60 Days Since My 341 Meeting, and Still No Bankruptcy Discharge?

November 21st, 2011

Bankruptcy Rule of Procedure 4004 addresses this question. Generally a discharge will be granted once the time for filing objections has expired; that time is usually 60 days from the date of your “first scheduled” Trustee Meeting (The 341 Meeting of Creditors). Rule 4004 outlines reasons why the entry of discharge may be extended. (see the link).

The majority of the time when a discharge is not timely entered, it is due to a clerical oversight either by the Bankruptcy Trustee or the Court Clerk. If you used an attorney to file your case, contact your attorney and inquire as to the status of your case. If you did not use an attorney (or used a cheap attorney that abandons you have the trustee meeting) contact the Bankruptcy Clerk of Court where your bankruptcy petition is filed and inquire as to the reason why no discharge has been entered. If lack of discharge was due to a clerical oversight, the Court Clerk can fix that in a matter of days.

By Matt Berkus

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How To Curb Impulse Spending?

November 15th, 2011

Not only have I seen spending temptation in my own life, but also in the lives of clients; you can spot it almost instantly as soon as you see a bank statement or credit card bill, daily charges at restaurants, a long list of small transactions at 7-Eleven, the bottle of wine or 6 pack of beer at the liquor store, or daily trips to the grocery store (sound familiar). Such miscellaneous spending can add up to hundreds of dollars per month and thousands of dollars per year. If you spent $8 per day on lunch for 5 days, that is $2,080 per year, put in some compounding interest and you have $12,896 at the end of 5 years, not chump change. But, I know, you have heard this before.

I have a fairly strong personality and conviction, but even I have a hard time with spending temptation. We all say it to ourselves, what is another $2 here, or $5 there. I deserve that glass of wine after work, or I just don’t feel like making dinner. Well, it does add up. My “excuse” is convenience. As an attorney, I am very sensitive to time and I value every minute and try to be as efficient and effective as possible. But in reality, if I don’t spend the time now to conserve money, I may have all the time I want in the future, but no money.

The Solution

Remove the ability, remove the temptation. It really is true that common sense is not all that common. The solution is surprisingly simple. Don’t carry with you any means to pay for anything; it’s the only way I found that actually works. When you get home tonight, remove all your credit cards, debit cards, ATM cards from your purse or wallet. If you have more than $20 cash, deposit it back into your checking account. If less than $20, just spend it down; sort of ease into going cold turkey on spending. This exercise may be a real eye opener and will test you; it is very likely you may feel the psychological symptoms of withdrawal. On the weekend, feel free to put back the cards and run your errands, but during your work week, leave your spending ability at home.

Now, if you truly are addicted to miscellaneous spending, this exercise may require further changes. If you eat out for lunch every day, you will need to start preparing lunches and bringing lunches and snacks with you. But other than that, most of the miscellaneous day to day spending is lifestyle fluff and certainly not a necessity. Also, you will need to give a little forethought to buying gas for your car when you notice fuel getting low.

One final point, if your first instinct is to scoff at this solution and you start coming up with excuses not to do it, that is called denial. So, if you say something like, “what about emergencies;” you more than anyone need to try this exercise for a week.

By Matt Berkus

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Authorized Users vs. Co-signers in Bankruptcy?

November 7th, 2011

A common question: what happens to an authorized user and/or cosigner when the other party, primary borrower, files bankruptcy? For example, if father cosigned a vehicle for son, and son files bankruptcy, what happens to father; or if husband placed his spouse as an authorized user for his Chase Visa card, what happens to wife if husband files bankruptcy?

Authorized Users are just that, authorized by the primary borrower to use an account. If the primary borrower files bankruptcy, in most states, that act absolutely, positively has no impact on the Authorized User. The Authorized User is not liable for the debt and the bankruptcy absolutely should not appear on the authorized users’ credit report. However, in some states, a spouse can be liable for a debt if the debt was incurred for a family purpose, but generally, an authorized user is not responsible for the account.

