Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

Chapter 13 is a repayment bankruptcy. You pay your creditors whatever you can afford over three to five years (three years for lower income earners, five years for higher wage earners). You are required to commit your disposable income to the repayment plan during the repayment period. You are also required to pay as much to unsecured creditors as they would receive in a Chapter 7 liquidation bankruptcy.

An expected income tax refund is property of the bankruptcy estate. Many debtors are able to protect all or a portion of their income tax refunds by applying legal exemptions to the expected refund. After applying all of your available exemptions, the remaining unprotected amount is often little or nothing.

If you cannot protect your tax refund with exemptions, you are required to pay the non-exempt amount in your monthly plan payments. This is because your unsecured creditors would get this money if you filed a Chapter 7 bankruptcy.

Even if you have a non-exempt tax refund, your bankruptcy attorney may be able to save your refund under certain circumstances. One trick to apply the non-exempt portion of your expected income tax refund to next year’s taxes. The IRS will keep your tax overpayment and use it for taxes you may owe in the future. The Tenth Circuit case of Weinman v. Graves, 609 F.3d 1153 (10th Cir. 2010) holds that the bankruptcy trustee cannot force the IRS to turnover a tax refund that is held to pay future taxes. The election to apply the refund to your future tax liability is irrevocable under section 6513(d) of the Internal Revenue Code. Consequently, your interest in the refund when you file bankruptcy is limited to what is left after the IRS applies the money to next year’s tax liability.

This trick is common in Chapter 7 cases, but can be used in Chapter 13 cases as well to avoid increasing your monthly plan payment. Working closely with your bankruptcy attorney and a skilled CPA will maximize the amount of money you get to keep. If you are expecting a large income tax refund, but need to file Chapter 13, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can explain how the federal laws can protect your assets and discharge your debts.

Stopping a Tax Offset for a Defaulted Federal Student Loan

Federal student loans are guaranteed by the US government and administered by the Department of Education. When a borrower defaults on the loan, the Department of Education may refer the loan to the Department of the Treasury for collection. The Treasury issues your tax refund check, which can be offset to pay your defaulted student loans. The Treasury will offset your entire refund, even if it includes money owed to your non-obligated spouse or an earned income tax credit.

So what can you do to stop this nightmare?

First, the Department of Education is required to send you notice of the offset. You are entitled to a hearing and an opportunity to present evidence when challenging the debt. If you make a timely request for a hearing, the collection process must stop. So it is in your best interest to review the loan documentation and request a hearing if there are mistakes. During that time you should also contact the Department of Education, negotiate a repayment schedule, and request that all garnishments and seizures cease.

Second, you should check with the Internal Revenue Service and see whether your tax refund will be offset. The number to the IRS Offset Hotline is 800-304-3107.

Third, if you filed a joint income tax return, your spouse may be eligible to reclaim his or her portion of your joint refund. Your spouse must file an "injured spouse" claim form (IRS Form 8379) with the Internal Revenue Service. Questions regarding the amount your spouse will receive can be answered by the IRS by calling 800-829-1040.

Fourth, you may be able to stop the collection process if you can show evidence of financial hardship. You must contact the Department of Education and submit documentation to support your claim. The Department of Education will consider your claim and may agree to modify the withholding action.

Finally, bankruptcy may stop an offset of your income tax refund. The bankruptcy laws on this matter are complex and require the attention of an experienced attorney. In general, the bankruptcy code allows a creditor to offset money owed to the debtor against a pre-bankruptcy debt. The offset must involve the same parties to the credit and the debt. If the creditor wants to perform an offset during the bankruptcy (for instance, during a Chapter 13 bankruptcy), it must first ask the bankruptcy court for relief from the automatic stay.

If you have defaulted on your student loans, you may be able to stop an IRS offset of your income tax refund. It is important to discuss the specifics of your situation with an experienced bankruptcy attorney. Your attorney can recommend the best course of action to protect your assets and income.
 

Many people start financial planning when the decision is made to file bankruptcy. Financial planning is good, but doing it yourself can be disastrous. In particular, there are five activities that can cause serious problems in your bankruptcy case, so today’s article is a list of the top five activities to avoid before you file bankruptcy.

