Insider’s Guide to Income Taxes in Bankruptcy

little financial advisorBy now you should be celebrating the end of Tax Season and you have either filed your tax returns or an extension of time, if you owe taxes.  Now that you know you owe the IRS, what are your options and how do you deal with the IRS? Well, that depends on a lot of different things and who you talk to.

One colleage, Nick Gebelt wrote on a niche topic, Discharging Taxes After a Substitute For Return is Filed. I have previously written on income taxes and the requirements to discharge them in a bankruptcy case here. My favorite article is here.

There are five conditions for discharging what the debtor owes to the IRS:

The Five Conditions are:

  1. The due date for filing the tax return was not less than three years ago
  2. The tax return was filed at least two years ago
  3. The tax assessment is at least 240 days old
  4. The tax return was not fraudulent
  5. The tax payor is not guilty of tax evasion

If the debtor meets the qualifications, then the tax liability is not a priority and is discharged in bankruptcy; 11 U.S.C. 523(a)(1).  Unsecured taxes that are deemed a priority, fall outside the scope of the conditions discussed by Mr. Greifendorf and cannot be discharged in bankruptcy.

Timing is a critical component in deciding to file for bankruptcy protection and the advice of a bankruptcy attorney will address this issue.  Best practices include filing all tax returns prior to filing a bankruptcy petition with the court.  Seek the advice of a CPA or tax attorney regarding IRS claims as well.

Consumer’s Guide to Asset Protection and Bankruptcy

I sat in on a recent panel discussion entitled, “Busting Trusts,” held by the Orange County Bar Association Commercial Law & Bankruptcy Section. With a bankruptcy judge and two trustees on the panel, the discussion turned on how the Court and trustees go about “busting trusts.” As a consumer protection attorney, it is my job to protect my client’s assets to the fullest extent of the law, while striving to eliminate as much debt as possible.  Given that objective, I always find lively discussions with my office mate and colleague, Anna Serramabana of A & R Law Group when we discuss asset protection before bankruptcy.  However, after this panel discussion, is anything safe from the reach of the trustee or bankruptcy court?  Sure, but it’s Caveat Emptor; buyer beware. Remember the golden rule:  Act in Good Faith, always.  The creating of a trust must always have a purpose other than to hide assets from potential creditors.  The same goes for filing bankruptcy.

Spendthrift Trust

Beware of the enforceability of the spendthrift provision in a trust.  In re Kim, 257 B.R. 680 (9th Cir. BAP 2000), states that the enforceability of a spendthrift provision is determined on the date the bankruptcy case was filed. and subsequent changes in the right to receive principal or income likely do not enlarge a bankruptcy trustee’s ability to reach payments from a trust. It may be wise to file a motion to abandon assets held in a spendthrift trust to put an end to the court’s reach, or at least to set an end date.

Fraudulent Transfers

I get this question a lot.  How do we protect ourselves from potential creditors, when we know they are after us for debts?  Can I just transfer my home to my children and then file for bankruptcy?  NO!  Intentionally trying to hide assets from creditors is FRAUD and this may create the risk of loss of a bankruptcy discharge, or criminal charges.

The next time you’re faced with creditors breathing down your neck and you think of the many ways you can protect your stuff and lose the debt, be sure to consult with both an estate planning attorney and a bankruptcy lawyer

Exposing the Dark Side of the Personal Fiancial Industry: Pound Foolish

pound foolishI have been reading the book, Pound Foolish by Helaine Olen (@helaineolen) and I couldn’t get past the first fourteen pages without thinking that here is a woman who is a writer and journalist, who once wrote  for the Los Angeles Times (@LATimes) Money Makeover series, with no financial education and referring to a book entitled, Personal Finance for Dummies. Her book discusses all these fraudulent personal financial gurus making millions on the backs of the working class and she’s one of them!  I am outraged. Then, I read on.

According to Helaine herself, the book tells the story of how Americans were sold on a dream, “a dream that personal finance had almost magical abilities, that is could compensate for stagnant salaries, income inequality, and a society that offered a shorter and thinner safety net with each passing year.” She works her way from the inventor of Personal Finance, Sylvia (“S.F. Porter”) and the self-help movement brought mainstream out of the Depression Era of the 1930’s to concluding with a chapter called, “We Need to Talk About Our Money.”

