Category Archives: Chapter 7

Qualifying for Chapter 7 Bankruptcy: Understanding the Means Test

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If you’re struggling with debt, you may be considering filing for Chapter 7 bankruptcy. But how do you know if you qualify for this type of bankruptcy? The answer lies in something called the “means test.” In this blog post, we’ll explain how the means test works and what you need to do to qualify for Chapter 7 bankruptcy.

The first thing the means test looks at is your gross income over the past six calendar months. If your income is not more than the published median income for your state and family size, you don’t need to complete the rest of the means test. Many people qualify for Chapter 7 based on their income alone.

However, if your income is more than the median income number, you’ll need to complete the rest of the means test. This involves deducting certain expenses from your income, but you can’t deduct just any expense. The allowed deductions are based on a complicated set of rules, which can trip up many people.

Once you’ve deducted your allowed expenses, you’ll be left with your “monthly disposable income.” If your monthly disposable income is less than a certain number, you’ve passed the means test and can qualify for Chapter 7 bankruptcy. But if your monthly disposable income is more than another number, you won’t pass the means test.

It’s important to note that the means test is not a simple test, and there are many traps for the unwary. That’s why it’s best to work with an experienced bankruptcy attorney who can guide you through the process and help you avoid common pitfalls.

In summary, to qualify for Chapter 7 bankruptcy, you’ll need to pass the means test. This involves looking at your income over the past six months, deducting allowed expenses, and calculating your monthly disposable income. If your monthly disposable income is less than a certain number, you may qualify for Chapter 7 bankruptcy. However, the means test is a complicated process, so it’s important to work with an attorney who can help you navigate the process and achieve the best possible outcome.

Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

How To Rebuild Your Credit After Bankruptcy

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What’s the best way to rebuild my credit after my bankruptcy case is over? Many people are afraid to file for bankruptcy due to the perceived impact on their credit. Truth be told, a lot of people who need bankruptcy already have bad credit and a bankruptcy isn’t going to worsen their credit that much more.

The real reason that people fear credit damage through bankruptcy is that they are afraid of permanent, or semi-permanent, credit damage because a bankruptcy stays on your credit report for ten (10) years. When someone hears that a bankruptcy filing stays on their credit reports for 10 years, they think that the record of their bankruptcy filing is somehow going to outweigh anything good that could happen to their credit after the bankruptcy.

In my experience and in my clients’ experience, bankruptcy does not permanently damage credit. The is an immediate impact to a credit score – a bottoming out, if you will – but if you play your (credit) cards right, there’s nowhere for your credit to go but up after a bankruptcy. There are effective steps that you should take to deliberately improve your credit after bankruptcy.

What You Shouldn’t Do After Bankruptcy

First, you should be aware of some things to avoid after bankruptcy:

  • Don’t overuse new credit cards;
  • Don’t take out business loans you can’t pay;
  • Don’t ignore new credit card offers; and
  • Don’t pay too much in credit card fees.

Believe it or not, there are things that you can do to your credit after bankruptcy that will only make your credit reports look worse, or that will inhibit your ability to rebuild good credit after bankruptcy.

Don’t overuse new credit cards: Most of my clients are pleasantly surprised that they can qualify for new credit card accounts after their bankruptcy case has ended, since they previously believed that they would never qualify for another credit card. But be aware that you don’t want to start charging up your new credit cards to their limit. Instead, only charge a monthly amount that you can easily afford to pay back.

Don’t take out business loans you can’t pay: This is a tough one, because most people want to get on with rebuilding their financial lives as soon as possible after bankruptcy, which includes building their business back to financial health. And it can be hard to know what you might be able to afford to repay. This is where good accounting help or financial advising is invaluable. Ask around for advise from people whose financial judgment you trust; is your business really pulling down the amounts of money that will enable you to repay a business loan? Be a penny-pincher for awhile. Build the business on a shoestring. It’ll give you the opportunity to test the waters and see if your business can stay afloat.

An interesting thing about business loans, or even business credit cards, is that they don’t always report to your personal credit reports. So you might consider business loans to be a net neutral when it comes to your credit. But remember, we are talking about your overall financial health, which your credit reports reflect – if you dig in too deep with business loans that you can’t afford, it’s likely to impact your personal financial health, which is likely to negatively impact your personal credit over time.