Co-signers, on the other hand, are in big trouble if the primary borrower files bankruptcy. A co-signer, as the name implies, signed for the loan; the co-signer essentially acts as a guarantor for the primary borrower. If the primary borrower files bankruptcy or otherwise defaults, the lender may pursue the cosigner to the full extent of the law for the debt. The primary borrower’s bankruptcy should not appear on the co-signer’s credit report, but the lender will seek payment from the co-signer.

If the primary borrower files chapter 13 bankruptcy, the cosigner is protected from collection activity while the chapter 13 bankruptcy is active. This protection is known as the Codebtor Stay and is authorized under bankruptcy code section 1301, but is only applicable if the debt in question is consumer debt. However, unless the debt is paid in full within the chapter 13 bankruptcy, once the bankruptcy is discharged, the creditor will pursue the cosigner.

Word to the wise, if you cosign a debt, be darn sure you can pay it. After all, there is a reason the lender is asking for a co-signer, the lender views the primary borrower as high risk, as should you.

By Matt Berkus

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Tax Protesters, The 1st Amendment Protects Expressing Your Ideas, But Does Not Protect You From Not Paying Tax.

November 4th, 2011

Tax evasion can be prosecuted criminally. Although you are generally free to express your ideas about taxes, you violate various criminal and civil laws if you put those ideas into action by not filing a tax return, filing an inaccurate or fraudulent return, or not paying tax due.

“In January 2009, Michael C. Irving (D.D.C.), a District of Columbia police officer, was sentenced to 14 months in prison, following his conviction in May 2008 of two counts of tax evasion. Irving had fraudulently arranged for the police department to stop withholding taxes on his paychecks, and had filed a 2002 tax return alleging he earned zero wages, despite earning wages of $155,211 that year.

In September 2008, Robert B. Beale (D. Minnesota), the founder and former chief executive officer of Comtrol Corp., was sentenced to over 11 years in prison and ordered to pay a $175,000 fine, following his conviction for conspiracy to defraud the IRS and tax evasion. Beale failed to pay income tax on more than $5 million in income and used a shell corporation to conceal his income.

In August 2008, Hamlet Bennett (D. Hawaii) was sentenced to a term of 78 months in prison and ordered to pay more than $1.3 million in restitution and $35,330 in costs of prosecution, after his conviction for tax evasion for the years 1999 through 2003. Evidence at trial revealed that Bennett purchased “products” from convicted tax offender Royal Lamar Hardy and Hardy’s organization, The Research Foundation, which promoted wide-scale “non-filing” of federal income tax returns.

In May 2008, Louis Genard (W.D. Louisiana), a dentist, was sentenced to 30 months in prison and ordered to pay $155,683 in restitution, following his conviction on three counts of willful failure to file income tax returns. Genard had claimed that he revoked his U.S. citizenship and declared himself a “citizen of the Republic of Louisiana.”

In April 2008, the court sentenced actor Wesley Snipes (M.D. Fla.), to three years in prison; co-defendants Eddie Kahn and Douglas Rosile received 10 years and four and a half years, respectively.” (http://www.usdoj.gov/tax/txdv09336.htm)

See here for more information on IRS enforcement activities.

By Matt Berkus

Posted in Taxes | No Comments »

What are the Chapter 13 Bankruptcy Debt Limits?

October 26th, 2011

To be eligible to file chapter 13 bankruptcy and reorganize your debt, you can only have so much debt. If you are over the chapter 13 debt limits, then you may not file chapter 13 bankruptcy.

Presently, as of 10/2011, the debt limits are as followed

Unsecured Debt: $360,475

Secured Debt: $1,081,400

There are, of course, other eligibility requirements; but the debt limits can be a stumbling block, when, for example, a debtor has a large 2nd mortgage he is trying to eliminate in chapter 13 bankruptcy; that 2nd mortgage becomes unsecured debt for purposes of debt limits.

