The Typical Co-Debtor Protection In most circumstances, when only one co-debtor files for bankruptcy protection, the non-filing co-debtor usually can maintain the property provided that the co-debtor continues to make timely payments. An interesting situation arose in a recent case. The particular property is a boat. Husband and wife both signed for and are responsible+ Read MoreThe post What Happens When Only One Co-Debtor Files For Bankruptcy? appeared first on David M. Siegel.

My Recent Client I recently had the opportunity to speak with a chapter 13 debtor. This debtor had done a prior chapter 13, where the plan payment was $350 per month. The debtor was unable to make his monthly payment to the trustee and his case was soon dismissed. The debtor then came to my+ Read MoreThe post Chapter 13 Bankruptcy Requires The Debtor To Be Honest appeared first on David M. Siegel.

By Tara Siegel BernardSix months after his wife learned that she had a rare vascular disease of the brain,Frank, now 66, lost his job as director of sales of a telecommunications company.His wife, to whom he had been married for 36 years, died just two months later.He was still grieving when he learned that he had kidney cancer. The tumorwas operable, but the exam brought to light a long list of other serious problems,including a pulmonary embolism and a heart-rhythm disorder.That was in 2009, in the depths of the recession, and finding a new job wasdifficult. Two years later, after struggling to pay medical bills not covered byinsurance and other debts, Frank filed for bankruptcy. But that did not erase thegiant pile of federal Parent Plus loans that he had taken out to help put his threechildren through college. Since he could no longer work, Sallie Mae, the loanservicer, ultimately suggested applying for a disability discharge, which wouldcancel the debts.He qualified, and last July, his loans, which had ballooned to $150,000 inforbearance, were wiped away. “I felt like a Buick had been lifted off myshoulders,” said Frank, who lives in upstate New York.But much to his surprise, he received another bill. In January, the InternalRevenue Service sent him a tax form, known as a 1099-C, which said that the loanamount had to be treated as income. According to his calculations on TurboTax,his tax bill for this year is about $59,000.“If I am not capable to work due to a medical disability to pay the studentloan, how am I supposed to work to pay the taxes?” said Frank, who agreed to discuss his situation only if his full name was not published. “Now I am somewhatpanicked.”After much criticism, the Department of Education has made it easier inrecent years for disabled borrowers to have their federal student loans discharged.But now, as more people are qualifying for loan forgiveness, many of them arerunning into an unexpected consequence: They are often shocked to learn thatthey basically exchanged one debt for another, according to consumer advocatesand tax and credit specialists.While millions of debts — including credit cards and mortgages — arecanceled each year, the group of borrowers whose loans have been dischargedbecause of a “total and permanent disability” has grown sharply to more than115,700 in 2013, from nearly 61,600 in 2011 and fewer than 15,000 in 2008,according to the Department of Education. But under current tax law, the amountof debt forgiven is generally taxable, so some disabled borrowers end up with taxbills they cannot afford.Borrowers who can prove they were insolvent may be able to ease the taxburden, but may not be able to eliminate it. And many people do not even knowthis exception exists. The insolvency calculation is notoriously complex,particularly for people who are dealing with medical problems or the death of achild, consumer advocates said, which is another instance in which student loandebts may be discharged.“The government gives with one hand, while taking back with the other,” saidMark Kantrowitz, a senior vice president and publisher of Edvisors, aninformational website about paying for college. “Morally, if debt is canceledbecause of the borrower’s inability to pay due to disability, the corresponding taxdebt should also be forgiven.”The tax debt is generally a small fraction of the overall debt, but it can presenta great burden because it is due in one lump sum instead of being spread overtime, he added.“Many borrowers don’t even realize it’s going to be a taxable event,” saidPersis Yu, a lawyer at the National Consumer Law Center who works on theStudent Loan Borrower Assistance Project. “The collateral damage definitely haspotential broad impact. There is the issue of finding affordable housing if they dohave to sell assets to pay for this liability. One of our other concerns is because some people will have this included in their adjusted gross income, they could losepublic benefits.”In some instances canceled debts are not taxable, including debts canceled inbankruptcy. And student loans may not be taxable for borrowers who work for aspecific period in certain professions, for example.Insolvency is another exception. Borrowers who can illustrate that they wereinsolvent — that is, their total liabilities exceeded the value of their assets — couldpotentially lessen or even eliminate the tax burden. The amount of taxable incomecan be reduced, but only to the extent of the insolvency.In other words, if a borrower’s debts exceed assets by $25,000, but a $50,000loan is forgiven, tax would still be owed on $25,000. “Insolvency is insufficient toprotect many vulnerable borrowers,” Ms. Yu said.In Frank’s case, when he factors his insolvency in that calculation, he said hewould still owe nearly $25,000 in federal and state taxes. He needed the help of atax lawyer to arrive at that reduced figure, which he said the I.R.S. may or may notaccept.Canceled debts are treated as income “to prevent people from using this as aloophole: lend someone money, they buy something of value, then cancel the debtand they don’t have to report that money as income,” explained Gerri Detweiler, acredit specialist with Credit.com. “But unfortunately very vulnerable borrowers arebeing swept up in this. They find themselves suffering from a variety of illnesses,unable to work, and having to deal with the I.R.S.”The consequences of not paying are serious. The I.R.S. has the authority togarnish wages, bank accounts and other property, such as automobiles orretirement savings accounts. The agency can also garnish Social Security andpension payments, and can file a federal tax lien, which is attached to all propertyan individual may own, specialists said. The I.R.S. will also add penalties andinterest to the bill.If a taxpayer does not pay the amount owed, the I.R.S. will send a bill, whichis the start of the automated collections process. If the borrower cannot worksomething out through that process and does not pay, the borrower will receive afinal notice, which says the agency intends to collect what is owed and gives 30days to comply, said Daniel J. Pilla, a tax litigation consultant and the author of“How to Eliminate Taxes on Debt Forgiveness,” (Winning Publications, 2013). The letter also notifies individuals of their right to appeal, he added, a process thatstops the collections process.A few other options are available for people who cannot afford to pay the bill.If the amount owed is less than $50,000, they can apply for a monthly paymentplan online, according to the I.R.S., or request a plan by filing Form 9465 (peoplewho owe more than $50,000 must file that form ). Some taxpayers may alsoqualify for an “offer in compromise,” where the I.R.S. agrees to settle the tax billfor less than the full amount.Mr. Pilla said taxpayers could also try to prove that their monthly income wasconsumed by necessary living expenses, which may cause the I.R.S. to deem thedebt “currently not collectible.” “That means they will press the hold button on thecollection machine,” he added.Some organizations, including the National Council of Higher EducationResources, a trade group representing student loan servicers and otherorganizations, have brought the tax issue to the attention of members of Congress,but it has not yet gained traction, said Tim Fitzgibbon, vice president for debtmanagement services at the group.For now, people who find themselves with large tax obligations have to figureout how to best navigate the process on their own or with professional help, whichcan be hard to find. The I.R.S.’s free tax preparation service for low- andmoderate-income people is not equipped to handle the complexities.Frank said the tax lawyer he hired to help him negotiate with the I.R.S. wasgoing to cost him $3,000 to $5,000, and he is making plans to sell his home. “Ihave to go through this process,” he said, “which is going to be laborious and expensive."Copyright 2014 The New York Times Company.  All rights reserved.

