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Schedule C: Property Exemptions

Keeping Assets in a Chapter 7: Understanding Bankruptcy Exemptions

Bankruptcy Exemptions are the laws that allow you to keep assets in a Chapter 7 Bankruptcy

The most common type of bankruptcy is a Chapter 7 bankruptcy, aka a liquidation bankruptcy.  The process usually takes approximately three to four months for a standard case. During this process you file a petition that provides information about your life. This information includes your income, expenses, debts, assets, and personal information. The bankruptcy process allows you to keep certain items. If you have more then the minimal items the bankruptcy trustee sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay creditors. Understanding bankruptcy exemptions can help you determine the right debt management option for you.

Who can file

Chapter 7 is an option for individuals or businesses. An individual gains fresh financial start after filing a Chapter 7 — only select debts remain after discharge. A business uses a Chapter 7 to close the business after it is no longer profitable.

 

How to qualify

When a debtor files Chapter 7, the court looks at the household income. If the household income is below the median for your state, you can qualify for Chapter 7. If your household income is above the median income for your state, you may still qualify. The court analyzes all income under the “Means Test.” This test is basically used by the court to determine if you have any disposable income at the end of every month to pay over to your creditors. The court determines the disposable income by deducting specific monthly expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy). Some of these expenses are actual expenses, such as car payments, mortgage payments, taxes, etc. Other expenses are based on the Internal Revenue Service standards for your county, such as utilities, food, etc.

 

Exemptions

When filing a Chapter 7, most people are most concerned about what assets you can keep. There are certain bankruptcy exemptions (or protections) that apply to anyone filing for bankruptcy. Your exemptions vary under state and federal laws. The exemptions you can use depend on state law and where you have resided for the past two years.
In Virginia, there are various exemptions that apply for residents. Some of the most common exemptions include:
Clothing: up to $1,000 of the value of clothing. Used clothing have a very low resale value; we use thrift store prices to value clothes. The only issue that ever arise are if there are a significant amount of newer designer clothes.
Vehicles: each debtor may keep up to $6,000.00 in equity in a car. If a car is jointly owned, this means a couple can have up to $12,000.00 worth of equity in the car. This means that if you have a car worth $20,000.00, but there is a $18,000.00 loan on the vehicle, there is only $2,000.00 worth of equity.
Household good and furnishings: each debtor can keep up to $5,000.00 on household goods. Generally, there is no issue with these items unless you have valuable antiques or collectibles.
Wedding and engagement rings: debtors are allowed an unlimited exemption for wedding and engagement rings. This means there is no limit on the value you can have for an engagement and/or wedding ring.
Tenants by the Entirety: there is an unlimited exemption for property titled Tenants by the Entirety (TBE) when there is no joint debt between the spouses. In Virginia, the law allows property (usually a marital home) to be titled in a specific manner between a married couple, but also requires that no joint debts exist between the parties. If you think this may apply to you, then I recommend speaking to an experienced bankruptcy attorney. Steps have to be taken to ensure there is no joint debt and that needs to be proven to the trustee in your case.
Federally-qualified retirement plans: traditional retirement plans, such as your 401(k), IRS, Thrift Savings Plan (TSP), etc. are all 100% exemption.
Tools of the trade: there is a $5,000.00 exemption for assets that are directly related to your primary profession.
Wildcard: Virginia bankruptcy exemptions are generous for everything exception a potential wildcard. A wildcard applies to any asset that has no other exemptions available, including cash in the bank and equity in a house. A debtor may also use this exemption to supplement any other exemption if more protections are needed.

Virginia’s wildcard is also called a Homestead Deed; it has this name because a document must be filed in the land records in the county in which you reside. This exemption is a $5,000.00 lifetime exemption. Debtors receive additional $500.00 exemption for any dependents.The exemption increases to $10,000.00 at the age of 65. However, since this is a lifetime exemption, if you file bankruptcy and use $1,500.00, you only have $3,500.00 remaining for any future bankruptcies filed in Virginia (until you turn 65).

 

NOTE: The above list of Virginia bankruptcy exemptions is NOT complete or exhaustive list. It includes only the most common exemptions. Additionally, these exemptions may change. 

 

Warnings about assets, exemptions and transfers 

It is also important to note that transferring assets to avoid including them in your bankruptcy is a bad plan. All transfers of property within two years of filing bankruptcy must be disclosed. The case trustee can reverse transactions. If the court determines you did the transfer with the intend to avoid a bankruptcy or to hide assets from creditors, the court may also deny you a discharge of your debts.

 

The court may review all debts that a debtor paid back within the last year. If you have paid back family, friends, or business partners, the court can actually sue those individuals for return of the funds. The court believes that a debtor must treat all creditors the same; as a result, you must treat American Express the same as Uncle Joe. Paying one creditor more money than another is considered a preference because you are giving preferred treatment to one creditor over another.
Once a Chapter 7 bankruptcy is filed, you cannot voluntarily dismiss the case.  A judge must review any request to end a debtor’s case. A judge will not dismiss your case just because a debtor is losing property or a trustee sues a debtor’s  family member.

 

An experienced Virginia bankruptcy attorney will be able to review your situation and help prevent potential problems in your case. Having an lawyer handle your case properly from the start can prevent problems later on.

 

Alternative options

If Chapter 7 is not right for your situation, there can be other options. Many people who qualify for Chapter 7 due to their income, choose to file a Chapter 13 because there are not adequate bankruptcy exemptions to protect all of their assets. If you have nonexempt assets, a Chapter 13 is another option to consider. In a Chapter 13, you are allowed to keep all nonexempt assets because debtors are required to pay out the value of these unprotected assets over the course of three to five years. Additionally, sometimes debt negotiation is a better option. If you have limited amounts of debt or cannot qualify for a Chapter 7, sometimes having an attorney help you settle a debt, is a better option.

 

 

 

Most individuals want to keep as many assets when possible, if you are filing bankruptcy.  Having an experienced bankruptcy attorney can help ensure your case goes smoothly and can help protect as many assets as possible. Attorney Ashley Morgan has experience dealing with all the above issues.
Sign for United States Bankruptcy Court

Top 17 Dos and Don’ts for Bankruptcy

Having financial problems? Think bankruptcy may be an option for you? To help ensure you keep your options open and available, understand there are things you should or shouldn’t do. In many cases, if you take certain action, such as transferring a house into the name of a family member before filing bankruptcy, you may either limit your options available or put your asset at risk.  There are even some actions that could completely jeopardize your ability to get a bankruptcy discharge. Here is a list of dos and don’ts for bankruptcy.

