Posts Tagged With: Chapter 13

Afraid to File Your Taxes?

Trust me. I get it. Lots of us are afraid to file our tax returns – well, ok, afraid to prepare them may be closer to the truth; but, trust me, I get it.

– and it just got worse.

Not filing your taxes has always been bad. Filing late has always had some consequences, but most of them were manageable. Now, there is a new one.

In the last week of 2014 the 10th Circuit Court of Appeals handed down an opinion agreeing with an earlier decision from the 5th Circuit. So far, they are the only two circuits to hear this particular issue; and they agree. This is not good.

Here is the problem. Generally, speaking income taxes are dischargeable in a bankruptcy proceeding provided that they meet certain requirements. Like with anything involving either the Bankruptcy Code or the Tax Code (let alone both), there are more rules, limitations and exceptions to the basic rules than holes in Swiss cheese. Still, generally speaking, if the taxes meet certain age tests they are dischargeable in a bankruptcy filing – any chapter. Well, the 10th Circuit, following the 5th, has added a new wrinkle.

According to these Courts if the returns were filed so much as a day after they are due, the taxes on those returns are never dischargeable in a Bankrutpcy. Of course, if they are filed before the expiration of a properly granted extension, they are not late. If they are filed after the extension expires, however, or if no extension is granted; then, we have a whole new problem.

I have a case right now where a client has filed a bankruptcy, and taxes are a major part of the debt. I just went through every one of her tax transcripts. One of those returns was filed late. Anywhere inside the 5th or 10th Circuits the taxes on that return are not only not dischargeable in this Bankruptcy – they will never be eligible for a discharge. Oh, and the date on that return? Filed less than two weeks after April 15, and no request for extension was filed.

This seriously sucks.

Elaine

Categories: Bankruptcy, Taxes | Tags: , , , , , , | Leave a comment

What If the Tax Refund Doesn’t Catch You Up?

Like most businesses, mine has patterns. One of those patterns is that someone will call me about this time of year and we will talk for a bit about a possible bankruptcy filing. Then, I won’t hear anything back from them for several months. What happens is that shortly after talking to me, the caller discovers that he is going to be getting a substantial tax refund – enough to get caught up. Of course, in some cases they are right; and I never hear back from them; and that is a good thing.

Then, there are the people who are calling back in May or June. They got a $3,000 or $4,000 tax refund. They threw it all at the problem bills. Those payments paid a ton of interest. A few months later, they realized that they are still in trouble. Their tax refund bought them a little bit of time and not much more. So much of it went to interest that it didn’t really reduce their principal balances much. They still can’t pay the debt. They still can’t save for retirement. They still can’t help their kids save for college. They still need dental work they can’t afford. They still have cars that desperately need new tires. Oh, and they have $0 saved to pay for a bankruptcy filing.

If you think you will, “get caught up” with your tax refund; do a lot of math first. How much of your payments will actually reduce the principal. What interest rates are you paying and how long will it take that rate to increase your balances more than your refund reduced them? How long will it be before you can start doing the things you need to do – like plan for retirement, college costs, oh, and just how long will those tires last, anyway?

I don’t actually mean to be this depressing, and if your tax refund will get you out of trouble; more power to you. If all it will do is buy you some time, then maybe it is time to take a deep breath and consider where your real responsibilities lie – Visa, Master Card or your family’s future? Personally, I like to think that Visa and Master Card are big enough to take care of themselves.

Ok, so you still really want to pay this. Great. Pay it. But wouldn’t paying it without interest be a better solution than what you are currently fighting? There is a way to do that. It isn’t fun, it isn’t quick and easy; oh, and it isn’t cheap. It is called a Chapter 13 Bankruptcy. Yes, it is a bankruptcy; but it is a bankruptcy that lets you take five years to pay as much of your unsecured debt as you can – with NO interest.

Do the math, and do it before you throw yet another tax refund at 28% interest charges.

Elaine

Categories: Bankruptcy, Consumer Credit | Tags: , , , , , , | Leave a comment

What If Something Bad Happens During a Chapter 13 Plan?