Don’t ignore new credit card offers: If you don’t care about rebuilding your credit and you’ve decided that you don’t like banks, then go ahead and ignore the new credit card offers that come your way after bankruptcy – your credit will stagnate. But if you want better credit, you have to work for it, and that means taking out new credit cards.

Don’t pay too much in credit card fees: If you don’t need to pay fees for something, don’t. For many people, annual fees just add on to credit-card debt, making it that much harder to pay.

What You Should Do After Bankruptcy

As you may have figured out by now, the best and fastest way to rebuild a good credit record after bankruptcy is to take out new credit-card accounts. Paying off the full credit-card balance on time each and every month is the safest and most effective way to accomplish improved credit. Only charge the amount that you can easily pay off in full at the end of every month.

After you’ve done this for a few months, pull your credit report from annualcreditreport.com and make sure that this new credit card account – and your monthly payments – are being reported. This is the goal of building new credit: To have positive, in-good-standing accounts consistently reported on your credit reports. If it’s not reporting to your credit, don’t continue to use it and try again with a new account.

Remember, debit card usage will not count as a credit account for credit reporting purposes. It needs to be a credit-card account. You can try a secured card, if that’s the best kind of card account for which you can qualify. Just make sure that you keep enough in the bank account to which the card is linked to pay off the card account in full without overdrawing your bank account.

If you are careful and you pay attention to what you are doing, your credit should improve over time. As you qualify for new and better credit offers, you should take the ones that look best to you (think no, or low, annual fees and higher credit limits). Switch your charging – and your paying off the full balance every month – over to the new account to continue rebuilding your credit. Higher limit cards tend to “look better” on your credit report.

Check Your Income

Obviously, before you take out new credit, you should make sure that you are in a position to be able to afford to pay off any credit card balance in full each and every month. That means you need a source of regular income that can first pay your regular monthly bills – rent, electric, food, etc. – and leave enough money left over to pay your credit card account in full.

Do not put the cart before the horse and get all worried about rebuilding your credit before you have enough income to do so! Worry first about employment and then about credit. Most job fields do not care that you have bad credit before they hire you. There are a few fields where employers do care about bad credit, and it’s highly likely that you’ll know for sure if you are in one of those fields.

If you need to discuss issues with a bankruptcy attorney, schedule a free bankruptcy phone consultation with attorney Jennifer N. Weil through her Setmore page.

How To Get Rid Of Your Car In Bankruptcy

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Table of Contents

You might want to know how to get rid of your car in bankruptcy. But if you really want to know how to keep your car through your bankruptcy case, that was the subject of an earlier post (linked above).

Not everyone wants to keep their car through bankruptcy. Sometimes, the monthly car payment is too high, or the car has developed problems that require expensive repairs in order to keep it in good running order. And sometimes you just decide that you no longer need the car at all.

Especially in northern New Jersey, not everyone needs a car for work. Many people work in NYC or within the urban area not far from where they live, such as within Jersey City or Newark, and they take public transportation. It happens that people often make the transition from having to drive to work – say, to a more suburban area of New Jersey – to being able to take public transportation to get there.

Car Loans Are Dischargeable In Bankruptcy

First, you should know that your car loan is dischargeable in bankruptcy, just like credit card debt. Decide whether you need a car after bankruptcy. This decision will help guide your next actions.

If You Need Another Car

While you are in a Chapter 7 bankruptcy, your car cannot be repossessed due to the automatic stay, although the automatic stay can end as to your car a little earlier than the end of your bankruptcy case, under certain circumstances. If you need a car but you want to get a different car from the one you have now, you will need to wait until your bankruptcy is over before you can get a new car. Because you need a car, you may want to continue making your current car loan payments until you are certain that you can get another car.

Getting another car can be as simple as waiting until after the end of your Chapter 7 case. Or it can be as complicated as getting permission to get a new car loan during your Chapter 13 plan. Your exact strategy will depend on the specific issues in your case.

If You Don’t Need Another Car

Planning is a lot easier if you don’t need to get another car at all. In this case, you simply stop paying on the car loan. You should stop paying on the car loan once you have decided that you no longer need the car and once you have cleaned your personal belongings out of it.

