Tax Refunds and Bankruptcy

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Tax refund season is typically the busiest time of year for bankruptcies to be filed.  The reason is pretty simple, people who have been slogging along trying to pay their bills have not had the extra money to use for a bankruptcy attorney.  Their tax refunds change that and finally make it possible for many people to get their cases filed.

If you are considering bankruptcy there are some things to keep in mind if you are expecting a big tax refund.

Filing a case before you receive the refund can lead to some or all of the refund having to be turned over to your bankruptcy trustee.  This all depends on your state’s exemptions. Some states, Ohio for example, will allow you to exempt all of your additional child tax credit and earned income credit.  Some states, Washington and New York for example,  allow you to use either state or federal exemptions.  If you have the option of using federal exemptions and you do not have a home with equity you can exempt a large amount which may protect your entire refund.  Still other states offer very anemic exemptions and make it very difficult to file before receiving a refund.

If you file a case after you receive the refund there are other considerations.  You can still use the exemptions mentioned above.  If, however, you are not able to protect the entire refund, you can spend it on items that are considered reasonable and necessary.  You just have to be aware that trustees will look to see if those were normal expenses that would usually be paid using your regular income.  Reasonable and necessary expenses are subjective but be aware that your attorneys fees and court costs are considered reasonable and necessary.

Many people rely on their refunds to get by.  If you are among them and are considering bankruptcy, make sure you speak to an attorney to protect as much of that refund as possible.

Best of Luck,

Steven Palmer
Licensed in WA and OH
http://www.northwestbankruptcyattorneys.com
http://www.curtislaw-pllc.com

 

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Northwestbankruptcyattorneys Blog Year End Review

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The year 2015 is almost ready for the history books.  Before we look ahead into what 2016 brings it makes sense to look back to get a greater sense of where we need to be headed.

This year I posted on a variety of bankruptcy issues, mostly general in nature to give my clients and anyone contemplating bankruptcy some issues to think about.

This year started out with looking at how loan modifications can still be pursued by debtors in chapter 13 bankruptcies. (They can be obtained and can be a great way to deal with a home that you had almost lost.)  I then looked at what happens to your car when you file a bankruptcy. (You have lots of options.)  Since so many of my clients are worried about how their credit scores will be impacted by the filing of a bankruptcy, we did a post on bankruptcy and your credit score. (The impact is not nearly as bad as people think.)  I then put together a post looking at some of the do’s and dont’s of filing a bankruptcy.  If you are contemplating a bankruptcy, please read or reread this post.  The award for the biggest northwestbankruptcyattorneys blog post goes to The History of Student Loans in Bankruptcy.  I did a ton of research for this post and am pretty happy with how it came out.  If you are at all interested in the topic, please give it a read.  The changes that have taken place over the course of 60 years are astonishing and terrible.  They remind me of the proverb, the road to hell is paved with good intentions.  From there, I tried to give potential filers some ideas of how they can find a good bankruptcy attorney in 5 Tips for Finding a Good Bankruptcy Attorney.  We then looked back at the topic of homes and bankruptcy in the Halloween Special Zombie Homes Attack.  (You do have options if you have a house that is stuck in your name after bankruptcy.)   The award for biggest rant post of the year goes to Credit Unions: The Devil is in the Details.  In that post we looked at the hidden dangers of using a credit union for a car loan and also having credit cards or bank accounts with those same credit unions.  Lastly, the Christmas Special this year was The Christmas before Bankruptcy.  In that post we looked at some of the hidden dangers of gift giving and receiving before filing a case.

In the coming year, look out for more posts on student loans and ways to deal with your small part of this national crisis.  Another post on zombie homes and getting rid of them through the bankruptcy process.  A more detailed look at what you can do to rebuild your credit.  A post on attempting to avoid bankruptcy.  There will be others as well as the inspiration strikes.  We are also open to writing on topics that people request, so if you have a topic you would like to see an article written on, please suggest it below.

Happy New Year from all of us at northwestbankruptcyattorneys.com and the Curtis and Casteel Law Group.

Steven M. Palmer, Esq.
Licensed in WA and OH
http://www.curtislaw-pllc.com
http://www.northwestbankruptcyattorneys.com

The Christmas before Bankruptcy

Depending on your family, Christmas gift giving may be huge or it may be minor.  If you fall in the former category and you are considering a bankruptcy you need to be aware of some bankruptcy rules which could impact your bankruptcy filing.

