Tax Refund Anticipation Loan During Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a three to five year commitment between the debtor, his attorney, the trustee, and the bankruptcy court. This relationship does not stop once the debtor’s proposed repayment plan is confirmed by the court. The debtor is expected to cooperate with the trustee’s requests and the requirements of the bankruptcy throughout the case.

In a Chapter 13 case the debtor is prohibited from obtaining credit without prior approval from the trustee and bankruptcy court. An income tax refund anticipation loan, check, or temporary debit card is an extension of credit secured by the debtor’s tax refund, and just the sort of loan that is banned. These short-term are commonly offered by preparers during tax season, and are similar to payday loans with high interest rates.

Tax anticipation loans are not allowed during a debtor’s Chapter 13 plan. Not only are these loans an unauthorized use of credit by the debtor, the tax refund itself may be (and often is) part of the debtor’s estate. In most cases the Chapter 13 bankruptcy trustee will allow the debtor to keep a small refund or part of a refund for reasonable and necessary expenses (such as auto or home repairs, etc.). However, the trustee may seek turnover of some or all of the debtor’s tax refund to use toward paying creditors in the bankruptcy case. By obligating yourself to a tax refund loan, you may complicate your finances considerably. The trustee may avoid the loan and take all of the refund, leaving you with a post-petition debt that is neither dischargeable nor stayed by the bankruptcy case.

Before you agree to an income tax refund anticipation loan or other credit, speak with your Chapter 13 attorney. In most cases the advice is clear, “Don’t do it!” Your attorney is your advocate and counselor during the case, so do not hesitate to call to discuss your financial matters.

If you are considering filing for bankruptcy please contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1-866-705-7584 or send an email to fears@fnlawfirm.com.

Bankruptcy Filing Fees Increase June 1, 2014

The cost of going broke is going up. The Judicial Conference of the United States has approved several bankruptcy related fee increases at its March 2014 session. These fee increases will take effect starting June 1, 2014, and include the basic filing fee for initiating a case in the bankruptcy courts.

For filing a petition under Chapter 7, 12, or 13, the filing fee will increase by $29:

  • The Chapter 7 filing fee will be $335, up from $306.
  • The Chapter 12 filing fee will be $275, up from $246.
  • The Chapter 13 filing fee will be $310, up from $281.

The fees for filing a petition under Chapter 9, 11, or 15 increase by a whopping $504:

  • The filing fee for case filed under Chapter 9, 11 or 15 will be $1,717, up from $1,213.

Additionally, the fees for certain motions will increase on June 1:

  • A motion to divide a joint case under Chapter 7, 12, or 13 is filed is increasing to $75. A motion to divide a joint case under Chapter 11 is increasing to $550.
  • The fee for filing an adversary complaint in bankruptcy will increase to $350, except if the trustee or debtor-in-possession files the complaint.

It remains to be seen whether these higher fees have a “chilling effect” on the number of bankruptcy cases filed in the future. Higher filing fees can only make it harder for financially strapped individuals to obtain the relief they need.

If you are struggling with debts you cannot pay, speak with an experienced attorney at Fears | Nachawati and discover your options through the federal bankruptcy laws. In some cases filing fees may be paid over time or waived altogether by the bankruptcy court. Contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

What if I left something out of my bankruptcy case?

When you file for bankruptcy you are required to list all of your assets, your debts, and your income. All the statements and schedules filed in your bankruptcy case are signed under penalty of perjury. Therefore it very important to make sure you tell your attorney about everything that you own. Even if you don’t believe it is something that you would normally list or disclose.

From time to time errors are made and things are left off. If you forgot to list an asset or a debt contact your attorney immediately and they can amend your schedules to add the missed item. Typically missed items are life insurance policies—especially those that carry cash value—child support payments owed to the person filing, and cars titled to the filer but driven by someone else.

The reason it is so important to give your attorney this information up front is that all assets must be exempted or they may cause major changes in your case. A non-exempt asset in a chapter 7 can be sold and can cause a plan payment to increase in a chapter 13. While the exemptions can be amended if it something that was not originally anticipated, it may not be something that can be exempt.

If you forgot to list one of your debts, these can also be added. Most courts charge a filing fee to add or remove creditors after the case was filed. Also, notice needs to be sent to the creditor. A judge or trustee will not usually have an issue with adding creditors but may deny the amendment if the addition would have an adverse effect on the creditor; in other words, it may be denied if the creditor was not missed in harmless error.

