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Chapter 13 bankruptcy is often used to save a person's home from foreclosure. Under chapter 13, you are allowed to stop the mortgage foreclosure case and catch your mortgage up-to-date. The chapter 13 plan usually involves paying off the mortgage arrearage over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage payments.
If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage. For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $299,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the chapter 13 plan (and related section 506 motion) may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend like the credit cards receive -- typically around five cents on the dollar.
A certified copy of the order avoiding the second mortgage may be recorded in the county public records to document that the second mortgage is void.Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
Nobody looks forward to filing bankruptcy. Most would say there is never a good time to need to file bankruptcy. Some times are better than others. A better time to file the bankruptcy is after you receive the refund.
Tax Refunds are not safe in Arizona Bankruptcy
A tax refund owed to you is not protected when you file bankruptcy. The bankruptcy trustee will require that you give him the check. You run the risk of losing the benefit of filing the bankruptcy if you do not cooperate in giving up the refund check.
There is an easy way around this.
The key element is whether or not the IRS owes you the refund when you file the bankruptcy. If you have not received it yet, it is owed. The trustee then has a right to take it from you once you receive it.
So long as it is practical for you to delay filing your bankruptcy until after you have received the tax refund, it won’t be owed to you when you file your case. The trustee cannot require that you hand over that money.
The reason the trustee can take the money if it is still owed to you is because it is not one of the things that the law allows you to protect. When Congress wrote the bankruptcy code it allowed each state to create a list of things that cannot be taken by bankruptcy trustees or creditors. These laws are called exemptions. The items on the list are “exempt” from being taken by a creditor or bankruptcy trustee.
Arizona’s list of exemptions does not allow you to protect your tax refund.
Easy to protect tax refund money
The easy way to deal with this is to spend the refund before you file your bankruptcy. It is okay to spend it on almost anything. It would be smart to spend it on services that you need or things that are also protected when you file your bankruptcy. For example, using the refund for needed medical or dental care, car repairs, home maintenance are all fine. Many people use tax refunds to pay for the bankruptcy.
What can cause problems is using the money to pay debts. The money used to pay a debt before filing bankruptcy can be collected from the person you paid it to by the bankruptcy trustee. One of the worse things a tax refund could be used for is to repay a family member. If you are not able to settle the matter, the trustee has a right to sue your family member to get the money back.
Phoenix Bankruptcy Attorney can help
There is no need to turn a good thing – a large tax refund—into a serious problem. There are legal and ethical ways to protect the benefits of the refund and put an end to the overwhelming debt that is causing the stress in your life. Bankruptcy law is about more than eliminating debt. Protecting what you have and what is owed to you is an important part, too.
Original article: How to Protect Your Tax Refund in Arizona Bankruptcy©2013 Arizona Bankruptcy Lawyer. All Rights Reserved.The post How to Protect Your Tax Refund in Arizona Bankruptcy appeared first on Arizona Bankruptcy Lawyer.
Typically the filing of a bankruptcy, whether it be a chapter 7 or a chapter 13 eliminates any type of tax liability with regard to the discharged debt. You might find that a creditor will send you a 1099C at some point after you file for bankruptcy. However, if you contact your accountant or your CPA or your tax preparer, they will likely advise you that the debt does not have to be or that the tax on the debt does not have to be included in your taxable income because you eliminated it in your bankruptcy case. Many creditors will simply send those statements not knowing whether or not you have filed for bankruptcy and not really caring what the tax consequences are. It’s almost a routine motion that some creditors go through with regard to issuing 1099C’s.
You, however, should rest assured that filing a bankruptcy will eliminate the debt and it will eliminate the tax ramifications concerning your debt. If you have any questions at all, contact your attorney, your accountant, your CPA or your tax preparer.
Now, if you don’t file for bankruptcy and there is a surrender or a cancellation of the debt, then you are responsible for the tax on that. In that case, you must include that taxable portion in your income and pay income taxes on it. So filing bankruptcy might be the best way not only to get out of debt but to eliminate the tax debt that corresponds to any kind of cancellation of debt by either a mortgage company, a finance company or any other creditor.
As with any type of tax issue, it is best to consult with a tax professional so that you get the best possible advice available. If you do not have a tax professional, contact your attorney who should be able to make a recommendation for you.
Typically, your neighbor will not find out that you filed for any type of bankruptcy protection. Although bankruptcy is public record, it is not widely published in any newspaper. It is found online and somebody who wants to search the Clerk of the United States Bankruptcy Court website could find out whether or not you have ever filed for bankruptcy. However, the likelihood of one of your neighbors out of the blue contacting the Bankruptcy Court website and searching around for your name is very rare.
You should rest assured that filing bankruptcy is your federal right. It is protection. It is your right under the Constitution to either get a fresh start or to repay your debt over time. Bankruptcy filing has led to such wonderful results for people. It has taken people who are thousands of dollars in debt, struggling for year after year after year, subject to bank garnishments, wage garnishment, creditor harassment, and turn their whole situation around by simply filing for bankruptcy through a licensed attorney in their local area.