You can stop paying on the car before your bankruptcy, during your bankruptcy, or after the bankruptcy. In each of those cases, your bankruptcy will take care of discharging the car loan, if you are filing a Chapter 7. If you are filing a Chapter 13, you may be repaying some or all of the car loan through your bankruptcy case, since Chapter 13 involves some level of repayment.

You Can Get A Car Loan After Bankruptcy

So many people believe that they “can’t buy anything,” or that they won’t be able to take out a new loan after bankruptcy. This isn’t true. First – of course you can buy things after bankruptcy. There’s nothing to stop you from saving up enough to pay cash for a used car after bankruptcy, except for your ability to earn enough cash to save up, which is a challenge for many.

Second, you can get a car loan after bankruptcy. Keep in mind that the loan terms won’t be the best terms – you did just come out of a bankruptcy, after all – but don’t be surprised if a car dealership is ready to throw a new car loan contract at you the same day that your bankruptcy case ends. Writing up new car loans is how car dealerships make their money.

If you’ve got questions about how to get rid of your car loan in bankruptcy, or if you need to use bankruptcy to get out of a bad car loan, call (201) 676-0722 to schedule a free telephone consultation with attorney Jennifer Weil, or go to my Setmore page.

Your Bankruptcy Consultation: The 3 Main Topics

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What happens at a bankruptcy consultation? The answer to this question is different depending on who the bankruptcy consultation is with, whether the consultation is in person or by phone, and what systems the bankruptcy attorney has set up for the consultation. I can give you some general insight as well as information about how I conduct my own bankruptcy consultations.

Consultation Fees

Many, but not all, bankruptcy attorneys do some sort of free consultation. The attorneys who don’t do free consultations aren’t necessarily more expensive; often, those attorneys feel that they are giving more value during the consultation phase, so they should charge a fee. Or they feel that they shouldn’t give away their time. There may be an incentive built into the consultation fee in the sense that the attorney may credit such a fee against the entire bankruptcy attorney fee if you hire them.

As of yet, I don’t charge bankruptcy consultation fees for the most part for a couple of reasons: First, I do all my bankruptcy consultations over a relatively short phone call and not in person. In-person consultations take up far more of my time and I always charge for those. This doesn’t mean that I do all my phone consultations for free. I may charge a small fee for other types of consultations, such as student-loan consultations, since I’m providing a lot of value during those sessions.

Second, I see the primary purpose of the bankruptcy phone consultation as determining whether your case is one that I am able to take. I ask enough questions to enable me to determine whether the case is one that I have the time for and whether it is of the type that I want to take. For example, if your primary reason for calling is to get help with keeping your home through a mortgage foreclosure, I’m probably not the lawyer for you, since I generally don’t like to take those cases. But I may have a good lawyer referral or two for you!

Discussing Your Situation

The facts of your particular financial situation will come up during the bankruptcy consultation. A variety of issues are relevant to your financial situation and to a potential bankruptcy case, the most basic of which are how much money you make and what kind of debts you would like to have discharged in bankruptcy.

Not by any stretch of the imagination are these the only two issues that will come into play in your bankruptcy case, but they are a good place to start. You should be psychologically prepared to answer all sorts of questions about your financial affairs that would be inappropriate in a social setting. Think about what you own that might have any resale value, how you incurred your debts, whether you are or have been involved in a business of any kind and with whom, whether your spouse has anything to say about you filing for bankruptcy, etc.

All the different factors that could possibly come into play regarding your financial situation are too numerous and varied to list here. Just remember that anything and everything impacting your overall financial situation is potentially relevant and don’t forget to bring it up with the bankruptcy attorney at some point.

Eligibility For Bankruptcy

One topic that’s relevant to every bankruptcy consultation is your eligibility for bankruptcy, which also ties into the question of which chapter you might file.

Sometimes, your financial goals might dictate which chapter you should file, such as saving a home from foreclosure, for example. But there’s also the question of which chapter you are eligible to file, if any.

During the bankruptcy consultation, the attorney might unearth information showing that you aren’t eligible for the chapter you had hoped to file, or that a different chapter of bankruptcy would be better for your situation. Or they might find that bankruptcy is a bad idea for you altogether.

