Category Archives: Bankruptcy Help

Why Not Repay Relatives Before Filing Bankruptcy?

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Why not repay relatives before filing bankruptcy?

Why not repay relatives before filing bankruptcy? This post addresses a situation where you borrowed money from a relative before bankruptcy. Many people do this in an attempt to keep from having to file for bankruptcy. But often, the money borrowed from the relative isn’t enough to prevent the inevitable.

The general rule about repaying creditors before bankruptcy can be stated as follows: If, before you file a bankruptcy, you pay a creditor more than you are paying at that time to your other creditors, then that favored creditor may have to return the money so that it is shared among all your creditors.

This is especially true if you are paying one creditor when you are no longer paying anything to anyone else. The payment to your favored creditor is called a “preferential payment”—you are considered to be paying that creditor in “preference” over your other creditors.

Unfortunately, the good intentions you had in repaying a creditor may backfire, especially if that creditor – the person to whom you owed the money – is a family member. That’s because repaying a relative within the year before filing for bankruptcy can get that family member mixed up in your bankruptcy case. Your relative may have to fork over the money to your bankruptcy trustee—even if that money has already been spent.

The trustee may well sue your family member to get that money, which is something that bankruptcy law allows the trustee to do. And afterwards, assuming that you feel a moral or family obligation to make that person whole, you would be paying that debt a second time after your bankruptcy is done.

The good news is that this problem can be avoided if you get good legal advice before you make the “preferential” payment or series of payments to that favored creditor. Even if you’ve already made that payment or series of payments when you see your attorney for the first time, there are often ways to get around it.

Watch out – the law about preferences is complicated. Section 547 of the Bankruptcy Code, while by no means the most confusing one in the code, is still unclear. It’s about 1,318 words long, containing 56 sub-sections and sub-sub-sections. If you look at it, I think you’ll agree that this is NOT a do-it-yourself aspect of bankruptcy law.

So IF there is a chance that you will need to file a bankruptcy, BEFORE you pay anything to a relative or any other kind of special creditor that you feel duty-bound to pay, FIRST talk to an experienced bankruptcy attorney. Do so even if—in fact especially if–you don’t consider the person you’d like to pay a “real” creditor, because, for example, the debt was never put in writing, or nobody knows about it.

And most importantly, if you HAVE made such a payment before you see your attorney, be sure that you disclose this information to the attorney at the beginning of your first discussion. It may well affect the timing of your bankruptcy filing. Preferences are mostly a problem when they are discovered AFTER the bankruptcy is filed. That’s what you want to avoid most. Avoid that and it’s possible that preferences will not be a problem for you.

If you’re thinking about filing for bankruptcy in New Jersey, call Jennifer N. Weil, Esq. at (201) 676-0722.

Photo by kevin dooley.

How long does bankruptcy take?

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217183023_b3c20b9d5a_zHow long does bankruptcy take? Most people just want to get their bankruptcy over with so that they can move on with their lives, free of their burdensome, bad debts.

But what many people don’t realize is that so much of the timeline depends on them – how long it takes them to get the paperwork requested by their bankruptcy attorney, how long it takes them to pay off the attorney fees and the court’s filing fee, and whether it might be best to wait for a period of time before filing to avoid a bankruptcy disaster.

How Long Does Bankruptcy Take: The Paperwork

Your bankruptcy attorney works for you, but she cannot prepare the bankruptcy paperwork without the information required to complete that paperwork. This means you’ll need to give your attorney the items that she asks for, such as your pay stubs and/or other income information, tax returns, bank statements, etc. Here is a link to a list of several things that your bankruptcy attorney may need to prepare your case.

You can help expedite the bankruptcy process by gathering all of the information that your bankruptcy attorney needs to prepare your case. The most important thing in any bankruptcy case is the careful evaluation of the case facts and careful preparation of the bankruptcy paperwork. If something might go wrong during your bankruptcy case, your bankruptcy attorney will want to know about it (and handle it, if possible) before your case is filed, not after!

