Advantages & Disadvantages To Filing Chapter 13 Bankruptcy

Posted by on April 24, 2015 in Uncategorized | 0 comments

Chapter 13 bankruptcy is a type of bankruptcy that allows you to repair your credit by repaying some of your debt. Chapter 13 bankruptcy is best for those with a high income or with many assets that can be liquidated. If you are trying to decide whether or not to file chapter 13 bankruptcy, here are some of the advantages and disadvantages for you to consider.                                                                                 Advantages Avoid Foreclosure If you are falling behind on your mortgage payments, you can avoid foreclosure by filing bankruptcy. Once your bankruptcy is filed, lenders can’t collect debt or start a foreclosure process until the courts permit them to do so. Filing bankruptcy will give you time to catch up on mortgage payments before a foreclosure process can begin. One Payment When you file Chapter 13, you only have to make one debt payment. Instead of digging through your bills trying to decide which creditors to pay off first, all of your debts are consolidated. You will make one affordable payment every month and each creditor will receive their percentage. Since creditors won’t be allowed to try to collect more payments, they won’t be harassing you either. Debt Reduction Your debt to income ratio will play a huge role in how much of your total debt you will need to pay. You will go to court with your bankruptcy lawyer and show proof of your debts, income, and assets. The courts will decide how much of your debt you can reasonably pay. You may only need to pay a small percentage, or the entire amount. Other considerations for your payment will include: Disposable income Secured debts Mortgage arrears Nonexempt property Stopped Late Fees As soon as your bankruptcy is filed, you will not acquire any more late fees. Even better, when the court calculates your entire debt, the late fees will not be included in the calculation. All of the late fees that you have acquired since the bills started coming in will be erased. Reduce Car Payments When you file bankruptcy, you may have the option of lien stripping. This is where your secured debt is modified to meet the value of collateral. When you have a car loan, the amount you owe on your vehicle can be reduced to the value of car. You will modify your loan to reflect the new amount that you owe. However, eligibility varies. If your vehicle was a recent purchase, lien stripping won’t be available to you.                                                                                 Disadvantages Additional Bill Although your debts will be consolidated, it’s still an additional bill that you are going to have to pay. If you don’t have much disposable income, it could be a serious issue for you. You still have to make the same payments on your current obligations like your mortgage, car payment, and utilities. If you don’t make your payments for your repayment plan on time, you will have to pay late charges. Attorney Fees Chapter 7 bankruptcy is common and simple. You prove that you don’t have a high income or significant assets to liquidate and the courts wipe away your debt. After the paperwork, it is a simple filing process. Chapter 13 is very different. It’s a long and complicated process, which leads to much higher attorney fees. Drop In credit...

read more

How To Protect Social Security Disability Payments From Garnishment

Posted by on April 13, 2015 in Uncategorized | 0 comments

Most people who receive Social Security disability (SSDI) payments are living from one paycheck to the next. Unfortunately, sometimes the disability payments are not enough to cover all the bills they have accumulated. Because of this, sometimes people who are receiving SSDI are threatened with garnishment by creditors for debt repayment. Thankfully, there are several ways you can protect your SSDI from garnishment. Here’s what you need to know. Set Up an Electronic Transfer Account If you are currently receiving your SSDI payments on paper checks, there is no way for your bank to verify and protect your SSDI payments from garnishment. If your bank receives notification from the court system that your wages are being garnished, they will be obligated by law to allow the garnishment to go through. However, if your SSDI payments are direct deposited into an electronic transfer account, they cannot be garnished for 60 calendar days. Set up an electronic transfer account at a bank for your SSDI payments to be direct deposited into. The bank will keep track of the deposits from the Social Security Administration for a revolving 60 day. During each 60 calendar day period, your bank will automatically disallow garnishments of the protected amount of your SSDI payments. If your balance is greater than the SSDI deposits in the last 60 calendar day period, the overage may be subjected to garnishment. It’s a good idea to set up a separate bank account for the electronic transfers of your SSDI payment. You may find it easier to keep track of what monies are exempt from garnishment if you do not deposit any other funds into this account. Important note: Do not transfer the SSDI funds from this account to another account. If you do, the bank will not know the funds originally came from your SSDI payments. File Chapter 7 Bankruptcy Your SSDI payments are protected when you file a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, a trustee will sell off your non-exempt assets to pay off your debt. In a Chapter 13 bankruptcy, you may be required to make payments towards your debt by using your SSDI payments, depending on the laws of your state. Speak with a lawyer for more specific state law requirements for your particular location. If you have received a lump sum SSDI payment, you may need to show proof of where those monies are. For example, if your lump sum payment came in the form of a paper check and you deposited it into your checking account, you will need to show documentation to your bankruptcy trustee regarding the deposit. Also, you will need to show documentation if you transferred the funds from the original account to a different account. Important note: Consider opening a special needs trust if you have any of a lump sum payment remaining. To do this, you will need to appoint a trusted person, such as a family member or financial advisor, to control the funds in the trust. However, make sure you disclose this information to your bankruptcy trustee. Non-Exempt Garnishment The federal government is permitted to garnish SSDI payments for cases such as unpaid federal taxes and student loans. Also, child support and alimony arrears may be garnished by your state. Speak with a social security disability...

