Will A Bankruptcy Filing Eliminate My Tax Debts

March 20th, 2010

Filing for bankruptcy may be a good way to deal with your tax debts. However, often times it is not. Yet, there may be other options without filing for bankruptcy.

Generally, you can discharge your income tax debts for any year where your tax return for that year was due more than 3 years ago, where the return was actually filed more than 2 years ago, where your tax obligation was assessed more than 240 days ago, and where you did not intentionally fail to file your return or pay your taxes.

The time periods above can sometimes be suspended.  For example, if you had an offer in compromise pending with the IRS, the above periods will be met only after you subtract out the time that the offer in compromise was pending, plus 30 days.

Some kinds of taxes are dischargeable in a bankruptcy case and some are not.

For the most part, income taxes are dischargeable, subject to the above rules. By contrast, excise, sales and withholding taxes are not dischargeable.

Bankruptcy is a feasible way to eliminate tax debt. However, when bankruptcy will not work, there are often numerous other ways to deal with your tax debts.

If you are interested is discussing your options, please call me at (570) 823-9400 or write to me at davidharrisesq@epix.net.

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Are Co-Signers Or Guarantors Responsible For A Loan Or Debt If The Primary Borrower Files For Bankruptcy

February 10th, 2010

Generally, a co-signer or guarantor may be liable for a loan or debt obligation if the primary borrower files for bankruptcy. The same may hold true for an authorized user or co-user of a credit card.

The primary borrower’s bankruptcy filing does not result in a discharge of the debt of the co-signer or guarantor.

There are exceptions, though.

The terms of the documentation signed by the co-signer or guarantor may limit his or her liability. Further, the person’s co-signing or guaranty may have been procured improperly by the creditor under Federal law.

Aside from these issues, an authorized user or co-user of a credit card (with a bankruptcy debtor) may have no liability for the credit card debt if he or she never signed a document that would obligate him or her on debt. This should be examined carefully, as credit card companies frequently cannot prove that the authorized user or co-user ever signed anything.

A debtor’s bankruptcy lawyer should list a co-signer or guarantor as a creditor on the debtor’s bankruptcy schedules so the debt that the debtor owes to the co-signer or guarantor is discharged.  This may sound peculiar but, in most states, a co-signer or guarantor has a right of contribution from the primary borrower if the creditors ends up collecting the debt from the co-signer or guarantor.  For example, if you and I owe a debt to the ABC bank, the bank can come after either one of us upon a default.  If the bank ends up collecting the debt from me, it’s up to me to go after you for contribution.  If you end up filing for bankruptcy, you should list me as a creditor to discharge my right of contribution against you.

If you are confronted with this situation, call me now at (570) 823-9400 or write to me at davidharrisesq@epix.net.

Please also visit MY HOME PAGE to learn more about my law practice and me.

What Is The Difference Between A Secured Debt And An Unsecured Debt

January 20th, 2010

A debt is an obligation of someone or some company (a debtor) to pay back money to someone else or to some other company (a creditor).

A debt is unsecured if the debtor has not pledged any property or has not given a property interest to the creditor in support of the debt.

If a creditor holding an unsecured claim wants to be paid what is owed by the debtor, the creditor must sue the debtor, obtain a judgment and then execute by levy or seizure on the debtor’s assets.

A debt is secured if: (A) the debtor has pledged property or has given a property interest in support of the debt (a voluntary secured claim); or (B) the debtor has been sued by the creditor and the creditor has obtained a judgment against the debtor and a lien against the debtor’s property in accordance with the law of the state where the debtor’s property is located (an involuntary secured claim).

The creditor holding a secured claim acquires an interest in, or claim to, the assets that the Debtor pledges or gives or upon assets upon which the creditor acquires a lien. Upon the debtor’s default in paying back the debt, a creditor holding a secured claim can: (A)  sue the debtor and proceed against all the debtor’s assets upon the debtor’s failure to pay the debt owed; or (B) sue to repossess the property that is pledged or given or that is subjected to the creditor’s lien.

The advantage to the secured creditor is that the secured creditor gets first priority rights to pledged or secured assets over all other creditors’ claims or actions if the secured creditor “secured” his claim before other creditors secured their claims.  Priority is based on “first in time, first in right.”  In other words, a mortgage recorded on March 1, 2009 will have priority over a mortgage recorded on June 15, 2009 or a judgment lien acquired on June 15, 2009.

In Pennsylvania, a debt becomes secured by real estate by the signing and recording of a mortgage document in the county court where the property is located.

