the court to appoint an arbitrator or mediator to facilitate a settlement.

You see, litigation is a two-way street. 

The other truth of debt collection lawsuits is this: debt collection attorneys are not used to being confronted. Ninety-five percent of their lawsuits wind in up Default Judgments because the uneducated defendant never bothered to file a response.  The remaining defendants who file a response are washed away in Summary Judgment motions.

Collection attorneys almost never face an organized, informed and diligent opponent.  They don’t face such competition because the poor defendants don’t know the rules.  They don’t have the tools. And they don’t have the experience.

But here is another fact.  You are an expert in your own case. You know the facts.  You know the dentist is not entitled to his $1,500 fee since the implant was not installed correctly and you have suffered infections and jaw pain ever since.  You know the doctor’s office was supposed to file a claim with insurance but they didn’t do it in time to get paid.  You know the car lot sold you a lemon that started for just 3 days before dying. You know basic facts of the case better than the collection attorney. 

You are frustrated because they don’t answer questions. You are frustrated because they say all the money is due now and they won’t accept payments.  So you quit paying.

It’s time to change your mindset and go on the attack.  Demand answers.  Demand documents.  Demand they answer written questions.  Schedule meetings–i.e., depositions–with the creditor who sued you.  Go face-to-face.  They didn’t want to answer your 2 minute phone call?  Schedule a half-day deposition with Dr. Arrogant and see how he likes his afternoon golf game canceled. 

Getting sued is nerve racking. But it is also an opportunity.  It is an equalizing event.  Get busy. Get organized.  Demand answers.  And along the way, you might discover that settlement offers are offered, payment plans become possible, and getting sued was the best thing that ever happened to you.

Image courtesy of Flickr

If you were sued on a debt you have 30 days from the date you are served the paperwork to file a written response with the Clerk of the Court.

Let’s review:

  • You have 30 days to respond.
  • The response must be written
  • The response must be filed with the Clerk of the Court.

How do you respond? What form do you use?

Here is a link to the Answer and General Denial form provided by the Nebraska court system.

The form is very simple. Enter the following information:

  • State whether you were sued in “County” or in “District” court. (In most cases this is County court.)
  • The name of the County.
  • Name of the Plaintiff (the person who filed the lawsuit).
  • Name of the Defendant (your name).
  • Case Number (for example: CI 23-1234)
  • Sign the form at the bottom
  • Enter your address, phone number and email address.

That’s it. You don’t have to write an essay of why you do not owe the debt. You do not have to explain that Amazon mailed you the wrong color sweater or that the doctor amputated the wrong toe.

This court form is a “General Denial.” You hereby dispute the debt. It does not matter why you are denying the debt.

Of course, it may matter to you. And if the doctor amputated the wrong toe you can certainly add that information, but you don’t have to. That big empty space in the middle of the form that seems to invite you to tell your life story and all the wrongs the Plaintiff committed is optional.

Affirmative Defenses.

If you have an affirmative defense, you do need to state that in the response. For example, if the debt collector is suing on an expired debt, you will want to assert a Statute of Limitations defense. If you don’t assert the defense in writing it is lost.

What happens after you respond to a lawsuit?

The plaintiff’s attorney will typically request additional information from you (called Discovery) or they will schedule the matter for a Summary Judgment hearing.

Filing the written answer has prevented a Default Judgment from being entered, but it does not resolve the lawsuit. There is work to be done. Start contacting the plaintiff’s attorney. Request a payment plan if that is your goal. Offer a settlement of the debt. Get a conversation going.

If you are disputing the debt entirely, now you need to prove your case. Start gathering evidence. Demand documents (Motion to Produce Documents). Send written questions to the plaintiff’s attorney (Interrogatories). Schedule a deposition (live questions before court reporter) of the opposing side. Gather the facts to submit to the judge at a hearing.

The second great power of Discovery is the Motion to Produce Documents.

When a bill collector sues for nonpayment of a debt, they also open themselves up to answer questions–finally!!–and to provide documents.

What type of documents? Well, any document relevant to the debt.

Sued on a medical debt?

  • Demand to see the invoices and the claims filed with the health insurance company.
  • Demand the intake forms.
  • Demand copies of all correspondence with the medical insurers.
  • Demand a copy of the Master Service Agreement between the hospital and the insurance company to see if the hospital had a contractual duty to file a claim.

Sued on a on a credit card account?

  • Demand a copy of the written contract.
  • Demand a copy of all billing statements.
  • Demand a copy of all notices of interest rate changes.