Here are the Top 17 Dos and Don’ts for bankruptcy:

  1. Do talk to a bankruptcy attorney immediately. Most bankruptcy attorneys offer free consultations, so you should take advantage of that. Talking to an attorney doesn’t mean you will definitely be filing bankruptcy. It allows you to understand how bankruptcy would apply to your situation. There are many different types of bankruptcy and it is important to understand how each option could apply to your situation; individuals primarily file Chapter 7 or Chapter 13. Additionally, you want to find a bankruptcy attorney that makes you feel comfortable. You will only be completely honest with someone if you trust him or her.
  2. Don’t transfer property or money. It is important for you to be aware that transferring title to property before declaring bankruptcy is not an option. Do not sell or transfer assets to your friends or relatives to hide them from creditors or the bankruptcy court. The trustee will ask you about such transfers at the first meeting of creditors, and has the power to recover those assets. The trustee can basically undo any transaction you have done within a certain time frame. In Virginia, it is two years. Also, don’t transfer money into your kids’ bank accounts. They have you as a co-signor or guardian and are subject to the same review as your accounts. Hiding assets can be a reason for the court to deny you a discharge, and you can be subject to criminal prosecution.
  3. Do tell your lawyer everything. Even if it is embarrassing it is better if your attorney knows everything about your situation. If you have made major purchases recently, then it may be important to wait to file. Or if you have an existing medical condition, it may be important factor to consider in the timing of your bankruptcy. Additionally, it is important to list all assets and debts. Anything that isn’t listed in your petition may not be discharged. Additionally, failure to list all your assets and your debts may result in not getting a discharge.
  4. Don’t leave out income. People think that a second, part-time job does not count as income. All household income must be included. The court will look back at least six months to see what your household income has looked like. Similarly, even if your spouse is not filing, you must list his/her income unless you are legally separated. The court needs a picture of your household. The court cannot require a spouse to pay a debtor’s debts, but they can require a spouse contribute to the household. If you want to claim somebody as a dependent in your bankruptcy, you must include their income. Additionally, social security does not count in qualifying you for bankruptcy, but it still must be listed.
  5. Do keep track of expenses. Part of a bankruptcy filing is disclosing expenses. Many individuals do not always realize where their money is going. But we want to be as accurate as possible with our accounting. If you are sending your mom, $300 per month, we want to make sure we account for that. Some expenses may be questioned or deemed unreasonable. If you are spending $1,000.00 per month on food for a household of one, the court may not allow the full amount unless there is a good justification. Other expenses may be allowed, but could be questioned if higher than average. For example, if you are paying $700.00 per month for medical expenses, it is important to keep documentation in case you need to prove it later on.
  6. Don’t pay back preferred creditors or family/friends. Many consumers want to pay certain creditors in full before filing for bankruptcy. The court doesn’t want you to play favorites and pay money to some creditors and not pay the rest. The court believes all creditors should be treated the same; however, there are exceptions for secured creditors, like your mortgage or car loan. The Trustee can reach back ninety days to recover money paid to general creditors and spread it out more evenly to all of your creditors. The Trustee can take back funds paid to your family and friends, if you have paid them back within a year.
  7. Do make sure to list all debts. Bankruptcy does not allow you to pick and choose which debts to list or not list. You must list all debts, from the credit card with American Express to the personal loan from Aunt Sally.
  8. Don’t incur any new debt without first asking your attorney. It might be a good idea to get a secured car loan before the bankruptcy filing hits your credit profile, but it is a bad idea to buy non essential assets like laptop, plane tickets, TVs, etc. It is important to talk about the pros and cons to opening a new account before filing. Additionally, any new accounts may delay your filing or complicate your case.
  9. Do keep current on payments for non-dischargable debts. Bankruptcy usually cannot discharge student loans, taxes, child support, etc. This means these debts will be around even after your discharge. Talk to your bankruptcy attorney about your specific situation, but generally, you want to keep paying these debts
  10. Don’t make any last minute charges or purchases. When the creditor gets the notice that you filed, it takes a look at your account history. If it sees a bunch of charges right before filing, it will get suspicious. Additionally, creditors can object to any major purchases within approximately three months of filing bankruptcy. The creditor can basically file a separate lawsuit with the bankruptcy court and ask it to not discharge that part of your debts.
  11. Do keep track of deposits and withdrawals. The trustee in your bankruptcy will review your bank statements. He or she may have questions about large cash withdrawals or deposits. It is important to remember what the money was from/for. For example, if you pay your rent in cash every month, try to make sure you get a receipt and keep it.
  12. Don’t take any cash advances. Do not make any major cash advances off of credit cards prior to filing for bankruptcy. A creditor can object to the discharge of debts incurred as cash advances before filing.
  13. Do disclose all assets. Anything that you own needs to be listed in your petition; this includes your 15-year-old furniture and the bank account with 25 cents. Additionally, even if you are on title of an asset, like a house or a bank account, it still means you have an ownership interest. Many families add parents or children to bank accounts to make transferring assets easier, this still means under the law it is yours. It is important to disclose this to your attorney up front to prevent any problems.
  14. Don’t borrow or withdraw from your retirement. Federal and Virginia law protects your tax retirement accounts from creditors. But funds in these accounts lose this protection the moment you withdraw them. You could also be liable for taxes and penalties for an early withdrawal. These taxes and penalties may not be dischargeable in bankruptcy and could cause a hardship down the road.
  15. Do separate money. If you have money that may be protected, for example, social security, settlement from a personal injury lawsuit, etc., you want it to be clear where the money came from. Put all the funds in a separate account that you own with the same type of funds, for example, have an only social security account where money is deposited in and no other funds go in. This will make it easier for an attorney to advise you if there is a way to protect the money during a bankruptcy.
  16. Don’t file until your medical conditions are stable. If you are considering filing bankruptcy due to medical debt or expect to have major medicinal procedures in the near future, you usually do not want to file bankruptcy until those are taken care of. Unexpected complications can occur that can cost significant amounts of money. You may limit expenses, if you have insurance coverage; but, insurance does not always cover all treatments and procedures and there is often a deductible and out of pocket to consider. Filing bankruptcy to just have more medical debt occur soon after is not a good outcome.
  17. Do file your taxes. It is important to make sure you are current with your tax filings before filing bankruptcy.  When filing a Chapter 7, the court will require you to provide your most recent tax filings; the court may hold your case open until the tax return is filed and you have received any refund. If you file a Chapter 13, court will require you to file the last four years of returns in order to be compliant with bankruptcy laws.