5. Don’t use credit cards. In bankruptcy, as in life, honesty is the best policy. Using credit when you have no intention on repaying is fraud and you can be charged with a crime! The bankruptcy code gives the credit card company legal advantages when credit is used just prior to filing bankruptcy. The result is often that you have to repay credit you use just before filing bankruptcy. Consult with your bankruptcy attorney before you use a credit card convenience check, transfer a credit card balance, take a cash advance, or go on a spending spree.

4. Don’t transfer property. Transfers just before bankruptcy must be identified and the bankruptcy trustee will take a special interest in your case. The bankruptcy trustee always assumes the worst and will look on any transfer with suspicion. Illegal transfers can be voided by the trustee and you may lose your right to protect the property. For instance, let’s say you sold your car worth $3,000 to your adult daughter for $1. Since this is not an arm’s length and fair transaction, the trustee can avoid the transfer, and force your daughter to turn over the car to the trustee. Since you did not own the car when you filed, you are not entitled to protect the vehicle with your legal exemptions. The trustee will now sell the car to pay your creditors and you lost a $3,000 asset. If you want to sell or transfer property, speak with your bankruptcy attorney. Your attorney can show you the right way to transfer the property without causing a legal mess.

3. Don't repay loans to friends or family. Money used to repay a loan to a friend or family member within a year of your bankruptcy filing can be avoided by the bankruptcy trustee. The trustee can sue your friend or family member for the money.

2. Don't pay more than $600 to one creditor. Like payments to friends or family members, payments that exceed $600 to any one creditor within 90 days of the bankruptcy filing can be avoided. Speak with your bankruptcy attorney before paying creditors.

1. Don't cash out retirement plans or 401k's. Retirement plans are often fully protected by bankruptcy laws, so do not touch these accounts until after you file bankruptcy. Once the money is moved it is more difficult to protect and you may lose your retirement funds.

The bankruptcy code contains many traps for the unwary. A bankruptcy professional can help you avoid these common traps. Don’t wait to speak with a bankruptcy attorney and discuss your financial situation. Get experienced advice on how to obtain the help you need.
 

The most common goal in bankruptcy is the discharge; however the discharge is not every debtor’s goal. For some, the goal of bankruptcy may be to use the automatic stay to postpone a legal action, like a foreclosure or a lawsuit, while the debtor negotiates a settlement. For others, it may mean buying time to refinance a debt. When the objective is met, these debtors want to dismiss the bankruptcy case. The bankruptcy code contains special provisions for dismissing a bankruptcy case.

A Chapter 7 debtor is not able to dismiss the case without the permission of the bankruptcy judge. If the case does not contain assets (a “no asset case”), approval is easy to obtain. On the other hand, if the case is an asset case and creditors will receive money, the trustee will likely object to the dismissal and request permission to distribute the asset proceeds to your creditors. This is important for a Chapter 7 debtor who receives a large sum of money like an unexpected inheritance. The debtor cannot just say “forget it” and walk away from the bankruptcy case and keep the money.

A Chapter 13 debtor has an absolute right to dismiss the bankruptcy case. The theory behind this is that a debtor should be able to stop the bankruptcy and repay creditors on his or her own terms. The bankruptcy court will still look at whether the debtor is acting in good faith. If the debtor is not acting in good faith, the case may be converted involuntarily to a Chapter 7.

While the discharge remains the crown jewel of the bankruptcy process, it is not the only reason to consider a personal bankruptcy. An experienced bankruptcy attorney can discuss the advantages of the federal bankruptcy code and how it can help you and your situation. Your bankruptcy attorney can work with you to plan your strategy to eliminate debt and reorganize your finances.
 

The most common types of personal bankruptcy are Chapter 7 and Chapter 13 bankruptcy. A Chapter 7 bankruptcy is an “erase-your-debts-and-start-fresh” bankruptcy. The Chapter 7 case typically takes around four to five months and unsecured debts are discharged. On the other hand, Chapter 13 cases last three to five years and all disposable income is paid to unsecured creditors. So why would any reasonable person choose Chapter 13 over Chapter 7? There are several differences between Chapter 13 and Chapter 7 which offer special advantages under the right circumstances.

The most significant advantage, and perhaps the main reason many debtors choose Chapter 13, is the opportunity to save a home from foreclosure. Chapter 13 allows the debtor to cure overdue mortgage payments over the life of the repayment plan (three to five years). During a Chapter 13 bankruptcy, the debtor may also take advantage of any home loan modification program that he or she is otherwise qualified to receive. Finally, a home that has a second or third mortgage that is completely unsecured may qualify for lien stripping in Chapter 13. Once the junior mortgage is stripped off, the debt is paid at the same rate as other unsecured debts and the remaining balance is discharged at the end of the bankruptcy case.

