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Several bankruptcy options may be available to debtors in California. Depending on your disposable income and your reasons for declaring bankruptcy, it may make the most financial sense to file Chapter 7, Chapter 13, or in rare cases, Chapter 11. Our Roseville bankruptcy attorneys compare the different types of bankruptcy and explain how each works. When you contact our law offices for your free consultation, we can help you decide which bankruptcy chapter is right for your needs.
Options for Filing for Bankruptcy in California
There are many different types or “chapters” of bankruptcy, each named after its corresponding chapter in the U.S. Bankruptcy Code. While debtors have some flexibility when choosing which chapter to file under, the choice can be limited by means testing, a process that measures a debtor’s disposable income to determine whether he or she has adequate income to cover a Chapter 13 plan. The Chapter 13 plan, and other important aspects of Chapter 13, 7, and 11, are explained in the sections below.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also called “straight bankruptcy” or “ordinary bankruptcy” because it is the simplest, fastest, and most commonly used type of bankruptcy, not only in California but nationwide. According to U.S. Bankruptcy Court for the Eastern District of California, which has jurisdiction over Placer and Sacramento Counties (among many others), nearly 15,000 people filed for Chapter 7 in 2015, with a peak of nearly 45,000 filings in 2010.
Chapter 7, which generally takes about four to six months to complete, is also called “liquidation” because of the process involved. When a debtor files for Chapter 7, his or her non-exempt assets are sold by a trustee to various creditors, which helps pay off the filer’s debts. Filers in California can choose between two sets of exemptions, which are simply named System 1 and System 2. Your Chapter 7 bankruptcy lawyer can evaluate which system of exemptions will protect more of your property.
After the trustee has distributed sale proceeds among the debtor’s creditors, the bankruptcy court grants the debtor a discharge. The discharge has the effect of eliminating the debtor’s liability for most of his or her debts. Debts that are discharged in Chapter 7 bankruptcy include medical debt, credit card, certain tax-related debts, and debt from personal loans. While the debts continue to exist, creditors can no longer pursue the debtor for repayment.
Chapter 13 Bankruptcy
Chapter 13 is also called “reorganization” bankruptcy, or a “wage earner’s plan.” That is because, unlike Chapter 7, Chapter 13 requires filers to propose a reorganization plan, which must be approved by the bankruptcy court before the case can continue. The debtor’s creditors may object to the initial proposal, which is one of the reasons it is important to be represented by an experienced Chapter 13 bankruptcy attorney.
The reorganization plan is a three- to five-year plan under which the debtor makes monthly payments on various debts. The nature of each debt determines the order in, and extent to which, debts must be paid off. All of the debtor’s disposable income, or income left over after necessary living expenses have been accounted for, must be funneled into the reorganization plan.
The benefit of the reorganization plan is that it allows the debtor to keep his or her property, even without exemptions. By filing Chapter 13, a debtor can protect his or her vehicle from repossession, and even save his or her home from being repossessed. In short, the plan gives the debtor extra time to catch up on missed payments.
As long as the debtor stays on track with the plan, he or she can retain property that would otherwise be seized or repossessed. If the debtor misses too many payments, he or she may be forced to convert the case into a Chapter 7 bankruptcy. Once the Chapter 13 plan has been completed successfully, the bankruptcy court will grant a discharge, and, as in Chapter 7, the debtor will no longer be liable for debts that were addressed by the plan.
Because of the reorganization plan, Chapter 13 is more suitable for debtors with higher income, whereas Chapter 7 is usually utilized by debtors who have fewer assets and resources to draw upon. Chapter 13 is fairly common, but less widely used than Chapter 7, with about 3,000 filings in 2015.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is typically used by businesses. Chapter 11 for individuals is exceedingly rare, with just over 50 filings documented in 2015, but occasionally proves to be the most sensible filing option for individual debtors.
Chapter 11 is a complex process, but may be the right filing option if you have too much income to file for Chapter 7, and too much debt to file for Chapter 13. The process is similar to Chapter 13, and may require several years for completion. Our Chapter 11 bankruptcy attorneys can assess your debt and income levels to determine whether Chapter 11 is the most appropriate chapter for you.
