Here is the abbreviated answer to my last blog.
Question: Will the credit card charges I made for holiday spending be discharged in bankruptcy?
Answer: If you used credit to make holiday purchases then you may want to delay your bankruptcy filing to make sure the debt is dischargeable. A creditor or the trustee may challenge the dischargeability of your debt if:
1) You had charges of greater than $550 on a single credit card for “luxury goods or services” within 90 days of filing; or
2) You took cash advances for more than $825 within 70 days of filing from all of your credit cards combined.
Luxury goods and services do not include goods or services that are reasonably necessary for support and maintenance of you or your dependents. Holiday gifts of food or diapers would not be “luxury goods.” A new flat screen TV or a new kitchen probably would be considered a luxury. Service on your car to allow you to get to work would not be a “luxury” service, but a taking your partner to a spa for the full pampered treatment would likely be considered a luxury expense.
If you spent too much on credit this holiday season, you may benefit from waiting until the applicable time period passes before filing for bankruptcy relief. However, if creditors are preparing to attach your wages or foreclose on your home you may not be able to wait. If you need bankruptcy advice, talk with your lawyer.
Happy Holidays!
Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended.
Saturday, December 26, 2009
Thursday, December 24, 2009
Using Credit Cards Just Before Filing
Question: I’m considering filing bankruptcy. When do I have to stop using my credit cards?
Answer: You should stop using your credit cards no later than when you decide that you will file bankruptcy and not repay the debt. However, the Ninth Circuit Court recognizes that you may change your mind or your circumstances may change any time up to the point in which you actually file bankruptcy. Therefore, you may be able to continue using your credit cards until just before your bankruptcy petition is filed.
Using a credit card when you have no intention of repaying the debt is an action done under “false pretenses, a false representation, or actual fraud.” In such cases the debt may be found to be “nondischargeable” and continue even after you receive a bankruptcy discharge.
In order to determine if a debt is nondischargeable a credit can file a lawsuit, an adversary complaint, against you in the bankruptcy court. The creditor will have to prove 1) that you intended to fraudulently obtain credit card debt and 2) that the creditor was justified in relying on your promise to repay the debt. The court will look at the “totality of the circumstances” surrounding the manner in which you incurred the debt, and then make a ruling.
Special Rules for Consumer Debt and Credit Card Advances
The following debts of an individual debtor are presumed to be nondischargeable:
1) Credit card charges to a single creditor totaling more than $550 for “luxury goods or services”* purchased on or within 90 days before your bankruptcy filing; and
2) Cash advances from credit cards totaling more than $825 on or within 70 days before your bankruptcy filing.
If you have a debt that is presumed to be nondischargeable the creditor will not have to prove that you intended to fraudulently use the card or that they relied on your promise to repay the debt. It will be up to you to prove that you reason for using the card was honest.
You may avoid the presumption of nondischargeability by providing evidence that you experienced a sudden change in circumstance or that you did not plan on filing bankruptcy until after the transaction took place.
*Luxury goods and services do not include goods or services that are reasonably necessary for support and maintenance of you or your dependents.
Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended.
Answer: You should stop using your credit cards no later than when you decide that you will file bankruptcy and not repay the debt. However, the Ninth Circuit Court recognizes that you may change your mind or your circumstances may change any time up to the point in which you actually file bankruptcy. Therefore, you may be able to continue using your credit cards until just before your bankruptcy petition is filed.
Using a credit card when you have no intention of repaying the debt is an action done under “false pretenses, a false representation, or actual fraud.” In such cases the debt may be found to be “nondischargeable” and continue even after you receive a bankruptcy discharge.
In order to determine if a debt is nondischargeable a credit can file a lawsuit, an adversary complaint, against you in the bankruptcy court. The creditor will have to prove 1) that you intended to fraudulently obtain credit card debt and 2) that the creditor was justified in relying on your promise to repay the debt. The court will look at the “totality of the circumstances” surrounding the manner in which you incurred the debt, and then make a ruling.
Special Rules for Consumer Debt and Credit Card Advances
The following debts of an individual debtor are presumed to be nondischargeable:
1) Credit card charges to a single creditor totaling more than $550 for “luxury goods or services”* purchased on or within 90 days before your bankruptcy filing; and
2) Cash advances from credit cards totaling more than $825 on or within 70 days before your bankruptcy filing.
