Written by Canterbury Law Group

Eliminating Tax Debts in Bankruptcy

Most taxes can’t be eliminated in bankruptcy, but some can.

If you’ve heard commercials offering the hope of eliminating tax debts in bankruptcy, be cautious. Bankruptcy lawyers regularly answer the question, “Does bankruptcy clear tax debt?” and the answer is always the same. “Sometimes.” The reality is eliminating tax debt in bankruptcy can be complicated. Before you file for bankruptcy, you’ll want to understand:

  • when you can discharge a tax debt
  • what happens to federal liens, and
  • how to manage tax debt using Chapter 13.

By the end of the article, you’ll understand why many filers continue to owe tax debt at the end of a Chapter 7 bankruptcy case and why most Chapter 13 filers must pay taxes in full through a Chapter 13 bankruptcy repayment plan.

When You Can Discharge Tax Debt

If you need to discharge tax debts, Chapter 7 bankruptcy will likely be the better option because it’s a quicker process and doesn’t require debt repayment. But Chapter 7 isn’t available to everyone. You must be eligible for Chapter 7 bankruptcy, and your tax debt must qualify to be wiped out with a Chapter 7 bankruptcy discharge.

Here are the conditions you must meet before eliminating federal income taxes in Chapter 7 bankruptcy:

  • The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return or willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can’t help.
  • The debt is at least three years old. The tax return must have been originally due at least three years before filing for bankruptcy.
  • You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing bankruptcy. (In most courts, if you file a late return (meaning your extensions have expired and the IRS filed a substitute return on your behalf), you have not filed a “return” and cannot discharge the tax. In some courts, you can discharge tax debt even if you filed a late return if you meet the other criteria.)
  • You pass the “240-day rule.” The IRS must have assessed the income tax debt at least 240 days before you file your bankruptcy petition, or not at all. (This time limit could be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)

Even if you meet these conditions, you might be out of luck if the IRS has already put a lien on your property (more below). Also, some jurisdictions have additional requirements.

For instance, in the ninth district, you must file your tax return in a timely fashion, and filing late precludes a discharge. Also, in Chapter 7, if you paid off nondischargeable tax debt using a credit card, the credit card balance will be a nondischargeable debt if a creditor challenges the dischargeability by filing an “adversary proceeding” or bankruptcy lawsuit.

You Can’t Discharge a Federal Tax Lien

Your victory might be bittersweet if your taxes qualify for discharge in Chapter 7 bankruptcy. Why? Bankruptcy won’t wipe out prior recorded tax liens. All Chapter 7 bankruptcy will do is wipe out your personal obligation to pay the qualifying tax and prevent the IRS from going after your bank account or wages.

But if the IRS recorded a tax lien on your property before the bankruptcy filing, the lien will remain on the property. You’ll have to pay off the tax lien before selling and transferring the property’s title to a new owner.

Managing Tax With Chapter 13 Bankruptcy

Filing your tax return might not be as burdensome once you realize that using Chapter 13 bankruptcy to manage your tax debt can be a smart move. Here’s why:

  • Dischargeable taxes (generally those older than three tax years) might be forgiven without any payment, depending on the amount of disposable income you have after your reasonable and necessary expenses are deducted from your pay.
  • Dischargeable taxes won’t incur additional interest or penalties (but you’ll pay interest on nondischargeable tax).
  • You can satisfy an IRS tax lien through the Chapter 13 plan by paying what you owe.
  • The IRS is obligated to abide by the plan as long as you include all your outstanding income tax and keep your tax returns and post-petition tax obligations current during your Chapter 13 plan.
  • Bear in mind that any nondischargeable tax that won’t go away in bankruptcy (generally, those incurred during the last three tax years) must be paid in full during the three- to five-year Chapter 13 plan. You’ll be caught up on taxes and most or all of your other debt when it’s over.

Unlike Chapter 7, in Chapter 13, you can discharge a credit card balance incurred due to paying off a nondischargeable tax debt. Learn more about tax debts in Chapter 13.

Should I File for Bankruptcy Before or After Taxes?

You won’t gain any real advantage by waiting to file your income tax return until after you file a bankruptcy case. But, there are many reasons you’ll want to be current when filing your Chapter 7 or Chapter 13 matter.

Tax Returns and Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, the trustee assigned to oversee your case will ask for your most recently filed tax return. That doesn’t necessarily have to be the tax return for the last tax year, but the trustee will ask for a written explanation if it isn’t the most recent return.