How Long Does Bankruptcy Take: Paying Off Attorney Fees and Court Fees

Chapter 7 bankruptcy, which is the most common type of bankruptcy filing, requires that attorney fees and the court filing fee be paid in full, in advance, prior to filing. Not all clients have the entire fee available all at once. I can’t speak for other bankruptcy attorneys, but I will take payments over time before filing while working on a client’s case. Then, once the fees are all paid off and the bankruptcy paperwork has been prepared, checked over, and signed by the client, the bankruptcy case can be filed.

By contrast, Chapter 13 bankruptcy allows for an attorney fee to be paid over time through the bankruptcy plan, which allows for payments to be made to creditors over 3 to 5 years.

How Long Does Bankruptcy Take: Waiting to File to Avoid Bankruptcy Disaster

Sometimes, a client might need to file bankruptcy fast to avoid wage garnishment or a bank levy. But sometimes, a client might need to wait for some time before filing the bankruptcy case in order to avoid what I’m calling “bankruptcy disaster.”

A bankruptcy disaster can happen when a bankruptcy case is filed and something goes wrong that could have been handled before filing if only the bankruptcy attorney had known about the problem. An example of a pending bankruptcy disaster is where the client took out a cash advance on a credit card before, but close to the time of, the bankruptcy filing. In such a case, the credit card company can file a motion against the client arguing that the cash-advance debt should not be discharged in the bankruptcy because it was taken out close to the time of filing. This type of situation causes the client far more in extra attorney fees and worry than it would have if it had been handled before filing.

Answering the question, how long does bankruptcy take, requires careful evaluation of all facts by an experienced attorney. There are other types of situations where it would help to wait to file a bankruptcy case in order to handle a potential bankruptcy disaster waiting to happen – every case is unique, so it’s smart to give your bankruptcy attorney all the facts for them to evaluate and to make recommendations for you.

If you have bankruptcy questions in New Jersey, call (201) 676-0722 or schedule your own phone consultation at my Setmore page.

Writing Off Income Taxes Forever through Bankruptcy

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Writing off income taxes forever through bankruptcy

Writing off income taxes forever through bankruptcy? Yes, it’s possible. What income taxes can a Chapter 7 bankruptcy completely write off?

It takes meeting at least four criteria.

But before I list and describe these, I have to emphasize that this whole area—dealing with tax debts in bankruptcy—is a very complex one. I present the information in these blogs to you because the more you know the better. But part of being informed is knowing when you definitely need an attorney’s help. So, part of my job is to make very clear when you are in a particularly difficult area, when you truly need the help of someone who spends his or her professional life thoroughly understanding the complex rules, and constantly applying them in the real world. This is clearly one of those areas.

And now on to those four minimum criteria for writing off income taxes in bankruptcy:

1. Has three years passed since the tax return was due?

This one is pretty straightforward, because every income tax debt has a due date for the filing of its tax return. The important twist here: if you requested an extension of time—usually from April 15 to October 15—the three-year period does not begin until the extended due date.

2. Has two years passed since the applicable tax return was actually filed?

It does not matter how ancient the tax is if at least two years have not passed since the return was in fact filed. And a “substitute for return”—the common procedure in which the IRS in effect prepares a tax return on your behalf based on the (usually incomplete) information it has available—that doesn’t count as a filed return for this purpose.

3. Has 240 days passed since the assessment of the tax?

In most situations, an income tax is assessed within a few weeks after you file it. Assessment is the tax authority’s formal determination of your tax liability, usually through its review and acceptance of your tax return. But sometimes the amount of tax is in dispute because of a tax audit or litigation about the amount. By the time the accurate tax amount is finally assessed, the above three-year or two-year time periods may have passed, but that tax cannot be written off unless that bankruptcy case is filed more than 240 days after the assessment. This 240-day period is also put on hold while a taxpayer’s “offer in compromise” is pending. Just like it sounds, that’s an offer to the IRS to settle the tax for less money or for specific payment terms.

4. Have you filed a fraudulent tax return or intentionally attempted to evade the tax?

Even if all the required time periods have passed, if you were dishonest on your tax return—such as not including some of your income or claiming invalid deductions–or tried to avoid paying a tax in some other way, that tax will not be written off in bankruptcy.