If you have a debt that is presumed to be nondischargeable the creditor will not have to prove that you intended to fraudulently use the card or that they relied on your promise to repay the debt. It will be up to you to prove that you reason for using the card was honest.
You may avoid the presumption of nondischargeability by providing evidence that you experienced a sudden change in circumstance or that you did not plan on filing bankruptcy until after the transaction took place.
*Luxury goods and services do not include goods or services that are reasonably necessary for support and maintenance of you or your dependents.
Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended.
Friday, April 17, 2009
Discharging Taxes in Bankruptcy
Question: I owe $40,000 in back taxes. Can these be discharged in bankruptcy? Also, I have applied for an extension on filing my 2008 tax return. Should I file the return before filing bankruptcy, or does it matter?
Answer: On your bankruptcy petition, creditors are listed as holding secured claims, unsecured priority claims, and unsecured nonpriority claims. Whether or not your taxes can be discharged will depend on where they must be listed and under which chapter you file. A creditor’s claim is a debt that you are alleged to owe.
Secured claims must be paid in their entirety. These claims would include taxes for which a lien has been placed on your real property. If, however, the lien impairs an exemption to which you are otherwise entitled your attorney may be able to avoid the lien,
Unsecured priority claims must be paid in their entirety under Chapter 7. These debts are dischargeable under a Chapter 13 full compliance discharge. A full compliance discharge occurs when you complete all plan payments, even if your Chapter 13 plan calls for less than 100% payment of priority claims. A full compliance discharge eliminates debts incurred to pay nondischargeable federal, state or local taxes. 11 USC § 523(a)(14). Government fines, penalties and forfeitures are also dischargeable under a full compliance discharge, excluding criminal fines under § 1328(a)(3).
Unsecured nonpriority claims must be paid at least to the value of your nonexempt property. In a Chapter 7 liquidation bankruptcy some of your assets will be exempt from being sold to pay your creditors. For example, there is presently a $525 exemption for each item of personal property. If you have a sofa that is worth $400 the sofa will be exempt. If the sofa is worth $900 then $525 will be exempt property and $375 will be nonexempt property. Unless, there is another statute to exempt the full value of the sofa at least $375 must be paid to creditors. The court is not concerned with whether you sell your sofa to acquire this amount or find the money elsewhere. The value of all your nonexempt property is what you will be required to pay your unsecured creditors under Chapter 7.
Creditors holding unsecured nonpriority claims in Chapter 13 must be paid at least the amount that they would have received in Chapter 7. This is called the Best Interests of the Creditor test. The amount that unsecured creditors will actually receive depends upon the percentage (also called the dividend) confirmed in the Chapter 13 plan.
Taxes are normally paid as priority claims, unless:
1) The income tax or sales tax is over three years old and meets certain other conditions, including no recent offer and compromise agreement with the taxing authority . § 507(a)(8)(A).
2) The property tax, whether or not assessed, was due over one year prior to the bankruptcy filing.
If the tax is not a priority claim then it will be paid the same dividend as other unsecured creditors.
Conclusion: If the $40,000 you owe in back taxes is over three years old, this amount can be listed as an unsecured debt and discharged in any chapter. If the debt is less than three years old, the amount must be paid in full in Chapter 7, but can be discharged under a Chapter 13 full compliance discharge.
In most cases you should file your tax return before you file bankruptcy. The tax is due when you file. Prepetition taxes can be placed on your petition and paid over time through a Chapter 13 plan. Postpetition debt is only payable through a Chapter 13 plan if the taxing authority files a proof of claim. If no claim is filed, the debt is not discharged even if you receive a full compliance discharge.
The law now requires that where a tax return was required, a Chapter 13 Debtor must file tax returns for each of the four years prior to the bankruptcy filing. If you can not provide copies of the returns by the first day your Meeting of Creditors is scheduled, the law requires that your case be dismissed. § 1308.