Under chapter 7, you get a fresh start. Don’t worry if your neighbor is going to find out. They are typically not going to do so. And if they do, you should hold your head up high that you fell into a situation but you rectified it and you took advantage of existing federal laws to turn your situation around. Under chapter 13, you might be saving your home from foreclosure. Again, you should not be embarrassed about your elected to go for your federal right to save your home from foreclosure. You have the ability to reorganize over a three to five-year payment plan. By saving your home, you are actually helping your neighborhood. And helping your neighbors increase the value of their property so that your neighborhood doesn’t become a blight area.
So typically, no one will find out about your bankruptcy unless you want them to know.
You must list everybody that you owe and everything that you own on a bankruptcy petition. It doesn’t matter if the item is paid in full or if there’s money owed on it or if you have a partial interest, if you have any interest or owe any money or even if it’s paid, you must list all of your property.
There are a couple important schedules with regard to property. The first important schedule is Schedule A which deals with real estate. You must list all of the real estate that you own, either entirely or partially, owned outright or not, in your name anywhere in the world. This means that if you have a house in one state and you have a vacation home somewhere else or even a timeshare that can be used anywhere in the world, you must list those items.
Secondly, Schedule B talks about all of your personal property. You must list bank accounts, furniture, vehicles, retirement accounts, stocks, and bonds, anything else that produces income for you. You must disclose whether or not you have a personal injury case pending, whether it be for Worker’s Comp or for straight injury. You must list everything that you owe in your petition. There’s even a catchall section called Other which lists all other personal property that wasn’t previously asked about. So there is no way to avoid listing everybody that you owe money to on your petition.
Some people think because they have a paid off vehicle, they don’t need to listed. This couldn’t be farther from the truth. Some people think that because the property is being held by a family member, they don’t need to list it. This also couldn’t be farther from the truth. You must list every single piece of property that you own whether it be real estate or otherwise and you must disclose every interest in any property wherever held in the world.
A common concern for debtors that are considering filing for bankruptcy is whether or not they are going to lose their vehicle if they file a bankruptcy. The answer to this question depends on several factors so it would be in your best interest, if this is a concern of yours, to consult a bankruptcy [...]
It’s that time again. Time to explain why filing personal bankruptcy can provide enormous tax savings. Every year, several of our bankruptcy clients contact us in January or February because they have received a 1099-C form filed with the IRS by one of their former creditors. In case you don’t know, debts that are “canceled” or “forgiven” by a creditor may in some cases be treated as though you received that amount as taxable income under IRS rules. While this may seem inherently unfair to the ordinary person who receives a 1099-C—after all, she didn’t actually receive any income—the law can in many circumstances nevertheless treat the benefit she received by not having to pay that “canceled” debt as though it were taxable income.
By far the best protection from 1099-C liability, and the one I want to discuss here, is filing personal bankruptcy. If the reason that a given debt was “canceled” was because it was actually discharged in bankruptcy, then that debt is entirely excluded from one’s income, and there is no tax liability for such discharged debt. This is just one more reason why private debt settlement programs can’t offer the kind of debt relief that bankruptcy can. This is a huge relief to bankruptcy clients who are understandably shocked to receive a 1099-C from their former credit card company, or home equity line lender, or other commercial creditor. Imagine, receiving one of these listing $100,000 plus of debt you know was discharged in your bankruptcy case but now thinking that you might owe taxes on that discharged debt! Fortunately, we can quickly assuage our clients’ fears by explaining that, no, they will not owe any taxes on the debts that were discharged in their bankruptcy.
Unfortunately, it seems, many less well-versed tax preparers seem oblivious to the exclusion of debt discharged in bankruptcy from tax liability. So, even though we are bankruptcy attorneys, we have to put on our tax hats for a moment, and advise our client or former client to direct their tax preparer to IRS Publication 4681, which explains the bankruptcy exclusion for discharged debts along with other exceptions from liability on canceled debt. If the tax preparer knows what she is doing, she will prepare an IRS Form 982 to appropriately claim the exclusion for debts discharged under “Title 11,” which by the way is the Bankruptcy Code. Why the IRS can’t make this more clear for ordinary people by simply referring to the “Bankruptcy Code” on their form is beyond me, but I guess that would be too easy. If the client’s tax preparer is unaware of Form 982, I generally tell them it’s time to find a new tax preparer.
However—and this is really important—for the bankruptcy exclusion to apply, the debt must have been discharged by order of the Bankruptcy Court or by a plan approved by the court. This little pitfall can mean disaster, for example, if a lender on a recourse second mortgage, such as a home equity line, “forgives” or “cancels” the debt prior to the filing of the homeowner’s Chapter 7 or Chapter 13 bankruptcy case. For example, a short sale completed where there is a home equity line prior to bankruptcy may be the worst course of action from a tax perspective. This is yet another reason why it is so critical that if you are facing financial hardship, you should consult with an experienced bankruptcy attorney as early as possible.