If your bankruptcy case has already ended it may not be possible to reopen it to add the missing information. However, it is very important that you contact your attorney especially if an asset was left off. The bankruptcy code also imposes strict fines on people who knowingly try to deceive the court by failing to list assets. This is known as a bankruptcy crime. To avoid committing this crime, be sure to contact your attorney if you discover anything missing from your petition and they can discuss the issue with you further.

For more information about bankruptcy, check out our website at www.fnlawfirm.com. To set up a free consultation call our office at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

 

CFPB Hunting Zombie Foreclosures

The Consumer Financial Protection Bureau has turned its attention to “zombie” foreclosures, as reported by Reuters. A zombie foreclosure occurs when a bank begins a foreclosure, but then abandons the process without informing the homeowner. In most cases the zombie foreclosure is stopped by the bank after the homeowner has moved out of the home. Homeowners don’t realize that they still own their homes, and are still responsible for the mortgage debt, taxes, homeowner association (HOA) dues, and upkeep.

“The CFPB is beginning to look very closely at abandoned properties and zombie foreclosures,” said Laurie Maggiano, the CFPB's servicing and secondary markets program manager. “There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about.”

Zombie foreclosure often occurs when a bank charges off a low-value property, but does not complete the foreclosure process. By not completing the foreclosure, the bank is not responsible for the property or associated expenses, but still retains a lien which makes it impossible in many cases for the homeowner to sell the property. The property is abandoned and the unwitting homeowner may be civilly or criminally liable for violating local ordinances, failure to pay taxes, etc.

There is no requirement for banks or loan servicers to inform homeowners about lien releases or charge-offs, however the Truth-in-Lending Act requires that servicers send monthly statements to borrowers with delinquent mortgages.

Bankruptcy is little help
Bankruptcy can discharge an individual’s personal obligation to pay a mortgage debt, but a bankruptcy case does not transfer title from the homeowner to the bank. The person still owns the property after bankruptcy, even if he is not obligated to pay the bank.

Courts across the nation have said that the Bankruptcy Code does not require a lender to act upon the surrender of collateral in a bankruptcy. Until the lender is the legal and equitable owner of the property (through a foreclosure, or deed transfer), the debtor may be on the hook for HOA fees, taxes, or property insurance that arise after the bankruptcy filing. These debts are not part of the bankruptcy discharge.

If you are experiencing trouble paying your home mortgage and need to “walk away,” discuss your situation with an experienced bankruptcy attorney at Fears | Nachawati. In many cases, the smart move is to stay in the home (rent free) until the foreclosure is completed. Filing bankruptcy may also buy your family some time to find another home. Contact us today at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Non-priority, non-dischargeable tax debt

For most bankruptcy debtors, dealing with an income tax debt in Chapter 13 comes down to whether the debt will be paid ahead of other creditors (and in full under the plan confirmation requirements of Section 1322(a)), or paid along with other unsecured creditors with the remaining tax debt discharged at the end of the case. In bankruptcy jargon, the debtor’s income tax debt is either a priority, non-dischargeable claim; or it is a non-priority, dischargeable claim.

However, there is a special circle of inferno reserved for a Chapter 13 debtor with a tax debt that is not classified as a priority claim, and therefore cannot be paid ahead of general unsecured creditors, but is also non-dischargeable. This special ring of hell bears the inscription “non-priority, non-dischargeable claim” at its gate (which is Latin for “Abandon all hope, ye who enter here”).

A debtor with a non-priority, non-dischargeable income tax claim cannot use Chapter 13 to pay the tax debt in full during the plan without also repaying all other unsecured creditors 100%. It also means that any portion of the tax obligation not paid during the bankruptcy case will survive, and any tax lien on the debtor’s property will continue after bankruptcy. [Unpaid non-priority, non-dischargeable tax debts used to be discharged upon completion of a Chapter 13 payment plan, but the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 repealed this portion of the Chapter 13 “superdischarge.”]

Deciphering whether a tax debt is a priority, non-dischargeable claim; a non-priority, dischargeable claim; or a non-priority, non-dischargeable claim is best discovered using a Venn Diagram. But short of drawing pictures, let’s look at the Bankruptcy Code for what makes a tax debt non-dischargeable, and then the conditions that make the debt a priority debt. At the end we can see how a non-priority, non-dischargeable claim might occur.