Roseville Bankruptcy Lawyers Handling Chapter 7, 13, and 11
Obtaining a discharge in Chapter 7, Chapter 13, or Chapter 11 depends on your ability to comply with court rules and federal bankruptcy regulations. If you fail to pay filing fees, fail to attend mandatory debtor education or credit counseling courses, attempt to conceal assets, or make any other errors, your case could be dismissed instead of discharged, which means you will still be liable for the debts you are trying to eliminate.
It is in your best interests to consult with an experienced California bankruptcy lawyer before making a decision about which chapter you should use. The Bankruptcy Law Group assists individual filers, married couples, and businesses with personal and business bankruptcy in the Roseville, Sacramento, and Folsom area. To set up a free legal consultation with a Folsom Chapter 11 attorney, Folsom Chapter 13 attorney, or Sacramento Chapter 7 lawyer, contact our law offices at (800) 920-5351 today.
The post The Types of Bankruptcy in California: Chapter 7, 11, and 13 appeared first on The Bankruptcy Group, P.C..
Unless you’re a debt lawyer, the interplay between bankruptcy and your income taxes can be confusing. However, it is important to understand how income tax debts and refunds impact your bankruptcy claim. A single mistake can be costly.
Chapter 7 Bankruptcy and Income Taxes
In a Chapter 7 bankruptcy, you can discharge some types of income tax debt. Tax debts are dischargeable if all of the following are true:
- The debt is for unpaid income taxes (not payroll taxes or fraud penalties),
- You did not file a fraudulent tax return or willfully evade a tax obligation,
- The debt is at least three years old,
- You filed the tax return at least two years ago, and
- You pass the “240-day rule.”
However, income tax liens cannot be discharged through bankruptcy.
Even if your tax debt cannot be discharged, Chapter 7 may still offer some benefits. For example:
- Chapter 7 will get rid of most of your other debt. This may leave you with more financial ability to pay off your tax debts through an IRS installment plan.
- If you have assets that are liquidated by a bankruptcy trustee, these proceeds can help pay off some of your tax debt.
While Chapter 7 bankruptcy has many benefits, it is not always the best solution. Before filing, speak with an experienced debt lawyer. A lawyer can help you understand your options, including Chapter 13 bankruptcy or an IRS installment plan.
Chapter 13 Bankruptcy and Income Taxes
If you have significant income tax debt that cannot be discharged, a Chapter 13 bankruptcy may be your best option. Under Chapter 13, your debt is restructured and you enter into a payment plan. Over a period of three to five years, you will pay off your debts, while keeping your house and other property.
With the help of a skilled debt lawyer, you may be able to negotiate a Chapter 13 payment plan that is more advantageous than the IRS’ repayment system. And, you may be able to stop tax liens, wage garnishment, and additional interest and fees when you file for bankruptcy.
Bankruptcy Stays and Tax Debt
When you file for bankruptcy, you should list the IRS and other tax agencies as creditors in your bankruptcy filing. Once a bankruptcy is filed, debt collectors (including tax agencies) must stop collection efforts. This automatic stay applies to both Chapter 7 and Chapter 13 proceedings.
However, the automatic stay does not stop a tax audit or prosecution for tax evasion or fraud. And, you still have an obligation to file tax returns. Finally, once your bankruptcy is completed, the IRS can restart collection activities on any remaining tax debts.
What Happens to my Tax Refund?
If you receive an income tax refund, it is considered an asset. Your bankruptcy trustee can take any part of your tax return that is not exempt. Depending on your financial resources and where you live, all or most of your income tax refund may be exempt.
Income Tax Strategies
A debt lawyer can help you implement strategies that protect your assets and discharge most of your debts. For example:
- Once you file for bankruptcy, try to avoid tax refunds by reducing your withholdings,
- If you are anticipating a large income tax return, consider filing a partial-year return before you file for bankruptcy, and
- Hold off on bankruptcy until most of your tax debt is dischargeable.
