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4 years 5 months ago

divorce, divorce Once your Chapter 13 has been confirmed you have a sense of relief because your financial chaos is finally under control. Your home is secure, your vehicles are secure.  You're feeling pretty good about life, as you should. 
In your Chapter 13 you have between 3 years and 5 years to make your plan payments before your case is discharged.  Often the stress and strain of finances puts a tremendous strain on relationships and marriages end in divorce. When a couple decides to end their marriage their Chapter 13 bankruptcy case is generally the last thing they are concerned with. It isn’t until the divorce lawyer brings up the division of assets and debts that this issue is addressed. A pending divorce unfortunately, can create a conflict of interest for your bankruptcy attorney.  Your bankruptcy attorney represents you as a couple and it becomes difficult to navigate a case when the parties involved are no longer on the same page. In some situations your bankruptcy attorney will be forced to withdraw from the case in order to allow both parties involved to be properly represented. It is important when the divorce is amicable for both people to visit their bankruptcy attorney together in order to discuss options.
Often couples who find themselves on the verge of divorce will opt to remain in their Chapter 13 bankruptcy and continue to get through it together. Other times, however, they will choose to dismiss their case in order to make decisions based on their new situation. Regardless of how complicated or uncomplicated your divorce may be, it's very important that you make an appointment with your bankruptcy attorney.  Divorce can create havoc in your life and you want to make sure your financial situation remains under control, regardless of the new challenges facing you.


4 years 5 months ago

Divorce.jpgA recent ruling by the Nebraska Bankruptcy Court underscores one of the primary differences between the treatment of divorce debts in Chapter 7 and Chapter 13 cases.  (See In re Schulz, Nebraska Adversary Case #12-04070).
On August 30, 2011, the District Court for Buffalo County, Nebraska entered a divorce decree that included a division of marital property and debts requiring Cynthia Shultz to pay her ex-husband $25,000.  One year later Ms. Schultz filed Chapter 13 bankruptcy.  Although Mr. Shultz filed an unsecured Proof of Claim for $24,104.27, he failed to object to the Chapter 13 plan which was eventually confirmed by the Court on June 5, 2012.
Following confirmation of the plan, Ms. Shultz filed an Adversary Proceeding to seek a determination that the property settlement agreement was dischargeable upon completion of the payment plan.   Both parties agreed that the $25,000 debt was property settlement and not intended for support of Mr. Shultz.  Although Mr. Shultz argued that his ex-wife had the ability to pay the debt and that the harm to him caused by a discharge of the debt would outweigh the benefit of the discharge to his ex-wife, the bankruptcy court was compelled to rule in favor of the debtor.  Since enactment of the bankruptcy reform act of 2005, bankruptcy courts no longer conduct a “balancing test” to determine if property settlement agreements are dischargeable in Chapter 13.  They just plain are discharged every time as long as a debtor successfully completes the payment plan. 

The real issue in Chapter 13 cases since 2005 is to determine whether a provision in a divorce decree is in fact a property settlement provision or a support provision. Importantly, this issue only pertains to Chapter 13 cases. 

In chapter 7 cases neither property settlement nor support obligations are dischargeable in bankruptcy.  So, the challenge of the bankruptcy attorney in Chapter 13 cases is to characterize the relevant divorce decree provision.
Courts look at several factors when determining whether a provision is a Support provision or a Property Settlement provision:

  1. Labels in the Divorce Decree:  Although the bankruptcy court can look beyond the labels contained in a divorce decree to determine the true nature of a provision, labels do matter.  A thing tends to be what it says it is.
  2. Income Needs of the Parties:  The bankruptcy court will look to see if the party receiving the settlement was in need of the funds to meet basic living expenses at the time the divorce decree was entered.
  3. Analysis of Property Divided: The bankruptcy court will review the property divided prior to the entry of the divorce decree and will consider the nature of the property divided.  For example, the division of the sales proceeds of a yacht is probably more in the nature of a property settlement than an award of a10-year old minivan.
  4. Does the obligation to pay terminate upon remarriage or the emancipation of a child?  If so the provision tends to be considered a support payment.
  5. Number of Payments:  If the amount to be paid is in a lump-sum or in a few large payments, it tends to be considered property settlement.  Smaller payments spread out over a longer period of time are usually deemed support.

            Divorce attorneys need to pay particular attention when the ex-spouse of their client files bankruptcy. If a chapter 7 case is filed the divorce decree is generally secure.  However, if the ex-spouse files a Chapter 13 a Red Alert should be sounded.  Important consideration must be paid to how a proof of claim is filed and the relevant deadlines to challenge confirmation of the plan and the deadline to object to the dischargeability of the divorce decree obligation. 