As you can see from all the tabs on my copy of her book, this review will turn into several blog articles. In the end, I highly recommend this to the entire 99% of Americans, save for the 1% who created this mess. We’ve been lied to about MONEY and made to believe that we are at fault and created our own personal financial troubles.  This book exposes the FRAUD and names names of those whose lies nearly destroyed us all. No one is safe from the truth; Suze Orman gets an entire chapter for her selling out to FICO and the Approved Card fiasco.  Dave Ramsey wasn’t lucky enough to get his own chapter, but if you haven’t read my previous article about these two, then check it out, here.

I noted that in Chapter 3 alone, there are at least 23 references to bankruptcy.  This chapter, interestingly discusses the MYTH that Americans who are fiscally promiscuous with their money end up in bankruptcy.  The truth is that we are all just one medical disaster, job loss, or accident away from bankruptcy. The truth is that the income gap continues to widen and the Have Nots are bombarded with the temptation to have what they cannot afford and the lure of easy credit tells them they’re worth it.

In the end, Olen urges us all to talk about money honestly. We need transparency with our financial advisers, banks those that hold our investments. Financial literacy is a lie sold to us by the financial sector that doesn’t want government regulation.

Obama Student Loan Forgiveness Starts Here

With so many companies guarantying student loan debt forgiveness and using Obama’s words to market and sell their offerings, I thought I would set the record straight!

  1. YOU CAN HELP YOURSELF FOR FREE
  2. YOU CAN HIRE ONE OF THESE COMPANIES THAT MAY NOT BE LAWYERS; OR
  3. YOU CAN HIRE A LAWYER TO REPRESENT YOU

Don’t be fooled into thinking these companies can get you any better deal that you can get yourself.  In fact, you could end up actually paying more for these non-lawyer companies than you would seeking the advice of a student loan lawyer in your area.  For a legitimate attorney referral, contact the National Association of Consumer Advocates (NACA). First, you MUST separate your federal loans from any private student loans you have taken.

FEDERAL LOANS Help

  1. Gather your student loan information from National Student Loan Data System (NSLDS);
  2. NEVER GIVE YOUR PIN NUMBER TO ANYONE BECAUSE YOU APPLY FOR LOANS USING THIS NUMBER
  3. Review your options at Student Loan Borrower Assistance
  4. If your loans are in DEFAULT, you MUST bring them current through REHABILITATION first;
  5. Once your student loans are in good standing and current, then you can apply for a repayment program that you qualify for based on what you have learned from the Student Loan Borrower Assistance website
  6. IF you have applied for a repayment program and YOU CANNOT AFFORD THE LOWER PAYMENTS, contact a bankruptcy attorney for a FREE consultation to determine if you qualify for an UNDUE HARDSHIP bankruptcy discharge.

Don’t ignore your federal student loans because once in default, these loans generate painful fees and costs to collect, including income tax interception; and garnishments without a lawsuit.

PRIVATE STUDENT LOAN Help

  1. Pull a copy of your credit report: Private student loan will NOT be listed on the NSLDS website and may only show on your credit report. You may have legal rights under the Fair Credit Reporting Act for errors on your credit report;
  2. Private loans have a statute of limitations on their legal right to sue you to collect on this debt (4 years from your last payment in California);
  3. These loans may be easily discharged in bankruptcy for a variety of reasons:  (a) Disallow their claims to payment in Chapter 13; (b) Sue lender for loans that are not “Qualified Education Loans;”
  4. If you’re being sued by a private student loan lender, consult with a reputable Student Loan Lawyer immediately to protect your rights;
  5. You may be able to sue these lenders for violations of the Fair Debt Collections Practices Act if you are being harassed; inappropriately contacted; or you believe that amount you owe is not accurate.

The strategy or path you take is a personal one.  Whether you repay your student loans in full, or refuse to pay them and tackle them through lawsuits, or bankruptcy; it is important for you to know all the facts and your legal rights so that you can make a well informed decision.  You need to know what’s right for you, not what’s right for others.

