Recent Blog Posts

Eliminate your debt with bankruptcy debt relief solution

Joseph Tosti — Wed, 28 Mar 2012 17:11:00 GMT

Are you struggling hard to manage your finances? Are you not being able to pay off the debt? Bankruptcy debt relief is the best option for you. Bankruptcy is a legal status of an insolvent person or organization, that is, one that cannot repay the debts owed to creditors. In recent times, the term “bankruptcy” has become a household vocabulary. To put it in other words, the global financial crisis has prompted a lot of people to file for bankruptcy. So, a large number of people declaring bankruptcy have become the most common site in the U.S.

It is true that declaring yourself as a bankrupt will free you from the shackles of outstanding debt but certainly not without any financial restriction. Soon after filing for bankruptcy, you will no longer be allowed to take out any sort of loans from the banks or financial institutions. Also, credit card companies and banks will not let you apply for further credit or loans, since your bankruptcy is registered on your Credit Report Bureau.

However, in this regard, that bankruptcy debt relief can be a viable solution to your debt problems. Bankruptcy debt relief programs can definitely put an end to your financial despair without letting you to suffer from any major implications of filing for bankruptcy. There are two major types of personal bankruptcy, Chapter 7 and Chapter 13. These two types of bankruptcy debt relief solutions can provide you relief from your financial nightmares. You can opt for any of these two bankruptcy debt relief solutions, depending on your unique financial situation. Before opting for these programs, also know the eligibility criteria and requirement.

In order to file for bankruptcy, debtors have to go to their local Federal Bankruptcy court and file a petition that includes a complete statement of their debts and assets. Anyone considering chapter 7 not including an asset can lead to the direct dismissal of the bankruptcy petition. This kind of bankruptcy is meant for individuals who do not have a regular flow of income and have a miserable financial condition because of overwhelming debt. So this bankruptcy allows them to discharge most of their secured and unsecured debts after liquidating all the non-exempted assets and using them to pay off the creditors.

On the other hand, bankruptcy chapter 13 is designed for those who have a regular and fixed monthly income, and don’t want any kind of mortgage. This bankruptcy involves a court monitored restructure payment plan to clear debts over a period of 3 to 5 years. Thus, in this process debtors can save their home and other important assets while discharging debts. However, a person can qualify for this bankruptcy only if he/she has the unsecured debt amount of more than $25,000.

If you still have a lot of doubts or queries, it is advisable to seek help of a bankruptcy counseling service in the form of financial professional or bankruptcy attorney. They can assess your fiscal position and offer you the best solution.

In conclusion, bankruptcy debt relief is a viable option to eliminate your debt, depending on your unique financial situation.

Does Debt Settlement Trump Bankruptcy?

Joseph Tosti — Tue, 13 Sep 2011 22:53:00 GMT

If you are knee deep in overwhelming debt and heading straight towards bankruptcy, hold on your breath and think twice as other alternatives are there which can help you to pay down your debts faster, without affecting your credit as severely as bankruptcy does. Debt settlement is one such alternative, which can enable you to come out of the labyrinth of debts legally by paying much less than what you actually owe. In maximum cases, debt settlement is considered a safer option than bankruptcy because bankruptcy always has a social stigma attached to it which often spoils the filer's reputation in the credit market. In addition, bankruptcy remains on your credit report for almost 7 years and it's perhaps a death blow on your credit score. As settlement involves none of these pitfalls, many consumers prefers settlement over bankruptcy. However, it's best to look at the pros and cons of both debt settlement and bankruptcy, before signing the dotted line. Read on to have a quick look at debt settlement and bankruptcy debt relief plans.

Bankruptcy

The best thing in Chapter 7 bankruptcy is it gives you a financial fresh start and the court no longer hold you responsible to pay back the debt amount. Under chapter 7 bankruptcy, a court appointed trustee liquidates all your non-exempt assets and disburse the money among your creditors. They can seize your automobiles, home, place of business and even personal items such as jewelry and can put them up for sale to recoup the debt amount. As per chapter 13 bankruptcy, you can reshuffle your unsecured debts like credit cards and your secured debt like a home loan and can form a new repayment plan based on your convenience and monthly income. According to this new repayment plan you agreed to pay back the debt over a three- to five-year period. Good news is none of your assets are sold off in Chapter 13 to repay your debt and as long as you make timely payments, on your court approved new repayment plan, the creditors won't be allowed to reclaim your assets or take any legal action against you. However, the greatest pitfall of both chapter 7 & Chapter 13 is they close up your credit accounts abruptly, which affect your credit report adversely.