The bankruptcy court review’s a debtor’s financial situation. This list of dos and don’ts for bankruptcy should help you understand that making financial decisions before filing can impact your case. Most bankruptcy courts can look back at least two years to review transactions completed by the debtor; the trustee in your case can also undo certain transactions. It is important to not take any actions that could jeopardize your assets or even your discharge. Talking to an attorney as soon as you are facing financial difficulties can help. Just talking to a bankruptcy attorney does not mean you are agreeing to file bankruptcy, but can help you understand the option if you need to in the future.

 

 

It is important to preserve your rights in a bankruptcy.  Having an experienced bankruptcy attorney can help ensure your case goes smoothly and you come out with a fresh start. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues.

Court ruling of a divorce can lead you to bankruptcy.

Breaking Up is Hard to Do: A Guide on Bankruptcy and Divorce

Bankruptcy and Divorce

We get many people in our office post-divorce. Going from a two-income household to a one-income household is never easy; one person now pays bills previously split between two individuals. Sometimes, you may have been a house supported by one income, but now that same income is supporting two households due to support payments. Tack on attorneys fees, moving expenses, and related costs, many people are swimming in debt after a divorce. These issues are hard enough to deal with alone, but combine bankruptcy and divorce and the equation gets even more complicated.

It is no wonder why people consider bankruptcy when facing a difficult financial situation post-divorce. The good news is that bankruptcy can help many individuals with debts after divorce, but not all. When dealing with child support or alimony, the obligation will never go away with bankruptcy. That is considering a type of support and an obligation that has been determined important to ensure that your child or ex-spouse can survive. But obligations that are not considered “in the nature of support” can be discharged in a Chapter 13 case, although not in a Chapter 7 one. Non-support divorce debts are usually obligations related to the division of property and the division of debts. This is sometimes the reason we consider that clients should file a Chapter 13 case instead of a Chapter 7 one (even if they can qualify for a Chapter 7).

Chapter 7

We often talk about a Chapter 7 bankruptcy for individuals who are having trouble post-divorce. Debtors file a Chapter 7, which is also called a liquidation bankruptcy, to receive a discharge that cancels unsecured debts. However, it a Chapter 7 doesn’t discharge any divorce-based debts. For example, if you credit card debt owed after your divorce or your own attorney’s fees, a Chapter 7 will usually help to cancel out these debts. However, if you owe your ex-spouse’s attorney’s fees or owe a debt because the divorce decree says you will pay the debt, then a Chapter 7 will not help.

A common scenario is when a joint credit card owed by both spouses prior to the divorce. The divorce decree says that wife will pay the card balance and indemnify the husband going forward. However, the divorce court cannot dictate that a credit card company cannot go after either liable party. As a result, if wife files a Chapter 7 bankruptcy, it would likely discharge the credit card company’s right to seek payment. However, wife’s obligation to indemnify husband in the future would not be discharge. Wife would still have to pay on the debt. This type of situation also occurs regularly with joint tax debt.

Chapter 13

Chapter 13 has a key advantage over Chapter 7. It has what is called a “Super Discharge.” This means certain additional things can be discharged after completion of a Chapter 13 plan. The major benefit to a Chapter 13 is that you can discharge some obligations arising out of a divorce decree.  You can discharge debts dealing with the division of property and the division of debt, often called equitable distribution. You can never discharge child or spousal support — under either Chapter 7 or 13. This means,  if a debtor owe non-support divorce debt, the debt would be discharged at the end of your Chapter 13 case. But, all support debt would need to be paid as normal during the bankruptcy plan. If you are behind on your support, Chapter 13 can be a useful tactic to catch up on the payments.

Attorney Fees

Many times in a divorce case, attorney’s fees are very high. Like previously stated, your own attorney’s fees are usually just considered an unsecured debt that can be discharged in a Chapter 7. However, attorney’s fees owed from your ex-spouse that get awarded can be tricky. The bankruptcy court reviews why the divorce court awarded the fees. If the divorce court awarded fees for work on obtaining support, the bankruptcy court will usually follow the rule of those fees being non-dischargable under all circumstances. If the divorce court awarded fees for work done on an equitable distribution issue, then the bankruptcy court usually allows the fees to be discharged in a Chapter 13. This can be a contentious question, and sometimes requires a hearing in bankruptcy court to determine the proper classification if there is a dispute.

Support Arrearages

If you are behind on your child support or alimony, Chapter 13 does allow you to catch up on that obligation over a period of three to five years. The court requires debtors make all support payments going forward; however, the you could spread catch-up payments out over months or years.

Filing Bankruptcy Before Divorcing

If you are just considering divorcing, sometimes couples can avoid some of the above problems by filing bankruptcy together. Some divorcing couples  file together before the divorce because it can be more efficient. For example, filing a joint bankruptcy will discharge most debt of both spouses. It also usually costs less to file bankruptcy together as a couple as opposed to apart.

Regardless of your situation, you should consult with an experienced bankruptcy attorney. Any Chapter of bankruptcy comes with benefits and risks. Sometimes the difference of support and equitable distribution is unclear. Depending on the factors, there could be arguments supporting varying arguments. Attempting to discharge non-support divorce debts through Chapter 13 can get complicate and require a hearing or trial. Additionally, the bankruptcy codes includes many complicated requirements for Chapter 13 plans; debtors must meet these requirements in order to get a plan confirmed and eventually a discharge.

 

 

Attorney Ashley Morgan is an experienced bankruptcy attorney in northern Virginia.  Ashley has helped many individuals handle debts through bankruptcy and divorce. Reach out to Ashley F. Morgan Law, PC if live in northern Virginia and you are struggling managing your debts for a free bankruptcy consultation.