            3 years 9 months ago

            Normally, you can file bankruptcy without ever stepping in a court room.  Without question you will have to attend a meeting with the bankruptcy trustee, but this isn't a court proceeding and no judgments can be made at this meeting.  Everyone who files bankruptcy, whether chapter 7 or chapter 13, has to attend this meeting with his or her attorney.  It is simply a chance for the trustee to ask you a few questions under oath regarding the truthfulness of your bankruptcy paperwork.  For chapter 13 filers, a confirmation hearing with the judge is scheduled to occur about a month after the trustee meeting, but many times this hearing can be avoided if your attorney is able to work with the trustee on any concerns the trustee may have with the Chapter 13 Plan.  There are other instances, mostly in chapter 13 cases, where you could possibly need to attend a court hearing.  But for the average chapter 7 or chapter 13 filer, you will never have to appear in court.  Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.


            4 years 5 months ago

            Question mark
            Marco Bellucci / Foter / CC BY

            Q:  I want to file Chapter 7 bankruptcy and I should qualify because I don’t own anything, right?  The only thing I have is my car and my house.  I would pay all my bills now but I’m waiting on a lawsuit settlement that hasn’t come in yet.  –Amanda P.
            A:  Ah….the old “I don’t own anything” scenario.  I hear this one a lot.  Let’s break down the question.
            First, qualification for filing Chapter 7 depends largely upon your income and the result of the Chapter 7 Means Test.  The amount of debt you have and the amount of property you have are not factors in determining your eligibility to get into a Chapter 7, however, they may be factors in determining whether you want to file Chapter 7.
            Next, if you truly don’t own anything, you would not be following up that statement with “the only thing I have is..”.  Owning a house or a car doesn’t automatically disqualify you from filing a Chapter 7, however, you must disclose these things to your attorney even if you don’t think they are worth a lot.  The attorney can make the determination whether anything you own, big or small, would be an asset and whether that asset can be protected in a Chapter 7.
            Finally, some things that you don’t think are assets must be disclosed as assets on your bankruptcy petition.  Things like lawsuit proceeds you may receive in the future, money someone owes you or inheritances can be considered assets that may need to be disclosed.
            Remember, just because you tell your attorney about something you have, that doesn’t mean you would lose that in a Chapter 7, however, not disclosing it could mean the attorney would not do what is necessary to protect the property.


            4 years 5 months ago

            Question mark
            Marco Bellucci / Foter / CC BY

            Q:  I want to file Chapter 7 bankruptcy and I should qualify because I don’t own anything, right?  The only thing I have is my car and my house.  I would pay all my bills now but I’m waiting on a lawsuit settlement that hasn’t come in yet.  –Amanda P.
            A:  Ah….the old “I don’t own anything” scenario.  I hear this one a lot.  Let’s break down the question.
            First, qualification for filing Chapter 7 depends largely upon your income and the result of the Chapter 7 Means Test.  The amount of debt you have and the amount of property you have are not factors in determining your eligibility to get into a Chapter 7, however, they may be factors in determining whether you want to file Chapter 7.
            Next, if you truly don’t own anything, you would not be following up that statement with “the only thing I have is..”.  Owning a house or a car doesn’t automatically disqualify you from filing a Chapter 7, however, you must disclose these things to your attorney even if you don’t think they are worth a lot.  The attorney can make the determination whether anything you own, big or small, would be an asset and whether that asset can be protected in a Chapter 7.
            Finally, some things that you don’t think are assets must be disclosed as assets on your bankruptcy petition.  Things like lawsuit proceeds you may receive in the future, money someone owes you or inheritances can be considered assets that may need to be disclosed.
            Remember, just because you tell your attorney about something you have, that doesn’t mean you would lose that in a Chapter 7, however, not disclosing it could mean the attorney would not do what is necessary to protect the property.