Gift giving and bankruptcy:

If you are a big giver and routinely rack up credit card debt ensuring that everyone gets just what they want, you will want to go easy the Christmas before bankruptcy.  In the forms that are required by the bankruptcy code, there is a requirement that you list any gifts made to a family member of more than $200.00 or more than $100.00 to a charitable organization.  Giving cash or items to a charity is generally not a problem so long as you don’t go over 15% of your gross income during the year in which the contributions were made.  The reason behind the restrictions is that congress did not want potential debtors to squander their assets in an attempt to hide them from their creditors before filing a bankruptcy.  If you did give a bunch of gifts to family members this Christmas, it may be best to wait until next year to file.  Your best bet if this situation applies to you is to contact a local bankruptcy attorney and ask their advice.

Gift receiving and bankruptcy:

What really matters here is what was given and is it an exempt asset.  If you received cash for Christmas, that cash gift could push you over the income threshold between a chapter 7 bankruptcy and a chapter 13 bankruptcy if you were already close.  If instead you received a car or a new mac book, those are items which would need to be listed.  What happens next depends on the value of the assets and the exemptions available.  If you have enough exemptions available, you will not have anything to worry about.  If on the other hand there are not enough exemptions to protect the new assets, a chapter 7 trustee may take them, or you may be pushed into a chapter 13 bankruptcy.  Again, you would want to talk to a local bankruptcy attorney to make sure that this will not be an issue in your case.

Best of Luck,

Steven M. Palmer, Esq.
Licensed in WA and OH
http://www.curtislaw-pllc.com
http://www.northwestbankruptcyattorneys.com

Credit Unions: The Devil Is In the Details.

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Credit Union Customers love their credit unions.  They love the level of service that they get and they love the relatively low rates for loans and high rates for savings.  Much of this love is not reciprocated.  Credit Unions, if you are ever forced into a bankruptcy proceeding are fond of forcing reaffirmation agreements and enforcing their nearly ubiquitous cross-collateralization and future advances clauses.  These are things that you almost never have to worry about if you get your financing elsewhere.

Customers must beware.  If you take out a loan with a credit union because they offer you a great rate, beware of the details.  You will likely be signing a loan document that includes language allowing them to hold on to your title until you pay any other loan that you have with them.  If you are a credit union customer and you have a credit card through the credit union the credit card agreement may include language allowing them to secure that card to any future security interest that they hold.  For example, you get a credit card, you happily use it and are happy with the rate, you then decide that you want to get a car loan through the credit union because they are offering a great rate.  Now the car loan is obviously secured by the car, what is not obvious to almost everyone is that the credit card is also secured by the car.  This means that after you have paid off your car loan, the credit union can withhold your title until the credit card is paid off.  The same goes for personal loans with credit unions.

Now if something bad happens to you financially, and believe me it happens all the time, whether you suffer an injury, a job loss, get divorced, or have to support a relative, you could be forced into a bankruptcy.  If that happens and you have a car loan with a credit union you will end up having to pay off debts that otherwise would have been discharged in the bankruptcy if you want to keep the car.

To protect yourself, if you insist on using a credit union to get a car loan, do not take out any credit cards with them, do not take out any personal loans, and do not take out any lines of credit.  Keep your other finances fenced off from the credit union’s dragnet.

If you find yourself needing to file a bankruptcy and you have a car loan through a credit union and a credit card, a personal loan, or a line of credit, speak to a bankruptcy attorney right away and see if there is anything that can be done to protect your interests.  Your best bet is to stay clear of them altogether.

Best of Luck,

Steven M. Palmer
Licensed in WA and OH
http://www.northwestbankruptcyattorneys.com
http://www.curtislaw-pllc.com

Bankruptcy and Your Credit Score

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One of the biggest concerns for my clients is how their credit will be affected by filing for bankruptcy.  Everyone knows there is some impact.  Most disagree as to the size or the duration of the impact. That, and how to rebuild are two things I hope to shed some light on in this post.

What if I just grin and bear it?