Hand writing payment owed for taxes

Till Death Do Us Part: Guide on Tax Debt in Marriage and Divorce

Guide on Tax Debt in Marriage and Divorce

Being married comes with the allure of additional tax benefits. With the passage of the new tax bill at the end of 2017, married couples who file a joint return can take advantage of a $24,000 standard deduction. This can help many couple who never itemized their returns in the past. However, you do lose your individual exemptions with the new law. Overall, the new tax bill was supposed to make filing your taxes easier; the law attempts to eliminate the number of people who would qualify to itemize on their taxes. However, the new law does not change the possibility of couples incurring tax debt.

However, trouble arises when during the course of the marriage the couple, or either spouse in a community property state, ends up with a tax debt. From that point, many different scenarios can happen whether the couple stays together or divorces. The easiest and most often occurring situation is that the couple has some tax debt, they are both aware of it and both agree to take the necessary steps to deal with it. In these situations a simple payment plan with the Internal Revenue Service can keep both spouses in a protective status with the IRS and away from collection activity such as levies and garnishments.

Innocent Spouse

Things can get significantly more complicated, even for couples that are still married, when one spouse claims that they are not responsible for the debt. The IRS denies most innocent spouse claims. The “innocent” spouse has to meet very specific criteria to state a successful claim, such as duress at signing, forged signature, and other things that basically point to the fact that they were not responsible for the debt. Now, the IRS can check income records and determine whether the “innocent” spouse would have owed if they filed a Married Filing Separate return, which would make the innocent spouse claim moot. When dealing with debt from taxes the occurred in a marriage, this option is just very rarely viable.

Injured Spouse

A relationship can also get tense when one spouse brings debts into a marriage. Sometimes, one spouse will have tax debt that he/she incurred pre-marriage. If the couples file a joint tax return, the IRS will seize the entire refund. Then the IRS will apply the funds to help satisfy the debt owed by only one spouse. For example, if a husband owes $5,000.00 in back taxes, any refund generated by the filing of a joint tax return, may be withheld by the IRS and applied toward tax arrearage, even if the refund is entirely attributable to the wife’s over-withholding.  The IRS may consider the wife an “insured spouse,” since the IRS seized money that she solely contributed.

The injured spouse then must prove that he/she has no responsibility to the debt and can request a refund of his or her allocation of the joint return refund. Injured spouse claims can also apply to other debts, such as: child or spousal support, delinquent federal student loan debt, or state income tax. Conversely, some couples file “Married Filing Separately” to ensure the injured spouse receives his/her refund. But the IRS limits certain deductions for couples filing taxes as “Married Filing Separately.” Talk to your tax professional about benefits to both options.

Bankruptcy

Another situation we see here at the firm is when one spouse files for bankruptcy protection when the couple has joint tax debt. This gives protection to both spouses during the bankruptcy but causes the balances to be “mirrored” at the IRS after the bankruptcy is discharged or dismissed. Mirroring of the balances means that the joint debt is split and each spouse is individually responsible for the debt. Bankruptcy will reduce the interest and penalties due by the filing spouses; this means there will be two different balances for both parties. Additionally, debtors may discharged certain taxes during a bankruptcy; however, in most cases, there will still be tax debt after only one spouse files for bankruptcy. When that happens, the IRS will start collection activity against the non-bankrupt spouse.  When a spouse in bankruptcy pays the priority tax debt in the bankruptcy and/or the balance is discharged, then only one spouse may owe taxes. These are things to consider when dealing with debt issues and whether to file bankruptcy jointly or separately.

Divorce

If the marriage falls apart and the couple decides to get a divorce, things with the IRS become more complicated. Not only does the jointly held debt become mirrored but the couple’s divorce decree and property settlement agreements can come into play. Divorce decree does not control collection by the IRS; the divorce decree only controls issues between the two spouses, not outside parties. If that document says the husband is completely responsible for the tax debt, but he does not do anything and the wife has to get herself into an agreement to pay the debt, she cannot argue to the IRS that she doesn’t have to pay it because of the divorce decree.

If you are filing for divorce and have joint debt there a things to keep in mind. You need to clearly define who is responsible for the debt and the remedies that available to the other spouse if they are the ones who end up paying some or all of the debt.

Handling your Tax Debt

Tax debt can be a serious issue if not handled properly. It is important to understand your rights and responsibilities in reference to the debt. It is also important to understand why the tax debt occurred and prevent it from happening in the future. Additionally, if you have outstanding tax debt, the taxing agencies can garnish, levy accounts, or issue tax liens. Talk to an experienced tax professional today.

 

 

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal with their tax debt and get them into the best plan possible to manage the debt. He has experience dealing with divorce spouses dealing with their joint tax debt.

Calculating tax

Tax Penalties: Filing on time helps avoid extra costs

Tax Penalties

The deadline to file your federal income tax return is fast approaching. Normally falling on April 15, this year it is on April 17 due to the fact that April 15 is on a Sunday and April 16 is Emancipation Day in Washington D.C., which gives everyone across the nation an extra day to file. With the deadline just days away many Americans will submit extensions to file, pushing the date the tax return is due to October 15. This is a great tool if you know you do know have all of your tax documents in time to prepare an accurate return. An extension, however, is simply for filing of your return, not paying any tax owed. If you do not pay your tax by the April deadline you may incur additional tax penalties on top of the tax owed.

Failure to File

Failure-to-File penalties are one of the harshest tax penalties the Internal Revenue Service can issue against an individual taxpayer. The way they are calculated is as follows: 5% of the taxes you owe for each part of a month you’re late, up to a maximum of 25% of unpaid taxes. So for your 2017 taxes, if you file on April 18th you are hit with a 5% penalty. On May 18th it is another 5% until you reach your maximum of 25%, at which point it doesn’t matter how late you file you will get that 25% penalty.