Another advantage is the ability to “cram-down” a motor vehicle loan to the fair market value of the vehicle. The loan principal of the qualifying vehicle loan is reduced and the payment is stretched over the life of the repayment plan. High interest may also be crammed down to the trustee’s interest rate, which could mean a significant savings in monthly payments.

During a Chapter 13 bankruptcy case, any co-debtor or co-signor is protected from creditor collector and harassment. This provision protects a co-debtor from harm while the debt is repaid in bankruptcy.

Chapter 13 also acts like a court ordered consolidation loan. The bankruptcy court judge orders the creditors to accept payments during bankruptcy, whether they like it or not! The debtor has no direct contact with the creditors during the case. If the creditor has an issue with how its debt is treated in bankruptcy, the creditor must take it up with the judge.

Chapter 13 can be a powerful legal tool for some debtors, but it is not for everyone. The federal bankruptcy code contains many provisions that are specifically suited to help individuals recover during financial crisis. The protection is broad and the relief is very real. If you are struggling financially, speak with an experienced bankruptcy attorney and learn how the bankruptcy laws can help you.
 

In the 1980’s Prince sang, “Tonight I’m gonna party like it’s 1999!” Well, if you’re being financially squeezed, perhaps its time to “budget like it’s 1971!” What that means is to take a hard look at where your money is going and how you can cut expenses. Chances are you can make big cuts in discretionary spending for high tech products and services. Let’s look at how we can save money on three technologies that were not commercially available in 1971:

Cable or Satellite TV
Basic cable or satellite television services promise a reasonable monthly rate, but your bill can quickly escalate with high definition service and premium channels. Many of these channels are never watched or wanted, but you still pay for them in a subscription package. So ask yourself, can you live without watching the Golf Channel in high definition?

Internet
Basic internet services also start low, but can quickly double in price as speed increases. Many companies offer high speed internet in a bundled package that includes television and telephone. Bundled packages are often discounted for the first year of a two year contract, and jumps significantly in price during the second year. However, that is not always the case, and more companies are offering “no contract” services as a way of luring new customers. The moral here is, “Shop around!”

Cellular Phone
Basic cell phone “talk” minutes are relatively cheap, while text and data packages are more costly. One simple way to reduce your cell phone bill is to ask your carrier to conduct an audit on your account. You may be able to reduce your monthly minutes or eliminate extra features you don’t use.

The popularity of cellular phones has made the home phone almost extinct. Even those households that use a landline for fax use can reduce costs by connecting a home office fax machine to the internet and drop home phone service altogether.

Ask for a Discount
You don’t get what you don’t ask for! If you are under contract with a television, internet, or cell service, call your provider and say you are a loyal customer interested in reducing your bill. In many cases the provider will discount your bill to keep you happy (and loyal)!

Families struggling with finances can save money by taking a critical look at their expenses. If cutting costs isn’t enough, the federal bankruptcy laws can eliminate your debts. The combination of reducing spending and eliminating bills through bankruptcy can be powerful financial medicine.
 

There is an old saying, "A drowning man will grab even the edge of a sword." For a homeowner drowning in debt, any assistance may seem beneficial. Unfortunately, there are scam artists that use a desperate situation to make a few quick bucks.

Case in point is an Austin, Texas, man who recently pled guilty to operating a foreclosure-rescue scam. Frederic Alan Gladle, 53, admitted that for four years he defrauded homeowners that netted him more than $1.6 million in fees. According to court documents, Gladle used different aliases and the stolen the identity of at least one person to set up a mobile phone number.

Gladle, who played linebacker on the University of Southern California’s 1978 national football championship team and is married to the 1984 Playboy Playmate of the Year, charged distressed homeowners fees in exchange for fraudulently postponing foreclosure sales. He faces two to seven years in prison.

In a statement released by the U.S. Department of Justice, "Gladle admitted that he recruited homeowners whose properties were in danger of imminent foreclosure and falsely promised to delay the foreclosures for up to six months, in exchange for a fee of approximately $750 per month. Gladle, directly or through salespersons, directed homeowners to sign deeds granting fractional interest in their properties to debtors in bankruptcy proceedings whose names Gladle found by searching bankruptcy records. The debtors were unaware that their names and bankruptcy cases were being used by Gladle in his scheme. Gladle then sent the unsuspecting debtors’ bankruptcy petitions, and the deeds that transferred fractional interests to the debtors, to the homeowners’ lenders to stop foreclosure proceedings."