Rule 26 of the Nebraska Rules of Civil Procedure requires all parties to a lawsuit to provide requested documents with in 30 days.

Does the bill collector have these documents? Probably not. In fact, about the only thing a bill collector has is a list of names and amounts owed by each customer. A bill collector typically has nothing other than your name, address and the amount you owe. They have no actual proof of the debt.

What does a bill collector do when you demand documents?

  • They ask their client to provide them.
  • They slow down and start looking–actually looking–at the lawsuit.
  • They think about all the time it will take to provide the documents.
  • They start thinking about accepting a settlement of the debt.

What if the bill collector cannot provide the documents? Sometimes a creditor does not provide documents because they are not available. They can’t get them. All they have is a list of the debts, but no actual proof of the debt. No contracts or statements or payment histories. In short, they have no proof of the debt.

Sometimes they just ignore the request for documents. Then what? A few options exist.

  • File a Motion to Compel Discovery to demand the documents and schedule a hearing with the court.
  • File a Motion for Summary Judgment. If they cannot produce the documents then there is no proof of the debt. Had the debt truly existed they would have documents to prove it, but since they don’t have the documents the court may dismiss the entire case.

Requesting documents is a powerful tool bill collectors do not want you to exercise. Collection litigation firms are not designed to prove the existence of debts. Rather, they process debt cases with no proof at all. It’s all about process and not proof. That process is premised on consumers not fighting back.

Demand those documents. Fight back!

Image courtesy of Flickr

You were sued on a collection lawsuit and managed to file a written response with the Clerk of the Court within 30 days. Congratulations, you have stopped the entry of a default judgement.

But now what? What is your plan of action after filing a response to the lawsuit?

The next phase is to get answers, especially if you do not agree with the creditor’s claim.

  • They say you owe a large medical debt, but didn’t health insurance pay a large portion of the bill?
  • Did the hospital forget to file a medical insurance claim?
  • Did the credit card lender give you credit for all the payments you made?
  • What is the interest rate on the contract?
  • Was the contract written or verbal?

Collection agencies don’t like to answer questions. They are focused on filing lawsuits, obtaining judgments by default, and garnishing paychecks.

They don’t answer questions about why you owe the money, unless you make them provide anwers.

INTERROGATORIES:

Any party may serve upon any other party written interrogatories to be answered by the party served. Nebraska Trial Rule §6-333

Interrogatories are written questions you can make the other side answer. There is no special format you must use, but there are some guidelines to follow to make the process work:

  • Mail the written questions to the attorney representing the collection agency.
  • In the memo of the letter, write the work Interrogatories and reference court Rule 33.
  • Advise the other side that they have 30 days to respond to the Interrogatories.
  • Ask specific questions.
  • Ask one question at a time.
  • Number each question.
  • Ask for a list of all persons having knowledge of the lawsuit, their address and phone numbers.
  • Ask for a list of the persons they will call as witnesses at trial.
  • Ask for a list of all documents they will introduce at trial.
  • Request a list of all charges on the account.
  • Request a list of all payments made on the account.

Lawsuits are your opportunity to finally get answers. Make them answer questions.

Image courtesy of Flickr and womencandoit

If you bothered to file a written response to a lawsuit with the Clerk of the Court, what is the next step?

What happens after you respond to a lawsuit?

Discovery:

The next step in litigation is called “discovery.” It is your opportunity (and the creditor’s opportunity) to get answers to questions. Unfortunately, this tends to be the most powerful tool in the debt defense arsenal that most people are clueless about using.

Discovery is powerful. It includes these legal tools:

  • Interrogatories. These are written questions you can make the creditor answer.
  • Motion to Produce Documents. You can demand a creditor provide all documents relevant to your case.
  • Requests for Admission. You can demand a creditor admit or deny specific facts. (Example, please admit or deny you received check #313 in the amount of $414 on or about April 1, 2018).
  • Depositions. A deposition is testimony you can obtain from anyone with knowledge of the case that is usually recorded on video or written down by a court reporter.

All of the court rules available to someone sued on debt can be found in Article 3 of our Nebraska court rules.

In the next blog posts we will explore each of these powerful tools you have at your disposal to get the facts straight.

High volume collection attorneys base their entire practice on the fact that few defendants fight back. If defendants fought back and demanded proof of their debt, the entire collection field would collapse.

Over 95% of judgments are obtained by default when defendants fail to respond to the lawsuit. Of those that do bother to file a response, few are equipped to take the next step.