Debt Settlement

With a debt settlement plan, you can reduce the outstanding balance you owe and can waive the rest of the balance completely. By settling your debt, you can write off almost 40% of your debt. The creditors accept this reduced amount as full and report the credit bureau as paid off. However, credit card settlement has some pitfalls as well. If the amount forgiven by your credit card company is greater than $600 you are required to report it as income on your taxes and your credit account also get closed as soon as you settle your credit card debt. It's true that settling your debt can also affect your credit some way or the other, but this damage is minimal in comparison to the impact that bankruptcy has on one's credit score.

To conclude, a bankruptcy remains on the credit report for almost ten years and on the public record forever. The credit scores of a bankrupt individual is almost impossible to retrieve and therefore it becomes difficult for him to avail new credit, health insurance, utility services or even employment in future. Opting for a debt settlement plan is wiser choice than filing bankruptcy in terms of credit. It is highly recommended to seek legal help and assistance, before applying for any of these debt relief plans.

What Causes an Emergency Bankruptcy?

Joseph Tosti — Wed, 01 Jun 2011 16:43:00 GMT

I wanted to write something about what makes those who procrastinate file bankruptcy. First of all, procrastination and bankruptcy often go hand in hand. The unknown is scary and making a move during a period of insecurity is hard. Bankruptcy often feels optional at the beginning: maybe that loan modification, family help, or creditor concession will come through and save the day. Even once a person knows they need to file, they often wait, paralyzed, until something truly forces their hand.

I figure this is all just human nature, and usually, when and if someone needs to file for bankruptcy, the waiting and hoping has not truly hurt them. Maybe it has caused a bit more credit damage, but no irreparable harm has been done. However, debt default has real consequences and events do come along to make even the most recalcitrant file for bankruptcy protection. Here are some:

1. Wage garnishment. This is a big one. Having your paycheck shrink on very short notice causes major shock and distress. This is an example of having waited too long and getting yourself into a tough spot. Bankruptcy will stop the garnishment, but the garnishment makes it harder to pay the fees to get into bankruptcy. Plus, a normal bankruptcy takes time to file, and this is in conflict with the next looming pay period and garnishment.

2. The Approaching Foreclosure: Sometimes this is just tragic because people wait too long. If a bankruptcy is filed on the eve of a foreclosure sale, it will still stop the sale. However, once the hammer falls and the memorandum of sale is signed, the foreclosure is final and cannot be reversed absent the rarest of circumstances.

3. The Arrest Warrant. In Massachusetts, it is common for procrastinators to be served with lawsuits and supplementary process summons. If a debtor ignores the latter, civil arrest warrants will follow. A sheriff will usually make telephone contact with the debtor to arrange voluntary attendance at the courthouse, but all the same, an arrest warrant is scary stuff. It makes people get serious and take action about handling their debt problems.

I want to stress something and dispel a misconception some have: A normal bankruptcy takes time to prepare. If you wait until the last minute, you will have an “emergency case”. Lawyers will charge you more money than they do for a normal case to put whatever they are doing on hold and take on your emergency–if they can take it on at all. My advice would be to not let things become an emergency before taking action.

by Nicholas Ortiz, Boston Bankruptcy Attorney · Posted in Filing for Bankruptcy

Why You Shouldn’t Reaffirm a Mortgage in Bankruptcy

Joseph Tosti — Wed, 01 Jun 2011 16:32:00 GMT

I recently got a phone call from a client. She got a letter from her mortgage company giving her the “opportunity” to reaffirm her mortgage. She wanted to know whether she should do this. I told her, “Absolutely not.” In the overwhelming majority of cases, it makes absolutely no sense to reaffirm a mortgage debt. Why? The Bankruptcy Code is written in such a way so as to make a mortgage reaffirmation bad news with a very small upside.

