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.
Placing assets into a trust is not always an effective means of protecting those assets from creditors, or, thereby, from the asset liquidation power of Chapter 7 Bankruptcy Trustees.
As I’ve written here before, a Chapter 7 Bankruptcy is a “liquidation” bankruptcy both in that your debt is liquidated, or discharged, and in that there is a possibility that your assets will be liquidated during the bankruptcy process. A Trustee assigned to your Chapter 7 Bankruptcy case by the Bankruptcy Court has the duty of seizing and liquidating personal assets that are valued above the limits of the protective exemptions provided by the Bankruptcy Code statute. While, in most Chapter 7 Bankrutpcies, these exemptions are sufficient to cover everything a typical household generally has, some higher earning or higher asset households may include assets that cannot be protected with the available protective exemptions. Thus, in a Chapter 7 Bankruptcy, those assets are subject to seizure and sale for the benefit of the filing person’s creditors by the Bankruptcy Trustee.
The practice of a Chapter 7 bankruptcy Trustee seizing and selling real estate after it is surrendered in bankruptcy and then sold at foreclosure sheriff’s sale is a phenomenon may be primarily local to the Detroit, Michigan bankruptcy courts. However, it has become more and more common for a Chapter 7 bankruptcy Trustee, in this area, after a case has been discharged, to re-sell real estate that has been surrendered in the bankruptcy in order to gain proceeds from the sale that may be distributed to a bankruptcy debtor’s creditors—and, of course, net a percentage “fee” for the Trustee.
How is this possible?
Posted in Chapter 7, Foreclosure, Home Mortgages and Bankruptcy, Michigan, Property, Real Estate, Tax debt, Uncategorized
Tagged Chapter 7, homestead, Michigan, real estate, trustee
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
Social Security benefits, both age benefits and disability benefits, are and also are NOT considered “income” within the bankruptcy process in a couple of different ways.
Income is considered in the bankruptcy process both as a measure of a debtor’s eligibility for Chapter 7 (as opposed to Chapter 13) bankruptcy and as a measure of the debtor’s ability to repay creditors some portion of the debt owed to them on monthly average basis.
Posted in Bankruptcy Laws, Chapter 13, Chapter 7, Income, Means Test, Michigan, Uncategorized
Tagged attorney, Chapter 13, Chapter 7, hilla, income, Michigan, Sixth Circuit, social security
The Bankruptcy Code states that a debt is not dischargeable in Chapter 7 or Chapter 13 bankruptcy if it is owed for money obtained through fraud. The US Supreme court has upheld even the non-dischargeability of a settlement of a lawsuit in which a complaint of fraud is alleged as owed “for money obtained through fraud.” In short, although you must list all debts owed in your bankruptcy petition when you file it, some of those debts may not actually be discharged by the bankrutpcy, and “fraudence-based” debts are one of those types.
However, the question remains: what is a debt obtained through fraud?
There are a few key mechanisms available in a Chapter 13 bankruptcy that are not available in a Chapter 7 bankruptcy. These mechanisms are largely, in addition to the lack of an income eligibility standard, what make a Chapter 13 very attractive to some debtors. These mechanisms are:
Posted in Chapter 13, Uncategorized
Tagged Bankruptcy, Chapter 13, cramdown, lien strip, Michigan
When you file bankruptcy in Detroit, you have decisions to make. Do you file a Chapter 7 bankruptcy or file a Chapter 13? Will you keep property (like your house or car), or will you surrender it? Are there special issues in your bankruptcy case that need to be addressed?
You probably won’t think of what you’ll wear to your bankruptcy hearing until a day or two before the hearing. And while there are rules about other bankruptcy issues, there really aren’t any concerning what you should wear to your hearing. As with most other decisions you make, use good judgment. Here are some things to keep in mind when you make this decision:
The goal at your hearing is to show respect while, at the same time, not look out-of-place. While what to wear to your bankruptcy hearing isn’t one of the more important issues in your case, it still deserves some attention. Don’t put unnecessary obstacles in the way of your bankruptcy case being a success.
Written for the Michigan Bankruptcy Blog by Charleston Bankruptcy Lawyer, Russell A. DeMott.
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 341 Hearing, Chapter 13, Chapter 7, Uncategorized
Tagged 341 Hearing, Chapter 13, Chapter 7, meeting of creditors, Michigan
Mobile or manufactured housing is handled roughly the same way non-mobile housing is handled in a Chapter 7: it is property that is possibly securing debt the same way a standard mortgage or even car loan does and is likewise property that may be foreclosed upon if payments for the debt that it secures fall behind. The difference is, naturally, in the possibility that this particular type of home may, as its name implies, be mobile.
In a bankruptcy filing, the question for any real estate is whether it does or does not qualify for the homestead exemption available under the Federal Bankruptcy Exemptions and under most state bankruptcy exemptions to varying degrees. For a mobile home as with any home, the question is whether or not the home is the filing debtor’s primary residence. That is, does the debtor actually live in the property at the time the petition is filed? If so, any equity in the mobile home is likely covered by the homestead exemption just as with non-mobile real propety that is the debtor’s primary residence.
A further underlying issue with regard to mobile homes is whether the debtor also owns the underlying land upon which it sits. If so, a certain percentage of this land in combination with the mobile home itself is covered by the homestead exemption. If the underlying land is rented rather than owned, then it is the mobile home alone that is valued and exempted in the bankruptcy petition, while the land must be disclosed on the bankruptcy petition as the subject of an executory rental agreement, much like an apartment. It is important, therefore, to give your attorney all of the information he or she requires to determine your level of ownership in the property so that the various components—mobile home and the underlying land upon which it sits—are both valued properly and in the right amounts and listed properly in the bankruptcy petition.
Further, the manner in which the mobile home is listed in the bankruptcy petition may depend upon such details as whether or not the wheels have been removed from the mobile home. (State law governs this determination, generally).
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.
If you have questions about your mobile or non-mobile home and how it might be handled in the bankruptcy process, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation. Together, we’ll work out the best strategy to protect and preserve your home.
I began this blog only last December, and, although six months is not a lot of time to assess the effectiveness of anything, one thing that has become clear to me is the number of people interested in very basic information about bankruptcy. The ground-level hows and whys and whens remain a mystery to many people, despite the huge amount of information about bankruptcy available on the internet and elsewhere. The posts I’ve written here that address some of these basic questions are among the most-viewed, far exceeding the readership of my posts addressing very specific issues within the framework of bankruptcy.
Therefore, for the benefit of any new readers who may stumble upon this blog, I’d like to take the opportunity, to point toward some of my previous posts that have touched upon the very basic basics of bankruptcy. Wondering where to get started? Try reading these first, below, first.
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.