This discussion should give you a good idea of whether any or all of your income tax debts can be written off in bankruptcy. And in some cases applying these four conditions will give you an accurate answer. But there are some other considerations that can come into play. What if the IRS recorded a tax lien against your home and on your personal possessions?  How would a prior bankruptcy affect these timing rules? What about your appeal of a tax? What’s considered an honest mistake on a tax return instead of intentional tax evasion? When can the taxing authority add a 30-day “tack-on” to the 240-day rule?

Bankruptcy can certainly write off income taxes under the right circumstances, but you need to have an experienced attorney review your personal situation to see if you truly meet those circumstances.

If you need a New Jersey bankruptcy attorney to help determine whether your income tax debt is dischargeable in bankruptcy, schedule a telephone consultation with attorney Jennifer Weil online at this Setmore page, or by calling (201) 676-0722.

Photo by StockMonkeys.com.

Taxes and bankruptcy – debunking a myth

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2334280048_61c3a13b9a_zLots of people think, “bankruptcy can’t help me with my tax debt.”

Lumping tax debts in with child support and alimony—which indeed cannot be legally written off, or discharged—is wrong. But taxes and bankruptcy can be confusing, because these are complicated areas of law.

The fact is that bankruptcy can discharge taxes of many types and in many situations. Sometimes ALL of a taxpayer’s taxes can be discharged, or most of them. But there ARE significant limitations.

Even if you cannot discharge your taxes in bankruptcy, filing a bankruptcy case can still help by:

1. Keeping the taxing authorities from garnishing your wages and bank accounts, and from “levying on” (seizing) your personal and business assets.

2. Stopping them from filing tax liens and from piling on greater penalties and interest.

3. Avoiding monthly tax payments, all the while penalties and interest continue to accrue.

Overall, bankruptcy gives you breathing room from your creditors, including the IRS, or the state or local taxing authority, that you can’t get any other way. It gives you a lot more control over a very powerful class of creditors. And your tax problems are resolved as part of your whole financial package, so you don’t find yourself working hard to deal with your taxes while worrying about being blindsided by other creditors.

If you have tax debt or any other kind of unmanageable debt, call me for a consultation: (201) 676-0722, or email me at weilattorney@gmail.com.

 

Photo credit: Liquidnight

“Automatic” Protection from Your Creditors

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9301721438_21b25771be_z“Automatic” protection from your creditors is what you get as soon as you file for bankruptcy.

Many bankruptcy attorney ads say: “Stop garnishments.” “Stop foreclosures.” “Stop repossessions.” So bankruptcy stops all those bad things. But is it as good as it sounds? How does it really work?

The most basic protection that bankruptcy provides is the immediate protection that it gives you, your paycheck, your home, and your possessions. You get this protection the minute a bankruptcy is filed for you. Other than some rare exceptions, all collection efforts by creditors against you or your property must come to an immediate stop. You’ll hear this referred to as the “automatic stay.”

“Stay” is just a legal word for “stop” or “freeze.” “Automatic” means that this “stay” goes into effect right when your bankruptcy petition gets filed. That filing itself “operates as a stay” of virtually all creditors’ actions to pursue a debt or grab collateral.

But your creditors need to know that you filed for bankruptcy so that they can abide by the stay. If your creditors are all listed in your bankruptcy paperwork, they should all get informed by the bankruptcy court within about a week or so after your case is filed, without any additional action by either you or your attorney. If you are not anticipating any action against you by any of your creditors sooner than that, usually letting the court inform them of your bankruptcy is good enough. But if do expect some quick creditor action, be sure to talk with your attorney about it so you’re both on the same page about informing that creditor sooner.

But what if a creditor unexpectedly takes some action in the days after your bankruptcy is filed but before it finds out about it? The automatic stay is so powerful that if this does happen, the creditor must undo whatever action it took against you, even if it did not know about your bankruptcy filing. So if after your bankruptcy is filed, a creditor, for example, files a lawsuit against you or turns its earlier lawsuit into a judgment, that lawsuit must be dismissed or the judgment must be set aside.