When the Bankruptcy Code was rewritten in 2005, additional provisions were inserted dealing with the reaffirmation of personal property, such as jewelry, cars, etc. A “reaffirmation” means that you sign a document, that must be approved by the Court, making you permanently liable for the loan, regardless of what happens, as if you had never filed for bankruptcy. You might say, “I want to keep my house, so I need to reaffirm the loan.” But this is not true. Unlike some personal property, you don’t need to reaffirm a mortgage to keep your house. So long as you keep your payments current, you keep the house, regardless of whether you reaffirm the mortgage or not.

What’s the benefit of not reaffirming? No matter what happens, so long as you have the mortgage you scheduled in your bankruptcy (even if it’s been sold but not if it’s been refinanced) the lender can’t go after you personally for any shortfall or deficiency. If you fall behind, it won’t show up on your credit record, and if there’s a foreclosure, the lender can’t go after you for any shortfall. This is true for the length of the mortgage. And if the payments are current, you keep the house.

What’s the down side of reaffirmation? If you fall behind on payments forany reason, the mortgage company can make a negative credit report, and if there’s a foreclosure, in those states that allow deficiency judgments, can go after you for any unpaid principal, interest, late fees, lawyer’s fees, costs, etc. as if you had never filed for bankruptcy.

by Brett Weiss, Maryland Bankruptcy Attorney · Posted in Bankruptcy Basics

Medical Bills send People Bankrupt

Joseph Tosti — Mon, 16 May 2011 17:10:00 GMT

All too often today people are declaring bankruptcy because they get sick or are injured in an accident. In America about half the people declaring bankruptcy are doing so because they cannot pay their medical bills. Of these, more than half had health insurance.

Medical bankruptcy is hitting middle and lower middle class people hard. These are people who work hard to pay their way in life and do the best they can to bring up their families. Most people even struggle to pay medical health insurance to protect themselves and their families if there is a medical emergency.

The worst thing about medical bankruptcies is they can come at the very worst time of your life and, even if you have medical health insurance, you can still owe a lot of money in medical bills. Just one major accident or illness can be enough to send you bankrupt when you cannot make medical payments to your service providers.

Rising Costs of Medical Providers hurt Patients

Medical costs are rising at a rapid rate and it is difficult for everyone to keep up with the costs at the time of a medical crisis or long-term illness. Medical health insurance goes up every year making it harder and harder for middle class people to keep up the payments for medical protection. So much so that when people need to make cuts on their budget often medical health insurance s is among one of the first costs to get cut.

If your employer has previously paid your medical health insurance as part of your employment package you may find the medical benefits of the policy are shrinking. Or, if you are someone who has to pay their own insurance you know how expensive your cover is and how difficult it can be to keep the payments up during a time of a medical crisis.

Add this to the ever increasing issues across the country with interest rates rising and the subprime mortgage crash. More and more ordinary people are losing their homes to bankruptcy. Then add the pressure of medical expenses piling up on top of all the other financial burdens in your life and it may only take a medical emergency to push you over the edge. Even if you have medical benefits.

Take a look around and do some research. Look at ways try to bankrupt-proof your life now - for the future.

Life after Bankruptcy

Joseph Tosti — Mon, 16 May 2011 17:07:00 GMT

Going bankrupt is a devastating decision to make. It affects you emotionally and psychologically for years to come. The pressure of impending foreclosure, debt collectors and creditors constantly calling you can just be so hard.

Sometimes bankruptcy is the only answer but, remember, it is not the end of your financial world. Yes, it is hard to come back but you can. It takes guts and determination. Bankruptcy stays on your credit rating report for up to 10 years.

If bankruptcy is your only solution, you can plan to come back from it and rebuild your reputation. It will take time, maybe even 3 years before you can finance any more of your dreams at a decent interest rate. So there is life after bankruptcy if you can put in the work to rebuild your financial life.

Bankruptcy Information for Bankrupts

The first thing you must determine is why you got into financial trouble in the first place. Ask yourself some questions and look at what you spent so much money on; maybe you lost your job and it was out of your control or, you were just too greedy and wanted everything you could buy.

Watch this video

http://au.youtube.com/watch?v=Nv3oihHBpdE

Take a good hard long look at why you ended up with creditors chasing you. Think about:

planning your finances better in the future
changing your attitude to spending money if you use your credit card a lot for unnecessary purchases
buying what you need not what you want
keeping track of your spending
paying your bills on time.