The trustee will compare the income you report on your return to the amount listed in your bankruptcy paperwork. If you show that you’re due a refund, the trustee will also want to check that you have the right to protect or “exempt” it and that you’ve claimed the proper exemption amount. If not, you’d be required to turn the refund over to the trustee, who would, in turn, distribute it to your creditors.

Many people plan to use the return for necessary items such as living expenses before filing a bankruptcy case. If you choose this approach, keep records of your expenditures.

Tax Returns and Chapter 13 Bankruptcy

You must be up to date on your tax returns before filing a Chapter 13 case, but the rules allow you a little wiggle room. You’ll provide copies of the returns for the previous four tax years to the Chapter 13 trustee before the 341 meeting of creditors (the hearing that all filers must attend).

If you’re not required to file a return, your trustee might ask for a letter, an affidavit, or a certification explaining why. Sometimes local courts will impose additional rules for documents in their districts.

If you owe the IRS a return but don’t file it before your 341 meeting of creditors, things can happen to derail your case.

  • A motion. The trustee will file a motion giving you a brief period to provide your returns. If you miss the deadline, the court can automatically dismiss your case, leaving you no chance to plead your case to the judge.
  • A substitute return. The IRS might file a “best estimate” claim based on your past income. The problem? IRS estimates are almost always higher than what you’d owe after filing a proper return.


Written by Canterbury Law Group

What Is A Secured Debt?

Learn about secured debts and how to recover them from creditors.

A “secured debt” is a loan you owe that is backed by property that your creditors could get back in the event of a default. (“Default” refers to noncompliance with the terms of the contract, such as failure to make the required payments.)

Liens are used to produce secured debt. Liens may be willingly or unwillingly taken. Car loans and home mortgages are two instances of secured obligations that you actively take on. Contrarily, real property tax liens are unintentional liens.

A Voluntary Lien: What Is It?

You typically consent voluntarily to granting a creditor a security interest in your possessions. For instance, a lender may need you to sign a mortgage (or, in some states, a deed of trust) before approving a house loan. An agreement that gives a lender a security interest, or lien, on real property is known as a mortgage or deed of trust. If the homeowner falls behind on the monthly payment, the lien enables a foreclosure auction.

In addition, you can give a lender a lien against any personal property you own or have a stake in that isn’t real estate (real property). Vehicles, furnishings, tools, inventories, stock shares, other forms of investment interests, and even cash are considered to be personal property.

A security agreement is typically used to grant a lien against personal property. For instance, a lender can ask you to sign a security agreement giving it a lien on the automobile you’re buying before extending a new car loan. If you don’t make the agreed-upon payments, the lender may reclaim your car thanks to the voluntary lien.

An Involuntary Lien: What Is It?

Involuntary liens are security interests put on your property through a court order, a state or federal statute, or another legal process. There is no agreement in play. Among involuntary liens are:

Liens on real estate or income taxes
Engineer’s liens
judgment liens as well as landlord liens (in some areas).
How an Obligor “Perfects” a Lien
Perfecting a lien is one of the procedures a secured creditor must take to safeguard its ability to collect. The legal word “perfection” describes the procedure necessary to notify other creditors and other interested parties of a lien or security interest. Depending on the type of property and the relevant state law, a certain step is necessary to perfect a lien. For instance:

Real Estate

Most states require that the lender record all mortgages and trust deeds in the county where the property is situated in order to perfect its lien.

Vehicles Usually, a file with the state motor vehicle department and a notation on the certificate of title are sufficient for lenders to perfect liens against automobiles, motorbikes, and trucks.

Personal Tangible Property

Financing statements are filed in order to perfect security interests in the majority of tangible personal property, such as furniture, tools, items, and supplies. For a secured debt, the borrower, lender, and collateral are all listed in a financing statement.

Financing statements, unlike security agreements, do not require signatures to be in force. As long as you have acknowledged signing the security agreement for the collateral it is intended to protect, the creditor may file a financing statement. Financing statements are often submitted to the secretary of state.

For any creditor, perfecting a lien is a crucial step. Sometimes, borrowers give many creditors liens against the same asset, such as your home. Consider a home equity line of credit, which is often subordinate to the mortgage you obtained to purchase your property. In the event that the owner of the first mortgage is unable to perfect their claim, a junior lien, such as a home equity line of credit, may in fact advance in precedence.

The repercussions of a lender failing to perfect a lien might be significantly more severe in bankruptcy. If you file for bankruptcy, the court has the authority to invalidate any unperfected liens. The lender becomes an unsecured creditor when a lien is put aside because it is handled as if it never existed.