An experienced debt lawyer can help you understand these strategies and incorporate them (and others) into a comprehensive debt solution.
Speak With a Debt Lawyer Today
Without the guidance of a debt lawyer, you may make costly mistakes in your bankruptcy filing. At the Northwest Debt Relief Law Firm, we provide our clients with customized debt reduction strategies and compassionate, detail-oriented advice. Contact us for a consultation today.
The original post is titled Debt Lawyer: What Happens to Income Taxes in Bankruptcy? , and it came from Portland Bankruptcy Attorney | Northwest Debt Relief .
Unless you’re a debt lawyer, the interplay between bankruptcy and your income taxes can be confusing. However, it is important to understand how income tax debts and refunds impact your bankruptcy claim. A single mistake can be costly.
Chapter 7 Bankruptcy and Income Taxes
In a Chapter 7 bankruptcy, you can discharge some types of income tax debt. Tax debts are dischargeable if all of the following are true:
- The debt is for unpaid income taxes (not payroll taxes or fraud penalties),
- You did not file a fraudulent tax return or willfully evade a tax obligation,
- The debt is at least three years old,
- You filed the tax return at least two years ago, and
- You pass the “240-day rule.”
However, income tax liens cannot be discharged through bankruptcy.
Even if your tax debt cannot be discharged, Chapter 7 may still offer some benefits. For example:
- Chapter 7 will get rid of most of your other debt. This may leave you with more financial ability to pay off your tax debts through an IRS installment plan.
- If you have assets that are liquidated by a bankruptcy trustee, these proceeds can help pay off some of your tax debt.
While Chapter 7 bankruptcy has many benefits, it is not always the best solution. Before filing, speak with an experienced debt lawyer. A lawyer can help you understand your options, including Chapter 13 bankruptcy or an IRS installment plan.
Chapter 13 Bankruptcy and Income Taxes
If you have significant income tax debt that cannot be discharged, a Chapter 13 bankruptcy may be your best option. Under Chapter 13, your debt is restructured and you enter into a payment plan. Over a period of three to five years, you will pay off your debts, while keeping your house and other property.
With the help of a skilled debt lawyer, you may be able to negotiate a Chapter 13 payment plan that is more advantageous than the IRS’ repayment system. And, you may be able to stop tax liens, wage garnishment, and additional interest and fees when you file for bankruptcy.
Bankruptcy Stays and Tax Debt
When you file for bankruptcy, you should list the IRS and other tax agencies as creditors in your bankruptcy filing. Once a bankruptcy is filed, debt collectors (including tax agencies) must stop collection efforts. This automatic stay applies to both Chapter 7 and Chapter 13 proceedings.
However, the automatic stay does not stop a tax audit or prosecution for tax evasion or fraud. And, you still have an obligation to file tax returns. Finally, once your bankruptcy is completed, the IRS can restart collection activities on any remaining tax debts.
What Happens to my Tax Refund?
If you receive an income tax refund, it is considered an asset. Your bankruptcy trustee can take any part of your tax return that is not exempt. Depending on your financial resources and where you live, all or most of your income tax refund may be exempt.
Income Tax Strategies
A debt lawyer can help you implement strategies that protect your assets and discharge most of your debts. For example:
- Once you file for bankruptcy, try to avoid tax refunds by reducing your withholdings,
- If you are anticipating a large income tax return, consider filing a partial-year return before you file for bankruptcy, and
- Hold off on bankruptcy until most of your tax debt is dischargeable.
An experienced debt lawyer can help you understand these strategies and incorporate them (and others) into a comprehensive debt solution.
Speak With a Debt Lawyer Today
Without the guidance of a debt lawyer, you may make costly mistakes in your bankruptcy filing. At the Northwest Debt Relief Law Firm, we provide our clients with customized debt reduction strategies and compassionate, detail-oriented advice. Contact us for a consultation today.
The post Debt Lawyer: What Happens to Income Taxes in Bankruptcy? appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
US Supreme Court
May 15, 2017: Resolving a split of circuits, the Supreme Court held 5/3 in Midland Funding LLC v. Johnson 6-348 (Sup. Ct. May 15, 2017) that a debt collector who files a stale claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable, or unfair conduct and thus does not violate the federal Fair Debt Collection Practices Act.