In Pennsylvania, a debt becomes secured by a vehicle by a designation recorded on the vehicle’s title certificate that is then filed with the state.

In Pennsylvania, a debt becomes secured by equipment, machinery or intangible assets (e.g., securities or receivables)  by a physical pledge or by the recording of a UCC financing statement with the state.

In Pennsylvania, a judgment obtained by a creditor acts as a lien or charge on any real estate owned by the debtor in the county where the judgment is recorded.

In Pennsylvania, a judgment obtained by a creditor acts as a lien or charge on any tangible and intangible non-real estate property when the judgment is obtained and the county sheriff levies on the property.

Unique to all is an IRS judgment, which acts as a lien or charge on all property of the debtor of every type, now owned or after acquired, without the need for a specific levy. The IRS, however, is subject to the priority rules discussed above.

Please feel free to call me at (570) 823-9400 at my office in Wilkes-Barre, Pennsylvania or write to me at davidharrisesq@epix.net, if you would like free information about all that I have discussed.

Please also visit MY HOME PAGE to learn more about my law practice and me.

Why Is There So Much Paperwork Involved In A Bankruptcy Case

January 10th, 2010

When you file for bankruptcy, you’re going to need to prepare and submit a lot of paperwork. It seems like overkill but, the law requires very detailed financial disclosure.

For example, the law requires that you file a petition to initiate your bankruptcy case, numerous schedules to show what you own, how much debt you have, the type of debt that you have, your monthly income and expenses, and excerpts of your financial history, all to enable the court and your creditors to determine if you qualify for the relief that you seek in your particular bankruptcy case.

A better way to understand this is to first explain the reasons why someone (or some business) might file for bankruptcy.

Some of the most common objectives for filing for bankruptcy are:

(A) to discharge overwhelming unsecured debts;

(B) to cure or bring current a mortgage arrearage to retain a residence or other real estate;

(C) to keep creditors at bay while proposing a personal or business plan of reorganization; or

(D) to pay back all or some part of the debt for which the creditors are seeking collection because of the existence of high income, equity in assets or non-dischargeable debts.

You must thoroughly and accurately fill out and file all the paperwork mentioned above so that the court and creditors can determine:

(A) if you have limited or no equity in assets so that you can discharge unsecured debts without having to pay anything back;

(B) whether you have enough net monthly income to be able to feasibly cure or bring a mortgage arrearage current while maintaining payment of other necessary monthly expenses;

(C) whether you filed the case in good faith to enable creditors to be kept at bay from its collection efforts; and

(D) where you are compelled to pay back something to creditors, how much you need to pay back based on your equity in assets and excess monthly income.

Please feel free call me at (570) 823-9400 at my office in Wilkes-Barre, Pennsylvania or write to me at davidharrisesq@epix.net, if you would like free information about all that I have discussed.

How Much Do I Need to Owe to File for Bankruptcy

December 26th, 2009

There is no specific sum that one needs to owe to file for bankruptcy.

Rather,  the need for filing will depend on the particular circumstances that a person confronts. For example, a surgeon with $40,000 of credit card debt may not need to file. An elderly person with medical needs, huge monthly utility bills and a particular sensitivity to collection calls having $8,000 of credit card debts may need to file.

Some of the many factors to consider before filing a bankruptcy petition are:

1.   Your ability to pay debts as they become due, based on current household income and expenses.

2.   Whether the amount that you owe can be paid back within a reasonable period of time without adversely impacting your lifestyle, measured by reasonable and necessary expenses.

3.   Whether there is an immediate need for you to stop creditor action, such as collection efforts, levies, garnishments, foreclosures, repossessions or telephone calls.

4.   Whether you are particularly sensitive to collection calls.

5.   Whether you have a need to cure a particular debt (e.g., a mortgage arrearage) through a court-ordered plan, without a particular concern for discharging debts.

6.   Whether you or a household family member has incurred a permanent job loss or decline in income.

7.   Whether you or household family member has incurred an illness or a family member upon whom you relied on for support has died.

8.   Whether you are engaged in a divorce proceeding.

9.   Whether you or household family member has a need to devote funds to a particular debt or debts, such a medical debts, tax debts, child support or student loans.

10.  The nature of the your debts (e.g., child support, student loans, taxes, credit cards, mortgage or business debts).

11.   Your personal view toward a bankruptcy filing.

If you wish to discuss the content of this post further, please feel free call me at (570) 823-9400 or write to me at davidharrisesq@epix.net.

