Posted on March 23, 2016 in Chapter 7

“Income” is not what you think it is—it’s much broader than usual and fixates on the 6 full calendar months before your bankruptcy filing.

Our last blog post a couple days ago was about an upcoming cost of living adjustment of median family income amounts. This adjustment is going in effect for bankruptcy cases filed on and after April 1, 2016. (See Section 101(39A) of the Bankruptcy Code.) These median family income amounts are important because they can determine whether you can pass the “means test” and qualify for a Chapter 7 “straight bankruptcy” instead of a Chapter 13 “adjustment of debts.”

That’s important because a consumer Chapter 7 case usually take only 3 or 4 months to finish. It usually does not require you to pay anything to most of your creditors. In contrast a Chapter 13 case usually takes 3 to 5 years, and requires you to pay all you can afford to your creditors throughout that period of time.

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 Posted on March 18, 2016 in Qualifying For Bankruptcy

You qualify for Chapter 7 without having to pass the “means test” if you fit within these very specific military-related exemptions.

Short Introduction to the “Means Test”

The “means test” determines whether you have enough income after your expenses to pay a meaningful amount back to your creditors. If you do, you don’t pass the “means test” and you don’t qualify for Chapter 7 “straight bankruptcy.”

But like many people who want to file a Chapter 7 case, you may easily pass this test simply by having low enough income. As long as your income is no more than the current published “median income” amounts for their state and family size (as being updated on April 1, 2016), you don’t have to consider the amount of your expenses—you automatically qualify for Chapter 7.

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 Posted on March 07, 2016 in Chapter 7

As of April 1, 2016 you can have a little more "disposable income" and still pass the "means test" to qualify for Chapter 7 bankruptcy.

Means Test

The “means test” determines whether you have enough income after your expenses (that is, enough “disposable income”) to repay your creditors a certain amount. If you don’t have enough disposable income, then you qualify for Chapter 7“straight bankruptcy.” Otherwise you must instead deal with your debts through a Chapter 13 “adjustment of debts” case.

Chapter 7 allows you to discharge (legally write off) all eligible debts in a process taking 4 months or so. In contrast Chapter 13 requires you to pay debts as much as you can afford to in a payment plan lasting usually 3 to 5 years. Chapter 13 may give you some significant advantages over Chapter 7. But in many other situations being able to discharge debts in a matter of a few months makes Chapter 7 the much preferred option.

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 Posted on March 02, 2016 in Asset Protection

Most pensions and other retirement funds are “exempt”—completely protected when you file bankruptcy. But there’s an exemption cap for IRAs.

Property Exemptions

When you file a Chapter 7 “straight bankruptcy” case usually you are able to keep everything you own because of property “exemptions.” These are usually categories and amounts of assets that people are allowed to keep, and their creditors and the bankruptcy trustee are not allowed to take. For example, there are homestead exemptions for your home, vehicle exemptions for your vehicle(s), and usually many other categories.

The intent behind exemptions is that you can’t really get a fresh financial start if you have to give everything to your creditors. So the exemptions protect a basic set of assets. Depending on where you live and what assets you own, you have a right to exemptions through your state’s laws and possibly also through federal laws.

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 Posted on February 19, 2016 in Automatic Stay

Through bankruptcy, you may be able to and want to pay a co-signed debt. If not, you need protection from that debt and from your co-signer.

A friend or relative may have helped you earlier by co-signing a debt for you. But now you find yourself needing relief from all or most of your debts through either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.”

So what happens to your co-signed debt? And what happens to whatever responsibility you may feel towards your co-signer?

In the last two blog posts we explained how either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts” may help you be able to pay the co-signed debt. These two kinds of bankruptcy provide a certain amount of indirect or direct protection for your co-signer.

But what if—even with the help of bankruptcy—you simply can’t afford to pay the co-signed debt now or at any time in the foreseeable future? You may no longer want to pay your co-signer because your relationship has soured. Your co-signer may be the one who received the benefit of the debt and should pay it back. Or you may still want pay it eventually but have no idea when. In all these situations you need legal protection against your co-signer.

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 Posted on February 17, 2016 in Automatic Stay

The “co-debtor” stay, available only under Chapter 13, is a creative tool for protecting your co-signer from being forced to pay your debt.