In baseball, a batter gets three strikes, then he’s out.  It doesn’t quite work that way with bankruptcy.  Take our clients Aaron and Wendy.  They filed a Chapter 13 bankruptcy and their bankruptcy was dismissed.  They weren’t able for different reasons to make their plan payments for the complete plan, and wanted to start over. Aaron and Wendy could have filed a Chapter 13 bankruptcy again (and they did).  However, the bankruptcy code puts in rules when someone has two bankruptcies open in the same year.  These rules affect the “automatic stay”, the protection you get when filing for bankruptcy.  This is the protection that tells creditors to stop foreclosures, wage garnishments, car repossessions, and lawsuits. The automatic stay is good for the full bankruptcy unless the court gives permission to a creditor to get around it.  So if you stop paying on your mortgage for four months, the mortgage company can ask the court to let them out of the protection so they can foreclose. But when one case was dismissed (or discharged and finalized), then another case is filed, the automatic stay protection only lasts for 30 days.  To make it stay for the whole bankruptcy again, you have to ask the judge to continue or extend it and explain why. To get what we wanted in court, we had to do what the courts ask when we need to ask for something – we filed a motion.  We filed the motion for Wendy and Aaron to continue their bankruptcy protection throughout their new bankruptcy.  In our explanation, we included their statements about why their last case didn’t work but this case would be more successful.  Sometimes that is enough for the court to agree and for creditors to stay quiet and not object or fight it. Sometimes the judge wants to hear an explanation in person.  That’s what happened here.  The judge listened and agreed that this case was filed in good faith and not simply another way to stall and avoid creditors.  So she agreed and now our clients are protected again. If you’ve had one case (or more) dismissed and want to re-file, you’ll want a lawyer to explain how to keep that automatic stay and protect yourself from creditors.  Call 847-249-9100 or 262-694-7300 in Wisconsin, or e-mail us to see what we can do to make sure you keep the automatic stay in a new bankruptcy filing.