read more

Non-Priority Versus Priority Tax Debts In Chapter 13 Bankruptcy: How To Know The Difference

Posted by on April 9, 2015 in Uncategorized | 0 comments

Chapter 13 bankruptcy is an option for Americans seeking relief from a variety of debts, and that includes tax debts in most cases. In general, debts of all kinds, including back taxes owed, are divided into one of two categories: non-priority and priority debt. The laws providing for Chapter 13 bankruptcy delineate how tax debts are categorized. Below is more information on how to know if your tax debt will be considered as non-priority debt or priority debt: Non-priority tax debt Non-priority tax debt is the favored category among bankruptcy filers since non-priority debts, in general, are not likely to require full repayment. It is unusual for a Chapter 13 bankruptcy filer to pay the full amount of non-priority debts, and that can be a great relief for individuals seeking to reduce their tax burden. However, before tax debt can be automatically lumped into the non-priority category of debt, it must meet certain criteria under federal bankruptcy laws. Here is a brief summary of those criteria: Must be income tax debt – any other form of tax debt, including property taxes, is automatically excluded from being considered as  non-priority debt. Must meet date and age criteria – there are several date and age criteria that must be met before a tax debt can be classified as “non-priority”. For example, tax debt that is less than three years of age cannot qualify. Other date and age criteria include restrictions related to filing deadlines and dates as well as tax assessment dates. Must be tax debt free from taint of criminal activity – if you commit tax evasion or fraud, then the tax debt in question is automatically excluded from consideration as a non-priority debt. Note that this does not apply to good-faith errors in filing taxes or an inability to pay taxes. Note that a bankruptcy court has authority to make some exceptions and may move non-income tax debt into the non-priority tax debt category, for example, if the judge finds such a decision to be justifiable. Priority tax debt Priority debts are those that take precedence over all other debts in a Chapter 13 bankruptcy filing. Typically, secured debts, such as mortgages, car loans, and other obligations backed by a material possession, cannot be discharged as a non-priority debt and must be repaid in full. For tax debt, this is no different; below are several specific types of tax debts that will require full repayment: Liens associated with tax debt – if a lien has been filed on real estate or personal property by a legal taxing authority, then the tax debt also becomes secured. That will place such debt within the priority debt category. Certain types of tax debt – debts that are required to be collected from an employee’s check, such as social security or unemployment taxes, are automatically considered priority tax debts. Recent taxes on property – property taxes that are less than two years past due are automatically assigned as priority tax debt. Despite the more rigid requirements associated with priority tax debts, it is advantageous to include them in a Chapter 13 bankruptcy filing. Taxing authorities can attach crippling interest and penalties to taxes due, but Chapter 13 bankruptcy courts will often relieve filers of all non-principal charges and provide additional time to pay...

read more

What Happens To Tax Refunds In Chapter 7 Bankruptcy Cases?

Posted by on April 6, 2015 in Uncategorized | 0 comments

Filing for Chapter 7 bankruptcy is a great solution for becoming debt-free if the majority of your debts are unsecured. When you are approved for a discharge in Chapter 7, all of your unsecured debts will be forgiven, but you may have to surrender some of your assets, including your tax refund. Before you file, you may want to know how the trustee will handle your refunds, and here are three things you should know. Why the Trustee Takes Refunds The first thing to understand is that a bankruptcy trustee will be assigned to your case. The role of the trustee is to collect and sell certain assets and to use the money to pay your creditors. If you do not have any assets, your creditors will not receive any payments, and the full balances owed will be wiped away. You should understand that assets do not only refer to things you currently own, but they can also include cash you expect to receive. This cash could come from an inheritance or lawsuit settlement, but the main source of cash you may be expecting is a tax refund. The trustee may have the right to intercept your refund, but it will depend on several things, including the timing of your case. Why Timing Matters When you file for Chapter 7 bankruptcy, you will have to list all of the income you received within the last six months to one year. If you recently received a tax return, you may also have to include that in these figures. In most cases, people that file Chapter 7 are allowed to keep the tax returns they recently received, as long as the money was spent on necessary things, and this includes: Mortgage payments Home repairs Utilities Medical care Food Clothing If the refund was spent on some type of luxury item, you may have to surrender the item to the trustee, even though you received the refund and made the purchase prior to filing for bankruptcy. To be safe, you may want to wait for six months after receiving the refund because the trustee will not be as likely to question what you spent the money on if this much time has passed. On the other hand, if you file your taxes after filing for bankruptcy, the trustee is likely to intercept your refund. If this happens, you may never see the money because the trustee may take it directly from the IRS. If you believe that this will happen, you could plan ahead by changing your exemptions for your paychecks. If you raise the exemptions, your paychecks will be higher because fewer taxes will be withheld. When this is done, it could actually reduce the amount of tax refund you will receive, and you will not have to surrender as much money to the trustee. Another way to reduce the amount of your refund is to contribute more money to the retirement plan offered at your job. This will decrease your income amount and could help you reduce your tax refund check. Finally, you should realize that the trustee will only take one tax return at the most. The trustee does not have access to take the tax refund money you receive for the taxes you file the year after filing...

read more