If you are in New Jersey and you are having problems with debt, call me at (201) 676-0722 for a consultation, or email me at weilattorney@gmail.com.

Photo credit: Next TwentyEight

THE Goal of Bankruptcy: Discharge of Your Debts

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5708755837_b5af43415d_zMost, but not all, debts are written off, or “discharged,” in a bankruptcy case. Is there a simple way to know what will and what will not be discharged in a Chapter 7 bankruptcy?

No, not really.

I can give you a list of the categories of debts that can’t, or might not, be discharged, but some of those categories don’t have clear boundaries, and some depend on whether a creditor is going to challenge the discharge and how a judge might rule.

But why can’t it be simple? Here’s what you need to know:

1)  All debts are discharged, EXCEPT for those that fit within an exception.

2)  There ARE a lot of exceptions, BUT if you tell your attorney everything, you are likely to discover whether you have any debts that may not be discharged. Surprises are rare.

3)  Some debts are never discharged, NO MATTER WHAT: for example, child or spousal support, criminal fines and fees, and withholding taxes.

4)  Some debts are never discharged, but THAT’S ONLY IF the particular debt fits certain conditions: for example, income taxes, depending on conditions like how long ago the taxes were due and when the tax return was filed; and student loans, as long as conditions of “undue hardship” are not met.

5) Some debts are discharged, UNLESS timely challenged by the creditor and resulting in a ruling by the judge that the debt meets certain conditions involving fraud, misrepresentation, larceny, embezzlement, or intentional injury to person or property.

6)  A few debts (used to be many more) can’t be discharged in Chapter 7, BUT can be in Chapter 13: for example, divorce debts other than support.

The bad news: as simple as I would like to make it, determining what debts aren’t dischargeable isn’t simple. But there’s more good news than bad. First, for many people all the debts they want to discharge WILL be discharged. Second, an experienced bankruptcy attorney can predict which of your debts will be discharged. And third, if you have troublesome nondischargeable debts, Chapter 13 can be a decent way to keep those under control.

If you are in New Jersey and looking into bankruptcy, call Jennifer Weil now to schedule a consultation: (201) 676-0722.

 

Photo credit: Jason Meredith

Are student loans dischargeable in bankruptcy? 2 case studies

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In the past, I have mentioned the difficulty of getting student loans discharged in bankruptcy.  But I have yet to discuss why it is so difficult to get a bankruptcy court to discharge student loans.  In this post, I’ll examine the process through a recent case from Maryland where student loans were actually discharged in a bankruptcy and discuss why that case might be anomalous. In a nutshell, the Bankruptcy Code states that student loans are not dischargeable unless the debtor can show that repayment of the debt will cause an “undue hardship” on the debtor and his or her dependents.  The famous Brunner case set the test followed in most of the country, including New Jersey, for what constitutes an “undue hardship”:

1.  Whether the debtor will be unable to maintain a minimal standard of living, based on current income and expenses, if forced to repay the student loans;

2.  Whether additional circumstances exist indicating that this state of affairs is likely to persist for a significant part of the repayment period for the student loans; and

3.  Whether the debtor has made a good faith effort to repay the student loans.

Pa. Higher Educ. Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 304-305 (3d Cir. 1995) (quoting In re Brunner, 831 F.2d at 396).

In case you are thinking to yourself, “It’s an undue hardship for me to pay my student loans,” pause to consider the bankruptcy case, In re Brightful. Ms. Brightful filed for bankruptcy, asking to discharge her student loans. The bankruptcy court found that she had “glaring psychiatric problems” and was “emotionally unstable,” to the point that she had attempted suicide twice.  The court said she could not maintain a “minimal” standard of living and still pay her student loans.

But this was not enough – the court found that, under Brunner, she must prove “a total incapacity…in the future to pay [her] debts for reasons not within [her] control.”  The current inability to pay student loans is not the standard; instead, a discharge of student loans must be based on “the certainty of hopelessness… [emphasis added].”