A question you should ask your self is, “What is going to happen to my credit score if I don’t file bankruptcy?”  For many people contemplating bankruptcy, they are already at the point where they are not able to pay their ongoing debt obligations.  If this is you, your credit score is taking a hit every month that goes by where you aren’t making your monthly payments.  To give you an idea, once you go 30 or 60 days late, your credit score starts to take a hit.  If you let a payment get to the point where it is 90 days late, it will stay on your credit report for up to 7 years and will have a significant impact on your score.  Having just a couple of these occurrences could be as damaging or more damaging than filing a bankruptcy in the first place.   Because of this, once you recognize that you aren’t going to be able to find a quick way out of the situation, it is probably best to get the bankruptcy wheels moving.  The higher your score is before the filing of the case, the higher it is going to be after you file the case and get your discharge.

Debt Consolidation Companies and Your Credit.

Many people try to do whatever they can to avoid bankruptcy, for some people this includes entering into agreements with debt consolidation companies.  These companies come in a variety of flavors.  That is a topic for another time though.  What many of them will do is enter into an arrangement with you where you make a monthly payment to them, then they either hold the money until they have enough to make an offer on any one particular debt, or they make small monthly payments to all of the creditors at once.  The problem is, this doesn’t stop those creditors from negatively reporting to the credit bureaus.  It also doesn’t necessarily stop the creditors from suing you in state court, obtaining a judgment, and garnishing your wages.  Another problem is that if they do settle, it will show up as settled for less than full amount which hurts your score.  On top of that, if you settle, you will likely get a 1099 from the company and likely will have to claim the forgiven amount as income on your taxes.  That will either mean you will have a smaller refund or will owe.

How long does it stay on your report and what does that mean to you?

First of all, if you are in a tough financial spot and are having trouble paying your rent or making your house payment, this should not be a factor in your decision to file.  That said, how long it stays on your report and how long the bankruptcy notation negatively affect you are two very different things.  If you file a Chapter 7 bankruptcy, it is generally going to stay on your report for 10 years.  If you file a Chapter 13 bankruptcy, that will stay on your report for 7 years after the case is discharged.  Seven to ten years seems like a long time.  It is a long time, but within that seven to ten year period you can still buy cars, houses, and get credit.  The general rule is about two years after a chapter 7 you can get a home loan (sometimes only one year), almost immediately after the case you can get car loan and credit cards. Not too bad right? You should tread lightly here.  Look at the offers you are receiving and only accept the best, it isn’t going to help you if you start applying for many cards at once, limit it to one or two at the most.  When you can get credit is going to be dependent on your income, and on your credit score. I have seen clients with scores in the 500s prior to filing a Chapter 7 have scores in the 700s one year after the case discharged.  On the other hand, I have seen other clients with low scores come back a few years later and they still had low scores.  So what is going on there?

How to improve your score after bankruptcy.

If you do as you did and nothing else has changed, your credit score is probably not going to change much.  The lowest that your score could possibly be is between 300 and 403 depending on the type of FICO score. The highest that it can be is about 850 but that too depends on the type of score. If you use no credit your score isn’t going anywhere.  So what can you do?  The first thing that I recommend is going to www.annualcreditreport.com and getting all three reports for free.  This is something you are able to do once a year.  Once you have these, you will want to review them, possibly with the help of your attorney to determine if the credit reporting agencies are properly reporting your debts as discharged in bankruptcy.  If they aren’t accurate and they refuse to fix the errors, you may have remedies either through your old bankruptcy case, or a cause of action under the Fair Credit Reporting Act (FCRA).  Once your report is in order, you can start rebuilding.  A good idea is to start with a secured credit card or with a store brand card.  With a secured card, the creditor generally has you put down $300.00 to $500.00 and that becomes your credit limit.  There is very little risk to the card holder because they have the security of your deposit, but the benefit to you is that they will report to the credit bureaus.  If you are in need of a car, a car loan with a reasonable payment is another great way to improve your credit score so long as you are able to and actually do make your payments on time.  My secret credit score repair weapon is IBR.  If you have federal student loans and you are low income or living paycheck to paycheck, you should at least look into this program.  IBR stands for Income Based Repayment, you can apply for it at the following site.  https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven.  The great benefit of this plan is that many people who had filed bankruptcy may be eligible for $0.00 payments.  If you are eligible and you sign up for, and are approved for a $0.00 or whatever payment, each month that passes where you make that payment (yes, even the zero dollar payment, if you are eligible) is a month that your lender reflects as an on time payment to the credit bureaus.  The more on time payments you have, the better your credit score will become.

Best of Luck,

Steven Palmer, Esq.

Licensed in Ohio and Washington