Then take a look at your total expenditure for a month. How much do you spend on incidentals; e.g., takeaway or restaurant meals or clothes you don't really need. If you buy your groceries on credit then you are heading for trouble. You need to live within your means and if you want to improve the level of that means - then work at it. Even if you need to get financial counseling to help you get back on track.

Very few successful people have done it easy. Regardless of opinions and appearances. It takes good old fashioned hard work to come back from bankruptcy. If you have to, get a second job.

Tips for Credit Repair

Once you figure out where you went wrong, put some accountability measures in place.

Tip 1. Look at how much money is coming in and then look at what amount you need ach month for the bills. Next, create a budget.

Tip 2. Think about using a cash system rather than a debit or credit card. If you only use cash, you can not overspend. Do not carry your debit or credit cards unless you are going out to buy something specific. This will help curb impulse spending.

Tip 3. Keep track of where you spend your money, and how much you have once the monthly bills are paid. This way you know exactly what you have left to spend and save.

Tip 4. The most essential tip is to pay your bills on time to help rebuild your credit. Make sure you do this every time your bills are due. Credit agencies record on time and late payments on your credit record.

While bankruptcy may seem to be the end of your financial world, you really have control. It is your choice. Put bankruptcy down to experience and move forward into the future with a plan to get back on track.

In Bankruptcy? Don’t Fear the 1099-C

Joseph Tosti — Mon, 14 Feb 2011 17:06:00 GMT

This year, it seems that more creditors than ever are sending IRS Form 1099-C to their debtors who have filed bankruptcy or settled debts with them. While in many cases it is unnecessary for the creditor to do this, it is nothing to fear. If a debt is discharged in bankruptcy, it is not treated as cancellation of indebtedness income, and it is not taxable. The IRS has provided a simple fix for the seemingly unnecessary 1099-C: Form 982.

If you have received a 1099-C, you need to file IRS Form 982 to demonstrate to the IRS that it is not taxable. While it seems complicated, it is very simple with regard to consumer debt discharged in bankruptcy, and even do-it-yourself tax filers should be able to do it. You just need to check box 1a on the form ("Discharge of indebtedness in a title 11 case" - "Title 11″ being the Bankruptcy Code, not to be confused with Chapter 11, which is just one type of case under Title 11). You then list the amount discharged on line 2, and then list it again on Line 10a to reduce the basis in your property. However, only list it on 10a to the extent the basis (generally, the purchase price) of the non-depreciable property that you retain after discharge exceeds the debt remaining after your discharge (which includes both existing mortgages and loans secured by property you still own and any non-dischargeable debt). This reduction in basis can result in capital gains tax liability in later years, but because of the residential capital gains exclusion, for most people it has no effect.

This "reduction in attributes" can be more complicated for business debt: for that, you should to consult your tax advisor.

Why is it that these forms are issued? The idea that cancellation of indebtedness is income is pretty simple, and is designed to avoid what could otherwise be a great way to defraud the IRS: instead of getting paid money that would be income, you could "borrow" the money (because a loan is not income), and then have the "lender" just write off the "loan". To avoid this scam, the tax law generally treats cancellation of debt as income.

To avoid creating phantom income when there is no scam, but legitimate debt cancellation for non-fraudulent reasons, there are certain exceptions to the treatment of cancellation of indebtedness as income. The most important for consumers are (a) discharge in bankruptcy; (b) insolvency; and (c) qualified principal residence indebtedness.

• Debt discharged in bankruptcy is simply not income for cancellation of indebtedness purposes.

• Debt cancelled to the extent of a taxpayer's insolvency is not treated as taxable income. Generally speaking, this means that if all of your liabilities exceed the fair value of all of your assets (including exempt assets and retirement plans), cancellation of indebtedness up to the amount by which you are insolvent is not taxable (once rendered solvent, the balance would be taxable).

• Finally, through the end of 2012, cancellation of secured loans used to buy, build or substantially improve your principal residence, or to refinance loans incurred for those purposes, is not taxable.