Non-Dischargeable Tax
Section 523(a) of the Bankruptcy Code states that a discharge under Chapter 7, 11, 12, or 13 does not discharge a debtor from any individual income tax debt

  1. That is a secured tax debt (11 USC § 507(a)(3))
  2. That is a pre-petition tax debt that was
    1. last due, including extensions, within three years of the bankruptcy filing (11 USC § 507(a)(8)(A)(i); or
    2. assessed within 240 days of the bankruptcy filing (11 USC § 507(a)(8)(A)(ii))
  3. When a return was not filed (11 USC § 523(a)(1)(B)(1))
  4. When the return was filed within two years of the bankruptcy filing (11 USC § 523(a)(1)(B)(2))
  5. When a return is fraudulent or the debtor attempts to willfully “evade or defeat such tax.” (11 USC § 523(a)(1)(C))

Priority Tax
Special priority status is given to certain income tax debts, and distribution of assets in Chapter 7 or regular payments under Chapter 13 pay these tax debts before FDIC claims, DUI/DWI personal injury claims, and general unsecured claims. Section 507(a)(8) sets out the criteria for a priority income tax claim:

  1. The pre-petition tax debt is
    1. last due, including extensions, within three years of the bankruptcy filing (11 USC § 507(a)(8)(A)(i); or
    2. assessed within 240 days of the bankruptcy filing (11 USC § 507(a)(8)(A)(ii))

Non-priority, non-dischargeable tax debt
The most common way a Chapter 13 debtor can fall through the cracks of the Bankruptcy Code and get stuck with a non-priority, non-dischargeable tax debt is by filing a late tax return. In fact, some bankruptcy courts dispute that a late filed return is eligible for discharge because a “return” is defined by many state laws as being timely filed. This is an important distinction that is currently in litigation. See McCoy v. Miss. State Tax Comm., 666 F.3 924 (5th Cir., 2012)(a late-filed tax return is, by definition, not a return and hence the taxes can never be discharged); but see Gonzalez v. Massachusetts Dept. of Revenue, BAP No. MW 13-026 (B.A.P. 1st Cir. March 6, 2014)(Massachusetts state tax liabilities of the debtor were dischargeable even though his tax returns were filed late after applying Massachusetts law defining a “return”).

Most bankruptcy courts will not allow a Chapter 13 debtor to pay a non-priority, non-dischargeable tax debt ahead of other general unsecured creditors by establishing a “special class” for the debt. While 11 U.S.C. Section 1322(b)(1) permits a plan to designate a class of unsecured claims, it may not “discriminate unfairly.” Nondischargeability, by itself, does not justify special classification. See Copeland v. Fink (In re Copeland), 2014 BL 27501 (8th Cir., No. 12-4018, 1/31/14).

A non-priority, non-dischargeable tax debt places the debtor in a difficult position. Since the debt is not dischargeable, the debtor may elect to eliminate other burdensome unsecured debts through Chapter 7 and deal with the tax debt outside of bankruptcy. The debtor may also pay a portion of the tax debt during Chapter 13 at the same rate as other unsecured, non-priority creditors, while enjoying the protection of the automatic stay. Finally, the debtor may elect to file “Chapter 20,” that is, file a Chapter 7 to discharge unsecured debts, then file a Chapter 13 case immediately after. The debtor would then be able to pay 100% of the non-priority, non-dischargeable tax debt during Chapter 13 without also paying other general unsecured creditors (which were discharged in the prior Chapter 7 case).

For further questions or for a free consultation, contact the experienced attorneys at Fears | Nachawati Law Firm. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

How Chapter 7 Bankruptcy Affects Child Support Arrears

Experiencing money troubles can touch every aspect of your personal life. When there is not enough cash to go around, the typical person starts prioritizing financial obligations. A person might cut back on food and clothing expenses, cut out recreational or entertainment spending, or may pay some bills late. When there is little or no money due to a loss of income, the situation may become dire.

Bankruptcy is the answer for many debtors facing financial difficulties. Chapter 7 can completely and forever discharge debts, but Congress has identified some debts that will survive a Chapter 7 bankruptcy discharge. One debt category that is especially difficult to discharge is child support arrears. It is important to seek experienced counsel before filing a bankruptcy case with a child support arrears.

Child support arrears are not discharged
A Chapter 7 bankruptcy case does not discharge a child support debt. Specifically, Section 523(a)(5) of the Bankruptcy Code excepts from a Chapter 7 discharge a debt “for a domestic support obligation.” Section 101(14a) includes a child support arrearage in the definition of a “domestic support obligation” when the debt is:

  1. owed to or recoverable by (A) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or (B) a governmental unit;
  2. in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit);
  3. established by a (A) a separation agreement, divorce decree, or property settlement agreement; (B) an order of a court of record; or (C) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
  4. not assigned to a nongovernmental entity, unless that obligation is voluntarily assigned for the purpose of collecting the debt.