Open Letter to the Bankruptcy Bar from Chief Judge Bluebond: Pro Bono Opportunities

From our Chief Judge:  Honorable Sheri Bluebond

March 3, 2015

An Open Letter to the Bankruptcy Bar

The Bankruptcy Judges of the Central District of California once again urge you to consider volunteering for one of the bankruptcy pro bono opportunities available in your area.  Over the past several years, notwithstanding the cyclical increases and decreases in our filing numbers, one thing has remained constant:  there are large numbers of low-income individuals in our court in need of representation.  Organizations currently assisting low-income people in our district see hundreds of families on the brink of foreclosure or in other economic distress each year.

Volunteer opportunities available range from commitments that require only a few hours every other month at a clinic to full representation in a chapter 7 case or adversary proceeding.  With a self-help desk in every division, you can easily volunteer close to home for only the number of hours that fit into your schedule.  Consumer bankruptcy training may be available for you. While most requests are for debtor assistance, low-income creditor assistance is needed as well.  The programs are structured so that attorneys who generally represent creditors may volunteer without concern about conflicts of interest or being designated a debt relief agency.  The vast majority of the people who come to these programs cannot afford counsel, but attorney referrals are also made through these organizations where appropriate.

Even a brief consultation with an attorney can make a big difference to an unrepresented party.  Attorney assistance also greatly helps the court and other litigants.  You can find contact information for an organization in your area, along with the types of opportunities available on the Court’s website (www.cacb.uscourts.gov), in the “Programs and Services” section, by clicking on “Pro Bono Opportunities.”  We encourage you to contact one of these agencies to explore whether there might be a way for you to contribute your time and expertise to someone in need.  To those of you who already volunteer or provide badly needed pro bono help in other ways, we say thank you. Your efforts help the court be more responsive to all litigants, regardless of income level and are truly appreciated.

 

Sheri Bluebond
Chief Bankruptcy Judge

 

Here’s a link to the Judge’s letter:

http://www.cacb.uscourts.gov/open-letter-bankruptcy-bar

A list of organizations needing help:

PRO BONO ORGANIZATIONS SEEKING BANKRUPTCY VOLUNTEERS:∗

Organization: Public Counsel
Area served: Los Angeles County (Los Angeles and San Fernando Divisions)
Contact David Daniels, Pro Bono Director, at (213) 385-2977
or go to www.publiccounsel.org(link is external) and click on the “Volunteer” tab

Volunteers Needed for:
Self Help Desk – Mondays and Wednesdays 10 am – 12 pm and 2 pm – 4 pm
Reaffirmation Clinics, Chapter 7 Seminars, preparing chapter 7 bankruptcy petitions

 

Organization: Neighborhood Legal Services
Area served: Northern Los Angeles County (San Fernando Valley Division)
Contact: Jennifer Pham at Jenniferphan@nlsla.org(link sends e-mail)
or go to www.nlsla.org(link is external)

Volunteers Needed for:
Self Help Desk in Woodland Hills:
Thursdays from 9 am – 12 pm and 1 – 4 pm

 

Organization: Legal Aid Foundation of Santa Barbara County
Area served: Santa Barbara County (Northern Division)
Contact:  Jennifer Smith at JenniferSmith@lafsbc.org( link sends e-mail)
or go to www.lafsbc.org(link is external)

Volunteers Needed for:
Chapter 7 representation and Self Help Clinic – Weekly on Fridays 10 am – 12 pm

 

Organization: Riverside Legal Aid (formerly, Public Service Law Corporation)
Area served: Riverside and San Bernardino Counties (Riverside Division)
Contact: Diane Roth at droth@riversidelegalaid.org (link sends e-mail)
Phone: (951)682-7968
or go to www.riversidelegalaid.org( link is external)

Volunteers Needed in Riverside for Chapter 7 Self-Help Clinic
Tuesdays and Thursdays 10 am – 2 pm (pre- & post-filing issues)
Adversary Proceedings

Volunteers Needed in Cathedral City for Chapter 7 Self-Help Clinic
4th Monday of every month, 10:30 am to 2:30 pm

 