Disclaimer: Handling taxes in bankruptcy can be a complicated process. Sometimes the advice of a tax professional will be required. This article is meant to give a brief overview of when taxes can be discharged in Chapter 7 and Chapter 13 bankruptcy filings. No attorney-client relationship is formed or intended.
Answer: On your bankruptcy petition, creditors are listed as holding secured claims, unsecured priority claims, and unsecured nonpriority claims. Whether or not your taxes can be discharged will depend on where they must be listed and under which chapter you file. A creditor’s claim is a debt that you are alleged to owe.
Secured claims must be paid in their entirety. These claims would include taxes for which a lien has been placed on your real property. If, however, the lien impairs an exemption to which you are otherwise entitled your attorney may be able to avoid the lien,
Unsecured priority claims must be paid in their entirety under Chapter 7. These debts are dischargeable under a Chapter 13 full compliance discharge. A full compliance discharge occurs when you complete all plan payments, even if your Chapter 13 plan calls for less than 100% payment of priority claims. A full compliance discharge eliminates debts incurred to pay nondischargeable federal, state or local taxes. 11 USC § 523(a)(14). Government fines, penalties and forfeitures are also dischargeable under a full compliance discharge, excluding criminal fines under § 1328(a)(3).
Unsecured nonpriority claims must be paid at least to the value of your nonexempt property. In a Chapter 7 liquidation bankruptcy some of your assets will be exempt from being sold to pay your creditors. For example, there is presently a $525 exemption for each item of personal property. If you have a sofa that is worth $400 the sofa will be exempt. If the sofa is worth $900 then $525 will be exempt property and $375 will be nonexempt property. Unless, there is another statute to exempt the full value of the sofa at least $375 must be paid to creditors. The court is not concerned with whether you sell your sofa to acquire this amount or find the money elsewhere. The value of all your nonexempt property is what you will be required to pay your unsecured creditors under Chapter 7.
Creditors holding unsecured nonpriority claims in Chapter 13 must be paid at least the amount that they would have received in Chapter 7. This is called the Best Interests of the Creditor test. The amount that unsecured creditors will actually receive depends upon the percentage (also called the dividend) confirmed in the Chapter 13 plan.
Taxes are normally paid as priority claims, unless:
1) The income tax or sales tax is over three years old and meets certain other conditions, including no recent offer and compromise agreement with the taxing authority . § 507(a)(8)(A).
2) The property tax, whether or not assessed, was due over one year prior to the bankruptcy filing.
If the tax is not a priority claim then it will be paid the same dividend as other unsecured creditors.
Conclusion: If the $40,000 you owe in back taxes is over three years old, this amount can be listed as an unsecured debt and discharged in any chapter. If the debt is less than three years old, the amount must be paid in full in Chapter 7, but can be discharged under a Chapter 13 full compliance discharge.
In most cases you should file your tax return before you file bankruptcy. The tax is due when you file. Prepetition taxes can be placed on your petition and paid over time through a Chapter 13 plan. Postpetition debt is only payable through a Chapter 13 plan if the taxing authority files a proof of claim. If no claim is filed, the debt is not discharged even if you receive a full compliance discharge.
The law now requires that where a tax return was required, a Chapter 13 Debtor must file tax returns for each of the four years prior to the bankruptcy filing. If you can not provide copies of the returns by the first day your Meeting of Creditors is scheduled, the law requires that your case be dismissed. § 1308.
Disclaimer: Handling taxes in bankruptcy can be a complicated process. Sometimes the advice of a tax professional will be required. This article is meant to give a brief overview of when taxes can be discharged in Chapter 7 and Chapter 13 bankruptcy filings. No attorney-client relationship is formed or intended.
Friday, January 30, 2009
Deficiency Judgments in Foreclosure
Question: My home was taken by the bank through foreclosure several months ago. Now, the junior lender on my home is asking me to pay them another $80,000. Wasn’t this loan wiped out when the senior lender foreclosed? What is a deficiency judgment? Do I need to file bankruptcy?
Answer:
When a lender forecloses on a property they may do so by judicial foreclosure, a legal action in court, or by nonjudicial foreclosure, the power of sale contained in a deed of trust or mortgage. A deficiency judgment is possible when the amount received in a foreclosure sale is not enough to pay off the amount owed on the mortgage loans. A lender who chooses nonjudicial foreclosure cannot receive a deficiency judgment. However, while a foreclosure sale will strip any junior lienholders of their security interest in the property sold, they will retain the right to sue the borrower in court for the amount owed.
