First off, I am not a CPA—or even a tax attorney. However, a large number of potential clients who visit me to inquire about the advantages of bankruptcy relative to those of a short sale (or outright foreclosure walk-away) when distressed real estate is their primary concern have not realized that there may be tax-related disadvantages to the short sale of a property or walking away via foreclosure.
Indeed, there can be.
Overpayments of Social Security benefits are unsecured debts just like credit cards and medical bills, and they are therefore dischargeable in Chapter 7 and Chapter 13 bankruptcy in most cases, short of any finding of fraudulence in the acceptance of the payment by the recipient. In other words, so long as you did not accept the payments knowing that you were not entitled to it—or knowing that you were about to file for bankruptcy—the overpayment amount can be discharged in a Chapter 7 or Chapter 13 bankruptcy.
Guest Post by Atlanta Bankruptcy Attorney Peter Bricks.
Many people use the tax return system as a pseudo savings account. They count on getting a federal and state refund every year and immediately use all the money to pay for all the necessary home upgrades, car repairs, medical bills, etc.. that they have been waiting to fund all year.
Put those same people as debtors in a Chapter 13 bankruptcy, and they should consider altering that strategy. For starters, depending on your district, your confirmed plan probably requires you to turn over your tax refund to your bankruptcy trustee. That doesn’t necessarily mean the debtor will not get his/her refund, just that it’s no guarantee and might require a motion for the court’s approval to retain the tax refund. (Note that, in the Eastern District of Michigan, tax refunds ARE required to be turned over to Chapter 13 Trustees for the life of a Chapter 13 Plan. – JMH)
Posted in Bankruptcy Process, Chapter 13, Michigan, Tax debt, Tax Returns and Bankruptcy
Tagged Bankruptcy, Chapter 13, detroit, hilla, tax refunds, taxes
Income tax debt is, under some circumstances, dischargeable in Chapter 7 bankruptcy. Even outside of those circumstances, it is at least “treatable” in a Chapter 13 bankruptcy in a manner that can be a much better deal for the taxpayer than any of the payment schemes offered by the IRS.
Income tax debt, whether Federal or state income tax debt, is, for starters, classified as a “priority” claim by the Bankruptcy Code. In a Chapter 7 bankruptcy context, that means that, unless the debt meets certain criteria, it is non-dischargeable and the bankruptcy will not affect the filing debtor’s obligation to pay it. In a Chapter 13 bankruptcy context, “priority” classification means that the debt must be paid in its entirety within the Chapter 13 bankruptcy payment plan (60 months maximum).
Posted in Chapter 13, Chapter 7, Debt Listing, Tax debt, Tax Returns and Bankruptcy, Uncategorized
Tagged Chapter 13, Chapter 7, debt, discharge, priority debt, tax debt, taxes
Consumers who have had difficulty making ends meet often find themselves on the wrong end of a court judgement after their creditors have taken them to court to pursue their debt. These judgements typically result in wage or tax-refund garnishment, often at the expense of the consumer’s ability to pay more pressing necessities, such as rent, a mortgage payment, or medical expenses.
That being the case, the first question I often hear from potential clients is, “Can filing for bankruptcy stop this garnishment?!?” Sometimes the garnishment has already begun, sometimes it is imminent, but it is always a great worry to consumers who do not have a penny to spare from their paychecks when it comes to simply keeping a roof over their children’s heads that month.
The good news is that, in nearly every case, the answer to their question is, “Yes. Filing for bankruptcy can stop this garnishment.” With some exceptions, such as garnishment for child-support or other court-ordered domestic support obligations, a bankruptcy will stop a garnishment at least for the duration of the bankruptcy proceeding and, upon successful discharge, permanently. Further, any funds garnished within a certain period prior to the filing of the bankruptcy petition must be returned to the debtor immediately upon receipt of the bankruptcy filing notification, so long as the garnishment is, for consumer debts, over $600.
If you are suffering from an income loss due to garnishment or will soon have your wages or other incoming funds garnished, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation, and we will work together to secure the monthly income you depend on.
It’s that time of the year again, and one of the most often overlooked aspects of a prospective bankruptcy filer’s financial picture is the tax return that is expected but not yet received. It is a common misperception that, when you file for bankruptcy, the bankruptcy trustee and court are concerned only the past and the present state of your financial affairs. In fact, in many ways, they are just as concerned with future alterations to your finances.
An annual tax-return is often the largest unscheduled influx of cash that a consumer receives all year long, so it is of particular interest to trustees. From the end of a year, around late November to December, through March or April of the subsequent year, the possibility that a debtor filing for bankruptcy may receive a large check from the government is something that all parties need to keep in mind. For those of you considering filing for bankruptcy, especially now, as we have just passed employers’ deadline to issue W2 forms, it is important to include the amount of money you expect to receive in your tax-return in the disclosures you make to the bankruptcy attorney preparing your petition.
Remember to include your expected tax refund in your discussions with your attorney is especially important because, often, there may be steps the attorney can take to prevent the inclusion of the full refund in the bankruptcy estate which is overseen by the bankruptcy trustee. For example, if the refund is produced by excessive tax withholding throughout the tax year, the refund may be prorated over the course of the year with only the pre-petition portion being included in the estate. Issues also arise with regard to the tax refund in joint bankruptcy petitions (petitions for bankruptcy from a married couple). Certain tax credits may also be treated differently than others in the petition. The timing of the petition’s filing may also determine whether the refund is included in the estate at all, furthermore.
In short, as with all aspects of bankruptcy, the treatment of an expected tax refund is a complicated matter and should be discussed with a bankruptcy attorney. Many people rely on that tax return to get a jump on the new year, and losing it to a bankruptcy trustee due to an ill-time petition filing or other misstep is a major blow. The possibility is, however, a needless risk. Good planning with a bankruptcy attorney and, most importantly, full disclosure of your entire financial picture, including your future financial picture, will easily mitigate such risks.
If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.
Posted in Bankruptcy, Bankruptcy Planning, Chapter 13, Chapter 7, Joint-Filing, Michigan, Tax Returns and Bankruptcy
Tagged Bankruptcy, Chapter 13, Chapter 7, detroit, Michigan, southfield, tax refund, tax return