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Repeat Bankruptcies, How Soon Can You File a Second Bankruptcy?

October 26th, 2011

No one wants to file a second bankruptcy; heck, no one wants to file a first bankruptcy, but for many debt laden families and small businesses, bankruptcy is the only way they will regain control of their financial life. However, during prolonged economic downturns, or occurrence of some drastic event like a severe illness will drive some people to file bankruptcy a second time. So, when can you file a second bankruptcy?

There are different timelines depending on which chapter of bankruptcy you previously filed, also the timelines run from the filing dates, not the discharge date. Here are the rules:

-Chapter 7 to Chapter 7 = eight years (727(a)(8))

-Chapter 13 to Chapter 7 = six years (727(a)(9))

-Chapter 11 to Chapter 7 = eight years (727(a)(8))

-Chapter 7 to Chapter 13 = 4 years (1328(f)(1))

-Chapter 11 to Chapter 13 = 4 years (1328(f)(1))

-Chapter 13 to Chapter 13 = 2 years (1328(f)(2))

The timelines listed above relate to discharged first bankruptcies, this post is not about refilling a case that was dismissed.

As a side note, Deuteronomy 15:1 commands that debt be forgiven every seven years.

By Matt Berkus

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HAMP, One Year Left, Better Get Started!

October 21st, 2011

HAMP, Home Affordable Modification Program and the 2007 Mortgage Debt Forgiveness Act are set to expire next year, December 31, 2012. So, why am I mentioning this fact now?

Foreclosures, short sales, and modifications take time. Anyone who has beat his head against the wall trying for a mortgage modification can attest that for most people, it can take many months and sometimes over a year. Foreclosures in most states take about 9 months and in the areas hardest hit by the real estate bust (Nevada, Florida, Arizona, etc) foreclosures are taking one to two years.

The Mortgage Debt Forgiveness act relates to the tax implications of forgiven mortgage debt. If your home forecloses (or you short sell), and the home is worth less than the balance due on the mortgage obligations, and the bank decides to forgive the debt, the IRS treats that amount as taxable income. So if you owe $200,000 on your home, and the bank forecloses and sells the house for $150,000, that $50,000 difference is taxable income (I know, you’re surprised). The Mortgage Debt Forgiveness Act exempts the deficiency from being taxable income if the deficiency results from a foreclosure or short sale of a primary residence between calendar years 2007 to 2012. But, banks are not required to forgive mortgage debt; in most states, banks can try to collect the balance from you.

As you can see, if you live in a state with a prolonged foreclosure cycle, you could be hit with a nasty tax bill if the foreclosure finalizes in 2013. So, if you have any inkling that you will be walking away from your home, get that process started.

Given the banks’ inherent reluctance to modify mortgages in the first place, I can certainly imagine that as the expiration date looms closer, the banks will delay modifications and start laying off the employees in those departments. So unless HAMP gets extended, there is probably only a 9 to 10 month window from today to attempt a modification. Long term, the jury is out on whether the homeowners that received modifications will ultimately avoid foreclosure or short selling their home.

However, there are still options. Bankruptcy eliminates mortgage deficiency balances; so long as you file bankruptcy in the same tax year as the foreclosure/short sale, you not only eliminate the deficiency, you eliminate its status as taxable income; you kill two birds with one stone. Also, bankruptcy can completely eliminate 2nd mortgages and HELOC’s. Although bankruptcy cannot modify the terms of your first mortgage, bankruptcy can eliminate your other debt, possibly eliminate your 2nd mortgage to give you the best opportunity to keep your home and financially recover.

By Matt Berkus

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Posted in Bankruptcy, Mortgage Assistance, Short Sale | No Comments »

Can You Discharge Tax Debt When IRS Filed a Substitute For Return?

October 18th, 2011

Question:

The IRS filed a substitute for return on my behalf but later I filed the original tax return, can that tax debt be discharged in bankruptcy?