Written by Canterbury Law Group

Does Chapter 7 Bankruptcy Fall Off A Credit Report?

Find out how long Chapter 7 and Chapter 13 bankruptcy will be reported on your credit record.

Most people commence a bankruptcy case when they need to start over and get their finances under control. Improved credit scores are frequently a part of that fresh start, and filers can take proactive measures by making on-time payments and maintaining modest credit balances. Nevertheless, depending on the bankruptcy chapter you file, it may take up to ten years for the bankruptcy to disappear from your credit report.

What is included in your credit report?

The quantity of personal information in your report may surprise you. You’ll notice three different types of information in particular:

identifiable information, such as your name, address history (including accounts marked paid as agreed or charged off), employer information, credit card information, payment history, and public records like court decisions, tax liens, and bankruptcies.

Reporting of Bankruptcy on a Credit Report

After seven years, the majority of bad entries, such as late payments and charge-offs, will be removed from your report. For bankruptcy filings, it operates somewhat differently and is dependent on the specific chapter.

Chapter 7 insolvency. Your Chapter 7 bankruptcy filing will be noted on your credit report for a maximum of ten years. The credit bureaus should stop recording the bankruptcy after ten years.
Chapter 13 insolvency. The filer contributes to a repayment plan in this chapter for a period of three to five years. Only two years longer than the longest repayment plan, seven years from the filing date, the Chapter 13 bankruptcy filing is visible on a credit record. This benefit encourages filers to select the repayment option and to gradually pay back creditors.
Whether you have a high or low initial score will determine the immediate impact of bankruptcy on your credit score, and in most circumstances, a higher initial score will suffer more damage. Because scoring businesses keep the formulae used to generate scores relatively hidden, it is difficult to predict the exact outcome. But if you work hard, it’s not impossible for you to raise your credit score to the extremely high 700s in as little as two or three years after filing for Chapter 7.

Checking the Accuracy of a Credit Report

Even if you aren’t thinking about declaring bankruptcy, it’s a good idea to periodically evaluate your credit report. One way to verify is to use the free copy you’re entitled to once a year from each of the three major credit bureaus—Experian, TransUnion, and Equifax. Visit to purchase your credit reports.

Because not all creditors submit reports to all three agencies, it is crucial to carefully analyze all three. Each of your creditors should note that the account was included in bankruptcy a few months after you filed for bankruptcy. If not, it would be wise to have that fixed since any line item that shows as open but unpaid could give the impression that you are still liable for that obligation to a potential lender.

The status of your Chapter 7 bankruptcy case—whether it was dismissed or your qualifying debts were erased—should also be noted on your credit report. An effective bankruptcy that results in a discharge affects a prospective lender’s choice to extend credit differently than if the bankruptcy had been unsuccessful, leaving your account liability unaffected.

It’s a good idea to fix any mistakes you see as quickly as you can. You can do this by immediately mailing a letter to the credit bureau or by disputing the item on the credit bureau’s website.

Written by Canterbury Law Group

Ideas When Filing Chapter 7 Bankruptcy

The most common form of bankruptcy in the United States is Chapter 7. At Canterbury Law Group, we constantly work with clients to file Chapter 7, which allows individuals to extinguish all debts which are “dischargeable” under the Bankruptcy Code. In a Chapter 7, all of the debtor’s non-exempt assets on the petition date are liquidated through the priorities set forth in the bankruptcy code. At the time of filing, the bankruptcy code establishes the creation of your “debtor’s estate” which includes all “non-exempt assets.” As a Debtor you have various duties and obligations, including significant duties of co-operation, which are owed to the Bankruptcy Trustee. These obligations are designed to assist the Trustee in the administration of your bankruptcy estate.

The Scottsdale bankruptcy lawyers at Canterbury Law Group will counsel you regarding these duties, which if followed, will make your case run smoothly. Unfortunately, many debtors who are not fully informed of these obligations run the risk of not receiving a full discharge of some or all or their debt. If you’re thinking of filing Chapter 7, here are some recommendations from our lawyers:

1. Complete the Mandatory Credit Counseling – Before you can file chapter 7 bankruptcy, it is essential to complete credit counseling. It is a mandatory step before you can file and often requires paying a fee. Otherwise, your filing will not be allowed to continue.

2. File All Chapter 7 Paperwork – Complete and file all necessary paperwork in court. Make sure all of your paperwork is accurate. Determine any fees associated with your filing.