Even though cancellation of indebtedness may not be taxable, the law in many cases requires, or permits, creditors to issue Form 1099-C to report that cancellation to the IRS. The IRS regulation (26 C.F.R. 1.6050p-1(a)(3)) states "Except as otherwise provided in this section, discharged indebtedness must be reported regardless of whether the debtor is subject to tax on the discharged debt under sections 61 and 108 or otherwise by applicable law." In other words, the fact that you get a 1099-C from a creditor does not mean that you owe tax on the money shown on the form. That is the reason for the Form 982.

There are exceptions to reporting. In particular, where a debt is discharged in bankruptcy, the IRS does not require issuance of a 1099-C unless it was incurred for business or investment purposes. Cancellation or discharge of consumer debt in bankruptcy need not be reported on a 1099-C. But it can be.

A few words of caution: if the debt, or part of it, was cancelled before you filed bankruptcy (through debt settlement or negotiation, for example), the creditor must issue the 1099-C unless another exception applies. And that debt is not included on Line 1a of Form 982, because it was not discharged in bankruptcy. As a result, even if you later file bankruptcy, you may owe tax on that debt cancellation income unless you were insolvent at the time you settled it. For that reason, it may make sense not to settle your debtsbut to just file bankruptcy and discharge them. Before entering into a debt consolidation or settlement program, or settling claims asserted against you, it is important that you discuss the tax aspects of your situation with an experienced bankruptcy attorney.\

by Dan Press, Virginia and D.C. Bankruptcy Attorney · Posted in *Bankruptcy Basics, Tax Issues In Bankruptcy

Tell The IRS Where To Put It

Joseph Tosti — Fri, 11 Feb 2011 18:48:00 GMT

Business owners who find themselves liable for unpaid payroll taxes are in deep trouble. The trust fund portion of the tax, the amount withheld from employees' checks, becomes a personal debt of anyone in the business who could have paid that money over to the IRS. Usually, trust funds make up about 2/3rds of the payroll tax. The balance is the business's share of Social Security.

Trust fund liability is not dischargeable in bankruptcy. The statute of limitations is10 years and the IRS is a fearsome creditor.

If you find yourself in this pickle, you, and the business itself, can avail yourself of your right toearmark any payment you make on Form 941 liability. A taxpayer who makes voluntary payments to the IRS has the right to designate to which liability the payment will be applied . In re Ribs-R-Us, Inc., 828 F.2d 199, 201 (3rd Cir. 1987).

An earmark is simply a direction as to how the payment is to be credited. Pay voluntarily and you have the right to tell the IRS what to do with the money.

Without instructions, the IRS is free to apply payment it receives on the tax debt as it chooses. And it chooses the manner of application that benefits it best. Send a check for payroll taxes and if the check is not enough to pay the entire liability, the IRS applies it first to the dischargeable portion of the tax first, preserving the personal liability of the business owners for the remaining tax.

Likewise, if the IRS levies an account, they may apply the levied funds as they wish.

Write directions on the check, and you can insure that each dollar paid on payroll taxes is applied to the portion of the debt that will follow the individuals around, long after the business has failed.

Of course, the better course of action is to remain current on payroll taxes. Use a payroll service that won't cut the checks unless the taxes are paid, or make a tax deposit with each payroll. Dip into the money withheld from employees and you've taken a "loan" that lives forever.

by Cathy Moran, California Bankruptcy Lawyer · Posted in *Bankruptcy Basics

Income Tax Refunds In Bankruptcy

Joseph Tosti — Mon, 07 Feb 2011 17:43:00 GMT

What happens to my tax refund if I file bankruptcy is:

it depends.

Tax refunds received, after you file your case, have to be paid to the Chapter 13 bankruptcy trustee, at least in

the 6th Circuit, which covers Michigan, Ohio, Indiana and Kentucky, because the U. S. Court of Appeals said so.

OK, there are ways to get out of that, but it is basically true.

It is possible to get bankruptcy court approval to allow you to spend the tax refund on something, but you have to file a motion and get that approval in a court order.

For Chapter 7 bankruptcy cases,

Tax refunds are calculated to accrue 1/12th every month.

So, if you file Chapter 7 bankruptcy six months into the year, July 1, half your tax refund for that year already exists.

As opposed to saying the first 9 or 10 months of your tax payments go to pay your liability, and the last 2 or 3 months are the refund.

Accrued tax refunds must be listed as an asset and claimed exempt if you want to keep it.