On the other hand, we have the recent case from Maryland that I mentioned earlier, In re Todd, [citation].  Right away, we know this case is different because the judge quotes the Webster’s dictionary definitions of “undue” and “hardship,” adding that these terms do not suggest a standard that “no debtor can ever meet.” The debtor, Carol Todd, has a form of autism called Asperger’s Syndrome, in addition to post-traumatic stress disorder (PTSD) and osteoporosis.  The court described how Ms. Todd was unable to function normally due to all 3 of these conditions, but it focused on Asperger’s.

In all, Ms. Todd obtained 5 different higher education degrees and attended 5 different colleges, plus one online college. The court was influenced by Ms. Todd’s belief that she did not earn her degrees, but that they were negotiated for her by the Department of Education, which she said helped her to obtain accommodations. In a footnote, the court questioned the academic rigor of the programs that she attended. For a few years, Ms. Todd worked as an adjunct professor teaching classes, but she was not employed after that time. She had a total of about $340,000 in student loan debt.

In its analysis, the court determined that Ms. Todd’s situation met the “certainty of hopelessness” test due primarily to her autism/Asperger’s. Persuading the court was a doctor’s testimony showing that Ms. Todd could be a successful student, even be able to earn a Ph.D., but that she could not be a “productive” employee in the working world as we know it.

Reading the opinion I got the feeling that if only some basic supports were available to disabled, working adults, Carol Todd might have lost her student loan discharge case.  But the court was convinced of Ms. Todd’s inability to successfully hold employment, mainly because of her autism, which is the same condition that gave her the ability to focus on topics of interest for long enough to help her earn 5 college degrees.

Most bankruptcy student loan discharge cases are like the first case, In re Brightful – they harshly apply a harsh standard to the most difficult of circumstances, usually determining that the student loans in question are not dischargeable.  And the second case, In re Todd, is an outlier, because the judge was willing to focus on the long-term disabling aspects of autism/Asperger’s while at the same time discounting the debtor’s obvious abilities.

If you are having debt problems of any kind in New Jersey, even if it’s with student loan debt, call Jennifer N. Weil, Esq. for a consultation at (201) 676-0722.

Can you keep all of your stuff in bankruptcy?

Can you really keep everything you own all the way through bankruptcy?  You can usually keep items that you own outright (on which you do not owe any money) and you can usually keep those items on which you are making payments to a creditor (like your home or car), IF you can meet certain conditions. Most people who file for Ch. 7 bankruptcy can keep what they own because of laws known as “exemptions.”

Most people know that a they can get a discharge of debts in exchange for liquidating their assets – in other words, selling off your stuff.  BUT, don’t forget that you can keep whatever that the law protects. And MOST of the time, the law protects ALL of your stuff! So most people who file a Chapter 7 get a bankruptcy discharge without forking over any of their stuff.

“Exemptions” are listings of the types of stuff that the law protects from your creditors – these listings generally are found in statutes and they are generally limited by certain dollar amounts.  Exempt items are protected from the Chapter 7 trustee, who acts for the benefit of your creditors.

Exemptions can be complicated.  The Bankruptcy Code contains a set of federal exemptions and each state also has its own listings.  Some states, such as New Jersey, give you the choice to use either the federal or the state exemptions.  Other states only allow you to use the exemptions provided under state law.  If you have moved from another state fairly recently, you may have to use the exemption rules of your prior state.  Because each state’s rules can differ from one another, quite a bit of money might be at issue, depending on what day your bankruptcy is filed.

Once you know which set of exemptions you are going to use, it may not be crystal clear whether all of your stuff is protected. So deciding whether an item is exempt – protected – is often more complicated than scanning a list of exemptions and fitting all your assets in.  And what if you own one or more items that don’t fit any of the listed exemptions? Can the items be protected? These are all issues that you should discuss with a bankruptcy attorney before making any major decisions about your stuff.

Call (201) 676-0722 for a free New Jersey bankruptcy consultation.

An old debt isn’t on my credit report – do I still owe it?