Organization: Public Law Center
Area served: Orange County (Santa Ana Division)
Contact:  Leigh Ferrin at lferrin@publiclawcenter.org (link sends e-mail)
or go to www.publiclawcenter.org( link is external)

 

Volunteers Needed for
Chapter 7 self-help clinic, Wednesdays 1:30 – 3:30 and Fridays 9 am – 11 am
Reaffirmation Clinic in Santa Ana; Chapter 7 and Adversary Proceeding Representation

Spring Cleaning For Your Finances

easter-bunny-2Some people make getting out of debt their New Year’s Resolution; while others wait for their tax refunds to either get out of debt or hire a lawyer and file personal bankruptcy.  We could even start this Springtime with a Money Makeover by facing and then taking bold action to eliminating our debt once and for all.

Bring the budget out of the attic and into the light and get determined, even “gazelle-like” about eliminating debt like the dust bunny that it is. I’ve been writing a lot about how bankruptcy is the cheaper, better, and faster way to financial freedom because it is when your debt repayment plan will take you more than five (5) years. Five years is the length of a court ordered repayment plan under Chapter 13 of the Bankruptcy Code. If you cannot afford to repay your debts at all, you may qualify to quickly and efficiently eliminate your debts under Chapter 7 of the Bankruptcy Code.

Your debt has been holding you back from saving for a home, college, and retirement.  It’s hard to plan and save for the future when the past still haunts you financially.  I know it takes courage and tenacity to overcome the fear of talking to a bankruptcy lawyer because I hear it from my clients all the time.  You know what else?  After speaking with me, they all wish they had done it much sooner because it would have saved them money.  There are bankruptcy attorneys like me all over the country and I know that many of them are members of the National Association of Consumer Bankruptcy Attorneys (NACBA).  Many provide free consultations.  What are you waiting for?  Hop into freedom from debt this Spring!

Image courtesy of Amelia’s Surf and Racquet Club

The Truth About Bankruptcy You Haven’t Heard

freeimages.co.uk workplace imagesWhy does Dave Ramsey, the Bible Belt personal finance guru, insist that filing personal bankruptcy is a “painful, life-changing experience. It hurts?” It’s because he himself filed for personal bankruptcy and had a bad experience.  Dave Ramsey also currently makes a very good living from selling “hope” in books and programs and “financial peace.” I don’t discount that his programs have helped many people get out of debt and avoid bankruptcy, but you must take the individual stories individually. So, the truth is that Dave Ramsey filed for bankruptcy to instantly and quickly relieve himself from unmanageable debt and now he sells a program of getting out of debt without filing for bankruptcy, which takes much longer and costs more money as I show in the numbers here.

The truth about bankruptcy is that it is often a cheaper, better, and faster way of eliminating your debt and freeing up what money you do have so that you can get on with your life and start saving for retirement or the purchase of a home.  Time is money when you spend more than five (5) years getting out of debt when you could have been building up a retirement account, that time can really cost you.

Suze Orman was deeply in debt and uneducated when she walked onto the world stage.  The poor and middle class have followed her advice right into bankruptcy. The Oprah effect launched Suze Orman’s own personal financial revolution, selling a prepaid debit card.  What really happened was the card had more than 20 separate fees and alleged their FICO scores would increase. The truth is that her prepaid debit cared did nothing. Check out this video on Suze’s career and scams. The truth is that Suze Orman has been paid tens of millions of dollars by FICO to tell you how important your credit score is.

Keep your finances simply and get out of debt as quickly as you can, and bankruptcy is usually a more efficient way to eliminate debt.  After bankruptcy, build up your emergency fund in cash and continue to chip away at your expenses so that you can continue to build savings for retirement, or even a home.

