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Recent Blog Posts
A Fresh Start on Your Vehicle Loan through Chapter 13 "Cramdown"
If your vehicle is worth less than you owe, Chapter 13 “cramdown” can reduce your monthly vehicle payment and the total you pay on the loan.
You could get a fresh start on your vehicle loan by:
- Paying a smaller monthly payment immediately
- Reducing the interest rate
- Not needing to catch up on payments if you’re behind
- Reducing the total amount you pay before the vehicle is yours free and clear
If you owe on your vehicle loan more than your vehicle is worth, and your loan is more than 910 days old (about 2 and a half years), you can very likely do some or all of the above through a Chapter 13 “cramdown” of the vehicle loan.
The Chapter 7 Vehicle Loan Dilemma
In the last two blog posts we described how to keep your vehicle under a Chapter 7 “straight bankruptcy” case through either “reaffirming” the vehicle loan or “redeeming” it. Both can cause problems.
A Fresh Start on Your Vehicle Loan through Chapter 7 "Redemption"
You may be able to keep your vehicle for less money by “redeeming” it—paying its present fair market value instead of the full debt.
If you owe much more on your vehicle than it is worth and absolutely must keep this vehicle, you may greatly benefit from a fresh start on that vehicle. It may even be worth getting a new loan, one based on what the vehicle is now worth.
If you want to keep your car or truck when filing a Chapter 7 “straight bankruptcy” your main options are “reaffirmation” and “redemption.” We covered reaffirmation—entering into a formal agreement to repay the loan as if you had not filed bankruptcy—in our last blog post. Redemption is not as common but can be a useful option, especially if you owe much more on your vehicle than its present value.
What is Redemption?
Instead of “reaffirming” the vehicle loan by in effect re-promising to pay it in spite of your bankruptcy, with redemption you are getting rid of that loan by paying less—the current fair market value of the vehicle. The challenge is that current value has to be paid to your lender all in one lump sum. We’ll talk about how to get the money for this lump sum pay off shortly.
A Fresh Start on Your Vehicle Loan through Chapter 7 "Reaffirmation"
A reaffirmation agreement makes you still liable on your vehicle loan so you can keep your car or truck after writing off your other debts.
The Problem
Is it a struggle to make your car or truck payments? Have you been late on the payments and worried about your vehicle getting repossessed? Would it help your peace of mind if you could comfortably make these crucial payments?
A Solution
If you filed a Chapter 7 “straight bankruptcy” case, most or all of your other debts would likely be permanently written off (“discharged”). As a result you could much better afford to make your monthly vehicle payments.
You’d enter into a “reaffirmation agreement” with your vehicle lender, through which you’d agree to exclude its loan from the discharge of your debts so that you would remain liable on it. And you’d agree to make future payments on time. In return your creditor would allow you to keep the vehicle and would report your on-time payments to the credit bureaus so that you could start rebuilding your credit right away.
Bankruptcy Timing: Include Income Taxes Owed for 2015 by Filing Chapter 13 in Early 2016
As of January 1, 2016 you can include any taxes you owe for the 2015 tax year in your Chapter 13 payment plan.
If you’ve been thinking about filing bankruptcy, and expect to owe income taxes for 2015, you have an extra reason to file a Chapter 13 “adjustment of debts” now that we’re in the new year. That’s because now that 2016 has begun you can include income taxes owed for the 2015 tax year in your new Chapter 13 case and payment plan. Being able to include taxes owed for 2015 gives you significant advantages.
It saves you money, gives you crucial flexibility, and stops future tax liens and other tax collections.
Saves You Money
Including what you owe in income taxes for 2015 in a Chapter 13 payment plan saves you money because almost always you don’t have to pay any additional interest and penalties on the tax owed. The savings can be huge.
That’s particularly true if you have other debts that you want or need to be paid ahead of the 2015 tax. That would delay payment of the taxes owed for 2015. As a result the savings from not paying any accruing interest and penalties would be that much greater.
Bankruptcy Timing: Filing in 2016 to Write Off More Income Taxes with Chapter 13
With Chapter 13 you may have to pay some part of the taxes that you could just discharge under Chapter 7, but it may be worth it.
Last week just before New Year’s Day we showed how to discharge (legally write off) more of your tax debts (likely for the 2012 tax year) under a Chapter 7 “straight bankruptcy.” Today we show how that’s done under the Chapter 13 “adjustment of debts” form of consumer bankruptcy.
Dealing with Income Tax under Chapter 13
The most direct way bankruptcy deals with older income taxes is by quickly discharging them in a Chapter 7 case. As long as the tax meets the conditions for discharge, under Chapter 7 you would simply not legally owe the tax at all usually within about 4 months after filing the bankruptcy case.