3. Meet With Your Creditors – Approximately one month after filing the petition, you will need to meet with your creditors, an arrangement made by the court. During this important meeting, your creditors will question you regarding your finances and property. Typically this meeting involves only a few people connected with the credit card companies to whom you owe your debt. Your lawyer can certainly be present to aid you through this process.

4. Attend the Personal Financial Management Instruction Course – In addition to your credit counseling course, a personal financial management course generally costs about $30 and is necessary for completing your filing of chapter 7. If you skip the money management course, you risk dismissal of your case.

Having a trusted legal team on your side is critical during bankruptcy. Call Canterbury Law Group today to schedule your consultation. 480-744-7711.

Written by Canterbury Law Group

Will a Pending Lawsuit Go Away If I File for Bankruptcy?

Many people apply for bankruptcy after receiving legal notice of a lawsuit, and for good cause. A bankruptcy will effectively halt numerous legal actions. However, filing for bankruptcy won’t stop all of the actions you might encounter.

You should move swiftly if you are facing eviction. Start by reading more on bankruptcy’s automatic stay and evictions.

How Can Bankruptcy Prevent a Civil Case?

An order known as the automatic stay prohibits creditors from continuing any collection activity after a “debtor,” or the individual owing money, files a bankruptcy case. This prohibition extends to attempts to obtain a monetary judgment in a civil litigation.

The stay prevents creditors from receiving a disproportionate amount of the debtor’s available funds. The court has time to organize the available assets and fairly distribute them among all creditors by stopping the collection process.

Which Claims Are Not Stopped by Bankruptcy Filing?

People cannot completely dodge legal action by declaring bankruptcy. The following issues will persist even if a bankruptcy case is filed:

Felony cases, divorce and dissolution proceedings, child custody and support disputes, and the majority of evictions following a state court’s possession order (see below for an exception).
Most other lawsuits will be halted by the automatic stay.

Which Civil Lawsuits Will Bankruptcy Prevent?

Your debts and assets are impacted by bankruptcy. Therefore, any matter in which it is claimed that you owe money due to either your failure to make a payment on a debt or the injury you caused to someone else, the bankruptcy court will have jurisdiction over (the power to determine).

Several instances include the following:

a credit card balance, money sought for a contract breach, a financial disagreement between business partners, compensation for a negligence-related (accidental) personal injury case, like a car accident, a home foreclosure, the collection of a deficiency balance (the amount still owing after a property auction), or an eviction, if the state court has not yet issued the order for possession (see below for an explanation of the unique rules that govern eviction)

In nearly every one of these circumstances, the bankruptcy “discharge” decision that discharges qualified debt also discharges the underlying obligation, ending the legal dispute. Although not always. The creditor may occasionally pursue an action with the court’s approval.

Obtaining Approval to Continue the Lawsuit

In any case, the creditor has the right to request that the bankruptcy judge lift the automatic stay so that the state lawsuit can go forward. Such motions are frequently granted by bankruptcy courts in the following circumstances:

the lawsuit will decide a matter that must be resolved in the bankruptcy case (for example, it would be necessary to resolve an allegation of fraud to determine whether a debt will be wiped out, or “discharged,” in the bankruptcy), and it will be expensive to ask the court to make a decision. the outcome won’t affect the bankruptcy case, and the creditor faces financial harm (for example, a home lender stands to lose more money the longer it must wait to foreclose on a home that
In some circumstances, the party who filed the lawsuit may be entitled to continue it, but they must first obtain the court’s approval. An example would be a government agency pursuing an enforcement action, such as the cleanup of a toxic site, delaying the case and, out of an abundance of caution, filing an application to lift the automatic stay before proceeding with the prosecution.

After losing a lawsuit, declaring bankruptcy

It is always preferable to file for bankruptcy prior to the conclusion of the lawsuit. For instance, you might desire to do it for the reasons listed below:

to avoid the creditor placing a judgment lien on your property or obtaining a fraud judgment against you, which would make it extremely difficult to discharge the debt in a bankruptcy proceeding.
However, you are still permitted to file for bankruptcy even if you lose the lawsuit. Most attempts by creditors to recover money judgements will be halted by the automatic stay. This is accurate even if your wages or bank account are being garnished.

Additionally, filing for bankruptcy will momentarily halt a creditor’s attempt to liquidate your belongings in order to pay off a debt. To stop the judgment lien from being collected after the bankruptcy case, you must address it in bankruptcy.

Additionally, declaring bankruptcy will prevent the government from trying to suspend your occupational or driver’s license as a result of unpaid fines or traffic tickets. See Lawsuits You Can’t Stop By Filing for Bankruptcy for more information.