Otherwise, the Chapter 7 trustee can take it.

Which exemptions you can claim depend on what state you live in.

Many courts have held that if you leave off an asset, such as a tax refund, you cannot amend later to keep it from the trustee, even though the Bankruptcy Code says the debtor has a right to amend the bankruptcy schedules at any time.

If you file any time other than January 1, and have not received your tax refund for the previous year, or years, that yet to be paid refund is an asset that must be listed, and claimed exempt, or you may lose it to the trustee.

by Kurt O'Keefe, Attorney at Law · Posted in *Bankruptcy Basics

Bankruptcy and Emotions

Joseph Tosti — Fri, 04 Feb 2011 18:10:00 GMT

Keep your emotions in check when dealing with your financial problems. No one wants to file bankruptcy, but sometimes it's your only meaningful option.

"I don't want to file bankruptcy," a client said to me the other day. "No one does," I replied. I explained that any good bankruptcy lawyer will explain non-bankruptcy options-like debt settlement or even doing nothing-prior to recommending bankruptcy. However, sometimes there really aren't any other real options.

Another client told me, "I know you'll recommend bankruptcy-your favorite option-but I'm not doing that." I then told him that my "favorite option" was doing what was best for my clients. That might be bankruptcy, but it might just as well not be bankruptcy. In my Charleston, South Carolina practice, I regularly tell clients not to file bankruptcy.

Both of these clients are filing bankruptcy now after extended meetings with me to evaluate all their options. Both are relieved and feel much better now that they have a solid financial plan for dealing with their debts. To their credit, both kept open minds and will be better off for doing so.

I know going through financial problems is extremely stressful. It's the number one cause of marital discord, and it leads all sorts of stress-related problems. It causes problems in relationships of all sorts-with spouses, children, employers, and friends. It's just plain no fun.

But a knee-jerk approach to your financial problems is a bad idea. "I won't file bankruptcy" might be an appropriate answer to give after you have evaluated all your options, including exploring you rights under the Bankruptcy Code. So keep your options open and be open minded. Your bankruptcy lawyer's "favorite option" is what's best for you. Get all the facts so you can make an informed decision.

by Russell A. DeMott, Charleston Bankruptcy Lawyer · Posted in *Bankruptcy Basics

Same Old Debt as Last Year? Stop Living a Financial ‘Groundhog Day’

Joseph Tosti — Thu, 03 Feb 2011 17:56:00 GMT

On Groundhog Day, it is fitting to consider whether you are living in a financial 'Groundhog Day.' Remember the Bill Murray movie? A self-absorbed weatherman is doomed to repeat the same day over and over, until self- awareness is achieved. David Pitt of Today points out the financial corollary:

Is there a shadow cast over your financial life? Maybe that's because you're stuck in a seemingly endless cycle of paying too much in taxes, fees, and penalties.

Many of us are like Bill Murray's weatherman in the movie "Groundhog Day," when it comes to managing our own money. We're searching for a way to break through repeating the same financial mistakes and reckless habits.

The good news is that greater self-awareness can help. Just as it enabled Murray's arrogant forecaster to escape reliving the same day in Punxsutawney, Pa.

Pitt's suggestions include tracking your spending, watching what you spend on ATM fees, monitoring insurance costs, home energy audits, and eliminating credit card balances. I would add that if you are still carrying the same credit card balances that you were carrying this time last year, it may be time to consider getting some help with those balances.

If you are stuck in financial limbo, it is time to consider bankruptcy. If you have been paying minimum payments on your credit cards, and the balances aren't going down, or worse, are increasing, it's time. If you have been struggling to pay the same medical bills, and you're just not getting anywhere, it's time. Even if you're still paying everyone, but you have no savings, and no excess in your budget after paying your bills and basic living expenses, it is time to find a way to resolve your financial 'Groundhog Day.'

So, Punxsutawney Phil did NOT see his shadow today, so theoretically we can look forward to an early spring. When you take off that heavy coat, consider shedding some of that debt load that's had you in a state of financial suspended animation, too.

by Dana Wilkinson, Attorney at Law · Posted in *Bankruptcy Basics, *Filing for Bankruptcy, Consumer Credit Issues, Family Debt Problems

Credit Reporting During Bankruptcy

Joseph Tosti — Wed, 02 Feb 2011 21:16:00 GMT

The Fair Credit Reporting Act requires credit reports to be accurate. What is accurate reporting during a bankruptcy case?