“Writing the opinion for the majority in favor of the debt collector, Justice Stephen G. Breyer said that the conclusion on one issue — false, deceptive or misleading — was “reasonably clear.” The second issue — unfair or unconscionable — presented a “closer question,” he said. The dissent replied that “Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts. This practice is both ‘unfair’ and ‘unconscionable.'”
Despite existing laws governing collection of debts Midland now opens the door for debt buyers to purchase claims that are far outside the deadline for collection (referred to as “stale claims”) for pennies on the dollar and file a proof of claim in a bankruptcy with the hope they will collect money in the bankruptcy. Why? Because trustees and debtors normally do not object to this type of claims. The Supreme Court seemed to think (wrongly in my opinion) that chapter 13 bankruptcy trustees review each and every claim in detail.
(History of Midland: In an action under the Fair Debt Collection Practices Act “FDCPA”, 15 U.S.C. sections 1692e and 1692f, arising out of a Chapter 13 bankruptcy case in which a creditor filed a claim asserting that debtor owed a credit-card debt and noting that the last time any charge appeared on debtor’s account was more than 10 years ago, which exceeded the 6-year statute of limitations. The US Supreme Court’s decision reverses the Eleventh Circuit Court of Appeals’ decision that the FDCPA applied to the case. Finding that the filing of a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the FDCPA.)
FEEDING FRENZY:
Arizona is going to see a flurry of debt buyers suing on “old debt” outside the six year statute of limitations because of this case:
MERTOLA, LLC, v. SANTOS, No. 1 CA-CV 16-0168 (AZ Court of Appeals, Division 1,Decided: March 02, 2017) “We hold in this case that, absent agreement to the contrary, a cardholder’s failure to make a minimum monthly credit-card payment does not trigger the statute of limitations on a claim for the entire unpaid balance on the account. Absent contrary terms in the account agreement, the lender’s claim for the balance does not accrue, and limitations does not begin to run, until the lender accelerates the debt or otherwise demands payment in full.”
So why the hubbub about these stale debts?
If you read Midland and Mertola together it appears debt buyers can purchase and try to collect on debts that are very, very old because the creditor never accelerated the loan by calling it all due and payable (in writing). Now the Supreme Court opened the door for debt collectors/buyers to file proof of claims for debts never accelerated (Arizona) and/or stale with the hopes of collecting in a bankruptcy.
Note – remember the statute of limitations is an affirmative defense.
Supreme Court gives debt collectors more power.
My concern – in a non-Arizona accelerated situation, normally a debt becomes uncollectable once the applicable statute of limitations expires; only to be reborn if the borrowers make any payment on the debt. Therefore, under Midland, if the creditor, debt collector or buyer receives just one cent from the bankruptcy claim the debt is reborn and, if the bankruptcy is dismissed (not discharged) that will give the creditor or debt collector the right to sue and collect on the original debt, plus all contractual interest and penalties.
Future business for creditors
I predict that all creditors will set up their own subsidiaries to “buy” stale debts (some have already done so). For Arizona residents those creditors will let the debt sit for decades and then pounce on the borrower when their finances have improved. Some of you believe that is only fair “after all they borrowed the money and should pay it back”. Others will feel that everyone has the right to move on with their lives and not suffer for mistakes or circumstances that happened decades earlier.
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About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. Diane is a retired professor of law teaching bankruptcy for more than 20 years. As a teacher she believes in offering everyone, not just her clients, advice about the Arizona bankruptcy laws. She is also a mentor to hundreds of Arizona attorneys. 
I would be flattered if you connected with me on GOOGLE+
*From Diane: This article/blog is available for educational purposes only and does not provide specific legal advice. By using this information, you agree there is no attorney client relationship between you and me, and that this information should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
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The post Supreme Court Finds Debt Buyers Free to Collect on Stale Debts appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
By Ben Leubsdorf
The total debt held by American households reached a record high in early 2017, exceeding its 2008 peak after years of retrenchment in the face of financial crisis, recession and modest economic growth.