The involvement of the federal bankruptcy process immediately stopped the foreclosure on the homeowner's property and forced lenders to seek permission to proceed from the bankruptcy courts.

“This is the latest example of heartless criminal activity by an individual who sought to capitalize on the misfortune of those affected by hard economic times,” said Steven Martinez, assistant director of the FBI’s Los Angeles field office. “Mr. Gladle defrauded victims trying to save their homes, further exploited those in debt by stealing their identities, and wreaked havoc on both banks and the bankruptcy courts by manipulating the system.”

If you are facing foreclosure, speak with an experienced bankruptcy attorney and discuss your legal options. You may be eligible for home loan modification, including a principal and/or interest reduction; repayment or second mortgage lien stripping through Chapter 13 bankruptcy; or debt elimination under Chapter 7. Your attorney can explain your options and help you decide on a course of action that is best for your family without making matters worse, or involve you in illegal activity.
 

Fewer personal bankruptcy cases were filed during 2011 according to a report by the National Bankruptcy Research Center. In 2011 about 1.3 million consumer bankruptcy cases were filed throughout the United States, or about one out of every 175 Americans. That is a decrease from 2010 when slightly less than 1.5 million cases were filed, or one out of 150 Americans, filed bankruptcy.

Chapter 13 filings fell 8 percent from 2010 totals, and Chapter 7 filings dropped 13 percent. 2011 marked the first time the number of personal bankruptcy cases had fallen since 2006. Nevada remains at the top spot for the nation’s highest per capita filing rate at 8.98 bankruptcy cases per 1,000 residents. That is a drop from Nevada’s 11.1 filing rate in 2010.

“The decline in total filings reflects the retrenchment in consumer spending associated with a down U.S. economy,” said American Bankruptcy Institute Executive Director Samuel J. Gerdano. “As consumers continue to deleverage their debt and access to credit remains tight, bankruptcy filings will continue to decrease.” The American Bankruptcy Institute is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency.

While national bankruptcy statistics may be interesting, your financial situation is not a statistic. Your case is unique and deserves a skilled attorney committed to guide you through the maze of the federal bankruptcy laws. You may need a Chapter 7 “straight bankruptcy” that can discharge unsecured debts and get you quickly back on the road to recovery. Or your situation may require a Chapter 13 repayment plan to save your family home and right your sinking financial ship.

If you are struggling with debts you cannot pay, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you. Each year over a million people chose bankruptcy relief because it works! Bankruptcy can eliminate your debt burden and put you on the path to a fresh financial start.

The bankruptcy discharge is a court ordered permanent injunction prohibiting certain creditors from taking collection action against the debtor. A debt discharged by your bankruptcy cannot be collected from you. Unfortunately, some creditors refuse to take “No” for an answer. If you are contacted regarding a discharged debt, here’s what to do:

Inform the creditor of your bankruptcy discharge
When a debt is discharged in bankruptcy it does not simply vanish. The debt still exists; it is just not “collectible.” This debt may be sold or transferred to another collector, and the new collector may not know about your bankruptcy discharge. This is not to say that ignorance is a defense to violating the court order! However, informing the collector of your bankruptcy discharge is usually enough to stop all collection activities.

The collector may ask you for information about your case, including your case number, bankruptcy chapter (Chapter 7 or Chapter 13), and the date of the discharge. These are reasonable requests if meant to update their records so you are not bothered in the future. If you do not have this information, simply refer the collector to your bankruptcy attorney.

Ask for sanctions
In some cases the creditor knows about the bankruptcy discharge and still tries to collect. Whether its action results from ignorance or arrogance, the bankruptcy court takes a very dim view of creditors that intentionally violate its discharge order. When a court order is violated it is punished by contempt of court. The bankruptcy court can sanction the violator (called the “contemnor”) and assess a fine, award actual damages, and order the contemnor to pay the debtor’s attorney fees.

The federal bankruptcy laws offer very powerful protection. Getting the full benefit of your bankruptcy case requires a skilled and experienced attorney. Your attorney can use the bankruptcy laws to give you a fresh start that is free of creditor harassment.