It’s time to take the next step. Demand answers. Demand documents. Ask questions. Interview the other side.

When you make the other side work, that’s when cases get dismissed or settled. Roll up your sleeves and get to work.

I read this comment from another bankruptcy attorney today:

“Help me understand why the home value (Z)estimates from a company that lost nearly $1 billion of its own money by relying on those (Z)estimates to play in the house flipping market are reliable.”

Home values provided by Zillow are important in bankruptcy cases, even if those values tend to be inflated.

The first thing I do when speaking to a prospective client who owns a home is to type their address into a Google search. Up pops a list of home valuations, and Zillow is almost at the top of the list.

Why do we search the Zillow value? Because only $60,000 of a home’s equity is protected in a Nebraska bankruptcy case, and it is extremely important to get an accurate valuation of a client’s home.

County assessor values tend to be low. Clients tend to underestimate their home’s value. So it is very important that a bankruptcy attorney look at outside sources.

We look at the county assessor’s webpages, Zillow, Realtor.com, and other valuation sites to get an idea of a home’s value.

What you should know is that the bankruptcy trustee also looks at these valuations as well.

If a Chapter 7 Trustee sees a Zillow value that is substantially higher than the value listed on the bankruptcy schedules, problems will arise. The Trustee may have a real estate agent inspect the home to see if it is worthwhile to sell the home.

Chapter 7 Trustees are paid a commission to uncover undervalued real estate and to sell homes if more than $60,000 of equity exists. That’s why we cannot ignore those Zillow valuations (“Zestimates”).

Problems with Zillow Values:

  • Damage to homes. Zillow does not know if your home has a cracked foundation or a leaky roof.
  • Deferred Maintenance: Zillow does not see if you have kept the home up to date with regular maintenance.
  • Dissimilar Neighborhoods. Perhaps your home is next to a fancy neighborhood, so the sales price of those homes tends to artificially inflate the Zillow value.

Are Zillow values accurate? Sometimes yes and sometimes no. But they are always relevant and must be addressed.

Explain Why Zillow is Wrong:

If a Zillow value overstates a home’s value, the bankruptcy schedules must address that issue. The home description should list the Zillow value and then explain why it should be ignored. (“Zillow value is inaccurate due to crack in foundation and leaky roof.”)

Online valuations are part of the new bankruptcy landscape. It’s a factor we cannot ignore.

Image courtesy Flickr and ajay_suresh

An email from a client (edited to preserve confidentiality):

“Good morning. On October 31, 2022, [my husband] had to have surgery to remove his gallbladder. The hospital is requiring payments of approximately $400 a month on the $5,049.97, a sum I am unable to accommodate with our budget. My husband’s income makes us ineligible for an adjusted payment plan. The representative offered to help us apply for a loan facilitated by the hospital through a local bank, but I informed her that I can’t consider any loan without speaking to you. What, if any, actions should be taken in regards to these bills as relates to our bankruptcy?”

This seems to be a new trend with hospitals. They help customers to get loans to pay the medical debts.

I told my client the loan helps the hospital, not them. A loan involves interest, late fees, etc. How does this help my client?

My client is in the middle of chapter 13. I informed them that the hospital could send the account to collection and they may be sued, but their wages could not be garnished until the bankruptcy was over.

Push back, I told them. Tell them the court will not approve the loan. This is not like getting a car loan, something you need for work. This just changes the name of the creditor from Hospital to Bank.

I told the client to review their budget and pay what they can afford. Just make payments and don’t worry about pleasing the hospital.

“The hospital is requiring payments of approximately $400 a month.” Requiring? How are they “requiring” this? This is just old-fashioned arm twisting. My client is in Chapter 13. Post-petition wages are considered to be property of the bankruptcy estate and cannot be garnished until the case is completed.

Creditors are always demanding full payment or monthly payments that are not affordable. They give the false impression that they will not accept smaller payments. Don’t believe them.

Bill collectors accept every payment you send them. The hospital demands $400 per month. Can’t afford that? Send them $200. Keep sending the payment. They will accept every dime you send them.

Image courtesy of Flickr and dreamingofariz.

The client runs a decent sized construction operation.  Revenues in excess of a quarter million per year.

But he has no accounting system.  He just takes his bank statements, receipts and chicken scratch notes to the tax man once a year to crank out a tax return.

No monthly bank account reconciliations.

No computerized records.

No accounting journals or ledger reports.

The entire system is basically a daily glance at the banking account balance and then just fly by the seat of his pants.  It’s dancing on a hot plate.