The milestone, announced Wednesday by the Federal Reserve Bank of New York, was a long time coming.
Americans reduced their debts during and after the 2007-09 recession to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, looking at data back to the end of World War II, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.”
In the first quarter, total debt was up 14.1% from that low point as steady job gains, falling unemployment and continued economic growth boosted households’ income and willingness to borrow. The New York Fed report said total household debt rose by $149 billion in the first three months of 2017 compared with the prior quarter, or 1.2%, to a total of $12.725 trillion.
“Almost nine years later, household debt has finally exceeded its 2008 peak, but the debt and its borrowers look quite different today,” New York Fed economist Donghoon Lee said. He added, “This record debt level is neither a reason to celebrate nor a cause for alarm.”
The pace of new lending slowed from the strong fourth quarter. Mortgage balances rose 1.7% last quarter from the final three months of 2016, while home-equity lines of credit were down 3.6% in the first quarter. Automotive loans rose 0.9% and student loans climbed 2.6%. Credit-card debt fell 1.9%, and other types of debt were down 2.7% from the fourth quarter.
Americans' debt has returned to levels last seen before the recession in nominal terms, but the makeup of that debt has changed significantly. Change in total debt balance, by type, since its previous peak in 2008: The data weren’t adjusted for inflation, and household debt remains below past levels in relation to the size of the overall U.S. economy.
In the first quarter, total debt was 66.9% of nominal gross domestic product versus 85.4% of GDP in the third quarter of 2008. Balance sheets look different now, with less housing-related debt and more student and auto loans. As of the first quarter, 67.8% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were 73.3% of total debt. Student loans rose from 4.8% to 10.6% of total indebtedness, and auto loans went from 6.4% to 9.2%.
Mortgages continue to account for the majority of overall U.S. household debt, though student and auto loans represent a growing share of the total. Mortgage lending to subprime borrowers has dwindled since the housing crisis in favor of loans to consumers considered more likely to repay. In the first quarter, borrowers with credit scores under 620 accounted for 3.6% of mortgage originations, compared with 15.2% a decade earlier. Borrowers with credit scores of 760 or higher were 60.9% of originations last quarter, versus 23.9% in the first quarter of 2007. Auto loans have remained relatively available to subprime borrowers, helping fuel the record vehicle sales of recent years as interest rates have been low. Some 19.6% of auto-loan originations last quarter went to borrowers with credit scores below 620, down from 29.6% a decade earlier. The median credit score for auto-loan originations in the first quarter was 706, compared with 764 for mortgage originations.
The share of debt considered seriously delinquent — at least 90 days late — is down from recession-era levels, but varies widely by type of loan. Some 4.8% of outstanding debt was delinquent at the end of the first quarter, little changed from late 2016, with 3.4% at least 90 days late, known as seriously delinquent. Seriously delinquent rates have climbed recently for credit-card debt, 7.5% in the first quarter, and auto loans, 3.8% last quarter, and remained high—11% last quarter— for student loans, according to Wednesday’s report.
Copyright 2017 Dow Jones & Company, Inc. All rights reserved.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
In a recent decision, the Bankruptcy Appellate Panel of the Sixth Circuit (the “Court”) considered the issue of asset “abandonment” in a Chapter 7 case[1]. The Court reversed the bankruptcy court’s decision to allow the Chapter 7 trustee to compromise a claim that the debtor argued the trustee had abandoned. [1] In re: Wayne L. Wright, Docket No. 16-8019 (6th Cir. BAP, April 17, 2017). Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
In a recent decision, the Bankruptcy Appellate Panel of the Sixth Circuit (the “Court”) considered the issue of asset “abandonment” in a Chapter 7 case[1]. The Court reversed the bankruptcy court’s decision to allow the Chapter 7 trustee to compromise a claim that the debtor argued the trustee had abandoned. [1] In re: Wayne L. Wright, Docket No. 16-8019 (6th Cir. BAP, April 17, 2017). Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
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