Failure to Pay

The other type of penalty is the Failure-to-Pay penalty. This tax penalty happens if you owe taxes after the initial filing deadline, April 17, 2018 for your 2017 taxes. The calculation for that is 5% of unpaid taxes for each part of a month you’re late, up to 25% of unpaid taxes due. There is a way to avoid this penalty if you pay 90% of your tax owed when you file an extension to file your return, you are entitled at that point to pay the remaining 10% by the extension deadline without incurring the failure to pay penalty. This penalty doesn’t seem like much but if you have a balance for a long period of time it can cause your balance to sky rocket into something you may not be in a position to handle properly.

Filing Late

It is never a good idea to file your taxes late, but even more so if you owe. Even if you do not owe and are due a refund, it is important to file your taxes as close as to the date they are due as possible. The IRS only grants refunds for the previous three years worth of tax returns. So, before 2017 is officially due on April 17, 2018, you can get your refund if you have not filed and are entitled to it as far back as 2014. The IRS has reported that there are hundreds of millions of dollars that the tax payers are not getting back by not filing their 2014 tax return. After April 17, 2018, the IRS only distributes refund from your 2015, 2016, and 2017 returns. As a result, if you have not filed and are due a refund, please file ASAP.

If you have not filed and expect to owe for 2017, please file before April 17 even if you can’t pay your total tax bill because as noted above, the failure to file penalty is more severe than the simple failure to pay penalty.

Planning Ahead

If you find yourself owing year after year please speak with a tax professional regarding changing your withholding or saving money on a quarterly basis. It is always better to plan ahead with taxes than to be caught on April 14th with no game plan. If you have accumulated substantial tax debt, there are options to deal with the debt.

With the new tax laws in place, withholdings have changed. Many individuals will owe less in taxes as a result of the change in laws, but some may owe more. It is very important to review your paychecks regularly. You should review your paycheck whenever there is a change in income to ensure you are not paying too much or too little in. The IRS has a calculator to give you a starting point in figuring out potential tax liability. Planning for the next tax year will help avoid unnecessary tax penalties whenever possible.

 

 

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal with their tax debtand get them into the best plan possible to manage the debt. He also works with business owners to address Estimate Tax Payments and helps people get on track with their payments.

Car on the back of a tow truck

Can I Keep My Car in Bankruptcy?

Can I keep my car in bankruptcy?

One of the most common questions potential clients ask us is if they can keep a car in bankruptcy. During a Chapter 13, there is rarely an issue with a car. The question really comes up in a Chapter 7, since the court is looking at all your assets; a trustee will sell any non-exempt assets. But, the good news is that most of the time cars are not an issue in a Chapter 7.

The exemption, or protections under the law, in Virginia is fairly high; Virginia residents are allowed a $6,000.00 exemption for vehicles. If the car is owned by two individuals, the exemption is allowed for each person. Additionally, if your car has a high value, you can apply your $5,000.00 wildcard/homestead deed to help protect the car. The exemption only applies to equity in your car; so if you have a car worth $20,000.00 but you owe $16,000.00, you only need $4,000.00 in exemptions to protect the car.

A lot of debtors also say they want to keep their car out of bankruptcy. In bankruptcy you are required to list all assets and all debts. The bankruptcy will discharge the debt on the car, but the lien on the car remains. This means that the contract between you and the bank is gone, but the lender can still repossess the vehicle if payments are not made. So there is no free car, but the car company cannot make you pay for the balance of the loan if you do not want. For most of our clients, if they agree to keep paying on the debt, they can keep the car and will get the title at the end of the payments. But it also allows you the option to give up an underwater car without potential issues.

Reaffirmations

A reaffirmation is basically signing the same contract over again after filing bankruptcy. The creditor will report new payment history to the creditor reporting agencies. However, it also re-obligates you on the entire debt; so, if you fail to pay the entire loan and the car is repossessed, then the creditor can come after you for the deficiency. Additionally, a judge must sign off on the agreement; the court will likely require a hearing to prove that you can pay the debt going forward.

We rarely ever recommend the debtor sign a reaffirmation; on rare occasions there are reasons to sign them. Some creditors require a reaffirmation because they will repossess, even if you are current on your payments. Currently, the only creditor that takes this action is Ford. However, this could change at any moment. It is important to be sure you attorney is up to date about changing policies with varying lenders.

Should you keep your car?

For some of my clients, there is the question of whether you should keep the car. Chapter 7 allows a debtor to surrender the car in bankruptcy without issue of a deficiency or a repossession being reported on your credit report. For many people who have only made one or two years worth of payments on a car purchased new, you likely have negative equity in the car. Additionally, if your car was in an accident or two, there is likely a significant depreciation in value from that damage. Other individuals who find negative equity in a car are those who traded in a car with a large loss on a new car purchase.

Many people love their cars; but, we want to remind them that cars are a depreciating asset and it really is a financial decision that you are making. If you owe $25,000.00 on a car only worth $15,000.00, it is not likely to be a good financial decision to keep that vehicle. Continuing to pay on the car means you will be paying more for the vehicle than it is worth. After bankruptcy, most people’s credit increase. Additionally, many car lenders are willing to give you a car loan since you must wait at least 8 years between bankruptcy court filings (and most car loans are less than 8 years). Now if you owe $10,000.00 on a car worth $16,000.00, it is a lot easier of a decision to keep the car. You can keep that car, trade it in or sell it after the bankruptcy is over.

Cross Collateralization

One issue that most debtors do not know about is cross collateralization. This is a right that only credit unions have. Basically, if the credit union gives you a loan for a car, that lender has a lien against the car to secure the payment. The lien allows the creditor to repossess the car if the borrower does not make all of the payments. The cross-collateralization agreement allows the lien against the car (or any other collateral) to secure additional debts other than the car loan. This means that if you don’t pay a credit card, then the creditor can repossess your car.

Cross collateralization is something very few people know about. Most people understand that when finances get tight, you make sure you pay your car payment, even if you cannot pay your credit cards. But, if you aren’t paying on a credit card or personal loan, the credit union can repossess your car even if you are current on your car payments. This is important to understand when taking out car loans or opening new unsecured credit accounts.

When you file bankruptcy, your obligation to pay on all the debts is discharged, but car loan and cross-collateralized debts all remain with the car lien. This means that you may owe more on your car than you believe. Some lenders may allow you to only pay the car loan amount if you reaffirm the debt, but this policy varies from creditor to creditor. Experienced bankruptcy attorneys will usually have an idea how major lenders deal with your car in bankruptcy.