This is so because the “one action rule,” described in CCP § 726, prevents the lender who foreclosed from using nonjudicial foreclosure to speed up the sale and then using the courts as a second method of recovery. The junior lender, on the other hand, did not choose the nonjudicial foreclosure route and is not barred from using the courts to try and collect on the debt.
This exception to the general rule that “no deficiency judgments are available when there is a nonjudicial foreclosure” does not apply when a single lender holds both the junior and senior liens. But when the single lender sells or assigns the liens to independent parties, the new buyer/assignee is ordinarily protected and could pursue a court action for a deficiency judgment.
If a junior lender wants to go to court to obtain a deficiency judgment they must do so within three months of the foreclosure sale. CCP § 580(a). If three months have passed since your foreclosure sale, the junior lender can no longer go to court to get a judgment and attach your other property. However, the debt remains and the junior lender can continue to try and collect the debt by contacting you. If you file bankruptcy the automatic stay would prevent all creditors from contacting you for a period of time and this debt would be removed if you receive a discharge in bankruptcy.
Tax Implications of Nonjudicial Foreclosure
When a lender uses nonjudicial foreclosure, the lender, in effect, forgives, or gives to the borrower, the necessary amount over the foreclosure sale price, to pay off their loan. This amount which is forgiven, or given, to the borrower may count as income to be reported on the borrower’s taxes. The Mortgage Forgiveness Debt Relief Act of 2007 excludes from gross income discharges of indebtedness on principal residences that occur on or after January 1, 2007, and before January 1, 2010 (extended through 2012). If you have lost a home to foreclosure you should speak with your tax professional.
Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended. The contents of Wikipedia articles are not controlled by the author.
Answer:
When a lender forecloses on a property they may do so by judicial foreclosure, a legal action in court, or by nonjudicial foreclosure, the power of sale contained in a deed of trust or mortgage. A deficiency judgment is possible when the amount received in a foreclosure sale is not enough to pay off the amount owed on the mortgage loans. A lender who chooses nonjudicial foreclosure cannot receive a deficiency judgment. However, while a foreclosure sale will strip any junior lienholders of their security interest in the property sold, they will retain the right to sue the borrower in court for the amount owed.
This is so because the “one action rule,” described in CCP § 726, prevents the lender who foreclosed from using nonjudicial foreclosure to speed up the sale and then using the courts as a second method of recovery. The junior lender, on the other hand, did not choose the nonjudicial foreclosure route and is not barred from using the courts to try and collect on the debt.
This exception to the general rule that “no deficiency judgments are available when there is a nonjudicial foreclosure” does not apply when a single lender holds both the junior and senior liens. But when the single lender sells or assigns the liens to independent parties, the new buyer/assignee is ordinarily protected and could pursue a court action for a deficiency judgment.
If a junior lender wants to go to court to obtain a deficiency judgment they must do so within three months of the foreclosure sale. CCP § 580(a). If three months have passed since your foreclosure sale, the junior lender can no longer go to court to get a judgment and attach your other property. However, the debt remains and the junior lender can continue to try and collect the debt by contacting you. If you file bankruptcy the automatic stay would prevent all creditors from contacting you for a period of time and this debt would be removed if you receive a discharge in bankruptcy.
Tax Implications of Nonjudicial Foreclosure
When a lender uses nonjudicial foreclosure, the lender, in effect, forgives, or gives to the borrower, the necessary amount over the foreclosure sale price, to pay off their loan. This amount which is forgiven, or given, to the borrower may count as income to be reported on the borrower’s taxes. The Mortgage Forgiveness Debt Relief Act of 2007 excludes from gross income discharges of indebtedness on principal residences that occur on or after January 1, 2007, and before January 1, 2010 (extended through 2012). If you have lost a home to foreclosure you should speak with your tax professional.
Disclaimer: This article is intended for informational purposes only and no attorney-client relationship is formed or intended. The contents of Wikipedia articles are not controlled by the author.
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