Can I Transfer My Property To Friends or Family to Keep From Losing It in a Bankruptcy

December 19th, 2009

Generally a debtor cannot transfer property to others to keep from losing it in bankruptcy…unless the debtor has transferred the property for fair value or in exchange for other property of the same value or, in Pennsylvania, the debtor has transferred the property more than 4 years prior to a bankruptcy filing.

The Bankruptcy Code allows a bankruptcy trustee to “avoid” any transfer of property by a debtor if: (a) the debtor intended to hinder, delay or defraud creditors, or (b) the debtor receives less than a reasonably equivalent value (in money or other property) in exchange for the property, (c) the debtor was insolvent at the time of the transfer or was made so as a result of the transfer, and (d) the transfer occurred within 2 years of the date of the bankruptcy filing. Pennsylvania law extends the “lookback” period to 4 years.

“Avoid” means that the trustee can retrieve or repossess the transferred property or obtain a judgment (against the debtor or the person who receives the property) in an amount equal to the value of the transferred property as of the date of the transfer.

What is worse is that once the trustee retrieves the transferred property, the debtor will not be entitled to exempt any portion of the property because, technically, the debtor is not the owner of the property on the date of his or her bankruptcy filing (a prerequisite under the Bankruptcy Code to being allowed to take an exemption).

Nevertheless, there are several legal, ethical and court-approved ways to transfer property to keep from losing property in a bankruptcy case.

If you wish to discuss the content of this post, please feel free call me at (570) 823-9400 or write to me at davidharrisesq@epix.net.

How Long Does Bankruptcy Take

December 12th, 2009

I have known bankruptcy cases to take anywhere from 5 months to 24 years!

Most consumer Chapter 7 cases take approximately 5 to 6 months from the date that it is filed until the date that it is closed, unless: (a) the debtor has assets to be liquidated and distributed in the case, (b) when the Chapter 7 trustee is investigating past actions of the debtor, (c) when the Chapter 7 trustee is investigating whether unreported assets exist, or (d) when the Chapter 7 trustee simply forgot to close the case as a matter of oversight.

Most Chapter 13 cases take from 3 to 5 years.

A Chapter 13 case will take 3 years where the debtor’s household income is less than the debtor’s residence state’s median income for a same-sized household or where the debtor has significant income and can pay all his or her debts in 3 years or less.

A Chapter 13 case will take 5 years where the debtor’s household income is more than the debtor’s residence state’s median income for a same-sized household or the debtor simply chooses a 5-year plan term instead of a 3-year term.

A choice of this nature may exist if the debtor is seeking to cure a mortgage arrearage as part of his or her Chapter 13 plan and would prefer a lower monthly payment by spreading out the cure obligation over 60 months (5 years) instead of 36 months (3 years).

A choice of this nature may also exist if the debtor is compelled to file a Chapter 13 case rather than a Chapter 7 case as a result of having non-exempt equity in assets that would have been liquidated in a Chapter 7 case. Thus, a debtor who had $20,000 of non-exempt equity may prefer paying $333.33 to a Chapter 13 trustee over a 60-month period instead of paying $555.55 over a 36-month period.

A debtor will not have the option of a 3-year Chapter 13 plan where the debtor is an “above median debtor,” unless the debtors pays all his or her unsecured debts within the 3-year period in the plan. Simply, an “above median debtor” is required to commit all his or her income to a 5-year plan, unless the debtor has certain, but significant, expenses. However, as stated earlier, if a debtor has significant income and, as a result, can pay all his or her debts in less than 5 years, he or she will conclude his or her case in a shorter period of time.

And now…the case that lasted 24 years…the “Blue Coal” case, here in my home town of Wilkes-Barre, Pennsylvania. The case was filed one year after I graduated from high school. I spent four years in college, three years in law school, two years in grad school, began my career far from home, then moved back home and had the unique experience to participate in the case, more than 12 years after the case was filed.

If you have any questions about this post, please write to me at: davidharrisesq@epix.net or call me at my Wilkes-Barre, Pennsylvania office at (570) 823-9400.

Do I Have To Go To Court When I File For Bankruptcy

December 9th, 2009

In most cases you do not have to go to court when you file for bankruptcy.

You will, however, always have to appear for a meeting, known as a Section 341 or creditors meeting,  approximately 5 to 8 weeks following your bankruptcy filing, where the trustee appointed to your case and your creditors can ask you limited questions about your assets and finances.

In Pennsylvania, these meeting are ordinarily not held in a court. Also, so you know, credit card companies, banks and mortgage lenders usually do not appear at these meetings.