Other Options

Bankruptcy provides a debtor with various options he/she do not have outside of bankruptcy.

Redemption

One option debtors can do during you Chapter 7 is to “redeem” the car. This means during your case, you purchase the car back from the lender for the value of the car, not the total debt.

Under Section 722 of the bankruptcy code, a debtor in Chapter 7 has the right to force the lender to release its lien in exchange for a onetime payment in the value of the collateral. This can be a great way to keep your car and save money. The most difficult part of this option is coming up with the funds. There are certain lenders and programs that work with debtors on financing this payment.  When making a decision about a redemption, you should consider the total amount that would be paid (principal and interest). Additionally, there sometimes is the option of talking directly to your credit union or bank for a new car loan; this option works best if you have high income or a cosigner. But, if you want to redeem your vehicle, you should consider all possible options; some debtors are able to find the funds from family or friends, selling exempt that you kept during your bankruptcy.

Decide later

The decision about keeping the car does not have to happen immediately in the bankruptcy, unless a reaffirmation or a redemption is needed. Sometimes you want to take more time to make the decision. You do not immediately need to make the decision of whether to surrendering your car back to the lender. You can surrender the car during the bankruptcy or much later, as long as you do not reaffirm the debt. Some of my clients continue to make payments for 3 to 6 months after the bankruptcy. After their credit has bounced back, they apply for a new car payment and surrender their old vehicle then.

You have options

It is important to understand you have a lot of options. Additionally, you must take important steps to protect your assets. Talk to an experienced bankruptcy attorney about all the options that apply to your specific case and your options to handle your car in bankruptcy.

 

 

It is important to understand all your options and rights during a bankruptcy. Having an experienced bankruptcy attorney can help ensure your case goes smoothly and you come out with a fresh start. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues. She understands good credit is important, and she wants her clients to completely understand all the tools at their disposal before taking action.

Offer in Compromise

Offer in Compromise: The Truth Behind Settling Tax Debt for Pennies on the Dollar

Settle your tax debt for less.  Pennies on the dollar.  Negotiate your debt for thousands less than you owe.

You owe taxes and now you are trying to figure out what to do. When reviewing options, you have probably heard these statements and guarantees in your life.  Lots of TV and radio ads promise these things for people who owe back taxes.  However, these promises are a lot of time empty and can just cause more headaches than they are worth. These ads are referencing Offer in Compromise (OIC), which can work for some, but not very many.

“You must live in a van, on public property, and not own the van to get an Offer in Compromise.”

While this is just hyperbole, there is some truth to the statement.  The Offer in Compromise calculation is a deep dive into your financial life by the Internal Revenue Service or state taxing authority.  If you own anything of value, that value will be part of your offer.  Have land in a wooded area of the state stashed for a retirement getaway, well the value of that land is now part of your offer.  Any artwork in your possession that may be worth more than $100, well that value is part of your offer.  Have a 401(k) at your work? That is part of your offer.  Starting to get the picture?

While for some taxpayers it may be worthwhile to submit an offer in compromise because they rent, have a car that is older and don’t have any retirement savings.  Most people have something that will increase their offer more than they would like.

Additionally, the major thing people don’t realize with an OIC is that you have at the most 24 months to pay your offer off.  Most think that it’s an extended payment plan and then the debt goes away.  Unfortunately, that is not the case at all.

A Successful OIC Still Comes with Some Limitations

Now if you are successful with your offer, the IRS still has other ways of getting more money from you.  If you are due a refund for the first tax return filed after your offer is accepted, the money automatically goes to the IRS.  You must file all taxes must be filed on time and owe no tax balances by the filing deadline (typically April 15th) for the next five years after your offer is accepted.  If you do owe during that five year period the entire tax debt is coming back on you, minus whatever offer payments you may have made.

There are certain circumstances that the IRS will consider when determining whether to grant your offer or not.  These usually fall into two main categories:  Doubt as to Collectability and Effective Tax Administration.  These two are similar in that it basically means that there is little chance that the IRS will collect the full amount of tax due and accepting an OIC is the best way for them to get any portion of  the tax debt quickly.

Figuring out the Value for an Offer in Compromise

An offer in compromise is mostly a numbers game between the IRS and the taxpayer.  The IRS can request additional information regarding the tax years the debt is from and that can inflate what your offer would be as well.  If you your offer ever goes over more than what you owe it will be rejected almost as soon as it lands on someone’s desk at the IRS.

It is important to discuss everything that an offer in compromise encompasses with a tax professional before deciding to submit one.  It is a long and complicated process that you will want to know every aspect of before jumping in.   The major settlement promised to you by the ads you hear or see only apply to select individuals.  Come in for a free consultation to discuss if an OIC is right for you.

 

 

 

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal is to help his clients ensure their tax debt is accurate and get them into the best plan possible to manage the debt. He understands an OIC is a great tool, but wants all his clients to understand the limitations of the program.

Credit Score Board

Improving Your Credit Score: Taking Steps Toward Perfect Credit

Improving Credit: Tips and Tricks for Getting Your Score Closer to 850

Often after helping individuals manage their debts, we provide guidance on improving credit. In today’s world your credit score affects every day of your life.

A good credit score can mean getting approved for credit that you need to buy a house or car. A poor score can make it difficult to find an apartment rental or needing a large deposit to turn on the utilities. Improving your credit can help everyone, even individuals with already good credit.

Your credit score is a score created by the credit bureaus using information in your credit report. Credit scores range between 300 to 850. The score is designed to give creditors the likelihood that you will become delinquent on your debts. Your score will also vary slightly between credit bureaus.

Regardless of the reason you need to improve your credit, including old collection accounts, limited credit history, trying to buy a house, etc., the tips below can help you get your credit on track. For most credit cards and loans, you will be offered the best rates when your credit is above 750; you will be qualified for most types of credit if your score is at least 700.