In general, creditors have no duty to report anything at all to credit reporting agencies. Consequently, many will simply stop reporting any debt information once informed of a bankruptcy case.
However, sometimes a credit report will reflect a balance for a debt that was included in a bankruptcy. When should this balance be set to zero? During a bankruptcy, which in the case of a Chapter 13 can last several years, or only after the bankruptcy is concluded and a bankruptcy discharge appears?
The answer is that a debt does not need to be listed as having a zero balance until a discharge makes it so. While a bankruptcy is pending, the debt balance still exists while the debt cannot be legally collected. Having a pre-bankruptcy debt balance stay on a report during a bankruptcy is sometimes harmful to credit during that period.

However, the duration of a Chapter 7 case is brief-three to four months-and one cannot usually obtain new credit during a Chapter 13 bankruptcy. So, even though it lasts longer, credit during a Chapter 13 bankruptcy is usually not necessary. When it is necessary, like in the case of a proposed mortgage refinancing, sometimes it is possible to work with a mortgage broker or lender to do quick disputes and get disputed trade lines off a report to complete the transaction. Often a lender will not re-report the debt under those circumstances for fear of violating the automatic stay.

by Nicholas Ortiz, Boston Bankruptcy Attorney · Posted in *Life After Bankruptcy

The Bankruptcy “Means Test” Explained in English

Joseph Tosti — Wed, 02 Feb 2011 21:14:00 GMT

Few concepts are as difficult to grasp for a potential bankruptcy debtor than the "means test," which Congress added to the bankruptcy law in 2005. To be sure, the means test can be confusing, and it has been roundly criticized both by lawyers and by judges in bankruptcy court decisions. While this brief article will not attempt to explain everything about the means test, it will explain the purpose of the means test, and help you to understand how to assist your lawyer in preparing it.

The key to understanding the means test is to know that it is financial formula, not unlike a tax return. The means test aims to predict (1) whether you can afford to pay off some or all of your debts, and thus should be required to file chapter 13 bankruptcy rather than chapter 7, and (2), how much you can afford to pay each month into a chapter 13 payment plan. The means test is a formula developed by Congress to answer the question of which type of bankruptcy, chapter 7 or chapter 13, is appropriate for you.

What Congress attempted to do through the means test was to establish a uniform method to enforce its desire that bankruptcy debtors who could pay back part of their debts in chapter 13 be made to do so. The means test is fundamentally an income and expenses test. Those who can afford chapter 13, based on the means test formula, in nearly all cases cannot file chapter 7.

The means test is only half the inquiry into your income and expenses, because when Congress enacted the means test formula in 2005, it left untouched the "actual income and expenses" test it created in 1986. Yes, that's right, there are two income and expenses tests in the bankruptcy law: the actual income and expenses test enacted in 1986, and the means test enacted in 2005. Each of these separate tests is designed to tell if you should be forbidden from filing chapter 7 because of your ability to afford a monthly payment in a chapter 13 case. It's little wonder, then, that people are confused about the income and expenses issue.

The important point to remember is that your lawyer will need to prepare two separate income and expenses statements for your chapter 7 or 13 bankruptcy: the means test and the actual income and expenses test.

The actual income and expenses test is based upon your current income and household expenses, projected into the near future. Unlike the means test formula, it is based on common sense and you can often prepare most of this statement yourself, without much input from a bankruptcy lawyer. The actual income and expenses test looks at your actual household budget, excluding the debts that would be discharged in a chapter 7 (or paid in a chapter 13). The question is, after taking away these debts, do your actual income and expenses allow you to make a monthly payment in a chapter 13 case? Just as with the means test, if the answer is yes, then you have file chapter 13 instead of chapter 7.

Because the means test is a formula using past income, along with a mixture of your actual expenses combined with arbitrary IRS-provided allowances for some of your expenses, it is next to impossible for you to prepare your means test without your bankruptcy lawyer's help. However, you can help your lawyer in doing this for you by being diligent in providing both past income information, and current household expenses information, and by understanding why your lawyer needs this information.

by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Means Testing

Will The Bankruptcy Trustee Take My Tax Refund?