            4 years 5 months ago

            The 2007 Mortgage Forgiveness Tax Relief Act expires December 31, 2012.   That’s one of the tax cuts, put in place when George Bush was president, that are about to expire.  This one may force more people to file bankruptcy.
            The Mortgage Forgiveness Tax Relief Act helped people whose houses lost value during the crisis to use short sale and avoid bankruptcy.  If it’s not extended, bankruptcy will be better.  Because of the “fiscal cliff,” it looks likely the Act will expire.
            What’s the fiscal cliff?
            In August 2011, Congress and the President set December 31 2012 as the deadline for sensible plan to reduce the federal deficit.  If no sensible plan can be worked out–drastic spending cuts and tax increases hit.  Those drastic changes are now called the fiscal cliff.   After 16 months, no sensible plan has yet gained support.  There are three weeks left.
            Since one of the goals of the fiscal cliff negotiations is to raise money, extending this tax break might be a hard sell.
            How Did the Mortgage  Forgiveness Tax Relief Act help people stay out of bankruptcy?
            The reason is taxes.  The general rule is that debt forgiveness is income.   A short sale is income.  And the income tax taxes income.
            Look at it this way.  Suppose you borrow $1000 from your boss.  Then the boss says you don’t have to pay him back.  That $1000 loan is changed into a $1000 bonus–and you owe taxes on that.
            The same rule applies in a short sale.  Bank of America lends you $400,000.  Then they say you only have to pay back $300,000.  Bank of America has given you a $100,000 “bonus”–you owe taxes on that $100,000.  (About $30,000 in taxes, depending.)  Unlike your boss, who might forgive a loan of $1000, Bank of America is sure to issue you a 1099-C after the short sale.   So the IRS KNOWS $100,000 in debt was forgiven.
            (This same problem comes up when people negotiate a settlement with their credit cards.  People who don’t know about debt forgiveness tax are blindsided when they get a bill from the IRS.)


            Here's a 1099-C, telling you and the IRS that debt has been cancelled. Cancellation of debt is "income." And the income tax is a tax on income.

            The Mortgage Forgiveness Tax Relief Act said you don’t have taxes on money forgiven in a short sale–from 2007 to 2012.  That means a homeowner who got approved for a $300,000 short sale on the $400,000 mortgage could walk away clean.  (The Act only applied to your residence–short sale on investment property was still taxed.)  Starting January, unless the law is extended, there would be about a $30,000 tax on the short sale.  Ouch!
            How does bankruptcy come in?
            There’s no debt forgiveness tax on debts wiped out in a bankruptcy.  So one way for our homeowner to avoid a tax on that $100,000 is to file bankruptcy.  Then after the bankruptcy, the homeowner can still do the short sale; of just let the bank foreclose.  Either way, no debt forgiveness tax.
            Are there other ways to avoid tax on a short sale?
            There’s one.  If you are “insolvent”–meaning hopelessly in debt–then the tax is forgiven.  Your accountant can help you with that.  Starting 2013, if you are looking to do a short sale, and you don’t want to do a bankruptcy, you need to talk very carefully with a CPA or other tax adviser  to see if you can afford to pay, or can avoid, the tax on the debt forgiveness income.
            You may also want to talk to a bankruptcy lawyer.
             
             
             


            3 years 9 months ago

            Bankruptcy attorneys most often charge an up-front, flat fee.  In fact, it may even be unlawful for a bankruptcy attorney to collect money from you after the filing of the bankruptcy since even the bankruptcy attorney can be forbidden by the bankruptcy to collect on monies owed once the case is filed.  It is common for bankruptcy filers to get help with the cost from friends or family, or to to save up for the cost by stopping payments on debts that will soon be eliminated through the bankruptcy.  It is also common for bankruptcy filers to use their tax refund money to pay for the bankruptcy.    Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.


            3 years 9 months ago

            If you file bankruptcy in Utah, you will not lose your retirement or 401k account in bankruptcy.  Retirement accounts are exempt from liquidation under Utah's exemption law, which means that the bankruptcy trustee may not take that money from you.  However, you should not try to deposit a large amount of money into your retirement account before filing, since it is possible for a trustee to take that amount.  Be sure to consult a bankruptcy attorney before putting in or taking out money from your retirement account prior to filing for bankruptcy.Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.


            4 years 5 months ago

            A Tenancy by the Entirety (TBE) is a form of property ownership in Missouri, and a few other states, reserved for married couples.  Missouri recognizes TBE ownership in both real and personal property.  Property owned as tenants by the entirety belongs to the marriage, which means that both husband and wife own the property as [...]


            4 years 5 months ago

            A mortgage foreclosure may also have federal income tax consequences. One issue is "discharge of indebtedness income." This can be understood as the IRS's attempt to tax you on money you were loaned but are not going to repay. The mortgage lender may be required to report the amount of the cancelled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Fortunately though there are various exceptions to this rule and even a recently added exception.

            One of the exceptions to discharge of indebtedness income is if the mortgage debt is discharged in bankruptcy, including under chapter 7 or under chapter 13. In order to take advantage of this exception, it may be important to file for bankruptcy before the foreclosure sale.

            Another exception to discharge of indebtedness income is the insolvency exception. That means if you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. Insolvency generally means that your total debts are more than the fair market value of your total assets.

            The new exception if the Mortgage Forgiveness Debt Relief Act of 2007 which generally allows people to exclude certain discharge of indebtedness from the foreclosure or mortgage restructuring on their principal residence. This new provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

            An applicable form is Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983


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