It’s easy to be confused when talking about the different types of bankruptcy. Most people are aware that bankruptcy is a way to eliminate debt. What they are not sure of, is whether it’s really in their best interest to file at all. There are some cases where it’s a tough decision. The person may+ Read MoreThe post There Are Different Types Of Bankruptcy appeared first on David M. Siegel.

Clients want to file a chapter 7 bankruptcy to clear up credit card debt and get a fresh start. Credit union customers are shocked to learn that their credit cards with a local credit union are tied together with their car loans at the same credit union. Credit unions frequently use “cross-collateralization.” This means that your car or house not only secures your car note or house mortgage but also your credit card debts at the credit union. Normally, when you borrow a large sum of money from a bank, you give a lien on the item known as collateral. So if you borrow money to purchase a vehicle, the lender keeps the title top the car until you pay off the loan. If you default on the car loan, then the bank could enforce its lien by taking it back. A loan with a credit union to purchase a vehicle works differently with a cross-collateralization clause. This provision has the effect of making your vehicle the collateral for all present and future loans with the credit union. So if you have a vehicle loan with your credit union and a credit card, the credit union can take back your car even if you just stop paying on the credit card. In bankruptcy, the credit union has two secured loans; the vehicle loan and the credit card. That means, if you want to keep the vehicle in a Chapter 7 bankruptcy, you have to reaffirm the vehicle loan AND the credit card. If you don’t reaffirm the credit card, then the credit union could repossess the vehicle. You could still get rid of personal liability on both the credit card and vehicle loan, but would no longer have a car to drive. One alternative to this dilemma is to redeem the vehicle. The Bankruptcy Code lets debtors in Chapter 7 pay the secured creditor the fair market value of the vehicle in one lump sum – the present value of the car. This is a good option when the vehicle is worth much less than the total amount of debt securing the vehicle. If the vehicle is newer this is likely not a good option. Most debtors in bankruptcy will not have enough cash to make a lump sum payment. Sometimes we can actually refinance the debt using a tool called “redemption financing”. If the vehicle loan was signed more than 910 days before the bankruptcy was filed, you can file a Chapter 13 and propose to pay the fair market value of the vehicle over the term of the plan, either 3 or 5 years, at a little over the current prime interest rate. The remaining balance on the vehicle loan and credit card would be paid a small percent of the balance as an unsecured creditor in the plan. As with most things in bankruptcy, it is helpful to have an attorney guide you through the process and determine the best course of action for dealing with the credit union. To avoid this situation in the future, I always advise my clients not to have more than one loan, whether secured or unsecured, with a credit union.

Chapter 7: Time To File? David Siegel: When would somebody want to file a Chapter 7 bankruptcy as opposed to not filing at all? What is the reason why someone would file a Chapter 7? Jesse Barrientes: I guess there are a lot of different reasons. One would be for example if somebody filed a+ Read MoreThe post Bankruptcy & The Right Time To File appeared first on David M. Siegel.

Baby Boomers are signing up for reverse mortgages at record levels.  They’ve taken out $15.3 billion worth in 2013, an increase of 20 percent from the year before. Baby boomers who have saved nothing for retirement  – almost 77 million of whom are going to retire fuel growth in reverse mortgages. Just because boomers are getting reverse mortgages, it doesn’t mean that they are getting out of their debts.  Bankruptcy remains the best and surest way to eliminate debt and secure a retirement free from hounding debt collectors. If you are thinking about a reverse mortgage, call us at Lakelaw 847 249 9100  to discuss how it fits into your overall scheme.  Remember that these are high-fee loans. Remember that you will lose all equity in your house.  Remember that you’ll have nothing to pass on to your loved-ones and nothing to show for your years and years of hard work. Just because Henry Winkler looks so sincere in TV ads hawking reverse mortgages doesn’t mean that its the right thing for you.  Ask us to tell you the whole truth about reverse mortgages.  You may be able to keep possession of your house but from an economic standpoint, it won’t be yours – it will be the bank’s.  Don’t forget this.    

Effective June 1, the filing fees increase to: Chapter 7  $335.00 Chapter 13: $310.00 Chapter 11: $1,717.00 Chapter 12: $275.00 Chapter 9: $1,717.00 Chapter 15: $1,717.00 Adversary complaint $350.00

In the last article I touched briefly on whether or not you could continue to make payments on property used as collateral without having to reaffirm the debt with the lender. To understand your options with regard to personal property used as collateral, I will be using the example of a car loan.The post What To Do With Property Used As Collateral During Your Bankruptcy appeared first on Tucson Bankruptcy Attorney.