The answer to the question, what if something bad happens during a Chapter 13 Plan is – call your lawyer. Please notice, I did not say, call the Trustee. Even if you haven’t talked to your lawyer since your case confirmed, at least in the Western District of Oklahoma, your lawyer is still your lawyer until the case concludes, you fire him or the Court allows him to withdraw for some reason. The Trustee does not work for you, your lawyer does. Call your lawyer.

Now, for the rest of the story. Clients come to see me and are nervous about filing a five-year plan. What if something happens? Well, something will happen. It is called life. The problem with answering that question is that the answer is always going to be – that depends. The answer depends on exactly what happens, when it happens, what has or has not been paid in the Chapter 13, where you are in the plan, whether the case is confirmed or not. It just depends.

Losing a job in the last year of a plan is very different from losing one in the first year. Having a house burn down might change how hard you want to fight to save it. (Yes, I have had that happen to a Chapter 13 debtor.) The death of a spouse is just hard – all the way around, and being in a Bankruptcy at the time doesn’t make it easier. Totaling a car means having to get a new one. Divorce complicates a Chapter 13 in ways very few other things do. Regardless, you will have options; and only your lawyer can talk to you about them.

Still, there are some generalities. If you lose a job during a chapter 13, you will want to discuss with your lawyer whether your plan payment can be reduced, whether you should consider converting the case to a Chapter 7, whether you should consider seeking a loan modification on your mortgage, maybe you want to talk about whether or not you can sell the house. Maybe you should dismiss the chapter 13 with an eye towards refiling when you have found new employment. Maybe staying in with the smallest possible plan payment makes more sense. Maybe the best answer is some combination of the above.

Dealing with a Chapter 13 that has gotten into trouble is relatively easy when there is some flexibility in the plan. The worst cases are the ones where the Debtor was a year behind on his mortgage when the case was filed. The plan is all about saving the house. There is virtually nothing besides the house and the car getting paid in the plan, the plan payment was a real reach for the debtor before he lost his job, he is already at a full 60 months – and he loses his job. Well, you can’t extend that plan term. You can’t reduce the payment without giving up either the house or the car, because there is nothing else there. You can get the debtor a little bit of time to find a new job, but every plan payment he misses is going to increase the remaining payments – which were a stretch to begin with, before he lost his job. So, after three or four months the Debtor finds a new job that pays less than the old one, he is now three or four months behind on his plan payment. The remaining payments will have to go up to cover that, and he can’t do it. In that case, sometimes the best option is to dismiss and refile.

I want you to notice, though, that even with the facts above; there was still an option. Dismissing and refiling may not sound too fun after three or four years in a plan. The last thing you really want to do is start over, but at least in this case it means starting over with a much smaller mortgage arrearage than you had to deal with in the first place, and you get a whole new 60 months to cure it. It isn’t a great solution, but it can make the difference between saving a house and losing it.

So, if life hands you more than you can handle during your plan term. Call your lawyer. You will have options. They may not be wonderful, but you will have some. Oh, and don’t be surprised if your lawyer’s first suggestion is that you try to sit tight until you find a new job. You will always have more and better options employed than not.

Elaine

Categories: Bankruptcy, Divorce, Mortgages and Foreclosure | Tags: , , , , , , , , , , , | Leave a comment

What Will I Have to Pay in a Chapter 13?

A Chapter 13 Bankruptcy is basically a modified payment plan where you can restructure certain kinds of secured debt, get current on secured debt on which you have fallen behind (like a house or a car) and pay some percentage of your general, unsecured debt (like medical bills and credit cards).

Let me begin by saying that SOME percentage of your unsecured debt means just that – SOME. I say that to clients in my office, and they almost universally translate the word some to mean all. They are not synonyms. The actual percentage paid by most Chapter 13 debtors is closer to zero percent than it is to 100%, and most of us can afford to pay 0%.

So, what does that actually mean?

There are two primary factors that determine how much money you will have to pay to make a Chapter 13 plan work. The first is determined by what is generally known as the Means Test. The Means Test is basically a worksheet where you start with your income and deduct your reasonable and necessary living expenses until you come up with an amount left over. If that figure is positive, then you will have to pay that amount each month for probably 60 months to your general unsecured creditors (the credit cards, medical bills, personal loans, that kind of debt). In other words, if you have $112 a month left over, you will have to pay $112 each month for (probably) 60 months plus 10% as a trustee fee, so $123 a month, over the life of your plan for the benefit of the general unsecured creditors. Most of my clients are paying a lot more than that on this kind of debt when they come to see me. So, for most people flunking the Means Test and having to pay something to their general, unsecured creditors is actually an improvement!