Monitoring Credit Reports

To get a good idea about your starting point, you need to know what your credit looks like. Tools, like Credit Karma and Credit Sesame, give you a good basis about your credit score and what you can do to improve it. But, these are not real credit agencies. There are actually three credit bureaus: Transunion, Equifax, and Experian. Federal law allows you to get a free copy of your credit report every 12 months from each credit reporting company. You should regularly pull your credit report to ensure that everything is reporting accurately. Removing inaccuracies, like late payments, can quickly help you improve your credit. Additionally, reviewing your credit regularly can help you prevent issues with identity theft. Many credit cards now also offer free credit scores, which can help you keep an eye on your credit in between pulling full reports.

Credit Factors

When trying to improve your credit, it is important to understand the factors that make up your credit score. There are five elements that the credit bureaus weigh when determine your credit score: Payment History, Amounts Owed, Length of Credit History, Types of Credit, and New Credit.

Payment History – 35%

As you might expect, the repayment of past debt is a major factor in the calculation of credit scores. It helps determine future long-term payment behavior. Both revolving credit (i.e. credit cards) and installment loans (i.e. mortgage) are included in payment history calculations. This factor is why one of the best ways to improve or maintain a good score is to make consistent, on-time payments.

Credit utilization  – 30%

Creditors look at the total amount you currently owe, and the percentage of the amount owed compared to your available credit. When a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. That is why it’s a good idea to keep low credit card balances and not overextend your credit utilization ratio. Additionally, this factor is why it is important to keep old credit cards open, even when not being used.

Length of Credit History – 15%

The credit bureaus look at the length of time all credit accounts have been open and the time since the newest account was opened. Those with a longer credit history have more data on which to base their payment history. This factor is why it is easier for old individuals to have a high credit score than younger individuals.

Types of Credit  – 10%

The credit bureaus want to see a combination of different types of debt, such as credit cards, installment loans (like student loans or car loans), open accounts (like lines of credit), and mortgage loans. This is important to show you can mange different types of debt.

New Credit – 10%

Creditors do not like seeing many recently opened accounts; opening several new credit accounts over a short period (which can be defined as anywhere from 6 months to 2 years) can signify greater risk. Creditors worry it is evidence of you facing financial difficulty. This is why it is recommended no new credit accounts should be opened one year before a major purchase, like a car or house.

Pay Bills on Time

Your payment history makes up 35% of your credit score. One of the easiest ways to improve your score is to always make sure you pay bills on time. Missed payments stay in your credit for 8 years. The more time that passes after a missed payment, the less of an impact it will have on your credit. One missed payment, won’t ruin your credit, but if it was within the last year, the impact will be obvious. Additionally, monthly bills like your electricity, cable and rent usually are not reported on your credit report every month. But, if you do miss a payment or the account goes into collection, the negative mark will usually appear on your credit.

Secured Credit Cards

One of the best tools for improving credit is a secured credit card. A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500.00 in the account, the bank will give you a credit card with a limit of $500.00. This allows for you to get a credit card with little risk to the bank; if you miss a payment on the secured credit card, the bank will take the deposit and close your account. Often a bank will reward you for good payment history and add to your credit line without requesting additional deposits or offer you a new credit card. Be sure to check the fine print on these cards; some banks may charge fees.

One important rule to remember about using a secured credit card (or really any credit card) is keeping your balance low. For credit building purposes, you should never have a balance over 30% of your total credit limit. Even if you are paying your balance off in full every month, having too high of a balance signals to creditors you could be over extending yourself.

Loans & Lines of Credit

If you are in need of a vehicle, consider getting a car loan. Or if you do not need a car, look into a line of credit. If it’s a car loan, buy a vehicle that is affordable and that you can pay off successfully. Additionally, you will see a drastic increase in your credit if you can make a large additional payment early on in the loan. A large additional payment will help bring down your credit usage and help improve your credit utilization. You may receive a higher interest rate to start. Shop around for the best rate; usually you will we get the best rate from a credit union. If you get a line of credit, keep in open but use is sparingly. The available credit — without a balance — will help your available credit.

Bankruptcy

For some individuals with many delinquent accounts and limited ability to improve their credit in a reasonable time period, bankruptcy can be used to get you a new starting point. Bankruptcy can even improve your credit faster than just trying to rehabilitate your credit (but it depends on your specific situation).  One of the many reasons bankruptcy is a great tool for managing debt is that it helps improve credit fairly quickly. After filing a Chapter 7, Debtors can usually see offers for new credit soon after filing bankruptcy. After a Chapter 7 discharge, you cannot qualify for a Chapter 7 for another eight years. To many lenders, you may actually appear to be a better risk immediately. The discharge zeros out any past due payments and delinquent accounts. Additionally, your income to debt ratio improves. This also helps your credit utilization rate as well.

Bankruptcy does have its limitations. If your goal is to buy a house, there is a required 2 year wait period to purchase a home after a Chapter 7. Two years post discharge, you may qualify for an FHA mortgage, if you have kept improving your credit and your income allows for it. You may need to wait longer for a conventional mortgage. There is no waiting period to qualify for new credit cards or car loan; however, your interest rates may vary depending on many factors. Since you cannot file a Chapter 7 more than once every 8 years, you will not have the available option if something happens during that period, such as job loss or illness.

Be Diligent

Most important part about improving credit is to keep at it. Your credit will not improve overnight. Being diligent at paying your bills on time, making conscientious decisions about opening new accounts, and understanding your credit report can make all the difference.

 

 

 

 

If you are dealing with debts, make sure you understand all your options. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with all the above issues. She understands good credit is important, and she wants her clients to completely understand all the tools at their disposal before taking action.

Student Loans: Understanding your Options

There have been reports of up to 40% of student loan borrowers are not making their payments. While student loans can often feel overwhelming and overly burdensome, not making payments can create even worse problems. Not making your student loan payments will adversely affect your credit. When you are late making a payment, creditors will report this behavior to the credit bureaus and it will lower your credit score. A lower credit score can result in difficulties in opening new lines of credit and higher interest rates when purchasing a home or car, etc.

If you do not make your payments, the student loan companies have other ways of collection from you. Federal student loan companies have the ability to start garnishing your wages and bank accounts without a judgment. Private student loan companies do have to go to court to obtain a judgment, but they can also start garnishing your wages or bank accounts if you are delinquent. A garnishment allows a creditor to seize all the money in your bank account (up to the amount owed) or take a percentage of every paycheck until the debt is satisfied. This often can put even more of a financial strain on an individual than making the normal payments.