There are other exceptions to 1099-C tax liability for sure. For one, the Mortgage Debt Relief Act of 2007 provided that homeowners could exclude from their income debt forgiven on their principal residence through 2012, but that law offered no help for recourse loans on second homes or for other types of debt. In California, most first mortgages even on second homes are treated as non-recourse loans, so they likewise don’t trigger any tax liability post-foreclosure. Additionally, the “insolvency” exception, may also be claimed on Form 982 without having filed a bankruptcy. However, the IRS definition of “insolvency” is substantially different than in bankruptcy because one’s retirement savings in accounts like 401(k)s and IRAs must be included in one’s net worth, while they may be entirely exempted in a bankruptcy case.
The bottom line is that personal bankruptcy filed before a given debt is “canceled” by a lender is the best protection against the IRS treating that canceled debt as though it were income and thus being taxed on it.
In re Casey Marie Anthony, Bankr. M.D. Fla., Case No. 8:13-bk-00922-KRM
Although this blog typically focuses on Michigan bankruptcy cases, last week’s Chapter 7 filing by Casey Anthony raises interesting questions about the impact of bankruptcy on public figures.
Casey Anthony held the national spotlight for nearly three years after being charged with murdering her two-year-old daughter, Caylee. Anthony initially alleged that Caylee was kidnapped by her nanny, then claimed that Caylee accidentally drowned in the family pool. After a jury found her not guilty on all charges except some misdemeanors, Anthony faced a barrage of lawsuits, including claims for defamation and for reimbursement by private investigators who searched for Caylee in the months before her remains were found.
Those lawsuits ground to a halt when Anthony filed a voluntary Chapter 7 petition in the Middle District of Florida on January 25, 2013. In her bankruptcy papers, Anthony lists few assets (comprised mostly of household goods) but discloses unsecured debts of nearly $800,000, plus numerous debts of unknown amounts. The debts include the pending lawsuits against her and $500,000 in legal fees owed to her criminal defense attorney. Read More ›
Tags: Chapter 7
In a typical bankruptcy case, you are never going to see a judge. In a chapter 7, you’re going to see a bankruptcy trustee. The trustee is a person appointed by the bankruptcy court to administer your case. The trustee wants to make sure that you are listing all your assets and all your liabilities and you are answering truthful questions to the statement of financial affairs. The trustee’s job is to see if there are any nonexempt assets that can be taken, sold and administered for the benefit of your creditors.
The only time that you would see a judge is typically if there’s going to be a hearing with regard to whether or not the debt that you reaffirm on, which means the debt that you keep, is going to cause you an undue hardship. In some cases, judges want to make sure that reaffirmed debts, particularly on vehicles, can be afforded. If the Schedules I and J show that you as the debtor have a negative disposable income per month, then it is certainly within the court’s discretion to hold a reaffirmation hearing to determine whether or not you have the ability to make that payment going forward. This is part of the consumer protection portion of the bankruptcy code. If the judge feels that you do not have the ability to make the payment going forward, he can disregard or disallow the executed reaffirmation agreement between you and your creditor.
That is the only time you would typically see a judge in a chapter 7 bankruptcy case. The exception to this would be if there is an adversary case filed in your bankruptcy. An adversary case is a separate lawsuit within the bankruptcy court claiming that a debt that you owe is nondischargeable. The court would have to make a determination after a hearing or trial based on the evidence in the case and whether or not you are entitled to a discharge of that debt. Other than that, you would typically not see a judge in a chapter 7 bankruptcy case.
You are not going to go to jail if you file for bankruptcy. In fact, bankruptcy is a great way to get a fresh start, eliminate debts such as credit card bills, medical bills, personal loans and other types of unsecured debt. There’s nothing to be ashamed about in filing for bankruptcy. Bankruptcy is a federal right granted to you in the Constitution for being allowed to either reorganize your debt or get a fresh start. If you do not file for bankruptcy and you bury your head in the sand and ignore your creditors, then there is a chance that you might have to go to court. If you are sued, you may have to go to court for post judgment collection activities. If you fail to appear at two or more post collection judgment activities, you might be held in contempt of court. If you are held in contempt of court, then there could be a body attachment ordered against you and you may be picked up by the sheriff in your county. You are not being picked up because you owe money or because you are guilty of some type of crime, you are being picked up because you are in contempt of court for failing to appear and answer before the court.
So the odds of you going to do jail for a debt are very slim and it’s not going to be because of the debt, it’s going to be because of the fact that you failed to appear in court and you are held in contempt. You can avoid all this trouble by filing for bankruptcy under Chapter 7 or under chapter 13 and putting an end to your debt through federal bankruptcy laws.