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What does it mean when an old debt is not on your credit report? So, you just checked your credit report and you couldn’t find an old debt you know that you owed. Or, a debt collector just contacted you about an old student loan they say you still owe, but you checked your credit report and it’s not there. If it’s not on your credit report, you don’t owe it, right?

Wrong. There is no relationship between whether you owe a debt and whether that debt appears on your credit report.

A lot of people think differently. Many people believe that if a debt is no longer on their credit report, then it’s “stale” and they no longer owe it. Still others believe that if a debt was never on their credit report, it’s not a legitimate debt. Unfortunately, these things are not true.

Debts will only appear on a person’s credit report if the person or company the debt is owed to reports that debt to a credit reporting agency. There are many credit reporting agencies that serve many different purposes, but there are 3 main ones that most people are aware of.

These 3 main credit reporting agencies are TransUnion, Experian, and Equifax. They collect information that’s reported to them – information about you, about who your employer is, about whether there are any judgments against you, about your credit card accounts, and most of all, about the debts that you owe.

Bad debts are supposed to fall off your credit report after being on there for about 7-and-a-half years. That’s because of a rule about how credit reports work, it’s not because you don’t owe the debt. Who knows, you may or may not actually owe the bad debt, but the fact that it’s no longer on your credit report isn’t a factor in the question of, “Do I owe it or not?”

Fact is, lots of credit reports are messed up. Many of them have disputed debts on there and many have just flat-out wrong information. So you can’t really rely on a credit report as authority for anything. Unfortunately, many people who are in the business of checking your credit do rely on these reports. That’s why it’s so important to check your own credit report at least once a year to make sure everything is correct and to send letters when it’s incorrect.

Even many bankruptcy attorneys use a client’s credit report to help them find out what debts they owe. That’s fine, so long as the bankruptcy attorney asks about debts that may not appear on the credit report and goes over the whole list of debts with their client.

If you have debt problems or questions, give me a call at (201) 676-0722 for a telephone consultation.

 

Bankruptcy helps avoid tax due on forgiven debt

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Introduction

Discovering that a debt, such as credit card balances, has been forgiven can be both a relief and a potential tax concern. The IRS terms this forgiven debt as “canceled debt” or “forgiveness of debt income.” Understanding the implications and exploring viable solutions is crucial to managing your financial landscape effectively.

Identifying Canceled Debt with Form 1099-C

Receiving a Form 1099-C, titled “Cancellation of Debt,” signals that one of your debts has been forgiven. The IRS mandates reporting the canceled debt amount on your annual tax return. This document serves as a key indicator that you need to be vigilant about your tax obligations.

Not All Canceled Debt Equals Immediate Tax Liability

While the arrival of a 1099-C might suggest additional income, it doesn’t automatically translate into owing more taxes. Various exceptions and exclusions exist, offering potential relief from counting canceled debt as income. Bankruptcy stands out as a powerful method to exclude this “extra income,” but timing is crucial – filing for bankruptcy must precede the debt cancellation.

Risk Factors of Canceled Debt: Debt Settlement and Negotiation

Debt settlement or negotiation poses a high risk of triggering canceled debt and, subsequently, a 1099-C. Engaging with companies that promise to eliminate your debt at a fraction of the cost or negotiating debt independently may lead to a canceled debt scenario. This realization underscores the importance of considering bankruptcy over debt settlement.

Bankruptcy as a Shield Against Tax Implications

Opting for bankruptcy instead of debt settlement emerges as a strategic move to shield yourself from potential tax liabilities. A bankruptcy consultation provides an opportunity to explore both bankruptcy and non-bankruptcy options, allowing you to make an informed decision aligned with your financial goals. There is more detailed information about cancellation of debt income and how the IRS views it on the IRS website.

Conclusion

In the realm of canceled debt and potential tax consequences, bankruptcy emerges as a reliable shield. It not only excludes canceled debt from taxable income but also offers a comprehensive approach to managing financial challenges. Consider a bankruptcy consultation to navigate your options wisely, ensuring a strategic and informed decision-making process. When was the last time a debt settlement company provided such a holistic perspective? [Answer: Never]

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