The other factor is the kind of debt that you have. If you want to keep the house and the car and you owe money on them, you are going to have to keep paying for them. This really shouldn’t be a surprise. The car, in the Western District of Oklahoma, will have to be paid through the plan; meaning that the plan payment you pay to the Trustee every month will include enough for him to make your car payment for you. If you are behind on the car at the time that you file the case, you can expect that you will catch up on it (and probably pay it off) over the life of the Chapter 13 plan.

Your house is a little different. If you are current on the house at the time that you file for bankruptcy (in this district), you may continue to pay the mortgage payment directly. However, that means completely current. So, if your mortgage payment is due on the first, and late on the 15th, That means it is due on the 1st. So, if you file bankruptcy on the 2nd, that payment had better already have been made. If you are behind on your mortgage payment, then it will be paid through the plan and the plan will include enough money to get you caught up an d current on it over the life of the plan.

If you owe other secured debt, debt that is secured by a lien on a specific piece of property, and you wish to keep the property, then that debt will have to be paid during the life of the plan. Debts that are given certain priority for payment in the Bankruptcy Code must be paid in full over the life of the plan. For most people that means recent taxes, and past due child support or alimony, these are things that have to be paid over the life of the plan. What most people expect to see listed here but isn’t is student loans. Student loans are a whole different problem in a Chapter 13 that will be addressed separately.

So, what this means is that most Chapter 13 plans pay for the house, the cars, the taxes, the child support (if any), fees to support the Trustee’s office and the Debtor’s attorneys fees. Then, there will be some amount added to be shared amongst the general, unsecured creditors who are usually everybody else. That amount is determined by the Means Test, and in many cases it is less than my clients have been paying on that debt before they filed.

Now, I don’t mean to kid you. A Chapter 13 plan is not a walk in the park. There are good reasons why only about 30% of all cases filed successfully complete. It isn’t, however, nearly as bad as clients expect it to be.

Often when clients come to see me their mortgage company is wanting a year of missed payments made up in six months or less. They are facing a wage garnishment that will take 25% of their gross income. The IRS is threatening to levy on their bank accounts. There is a repo guy out looking for their car, and the lender wants all the missed payments plus late fees, plus interest plus the repo guy’s fees by Tuesday. A Chapter 13 plan, even if it is expensive, can be a huge relief after the financial pressures most of my clients find themselves facing.

So don’t be afraid to investigate a possible Chapter 13 filing. It can do things for you that you can’t get done anywhere else, and, although, it won’t be cheap, it may be more affordable than any of your other options.

Elaine

Categories: Bankruptcy, Consumer Credit, foreclosure, Mortgages and Foreclosure, Student loans, Taxes | Tags: , , , , , , | Leave a comment

Filing Fees – and They Say There is No Inflation

There are three things that you have to pay for when you file for bankruptcy. They are: the attorneys fee, the filing fee and the credit counseling fee. The attorneys fee is pretty self-explanatory. The filing fee is paid to the Court at the time that the case is filed. It will probably look like you are paying this to your attorney; because you will pay it by handing your lawyer the money; but your lawyer will then pay the Court when he files your case. The credit counseling fee is ultimately paid to the pre-petition credit counseling company that you use to do your mandatory pre-petition credit counseling course. This you may pay directly, and you may pay it to your lawyer so that your lawyer can pass it on. Regardless, ultimately, you are the one paying for these things.

What brought this subject to mind this week is that the Administrator of the Courts just announced an increase in filing fees. A bankruptcy filing fee is generally divided between the Court for services provided by the Court and its clerk and the Trustee for services provided in administering your case. This increase is all going to the Courts.

The two most common filing fees for consumer debtors both went up $29 apiece, which is a substantial jump. What makes this a bit of a shocker is that fees just went up in November, 2011. Here is how fees have changed over just the last few years.