Student loans also usually do not go away with bankruptcy. While bankruptcy can help get rid of your credit cards and medical debt, student loans will not be discharged unless you meet very specific circumstances. A bankruptcy attorney can review whether you might be able to discharge your student loans, but it does require a lot more expense than a traditional bankruptcy and it is often left to the discretion of a judge to determine whether you meet the necessary criteria to discharge. Right now the required criterion for discharging your student loan debt varies depending on where you live and is a very high burden.

If you do find yourself in a difficult situation, and cannot make your normal payments, there are options out there.

Contact your lender and see what options are out there.

If you are in a temporary situation when you cannot make your payments, possibly due to any reason including loss of a job or a health issue, lenders will sometimes work with you. If you contact your lender and explain the situation, they may be able to give you a lower payment for a time period or be able to offer you a deferment or forbearance (where you stop making payments for a certain period of time). Often these options are at the discretion of the lender, but if you need some breathing room, it cannot hurt to ask. The benefit of being in a deferment or forbearance is that even though you are not making payments (or less than a full payment), your lender will still report your loan as current. This ensures your credit will not be negatively impacted by the reporting of a late payment or delinquency. The downside to lower payments or not paying for a time period is that it is usually only for a limited amount of time and your interest will still be accruing. When you get back to making your payments, the payment maybe higher or you might be paying for a longer period of time.

Additionally, if you are disabled and/or receiving Special Security Disability, you may be able to apply for another type of forgiveness. This is an administrative process and is only a viable option if you will not be able to work for the foreseeable future.

There are various repayment options out there.

When your federal loans come due, your loan payments will automatically be based on a standard ten-year repayment plan. However, there are payment options for federal loans that spread out your payments over more years or base your payments on your income. Depending on what your monthly income is and when your federally guaranteed loans were taken out, you could qualify to have your student loan payments capped at 10%, 15% or 20% of your discretionary income. If your income is low enough, your payment could be $0/month. However, you do have to reapply for the income-driven programs every year and submit documentation of your current income so the payment can be recalculated. After payments for 20-25 years (depending on the plan) on an income-driven plan, the remaining balance is forgiven. The downside to these income based programs is that any remaining debt that is forgiven will be taxed as income. Contact your student loan provider for more details. Also note that for most repayment plans, you do have to consolidate your loans and that can take a few months.

While the income-driven plans are only for federal loans, some private lenders do have other options available. Again, if you are having trouble making your payments on your private student loans, your best course of action is contacting your lender and asking about other repayment options.

If you work for a government entity or certain nonprofits, you may qualify for Public Service Loan Forgiveness (PSLF).

Under PSLF, if you work full time for a qualifying employer for ten years AND make 120 on-time monthly payments, the remaining balance of your federal loans will be forgiven. These payments are usually made in conjunction with one of the modified repayment plans offered by the student loan companies because the traditional repayment of student loans occurs over a ten-year period. The benefit for this program is that any remaining balance on your student loans that is forgiven under PSLF is not taxed.

As a last resort, bankruptcy may help buy some time or help with other debt.

While you cannot easily discharge your student loans in bankruptcy, there are options under the bankruptcy code to help find a manageable payment. With income-driven plans, your payment is based on a percentage of your income. These are often the best options available and can really help those with substantial amounts of student loan debt. However, this option is usually not available to those with private student loans. Also, if you have to make substantial payments to other creditors, sometimes even the income-driven payments feel overwhelming. Bankruptcy is an option, but does help everyone.

A Chapter 7 might be an option for those who cannot pay their student loans because of a substantial amount of other debt. A Chapter 7 can help those who qualify wipe away other unsecured debt, such as medical bills and credit cards. A Chapter 7 can also allow you to walk away from a secured debt, such as a car or a house, without having to worry about any deficiency. There are numerous advantages to a Chapter 7, but also some negative affects as well. If you are experiencing substantial hardship due to significant debt and cannot make your student loan payments, then you should consult a bankruptcy attorney. For example, after a major medical procedure, often individuals have trouble handling their payments to the doctors and to the student loan companies. An attorney can help examine your situation and determine whether you could potential benefit from filing. An attorney will also help you determine whether you qualify for this options.

If you have private student loans, and those lenders will not work with you, then you have an option of a Chapter 13. A Chapter 13 is a repayment plan over the course of three to five years. This options does require steady income during the course of the plan, but all creditors are required to participate in this repayment plan or they receive nothing during the course of the plan. Your plan payments are approved by the court, and the amount is based on your income and expenses that the court determines are reasonable. Your plan may pay unsecured creditors anywhere from 0% to 100%, it just depends on what your payments will be. Certain debts, such as tax debt, past due mortgage payments or arrearages on a car, must be paid during your plan. After your plan is complete, any of your unsecured debt (other than student loans and a few other limited exceptions), such as credit card, medical bills, payday loans, etc., will be discharged in accordance with your plan. Your student loans will remain, but the benefit of a Chapter 13 is that it provided you with time to find a better paying job or handle the rest of your debt without the risk of the student loans coming after you. There are various downsides to a Chapter 13. For example, the court will review your income during the course of the bankruptcy to determine if you could potentially pay more to creditors. Similarly, any increases in income or bonuses may be required to go to creditors if you are not paying them in full. For some people, a bankruptcy means the student loan companies are off their backs for a few years and that is enough reason for them. However, you should review all options available before considering bankruptcy to handle your student loans. Talk to a bankruptcy attorney if you believe bankruptcy might help your situation. The attorney will be able to help breakdown whether a bankruptcy might be beneficial in your situation.

There are many options out there for repayment and a lot of information. If you have any questions about what options apply to your situation, your lender is a great place to start. You also need to be carefully of the scams that try to take advantage of vulnerable and desperate debtors. There are many sites that look like legitimate sites or advertise settlements for student loan accounts or debt forgiveness. Often the offers that appear too good to be true are not real. If you are looking for real information about student loan and the repayment option, be sure you on the U.S. Department of Education’s website.

 

 

Ashley F. Morgan, Esq. is a Virginia Attorney. She helps individuals and business file bankruptcy in the northern Virginia area. She also understands bankruptcy should be your last option. She wants to help her clients review all potential options to determine what is the best option in each person’s situation.