Bankruptcy does not stop collection of child support arrears
When a person files a Chapter 7 bankruptcy case, collection actions against the debtor must stop, but Congress has carved out another exception for collecting child support arrears. Section 362(b)(2)(A) states that the bankruptcy automatic stay does not apply to:

  1. the establishment of a child support obligation;
  2. the collection of child support from property that is not property of the estate; or
  3. the withholding of income that is property of the estate for payment of a child support obligation under a judicial or administrative order or statute.

In a Chapter 7 case, the debtor’s post-filing income is not property of the bankruptcy estate. Consequently, a wage garnishment or income tax refund intercept to collect a child support arrearage may continue during a Chapter 7 bankruptcy case without running afoul of the court’s automatic stay order.

Bankruptcy exemptions do not protect your property
Section 522 of the Bankruptcy Code allows a debtor to exempt property from the claims of creditors, but not against a debt for child support. The creditor must first seek permission from the bankruptcy court to proceed against property of the bankruptcy estate through a Motion to Lift Automatic Stay. Several bankruptcy courts have ruled that the Bankruptcy Code does not allow a Chapter 7 trustee to liquidate exempt property to satisfy a domestic support obligation. See In re Duggan, 2007 Bankr. LEXIS 2750 (Bankr. M.D. Fl. 2007). However, these same cases suggest, or explicitly hold, that a domestic support creditor could do so. See In re Quezada, 368 B.R. 44 (Bankr. S.D. Fl. 2007). To date the process for such an action remains in question.

If you are considering filing for bankruptcy or have questions about what is dischargeable in a chapter 7, contact the experienced attorneys at Fears | Nachawati for a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Bitcoin Bankruptcy Spills over into the U.S.

The largest bitcoin exchange Mt. Gox lost $473 million in the online currency. This resulted in them filing for bankruptcy protection in Japan (Mt. Gox Co Ltd, U.S. Bankruptcy Court, Northern District of Texas, No. 14-31229). It remains unclear if the bitcoin were stolen or if there are other factors at plan. Read more about the bitcoin bankruptcy.

Two class action lawsuits were brought against the company. Mt. Gox filed for creditor protection on March 9 in the U.S. Bankruptcy Court in Dallas under Chapter 15 of the U.S. Bankruptcy Code. This will temporarily shield the company’s assets while the main bankruptcy proceeding is carried out in another country. The petition listed about $37.7 million in assets and $63.9 million in liabilities. U.S. Bankruptcy Judge Hale granted the company’s application. Shielding the company’s assets from the creditors and halting the two suits.

Chapter 15 is an international bankruptcy that allows the US Bankruptcy Court to recognize the foreign bankruptcy proceeding and protects the U.S. based assets for the company.

For more information or a free consultation call the experience attorneys at Fears | Nachawati at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

What to Expect at My Trustee's Meeting

As part of every bankruptcy case, each debtor will have a meeting with the Trustee. This meeting, which is commonly referred to as the 341 Meeting, or Meeting of Creditors, is required to take place within a reasonable time of filing according to Section 341 of the bankruptcy code. Generally, the meeting occurs within 30 days of filing the case.

It is common for debtors to feel nervous prior to their Trustee’s meeting. Although all of the creditors listed in the bankruptcy schedules are invited to attend the meeting, generally no creditors show up. In fact, most 341 meetings typically only take between 10-15 minutes to complete. Your attorney will attend the meeting with you and, depending on the trustee, will generally ask most of the questions.

Common questions asked at the meeting are:

  • Do you understand the differences between a Chapter 7 and Chapter 13 bankruptcy
  • Do the schedules list all of your assets?
  • Do the schedules list all of your liabilities?
  • Is everything contained in your schedules true and correct?
  • Is there a claim you can file against another party?
  • Will you be entitled to a windfall of money, such as an inheritance or insurance proceeds, within 6 months of filing the case?
  • Have you filed bankruptcy before?

At the 341 meeting, you will also have the opportunity to provide a brief explanation of what caused you to file the bankruptcy. Keep in mind you will be required to present two forms of identification at the meeting. Typically, debtors bring their driver’s license and social security card. You will need originals of both forms of ID. In addition, attendance of the meeting is mandatory and your case may be dismissed if you do not show up. Contact a bankruptcy attorney if you have questions about your upcoming 341 meeting.