………………..  3/2006                Pre 11/2011                          2011 – 5/31/2014                      6/1/2014
Ch. 7                   $209                         $299                                         $306                                          $335
Ch. 13                 $194                          $274                                        $281                                           $310

There are all kinds of reasons and explanations for the increases, but the bottom line remains that it is becoming more and more expensive to file for Bankruptcy. I’ve practiced in many areas of law during the last 24 years, and I remain very proud of the Bankruptcy bar’s dedication to keeping attorneys fees as low as possible. When you file a Bankruptcy, you are filing a highly specialized, Federal Court case; and in most cases it will be substantially cheaper than any other significant legal event you have ever been a party to.

Bankruptcy attorneys were the first to really embrace automation. We have gotten very good at efficiently explaining complex legal concepts to our clients. That is not to say that Bankruptcy attorney fees haven’t gone up. The 2005 Bankruptcy Reform Act pretty well doubled the amount of work required to file a Bankruptcy and sent the lawyer’s liability soaring. Needless, to say – fees went up. Although I will say that they haven’t gone up in this office since then.

Elaine

 

Categories: Bankruptcy | Tags: , , , , | Leave a comment

Repeat Bankruptcy Filings

Most people have heard something about only being able to file a Bankruptcy every so many years.  I generally hear seven (which is the Biblical time period (Deut. 15:1).  Although, what most people are thinking of  is the time between Chapter 7 filings, and that is currently eight years.

The truth, like with most things, is more complicated.  I like to refer to the 2-4-6-8 rule.  This assumes, by the way, that every case filed ends in a discharge.  So, it is two years between a 13 followed by another 13 filing (although, you aren’t supposed to be able to complete a 13 plan in less than three years — hey, nobody every said the 2005 reform act made sense); four years between a 7 followed by a 13; six years between a 13 followed by a 7; and 8 years between two chapter 7’s.

So, I got a phone call this week from a man who has filed six Bankruptcies in the last 16 years.  That doesn’t compute.  First of all, only two of them were Chapter 7 cases.  Second, to date, none of the 13 filings have completed and resulted in a discharge — so, they never triggered the relevant waiting periods.

What causes that kind of repeat filing?  Despite what most people will assume, this kind of pattern generally includes a chronic health problem and at least a couple of periods of unemployment.  Those two things manage to cause the accumulation of medical debt, and periods of missed mortgage payments either during illness or following  a job loss.  The four incomplete Chapter 13 filings will almost always be caused by job losses, because you can’t make plan payments without regular income.

So, what does this tell me when I pick up the phone and encounter a would-be client who clearly has a history with the Bankruptcy Court?  The first thing I want to do is pull up his case history on the Court’s web site.  I want to see what was filed, when, and what happened to it.  Is he eligible for another filing, why did prior filings fail, have those problems been addressed, is there a compelling reason to try again?  These are the questions I begin with.

For the would be client there are a number of concerns.  First, is he eligible to refile?  Even if he meets the 2-4-6-8 rule above, if his most recent case was dismissed with a bar against refiling for 180 days (sometimes improperly referred to as a dismissal with prejudice); then, he has to wait out that 180 day period even if he has an aggressive creditor snapping at his heels.

Second, if he has been a debtor in at least one bankruptcy case in the last year, then the automatic stay will only last for 30 days when the case is filed unless the Judge agrees to extend it.  That requires notice to all creditors, an affidavit from the Debtor explaining why he should be given another chance; and possibly a hearing on the issue.  If the would be client has been a debtor in two bankruptcy cases pending in the last year, then there will be no automatic stay at all unless the Judge agrees to impose one.

Third, the would be client is going to have to convince me that he is worth taking on as a client; and he can expect that I will require considerably more cash up front than I would otherwise.  Of course, he may also have to convince the Court of his good faith if any annoyed creditor were to complain.

So, successive filings may be possible.  Oh, and you are always eligible to file a Chapter 13, you just may not be eligible for a discharge at the end.  The time periods above assume that the Debtor will need a discharge at the end of the case.  Without it, the Debtor will need to find a way to pay 100% of his debt in the Chapter 13.  That can be very useful, and a Chapter 7 filed with the intention of following it immediately with a Chapter 13 can be a very useful strategy for dealing with certain kinds of problems.  Oh, that is called a Chapter 20, by the way; and I will blog about it another day.

Elaine

Categories: Bankruptcy | Tags: , , , , , , | 2 Comments

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