Answer:

If the taxpayer replaced a substitute for return with a taxpayer filed return (an original return), that tax becomes eligible for discharge in bankruptcy assuming all discharge rules are otherwise satisfied.

If a taxpayer goes long enough without having filed a tax return, the IRS will eventually file a tax return on behalf of the taxpayer so the IRS can assess a tax and collect. This IRS filed return is called a Substitute for Return. This outcome is not good because a substitute for return only provides a minimal deduction, so the tax due is usually inflated. In general, it is always advisable for the taxpayer to file a return and replace the substitute for return filed by the IRS.

Certain taxes can be discharged in bankruptcy, see this article. One of the rules is the 2 year rule. The 2 rule states that to discharge income tax in bankruptcy, the required tax return must be filed 2 years or more before the bankruptcy filing date (Bankruptcy Code 523(a)(1)(B)(ii)). It is well settled that a Substitute for Return does NOT count as a filed return for purposes of the 2 year rule. So, to discharge an income tax debt related to a substitute for return, the taxpayer must file an original tax return and wait 2 years to file bankruptcy [assuming all other discharge rules are satisfied].

By: Matt Berkus

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Posted in Bankruptcy, Taxes | No Comments »

Bankruptcy Court Filing Fees Set to Increase, November 1, 2011

October 17th, 2011

It happens from time to time, but the bankruptcy court (nationwide) will be increasing the filing fees charged to all bankruptcy debtors. The fee increase will take effect November 1, 2011. The filing fee is the administrative fee that is charged to all debtors who file a bankruptcy petition.

The CURRENT fees are as follows:

Chapter 7: $299

Chapter 13: $274

As of November 1, 2011, the NEW fees will be the following:

Chapter 7: $306

Chapter 13: $281

For cash strapped debtors, Bankruptcy Rule of Procedure 1006 provides an option to pay the filing fee in installments and in some circumstances (very low, low, income) waive the filing fee. But beware, if you opt to pay the filing fee in installments and miss a payment, then your bankruptcy case is automatically dismissed.

By Matt Berkus

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Posted in Bankruptcy, Court | No Comments »

Harrisburg, PA to File Chapter 9 Bankruptcy, What is Chapter 9 Bankruptcy?

October 13th, 2011

According to the Wall Street Journal, Harrisburg, Pennsylvania filed for bankruptcy relief on October 12, 2011. It may come as a surprise that a town can file for bankruptcy, but there is a little known part of the bankruptcy code that provides cities and municipalities (e.g. counties) bankruptcy protection, chapter 9 bankruptcy.

Other notable chapter 9 filers include Orange County, CA and Vallejo, CA. Many commentators are speculating that several major cities may need chapter 9 relief in the near future.

Historically, chapter 9 bankruptcy is used by smaller towns or municipalities after suffering an adverse judgment or loss of its major economic center (e.g. factory closing). For example, Westfall Township, PA filed chapter 9 after it lost a lawsuit against a real estate developer and the court awarded the developer a judgment of $20,000,000. Westfall had a population of less than 2,500, so its tax base was too small to pay that judgment. The Wall Street Journal cites James Spiotto of the firm Chapman and Cutler stating that there have been 48 chapter 9 bankruptcies since 1980.

Chapter 9 bankruptcy is fairly unique in the bankruptcy code; it doesn’t operate like other bankruptcies. The court does not liquidate assets or interfere with city government; the city can even incur more debt (assuming someone is willing to buy the bonds) after the bankruptcy is filed; and there is usually little involvement by the U.S. Trustee. In essence, chapter 9 bankruptcy is a forced negotiation. It is used to bring all the parties to the table to work out a plan that everyone can live with; meaning, for the town to wrest favorable concessions from its creditors. Ultimately, the bankruptcy judge will give final approval to any chapter 9 plan.

By: Matt Berkus

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Posted in Bankruptcy | No Comments »

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