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So they taught you in school that there was no debtor’s prison in the great nation of the United States of America, did they? Well, of course, most school children know there’s no debtor’s prison here, but are they correct?

Debtors prisons are as old as humanity. The Bible deals with the idea in Matthew 18:23-35. In this biblical story, servant A is called before his king. Servant A owed a great deal of money to the king. The king ordered that Servant A be sold into slavery, with his wife and children also to be sold, all to pay the debt. Servant A begged and the king showed mercy, cancelling his debt. Later Servant A came across Servant B, who owed a small amount of money to Servant A. A grabbed B by the throat and yelled at him to pay what he owed. B begged A to have mercy and give additional time to pay. A had no compassion and had B thrown into debtor’s prison. As these stories go, A’s fellow servants ratted him out to the king and the king was very, very unhappy with A, calling him wicked and essentially telling him that his soul would burn in the eternal fires.

Debtor’s prison is not a fun place. Essentially, it’s a jail where you are placed until your debt is paid. Since you are in jail, you can’t pay your debt and someone must come to your aid, a benefactor or loved one. None of these in the U.S.A.?

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Here is a good example of why you need a reputable bankruptcy attorney to help when you have financial troubles with your house. A fraud artist who claimed to help distressed homeowners stave off foreclosures has been sentenced to 11 years in Federal prison after he was finally caught in Waterloo, Canada. Here was his scam.

Mr. W would solicit homeowners who were facing foreclosure on their home. He told them that for a fee (usually $700) he could legally delay the foreclosure. After he was paid, he would get a list of people who had filed for bankruptcy in the homeowner’s state. He would then prepare a phony deed that would transfer a fractional share of the homeowner’s home to someone who had filed bankruptcy. After recording the deeds, he would mail them to the bank or lender foreclosing on the house informing them that they were stayed from doing the foreclosure because the owner (the person in bankruptcy who never knew about the phony deed) was in a bankruptcy. The bank would then postpone the foreclosure for several months until it finally figured out in the bankruptcy that the bankrupt really had no interest in the home. When the unwitting debtor in bankruptcy would finally disavow that he owned part of the house, Mr. W would then just pluck another name from the bankruptcy database and start this process all over again. In this manner, he filed fraudulent foreclosure documents on 824 homes, using at least 414 bankruptcies filed in 26 judicial districts. He collected about $1,200,000 from clients during the life of the scheme. Needless to say, the homeowner ended up losing his house in the end. Mr. W. pleaded guilty to bankruptcy fraud and identity theft. He received a sentence of 11 years in prison, was ordered to pay nearly $60,000 in restitution and was ordered to forfeit about $100,000 of property previously seized by law enforcement.

What do we learn from this? If it sounds too good to be true, it probably is. If your home is in financial trouble and in danger of foreclosure, a chapter 13 bankruptcy reorganization can often save your home. You do this by going to see an experienced bankruptcy attorney. You do not go see Mr. W.

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Consumer Bankruptcy News in its November 2012 edition reports that Chapter 13 debtors may keep their social security income. The Bankruptcy Code says Social Security income is not included in a debtor’s “disposable income.” The 10th Circuit Court of Appeals ruled in Anderson, Trustee, v. Cranmer (In re Cramner), that neither recent Supreme Court decisions or the Bankruptcy Code require that Social Security income be committed to Chapter 13 plan payments.

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In In re Cranmer, the Chapter 13 trustee asserted that the debtor would receive more than $87,000.00 in Social Security income over the life of his plan and objected to the debtor’s plan on that basis. The 10th Circuit rejected the trustee’s argument stating that Bankruptcy Code Section 105(10A)(B)’s definition of “Current Monthly Income” specifically excludes benefits received under the Social Security Act. Therefore, Social Security income is not included when calculating disposable income.

The 10th Circuit found additional support for its conclusion in the Social Security Act, which shields payments made pursuant to the Act from “execution, levy, attachment, garnishment, or other legal process,” or from “the operation of any bankruptcy or insolvency law”.

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