If you are considering filing for bankruptcy, contact the experienced bankruptcy attorneys at Fears | Nachawati to set up a free consultation. Contact us today at 1.866.705.7584 or send an email to fears@fnlawfirm.com

Does the Bankruptcy Code Discriminate Against the Self-Employed?

How a self-employed debtor calculates Current Monthly Income (CMI) on the Means Test can determine the applicable commitment period (three or five years) in a Chapter 13 case. For instance, if the debtor deducts ordinary and necessary business expenses before arriving at a net personal income, the CMI will be lower than if business expenses are deducted from the debtor’s disposable income at the end of the Means Test (when disposable income is finally calculated). The end result is the same, but the process itself may compel the debtor to stay in bankruptcy for five instead of three years.

Courts are split on which method to use. Some bankruptcy courts cite the Official Form 22c which directs the debtor to deduct ordinary and necessary business expenses before arriving at a Current Monthly Income. See In re Roman, 2011 WL 5593143 (Bankr. D. Puerto Rico, Nov. 16, 2011); In re Romero, 2013 WL 241742 (Bankr. S.D. Fla. Jan 22, 2013). By using this approach, the Form avoids artificially inflating the debtor’s personal income by counting business expenses as income. The Form 22c approach is highly beneficial to many self-employed debtors.

However, other courts point out that the language on Form 22c is in conflict with Bankruptcy Code Section 1325(b)(2)(B), which states that “the term ‘disposable income’ means current monthly income received by the debtor. . . less amounts reasonably necessary to be expended. . . for the payment of expenditures necessary for the continuation, preservation, and operation of [the debtor’s] business.” In other words, the Bankruptcy Code directs the debtor to add up all income, including gross business receipts, to calculate CMI (which determines the plan length), and then subtract out necessary business expenses to determine the debtor’s “disposable income” (which is the amount used to repay unsecured creditors in a Chapter 13 bankruptcy). See Drummand v. Wiegand (In re Wiegand), 386 B.R. 238 (9th Cir. BAP 2008); In re Bembenek, 2008 WL 2704289 (Bankr. E.D. Wis. July 2, 2008); In re Sharp, 394 B.R. 207 (Bankr. C.D. Ill. 2008); In re Compann, 459 B.R. 478 (Bankr. N.D. Ga. 2010); In re Harkins, 491 B.R. 518 (Bankr. S.D. Ohio 2013).

This issue is not resolved. If you are a small business owner or self-employed individual who needs Chapter 13 bankruptcy relief, speak with an experienced and knowledgeable bankruptcy attorney at Fears | Nachawati. Your attorney will know how the accepted position of the bankruptcy court in your area and can help you navigate the Means Test for your benefit. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com to set up a free consultation.

"Real Housewives" Stars Plead Guilty to Bankruptcy Fraud

Just one month before their trial was to begin, Teresa and Joe Giudice entered guilty pleas to bankruptcy fraud, mail fraud and other charges in Newark Federal Court. The two are stars of the Bravo cable channel's Real Housewives of New Jersey. Bravo channel has not commented whether the Giudices will return for Season 6 of the show, set to start filming later this year.

Teresa Giudice faces 27 months in federal prison and has agreed to pay $200,000 to the government at the time of her sentencing. Joe Giudice could get 46 months. Joe, who is not a U.S. citizen, will face a deportation hearing after his jail time that will “likely result in ... your being removed from the United States,” said Federal Judge Esther Salas at the time the Giudices entered their pleas. The couple will also forfeit additional cash in an amount to be determined by the judge.

Federal prosecutors charged the couple with 41 counts of fraud including allegations that they concealed about $4.6 million in mortgages, withdrawals from home equity lines of credit and construction loans. Joe also failed to file tax returns for the years 2004 through 2008. During that time his income is said to have fluctuated wildly; the indictment states he made $323,481 in 2005 and $26,194 in 2006. During bankruptcy proceedings, Teresa waived her bankruptcy discharge after the trustee accused the couple of concealing assets. Joe pled the Fifth Amendment when asked about hidden assets. Reports say that the couple will ask the court to stagger their jail terms, so that one parent is available at home to care for their four children, Gia, 13, Gabriella, 9, Miliani, 8, and Audriana, 4.

The federal bankruptcy laws can discharge debt and help a struggling family restructure its finances. However, debtors in bankruptcy are expected to be honest and forthcoming about their income, assets, expenses, and debts. Dishonesty during this time has severe consequences, including federal criminal charges.

If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.