If your gross (before tax) income is close to the line of eligibility, the attorney may want to run the means test for you. Running the means test is not simple or quick and you should expect to pay a fee for this process. In my practice, I roll this fee into the bankruptcy, if the client hires me to file their case.

Call to schedule a free telephone bankruptcy consultation with attorney Jennifer Weil at (201) 676-0722.

How To Keep Your Car Through Bankruptcy

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This focus of this post is how to keep your car through your bankruptcy. It’s based on my experience as a bankruptcy lawyer, from what I’ve seen happen in my clients’ cases over time. I’ve helped many people successfully keep their financed or leased cars through bankruptcy and beyond. And I’ve seen what happens when people don’t take the steps required to keep their car through bankruptcy.

If you follow the right steps, then you will have the ability to keep your financed or leased car through bankruptcy and thereafter.

Truth is, if you are making all of your car payments in full and on time, you can keep your car through the bankruptcy.

But there’s a trick to it. If your lender has been lenient, letting you make payments late by telling you it’s OK with them, they will not be OK with late payments once your bankruptcy is filed. Lenders become more strict when their customer has filed for bankruptcy. They will want their full payments on time each month, even if before they’d said that late payments were OK.

What happens if your payments are not in full and/or on time every month? Can the lender repossess? Once you are out of bankruptcy, yes – the lender can repossess your car. If you’ve been chronically late with payments, or even if you were late only one month, and you didn’t get all caught up before filing bankruptcy, you’ll face having your car repossessed.

Remember, a car loan is a type of secured debt. This means that if you don’t make your car payments in full and on time, the lender can take the car back. The same is true of a leased car. In fact, repossession may be the lender’s only remedy after you have taken the car loan through the bankruptcy.

The first lesson here is that if you haven’t been strictly making your full car payment on time every month, now’s the time to catch up completely – before your bankruptcy case gets filed. If you don’t, you might be looking at repossession after the bankruptcy is over with.

A second lesson in all this is that if you are having trouble keeping up with your car payments, now is a good time to take a long, hard look at whether this particular car loan is a good idea for you to keep dealing with. Bankruptcy will provide an opportunity to discharge your car loan. If the payments are just too much, or if the car keeps having problems, bankruptcy can allow you to get rid of the car and its loan and, once your case is finished, to pick up a different car, if you need one.

How to keep your car through bankruptcy is not such a mystery. And it isn’t difficult, either. Successfully keeping your car through your bankruptcy case takes a little planning and attention to detail before you file the bankruptcy case.

Mapping out your bankruptcy before you file is arguably the most important part of filing for bankruptcy, because it is the best way to ensure that your bankruptcy case will go smoothly. Ideally, you should never be in a rush to file a bankruptcy case, because that’s when important details get lost, like catching up on your car payments so that you don’t face losing that car after your bankruptcy case is over.

Game plan your personal strategy to keep – or to get rid of – your car through your bankruptcy. Call (201) 676-0722 to schedule a phone appointment to discuss it with attorney Jennifer Weil.

How To Kick Start The Bankruptcy Process

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(Note: This is an update of a post from 2010 that many people found useful in beginning the bankruptcy process.)

How do you kick start the bankruptcy process? Most people want to get their bankruptcy case done as quickly as possible. To start, your bankruptcy attorney will ask you for a list of documents and information. It would help move things along faster if you knew what to gather right away.

Here’s a list of items to gather for your bankruptcy attorney:

1. Your last 6 months’ worth of pay stubs or other proof of income;

2. The details of your last bankruptcy filing, if any, including the date, place, and chapter of filing and the case number;

3. Gather your last 3 to 6 months’ of bank statements from all accounts, including checking, savings, retirement, CDs, IRAs, investment accounts, money market accounts, etc.;

4. Get a copy of your TransUnion credit report from www.annualcreditreport.com;

5. Gather all the collection letters that you have received in the past few months;

6. Gather all the bills that you are behind in paying that do not show up on your credit report;

7. Gather basic information on these types of debt (if you still owe them, even if you’re current on payments): Student loans, back taxes, alimony, child support, criminal fines and restitution; debts resulting from fraud; and divorce or property settlement debt;