Who needs paid this week?  What blows up if I don’t pay it today? Do workers walk off the job? Do suppliers stop extending credit? Will the tax people start garnishments?

But the business is good, right?  Money is rolling in.  Big projects lined up.  If we can just get this next job done then things will start to straighten out. Then we can hire the good accountant.  That bookkeeper who cleans up the details.  After all, accounting is just a detail.  It’s an afterthought.  It’s what you do when all the real work is done.  Don’t worry honey, I’ll get to that later.

Yet, we never seem to turn that corner, do we? Things never quite get organized.  And even though we know this is the wrong approach, we can’t ever stop the madness of flying blindfolded.  Budgets.  Planning.  Profit and Loss analysis.  Is the project actually making us money?  Does it just leave us in more debt?  Yes, bills need paid, but are we making progress or just working to pay overhead?

At what point do you stop the madness? When do we stop driving blindly on twisting roads at night?

Your shoebox system is not working.  You have no system.

Just stop.

 

Image courtesy of Flickr and Don DeBold

There is a marriage penalty in bankruptcy law.  Unmarried couples receive favored treatment, especially on the six-month income calculation called the Means Test.

A married debtor who lives with his or her spouse must list all gross income of their spouse on the income schedules.  However, an unmarried debtor who lives with a partner must only show that person’s regular contribution to the household income.

This difference represents a significant disparity of treatment. Unless the bankruptcy trustee investigates the income of a debtor’s partner, a debtor may be able to claim their income is below median income levels and thereby qualify for Chapter 7, even if the partner has a six-figure income.

All Income vs. Regularly Contributed Income:

Reporting all income versus just reporting regularly contributed income.  That difference is massive.

Bankruptcy Form 122-A is where we report a debtor’s household income received in the prior six months. This form determines who may enter the gates of Chapter 7.

Notice how Form 122-A requires a debtor to list the gross income of his or her spouse on Column B, however there is no requirement to list the gross income of a live-in partner, even if the debtor and his or her partner share children, real estate, debts, bank accounts and other financial obligations.

What is required is that a debtor report all regular income contributed to the household by the partner. But how can we be sure the debtor is reporting the correct contribution? Why is a live-in partner who is basically a spouse in every way treated so differently? How is this difference in treatment fair or proper?

Difficulty in Measuring Non-debtor Partner’s Contribution to Income:

Measuring the “contribution” of the debtor’s unmarried partner is difficult.  The partner is not filing bankruptcy and is not the client of the bankruptcy attorney.  Getting information from such individuals can be difficult.

How is the bankruptcy attorney able to accurately measure the income of the debtor’s partner?  The unmarried partner signs no documents to verify income.  The partner may very well maintain a separate bank account and the debtor may actually be unaware of the partner’s true income level.

So how does the attorney measure the contribution?  We look to several factors:

  • Bank Statements.  We examine the deposits listed in the debtor’s bank statements and the expenses paid by the debtor from these accounts.
  • Monthly Bills.  Attorneys gather information on the total household rent, utility, food, insurance and educational expenses.
  • Educated Guess: If the total monthly expenses of a household is, for example, $3,000 and the bank statements of the debtor show $1,500 of payments towards this total, it is reasonable to assume the debtor’s partner is regularly contributing the remaining $1,500.

Fairness Issues:

What if the debtor is paying the majority of household bills but the non-debtor partner earns a significantly higher income that they keep in their separate bank account? This arrangement has the effect of minimizing the “regular contribution” towards household income that is disclosed on the Means Test.  Is that fair and correct?

The means test does have a Marital Deduction for expenses of the non-debtor spouse, but those expenses are limited to completely separate expenses and cannot include expenses of the household.  For example, if the non-debtor spouse pays for an expensive medical treatment, that expense cannot be claimed as a marital deduction since it is limited by the household expense limits of Form 122-A.  However, if the non-debtor spouse contributes a large amount to their 401(k) account that deduction is allowed since it is not a shared fund. These distinctions tend to be technical.

The bankruptcy marriage penalty is stiff.  Married debtors are more likely to be forced into filing a 5-year repayment plan in Chapter 13.  Unmarried debtors can manipulate the system to report only “regularly contributed” income of their partner and thus qualify for Chapter 7 cases by hiding income from the court.

It seems like the US Trustee should focus more efforts to ensure the treatment of married couples is no different than the treatment of unmarried couples who share children, homes, accounts and debts together.

 

Image courtesy of Flickr and Shelley Rich