The last blog post was about filing a Chapter 7 “straight bankruptcy” case to “discharge” (legally write off) all or most of your other debts so that you could better afford to pay your co-signed debt. Today we get into how a Chapter 13 “adjustment of debts” gives you much more time to pay a co-signed debt if Chapter 7 doesn’t free up enough money to let you do so.

And if you don’t want to pay the co-signed debt, Chapter 7 and Chapter 13 can protect you from both your co-signed creditor AND your co-signer.

But first, today: if you want to, how can you protect your co-signer even better with a Chapter 13 case?

Chapter 7 Shortcomings

The Chapter 13 procedure doesn’t just give you more time to pay a co-signed debt—up to as long as 5 years. It also protects the co-signer throughout that time from the creditor. And during that time it also protects you from both the co-signed creditor and from your co-signer.

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 Posted on February 15, 2016 in Chapter 7

Bankruptcy may give a fresh start not just to you, but also to your relationship with your co-signer.

Bankruptcy Can Be the Best Way to Help Your Co-Signer

Even if you think that filing bankruptcy would give you the financial relief you need, you may not want to do it because you don’t want to hurt a co-signer. If so, we commend you.

And if don’t want to hurt your co-signer (or anyone otherwise obligated with you on a debt), you will be happy to hear that by filing bankruptcy you can often get both financial relief for yourself and the best practical protection for your co-signer.

Before showing you how, let’s look more closely at the two distinct ways that you might want to protect your co-signer. Then we’ll show how you filing a Chapter 7 “straight bankruptcy” case could provide that protection. And then in our next blog post we’ll show how a Chapter 13 “adjustment of debts” case could deal protect your co-signer in different situations.

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 Posted on February 12, 2016 in Income Taxes

Chapter 13 handles a tax lien on a home especially well when the home has enough equity to cover some but not all of the tax lien amount.

In our last two blog posts we dug into tax liens, and we do so one more time today. Two blog posts ago it was about tax liens that have no equity at all to attach to. Then the last blog post was about tax liens that have enough equity in the home to cover the entire amount of the tax lien.

Today we get into the in-between situation—where there’s enough equity in the home to cover part of the tax lien but not all of it. How can you get a fresh start on you home in this situation?

A Quick Summary about Tax Liens

A recorded tax lien on your home turns an income tax debt that you could have completely discharged (legally written off) in a Chapter 7 “straight bankruptcy”case into one that you may have to pay in full. If that income tax debt meets the conditions for discharge (mostly by being old enough), whether and how much you have to pay that tax depends mostly on whether there is equity in the home to cover this tax debt.

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 Posted on February 10, 2016 in Income Taxes

A tax lien encumbering the equity in your home is dangerous. Chapter 13 takes away the danger.

If the IRS or your state tax collector records an income tax lien against your home, and you want to keep the home, sometimes through bankruptcy you don’t have to pay the tax. If there’s no equity at all in the home to cover the tax lien, and if the tax meets the conditions for being “discharged” –written off, mostly by being old enough—you may not have to pay most of that tax. You might even not have to pay any of it. And that’s in spite of the recorded tax lien, which would be removed from your home’s title. See our last blog post about how this can happen.

But it’s a different story if there’s equity in your home to cover the tax lien.

You Have to Pay the Tax

If your home is worth enough so that it has equity to cover the entire amount of the tax lien, you’re going to have to pay the tax. Even in bankruptcy. That’s as long as you want to keep the home.

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 Posted on February 08, 2016 in Income Taxes

You owe income taxes, and now the IRS or state has recorded a tax lien on your home. Chapter 13 may get rid of both the tax and the lien.

Income Taxes that Can Be “Discharged” (Legally Written Off)

If you owe an income tax debt, it can be discharged like most other debts. The tax debt just needs to meet certain conditions for that to happen. Essentially, two conditions have to be met:

• 3 years must have passed since the tax return for the tax was due, and
• 2 years must have passed since that tax return was actually submitted to the IRS or state.

There are a couple other possible conditions but they very seldom come into play. So most of the time you can get rid of income tax debts simply by waiting until both of those two periods of time have passed.

If you owe a bunch of income taxes, having that legal obligation lifted off you would sure help you get a fresh start.

But What If a Tax Lien is Recorded against Your Home in the Meantime?

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