8. Gather information regarding any cash advances or balance transfers you had in the past few months;

9. Get a copy of last year’s tax return or tax transcript;

10. Gather information on all of your most valuable property;

11. If your last year’s tax filing is overdue, file that return so the amount you owe or the refund you are owed can be determined;

12. If you own real property, gather the deed and mortgage and home equity loan papers;

13. If you have a car, get the last lease or financing bill for that car, if you’re still paying on it;

14. If you have any secured debt, gather the papers relating to it;

15. Copy your picture ID and your Social Security card or other proof of your Social Security number;

Remember, disclosure is a key to a successful bankruptcy case. If you don’t disclose, you may not get all the exemptions to which you are entitled. Tell your bankruptcy lawyer everything about your financial situation, especially if you borrowed money from a relative.

If you are in New Jersey and considering bankruptcy, please call Jennifer Weil to schedule a free telephone consultation on my Setmore site or at 201-676-0722.

How To Increase Your Credit Score After Bankruptcy

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So many people who are in debt are concerned about the impact of bankruptcy on their credit reports that they hesitate to file for bankruptcy. People are afraid that their credit will never recover from bankruptcy, especially since they know that a bankruptcy will be on their credit reports for ten years.

Does Bankruptcy Ruin Your Credit?

Because of the common view that bankruptcy ruins credit, I started paying attention to the post-bankruptcy credit reports of my clients, especially those clients who had gone through a Chapter 7. I started asking them to tell me about what credit offers they received, if any, right after their bankruptcy case ended. If they took those new credit offers, I wanted to hear what the freebie credit score estimators like Credit Karma (ad) said about their credit scores.

Surprisingly, these clients mostly received offers of new credit right after their Chapter 7 bankruptcy case was over. The offers were not great – often, they were for secured credit card accounts with low limits – but the point here is that my post-discharge Chapter 7 clients were receiving unsolicited offers of credit.

Not all of these post-bankruptcy clients accepted offers of new credit. When these clients checked their credit reports months after their bankruptcy cases were over, there was virtually no change. Their credit scores of those who had not accepted new credit offers had taken a hit from the bankruptcy itself, but then those scores hadn’t changed.

Steps To Improving Your Credit

However, there was significant improvement in the credit scores of post-bankruptcy clients who had accepted and used offers of new credit. The elements of building back up your credit score are key:

  • Clear out the bad debts from your credit reports (hint: debt settlement often doesn’t help);
  • Then accept offers of new credit – don’t go overboard here, because next…
  • You’ll need to use the new credit accounts, so don’t charge any more than you can easily pay off, in full and on time, each and every month. Even if you only charge $20 a month, that’s fine;
  • As your credit improves, accept the new, better credit offers that you receive;
  • Keep paying off your credit cards in full and on time every month.

After you’ve used bankruptcy to clear out your old, bad debts, you would use the above method to build your credit score back up.

How Debt Settlement Affects Your Credit

The above process is usually much faster than debt settlement, since debt settlement involves paying large amounts to creditors over time and then waiting 7 1/2 years for those bad debts to fall off your credit reports. The timeline may not matter for people whose bad debts have already fallen off their credit reports, but unless you fall into that category, you may want to speed things up.

Looking for bankruptcy help? Make a telephone appointment with attorney Jennifer Weil at (201) 676-0722. Or you can schedule your own phone appointment here.

The 2 Biggest Bankruptcy Myths, or: How Long Does A Chapter 7 Bankruptcy Stay On Your Credit Report?

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The question of how long a Chapter 7 bankruptcy stays on your credit report is one I get all the time. The short answer is 10 years. But the real reason that people ask me this question is because they’ve heard that a bankruptcy, especially a Chapter 7 bankruptcy, destroys the credit report for as long as it appears on their credit report, or even permanently. However, this reflects a couple of fundamental misunderstandings about the impact of bankruptcy on your credit report.

Myth #1: Chapter 7 Bankruptcy Destroys Your Credit

Simply put, it isn’t true that Chapter 7 bankruptcy, or any chapter of bankruptcy, destroys your credit. Your credit score takes an initial hit of several points as a result of the Chapter 7 being filed. But in saying that a Chapter 7 “destroys your credit,” you are giving too much power to bankruptcy – even more power than your bad debts have. It’s not possible for bankruptcy to “destroy” your credit report. What does it even mean for something to destroy your credit?