Joseph Tosti — Wed, 02 Feb 2011 17:18:00 GMT

A common question I get this time of year is whether the trustee will take the debtor’s tax refund if he files for bankruptcy. The answer depends upon many factors.

The Trustee has a duty to administer non exempt assets if those assets are worthy of administration. For a tax refund to be worthy of administration the refund must be large enough to justify the time and effort to take and distribute the money to unsecured creditors.

If the debtor can wait to file his bankruptcy, then often the simplest solution to the problem is to have him file his return and then receive and use the refund.

However, this is not always possible.

If the debtor is having his wages garnished or a garnishment is scheduled to begin, it may be necessary to file before a refund can be received. Timing issues will also occur if a house is in foreclosure, or a car is about to be repossessed.

If the debtor cannot wait for whatever reason, the following factors will determine whether the refund will be taken:

As previously discussed, is the amount of the refund worthy of administration? This is an issue of local practice and will often vary from court to court.
Is any portion of the refund for Earned Income Credit? Some states have specifically exempted Earned Income Credit. It is necessary to check state law on this issue. In Louisiana, where I practice, Earned Income Credit is specifically exempt, so a debtor with Earned Income Credit keeps it.
Does your State have a “Wild Card” or “Cash”exemption? Some states allow a certain amount of cash to be treated as exempt from creditors, other states have what is refereed to as a wild card exemption that will allow a debtor to exempt an item that is otherwise not exempt. Louisiana has no such exemptions.

As can be seen the timing of a bankruptcy when a tax refund is expected depends on many factors. Local practice and State law being the major considerations

by Kevin Gipson, New Orleans Bankruptcy Attorney · Posted in Tax Issues In Bankruptcy

Mortgage Modifications In Bankruptcy – A New Wave Is Beginning

Joseph Tosti — Mon, 31 Jan 2011 17:01:00 GMT

Recently, Senator Jeff Merkley from Oregon has been speaking very loudly about the need for the current Congress to amend the Bankruptcy Code to allow cramdowns of first mortgages on primary homesteads. If you recall, the same proposal was attempted by Senator Dick Durbin from Illinois back in 2009.

This time, Senator Merkley may have some additional ammunition in his arsenal. The recent jobs report is horrible. The housing market is in the toilet, and we are facing over a million additional foreclosures in 2011. Likewise, we now learn that the Federal Government is considering scraping the HAMP Program. Let's face it right now, this Country is in a mess and there is no plan to bring us out of it. Most Americans are living paycheck to paycheck without the security of knowing if they can save their completely underwater homes. Most Americans are still being told that they have to be behind 90 days before anyone will help them.

There are still over 300K mortgage foreclosure suits being filed in the United States, and that is unacceptable to me. The HAMP program is a failure, I agree, but that doesn't mean we should stop looking at the situation to come up with better ideas.

Senator Merkley is proposing this legislation because it is comprehensive. It will not only allow a homeowner to save their homes by reducing the principal to what the house is actually worth, it will also allow the homeowner to craft a financial plan to deal with all of their debts under the Bankruptcy Judge's supervision. Accordingly, there will be no unfair and deceptive dealings. Everything will be in the open, and the homeowner will not have to live in fear of losing everything that they have ever worked for. As if they haven't lost enough already.

Merkley's plan contains another component. He wants to implement a refinancing option to provide homeowners facing foreclosure the option to refinance at current rates and home values.

I think that one of the most important provisions in the Merkley plan would suspend foreclosures while the mortgage modifications were being considered. I have never, and I mean never, spoke to one person who sent in their mortgage modification documents one time and a decision was rendered. They may be out there, but I haven't heard about them. I have heard from and about individuals who sent in their paperwork multiple times.

I agree with Senator Merkley's plan. I believe it is well thought out and will not only create jobs, but will provide stability to the American public. Sure, the number of personal bankruptcies will increase, but the number of foreclosures will drop. The number of Americans paying their mortgages will increase. The number of people working will increase. Trust me, if you tell someone that they can save their homes by taking a less paying job. The homeowners would be inspired to take any type of work knowing that they are providing for their families.

by Carmen Dellutri, Southwest Florida Bankruptcy Attorney · Posted in *Bankruptcy Basics