If the trustee or a creditor of yours seeks to challenge your right to obtain a discharge in your bankruptcy case (for any of a variety of reasons, including fraud) or if a creditor seeks to obtain relief from the protection that the bankruptcy law affords you (known as the automatic stay) to pursue a claim against you or your property in state court (such as initiating a foreclosure action), you may be required to appear in bankruptcy court to defend that action.

You may also be required to appear in bankruptcy court if you elect to sign a reaffirmation agreement in order to keep a vehicle that is secured by a loan. Your appearance is simply to convince the bankruptcy judge that you have to ability to maintain your vehicle payments.

If you have any questions about this post, please write to me at: davidharrisesq@epix.net or call me at my Wilkes-Barre, Pennsylvania office at (570) 823-9400.

The Truth About Foreclosures and Loan Modifications

November 15th, 2009

Here is a must-view seven minute video from the one person who truly can claim paramount knowledge on this topic: Elizabeth Warren.   Please cut and paste:  http://ow.ly/tEI4

Please call me to discuss your questions at (570) 823-9400 or send an e-mail to me at davidharrisesq@epix.net. You may also write to me at 15 Public Square, Suite 310, Wilkes-Barre, PA 18701.

Should I File A Chapter 13 Case Instead Of A Chapter 7 Case

October 22nd, 2009

Ideally, a debtor who contemplates filing a bankruptcy case to discharge debts strives to do so under chapter 7 of the Bankruptcy Code because a chapter 7 case is of shorter duration and is less costly than a chapter 11, 12 or 13 case filing.  However, a debtor typically considers filing under chapter 7 if he or she: (A)  will not lose property that he or she desires to keep; and (B) has household gross income that is less than the published median for the debtor’s state of residence.

By contrast, a debtor may file under chapter 13 for any of the following reasons:

1.  The debtor has non-exempt equity in assets.  Simply stated, this occurs when the value each of the debtor’s assets or value of an asset group exceeds the encumbrances on the asset or asset group and the allowed exemptions afforded by the Bankruptcy Code for each asset or asset group.  If a debtor will lose property that he or she desires to keep, he or she will file a petition to institute a chapter 13 case and pay an amount equal to the non-exempt equity of his or her assets in a chapter 13 case over a period of 36 to 60 months. This may result in unsecured creditors receiving anywhere from 1% to 100% of their allowed claims.

2.    Even if a debtor has no non-exempt equity in assets, the debtor must file under chapter 13 if his household gross income exceeds the published median for the debtor’s state of residence.  Nevertheless, even if the debtor is an “above median” debtor,  he still may be able to file under chapter 7 if his “allowable ” monthly expenses offset his monthly gross income, leaving him with net disposable income of approximately $182.50 per month or less. (“Allowable” is defined by IRS standards.)  If a debtor is compelled to file a petition to institute a chapter 13 case as a result of being an “above median” debtor with $182.50 or more of monthly disposable income, then he or she must pay that monthly excess into a 60-month chapter 13 plan. This may result in unsecured creditors receiving anywhere from 1% to 100% of their allowed claims.

3.      A debtor may consider filing a chapter 13 case if he or she desires to keep his or her home but has incurred a mortgage arrearage or is subject to a mortgage foreclosure action.  A chapter 13 filing is a common way to enable a debtor to “cure” or bring current a mortgage arrearage by making payments to a chapter 13 trustee over a period of 36 to 60 months while maintaining monthly mortgage payments directly to the mortgage company. This is known as a “cure and maintain” plan, where the trustee will distribute funds toward the arrearage each month.

4.    A debtor may consider filing a chapter 13 case to cure non-dischargeable unsecured debts over a 5-year period (i.e., 60 months) while stopping the running of interest.

5.    A debtor may also consider filing a chapter 13 case simply to keep creditors at bay until a sale of assets at fair value is consummated.

6.   A debtor may consider filing a chapter 13 case to eliminate or modify  a mortgage or other secured debt if certain conditions are met.

7.   A debtor may  consider filing a chapter 13 case where the debtor desires to control his or her assets and avoid administration or scrutiny by a trustee.

8.    A  debtor may consider filing a chapter 13 case where the debtor has potential claims  for lender liability, or collection, creditor reporting or other violations, where the debtor believes that the bankruptcy court will be a better forum to hear such claims.

9.    A debtor may  consider filing a chapter 13 case to altruistically pay back some or all of his or her debt.

Please call me to discuss your situation at (570) 823-9400 or send an e-mail to me at davidharrisesq@epix.net. You may also write to me at 69 Public Square, Suite 700, Wilkes-Barre, PA 18701.

Please also visit MY HOME PAGE to learn more about my law practice and me.