Let’s examine this belief: Does it mean that, when you apply for credit after bankruptcy, the decision maker will see that you filed for bankruptcy and automatically deny you? That’s just not true, but let’s assume for a moment that it is, and work through it logically.

Let’s start with basic facts: You have unmanageable credit card debt. Either all of that credit card debt shows up on your credit report, or it doesn’t because it’s business debt or because it’s pretty old. If it shows up, your credit report already looks bad because your debt-to-income ratio is bad and/or one or more accounts shows as being in default. But whether the debt appears on your credit report or not, you are living under the threat of debt collection, which includes debt-collection lawsuits. If you get sued for a debt and get a judgment against you, you could be subject to bank levy and/or wage garnishment. That’s even worse for your income and credit; it deprives you of full control over your income and your bank account.

Let’s say that instead of keeping these unmanageable debts on your credit report, instead of subjecting yourself to debt-collection lawsuits, you qualify and file for a Chapter 7 bankruptcy and you get all those credit-card debts discharged. How does your credit report look then? Yes, the bankruptcy shows up. Yes, all your credit-card accounts show up…but NOT as owing any balances. Instead, they show up as “$0 owed, discharged in bankruptcy” or something similar.

How does the sudden lack of debt affect your credit report? Positively, to be sure. Your debt-to-income ratio, which looked pretty bad just a few months before, looks a lot better after all that debt is wiped out in bankruptcy. Any creditor, such as a mortgage company, who is interested in how much debt you’re carrying, will see that you have several $0 balances, instead of credit-card balances totaling $20,000, $30,000 or more. Owing $0 gives you more money to put toward other things, such as a new mortgage, than owing $30,000 or more on credit cards. Mortgage companies know this.

Yes, there’s a waiting period of a couple years after bankruptcy before you can qualify for a mortgage, but that waiting period is shorter than the amount of time that bad (defaulted) credit-card debt stays on your credit report. Bad debt generally stays on your credit for 7 1/2 years. Which one do you think looks “better”? Seven and a half years of owing a ton of unmanageable credit card debt, or a Chapter 7 bankruptcy notation with no credit card debt at all? If you said the former, then you really need to put yourself in the shoes of creditors and re-examine your financial belief system.

Myth #2: Chapter 7 Bankruptcy Looks Worse on Your Credit Than Chapter 13 Bankruptcy

The basis of the myth that Chapter 13 bankruptcy looks better on your credit report than Chapter 7 bankruptcy comes from the idea that it is better to repay your debts, even partially, and Chapter 13 allows you to do that.

While it’s true that any individual creditor could choose to look more favorably on Chapter 13 for this reason, it’s a myth to believe that a Chapter 13 is always better for your credit. In fact, a Chapter 7 bankruptcy can be better for your credit in that it ends more quickly. To be successful, a Chapter 13 bankruptcy must last either 3 years or 5 years, which is the length of your plan. For each month of your Chapter 13 plan, you pay 100% of your disposable monthly income into the plan.

Either chapter of bankruptcy may be used as a method of solving your debt problems. It’s helpful to keep that in mind: Bankruptcy is a solution, not a way of making your debt problems worse. Don’t let the myths override your ability to rationally think about your financial situation.

For help rationally thinking about solutions to your debt problems, call (201) 676-0722 to schedule a specific day and time to have a discussion with attorney Jennifer Weil, or email weilattorney@gmail.com.

Discharging Income Taxes In Bankruptcy

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Introduction

Dispelling common myths surrounding income-tax debts is crucial for making informed financial decisions. While Chapter 13 bankruptcy is often associated with a prolonged repayment plan, the reality is that various options exist, and each individual’s situation is unique. Let’s explore the truth behind these myths and how a personalized approach can guide you towards the most effective solution.

Myth 1: Chapter 13 is the Only Solution for Income-Tax Debts

Contrary to popular belief, filing for Chapter 13 bankruptcy isn’t the sole solution for handling income-tax debts. The myth persists because Chapter 13 is indeed an excellent option for certain cases. However, the key lies in understanding the specifics of your situation, which requires a tailored evaluation by an experienced attorney.