Attorney’s Fees in Chapter 13 Cases To Increase Under the RARA

I am a member of the Central District Consumer Bankruptcy Attorney’s Association (“CDCBAA”) and have served as a member of the board of directors for this group for the past three (3) years. I have also participated in one bench/bar committee meeting during this time where judges and lawyers meet to discuss issues we all face in helping our debtors achieve freedom from debt. This committee has been at work for several years, working very hard to make certain that the consumers are provided with adequate representation and that their lawyers receive reasonable compensation to represent  them.  Our current president, Nancy Clark, Esq., of Borowitz & Clark LLP announced today that at last month’s Board of Judges Meeting, the judges voted on our proposal to increase the Chapter 13 RARA fees. Our proposal was to increase the Chapter 13 RARA fee to $5,000 for individual cases and to $6,000 for business cases. Judge Jury, of the Riverside Division, informed us that by an overwhelming majority the judges voted in favor of the proposed increases.

The Chapter 13 Bench/Bar Committee has been working on increasing the RARA fees for several years. Until he resigned due to health reasons, James T. King was the chair of the subcommittee, and he co-authored the proposal. Thank you Jim!  Nancy Clark also thanked Erik Clark, Aki Koyama, Renee Sawyer Blume, Marcus Tiggs, Judge Zurzolo, Elizabeth Schneider, Judge Jury, Peter Lively, Tom Ure, David Tilem and Sylvia Lew for their assistance with the committee.

Ms. Clark noted that an overwhelming majority of consumer attorneys in the Central District of California submit the RARA in Chapter 13 cases pursuant to Local Bankruptcy Rule 3015-1. This fee increase has been a long time coming. Although we worked very hard to increase the RARA fees, please keep in mind that you always have the option of submitting a detailed fee application instead of the RARA in Chapter 13 cases. By filing detailed fee applications, the courts have an opportunity to see how much work goes into chapter 13 cases. Therefore, we encourage you to file fee applications.  An important note for both attorneys and consumers is that this increase in attorney’s flat fees will NOT become effective until notice is given by our courts.

Pros and Cons of Bankruptcy as Debt Relief

Scales

No one wants to file for bankruptcy.  I know it and so do you.  I read the scathing comments about good people who struggle with debt and their perceived “moral” obligation to repay their debts.  I also enjoy watching Jimmy Fallon (@jimmyfallon) and his humorous Pros and Cons segement each week.  So, here are my Pros and Cons of filing for bankruptcy.

Pros of filing for bankruptcy

  • You get out of debt quickly (4-6 months for Chapter 7; up to 5 years for Chapter 13), saving valuable TIME;
  • Stop wage garnishment; stop foreclosure; stop lawsuits; and all harassing debt collectors;
  • Save money by paying less toward your debts and more toward your financial future (retirement, home ownership, college)

Cons of filing for bankruptcy

  • Your credit will be ruined; check out this article
  • You will lose your car, house, or boat; read this
  • You’re looking for the secret trick to get out of debt
  • Your family/friends have told you not to do it
  • You haven’t cashed out your life insurance; or retirement plans yet!

What ever your motivation for getting out of debt, the process you choose to get you to your goal will cost you time and money.  What if you could eliminate your debt today and start saving for your future immediately?  What would you do then?

Help For Bankruptcy Adversary Proceedings

Bankruptcy CourtIf you are served a Summons and Complaint during your bankruptcy case you MUST take action to protect your rights.  You cannot ignore court papers and should seek the advice of an attorney immediately, or you may lose your rights and be left on the hook for a debt that may be discharged in your bankruptcy. Conversely, you may want to sue a creditor to discharge a debt like your student loans and need a student loan lawyer that understands bankruptcy to help you.

Here in the Central District of California we have so many bankruptcy lawyers that limit the scope of their client’s representation and do not handle bankruptcy litigation cases known as adversary proceedings.  Here are some important tools for consumers to find competent representation to help them through this complex process.

  1. Ask your current lawyer for a referral to a bankruptcy litigation attorney;
  2. Use the links below to find a reputable attorney to handle your case;
  3. Consult with at least 2-3 lawyers to find one that has knowledge, skills and the ability to help you.

If your attorney refuses to represent you your first step should be to consult with several local attorneys to determine who you would like to work with, but even more importantly, to listen to these experienced practitioners tell you their strategy for helping you and estimate fees and costs for their work on your behalf.  We have a great group of local attorneys here at the CDCBAA and for those in other parts of the state and nation can visit the NACBA website for an attorney. We also have public counsel for referrals to pro bono lawyers that may be able to serve.

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