But there are many circumstances in which a Chapter 13 case would be better for you than Chapter 7. Some of these circumstances involve income taxes and some so not.
The New Year, a Fresh Start!
You know bankruptcy gives you an overall fresh financial start. But it can provide special fresh starts you may not know about.
The Overall Financial Fresh Start
You get a new financial life by legally writing off (“discharging”) debts so that you are out from under them and never have to pay them again. With consumer and small business debts you have two main choices about how this happens.
The Chapter 7 Fresh Start
With a Chapter 7 “straight bankruptcy” the discharge of debts happens very fast. The moment your case is filed the creditors can’t take any more action to collect their debts against you, your money, or your property. Then usually about 100 days later the bankruptcy court enters an order discharging your debts. You are debt-free, other than possibly debts you want to keep such as a vehicle loan, and certain debts you can’t discharge like recent income taxes or back child support.
Bankruptcy Timing and the Holidays: Filing in December May Shorten Chapter 13 Case by 2 Years
We show how filing bankruptcy before the end of December could result in a much shorter Chapter 13 “adjustment of debts.”
Two weeks ago we showed how filing bankruptcy by December 31 could enable certain people to file a Chapter 7 case instead of being forced into a Chapter 13 one. They could have their debts discharged (legally written off) within 3 or 4 months under Chapter 7. Otherwise under Chapter 13 they would be required to go through a 3-to-5-year payment plan. And they would only get a discharge of their remaining debts if they’d successfully make it to the end of that payment plan.
If You Need a Chapter 13 Case
But getting to file a Chapter 7 case wouldn’t be any motivation to file your bankruptcy this month if you already knew that you needed a Chapter 13 case anyway. Although Chapter 13 takes so much longer, and is riskier, it can accomplish many things that Chapter 7 simply can’t. Chapter 13 can give you incredible help if you are behind on your mortgage and want to keep your home. It can buy you time and protection and save you a lot of money if you owe tons of income taxes and especially if they span more than one tax year. Chapter 13 can enable you to catch up on child or spousal support better than anything. These are just some of the many ways that Chapter 13 is a great tool for dealing with your creditors.
Bankruptcy Timing and the Holidays: Gift-Giving and "Fraudulent Transfers"
Gift-giving, or selling for much less than actual value, can cause problems ahead of bankruptcy, but only if it’s a large gift.
“Fraudulent Transfers” Usually Not an Issue
This blog post is about a topic to be aware of but one that’s seldom an issue for consumers or small business owners filing bankruptcy. However, in part because “fraudulent transfers” often involve some version of gift-giving, it’s particularly worth getting an understanding of this during the holiday season.
We’ll briefly explain here what a “fraudulent transfer” is, its two different forms, why neither are a problem for most people, and when you should be concerned.
What’s a “Fraudulent Transfer”?
Basically, it’s a debtor’s giving away (transferring) an asset to avoiding paying creditors the value of that asset.
This legal concept was first addressed more than 400 years ago in English law, which we adopted, so this is an issue that’s been around for a long time.
Bankruptcy Timing and the Holidays: "Preferenceâ Payments
You may have extra motivation and greater ability to repay a personally important debt this time of year. But maybe you shouldn’t.
Careful about Paying a Favored Creditor
Around the holidays you may be extra motivated to pay back a personal loan. The relative or friend may be in real need of the money and pressuring you to pay it. Or if you are considering bankruptcy you may not want it to involve this person, or to have him or her know about it.
You might feel be better able to pay this debt. You may have gotten an annual bonus from work, or more income from working extra hours or a side job during the holidays. You might have even stopped paying other creditors so you have more money to pay who you want.
But when you know the possible consequences you might not want to pay that special debt after all. At least not yet.
The Rare, Dangerous, but Avoidable “Preference”
Bankruptcy Timing and the Holidays: The "Cash Advances" Presumption of Fraud
If you can, don’t do cash advances during the holidays if you’re contemplating filing bankruptcy. If you do, understand the rules about them.
In our last blog post we explained the “luxury” presumption of fraud. This provision in bankruptcy law increases the risk that you would not be able to “discharge” (legally write off) a very particular kind of debt. That kind of debt would be one that resulted from a purchase or a set of purchases totaling more than $650 made during the 90 days before filing bankruptcy.
The “cash advances” presumption of fraud is closely related to the “luxury” one. The dollar amounts and timeframe are just a little different. This “cash advances” presumption increases the risk that you would have to pay a debt tied to a cash advance or set of cash advances totaling more than $925 made during the 70 days before filing bankruptcy. (Notice that for this presumption to kick in, you incur somewhat more credit in a somewhat shorter period of time than with the “luxury” presumption of fraud.)
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