Myth 2: Income Tax Debts Cannot Be Discharged in Bankruptcy

While it’s true that not all income-tax debts are dischargeable, the blanket statement that they cannot be discharged is a myth. There are conditions that, if met, allow for the discharge of income-tax debts. An attorney, equipped with your tax account transcripts, can assess each tax year individually to determine eligibility for discharge.

Navigating Chapter 7 vs. Chapter 13

Determining whether Chapter 7 or Chapter 13 is more suitable depends on various factors, including the recency of the income-tax debt. Chapter 13 may be preferable for recent debts, offering a chance to avoid penalties and interest. However, if most of your tax debts are dischargeable, Chapter 7 might be a more favorable option based on your overall financial circumstances.

Conditions for Discharging Income Tax Debt

Understanding the conditions for discharging income-tax debt in Chapter 7 is crucial. This includes meeting criteria such as the tax return due date, filing date, assessment period, and avoiding fraudulent activities. These factors, when evaluated by an attorney, contribute to a well-informed decision.

Conclusion

Debunking myths and understanding the nuanced conditions for dealing with income-tax debts requires a personalized approach. Consultation with a knowledgeable attorney, like Jennifer Weil, Esq., ensures a thorough evaluation of your specific circumstances.

Schedule a free bankruptcy consultation with Jennifer Weil, a New Jersey bankruptcy attorney, to discuss your options.

When Chapter 7s Are Not So Simple

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The goal of most Chapter 7 cases is to get in and get out—file the petition, go to a hearing with your attorney a month later, and two months after the hearing, your debts get written off. Mission accomplished, end of story. And usually that’s how it goes. What are some reasons that a Chapter 7 case doesn’t go that way?

Four main kinds of problems can happen:

Income

Under the “means test,” if you made or received too much money in the 6 full calendar months before your Chapter 7 case is filed, you can be disqualified from Chapter 7. As a result, you can be forced into a 3-to-5 year Chapter 13 case, or have your case be dismissed altogether. These results can be avoided by careful timing of your case filing, or by making changes to your income beforehand, or by a proactive filing under Chapter 13.

Assets

In Chapter 7, if you have an asset that is not “exempt” (protected), the Chapter 7 trustee will be entitled to take and sell that asset, and pay the proceeds to your creditors. You might be happy to surrender a particular asset you don’t need in return for the discharge of your debts, in particular if the trustee is going use the proceeds in part to pay a debt that you want paid, such as a child support arrearage or an income tax obligation. But you may not want to surrender that asset, either because you think it is worth less than the trustee thinks or because you believe it fits within an exemption. Or you may simply want to pay off the trustee for the privilege of keeping that asset. In all these “asset” scenarios, there are complications not present in an undisputed “no asset” case.

Creditor Challenges to Discharge of a Debt

Creditors have the limited right to raise objections to the discharge of their individual debts, on grounds such as fraud, misrepresentation, theft, intentional injury to person or property, and similar bad acts. In most circumstances, the creditor must raise such objections within about three months of the filing of your Chapter 7 case. So once that deadline passes you no longer need to worry about this, as long as that creditor got appropriate notice of your case.

Trustee Challenges to Discharge of Any Debts

If you do not disclose all your assets or fail to answer other questions accurately, either in writing or orally at the hearing with the trustee, or if you fail to cooperate with the trustee’s investigation of your financial circumstances, you could lose the ability to discharge any of your debts. The bankruptcy system relies on the honesty and accuracy of debtors. So the system is quite harsh toward those who abuse the system by trying to hide things.

To repeat: most of the time, Chapter 7s are straightforward. That’s especially true if you have been completely honest and thorough with your attorney during your meetings and through the information and documents you’ve provided. In Chapter 7 cases that I do for my clients, my job is to have those cases run smoothly. I do that by carefully reviewing my clients’ circumstances to make sure that there is nothing troublesome, and if there is, to address it in advance in the best way possible. That way we will have a smooth case, or at least my clients will know in advance the risks involved. So, be honest and thorough with your attorney, to increase the odds of having a simple Chapter 7 case.

Discuss your financial situation with bankruptcy attorney Jennifer N. Weil by scheduling a phone appointment at (201) 676-0722 or by emailing weilattorney@gmail.com.