When Can an Eviction Be Stopped by Bankruptcy?

Landlords typically find it simple to move forward with eviction once a tenant filed for bankruptcy. However, landlords must still follow by laws that protect the rights of tenants.

If you’re in this scenario as a landlord or tenant, it’s essential to speak with an experienced attorney because the windows for action are limited and the regulations are difficult to apply.

Before the eviction court renders a judgment of removal

The automatic stay kicks in to stop the eviction if you file for bankruptcy before the eviction court rules in the landlord’s favor by issuing an order for possession or eviction judgment. However, if you have bankruptcy cases outstanding in the previous year, you might need to ask the court to impose the automatic stay.

If you are accused of threatening the property or using illicit narcotics, however, the automatic stay will expire quickly. In that situation, the landlord may proceed with the eviction by submitting a certification to the court. You can contest the certification, but you’ll need to appear in court and persuade the bankruptcy judge that the landlord is mistaken in order to do so.

After the eviction court renders a judgment of eviction

If the landlord has already received a possession order or eviction judgment from the state court, declaring bankruptcy won’t prevent an eviction. Nevertheless, after the eviction court issues the order for possession, several states permit you to make up lost rent or “reinstate” it.

But you need to move rapidly. The rent that is due in 30 days must be deposited with the bankruptcy court. You’ll have 30 days to prove to the landlord that you paid the overdue rent. Learn more about bankruptcy-related evictions and how the automatic stay might facilitate or complicate them.

Written by Canterbury Law Group

When Is a Bankruptcy Claim Contingent, Unliquidated, or Disputed?

When Is a Bankruptcy Claim Contingent, Unliquidated, or Disputed? (SEO Title, Title, URL)

Learn what it means for a bankruptcy claim to be contingent, unliquidated, or disputed.

Identifying your debts or “claims” as contingent, unliquidated, or disputed is essential to the bankruptcy process. When filling out numerous bankruptcy forms, you’ll need to understand these terms to list and categorize your debts properly

You Must List All Debts or “Claims” in Bankruptcy

On your bankruptcy forms, you explain your financial situation to the court, trustee, and creditors. Your disclosures will include how much you earn, the debts or “claims” you owe, your real estate and personal property, your monthly budget, and recent property transactions.

You’ll disclose each creditor’s name, address, and amount owed in your paperwork when listing claims. Learn about completing bankruptcy forms.

Not All Bankruptcy Debts Are Contingent, Unliquidated, or Disputed

Most debts won’t need a contingent, unliquidated, or disputed label because the label is only required if it isn’t clear that you owe the debt. In most cases, there will be no question that you owe the money. When you don’t have an issue to raise to get out of paying the debt, you won’t need to label the claim contingent, unliquidated, or disputed.

For instance, suppose you’re behind on your car loan. In that case, the claim would be for the outstanding balance. The same would apply to other everyday obligations, such as credit card debt.

When You’ll Have a Contingent, Unliquidated, or Disputed Debt

Sometimes the amount you owe to a creditor isn’t easy to figure out. Each label—contingent, unliquidated, and disputed—identifies a particular issue that needs resolving before paying the claim.

Perhaps the amount you owe could depend on what someone else does or might not be determined. Or, you and the creditor might disagree on how much you owe.

If a problem exists, you’ll indicate it when listing that claim on your bankruptcy papers under the appropriate label of contingent, unliquidated, or disputed claim (the form has checkboxes).

What Is a Contingent Claim?

Payment of the claim depends on some event that hasn’t yet occurred and might never occur. For instance, if you cosigned a secured loan (such as a car loan or mortgage), you aren’t responsible for paying it unless the other person on the loan doesn’t pay (defaults). Your liability as cosigner is contingent on the default.

What Is an Unliquidated Debt?

Sometimes you owe money, but you don’t know how much yet. The debt might exist, but the exact amount hasn’t been determined. For instance, say you’ve sued someone for injuries you suffered in an auto accident, but the case isn’t over. Your lawyer has taken the case under a contingency fee agreement—the lawyer will get a third of the recovery if you win and nothing if you lose. The debt to the lawyer is unliquidated. You won’t know how much you’ll owe the lawyer until the case settles or gets resolved at trial.

What Is a Disputed Debt?

If you and the creditor don’t agree about the amount you owe, or if you owe anything, you’ll check this box. For instance, suppose the IRS says you owe $10,000 and has put an involuntary tax lien on your property. By contrast, you believe you owe only $500. You’ll list the total amount of the lien, not the amount you think you owe, and indicate that the claim is in dispute (you can explain how much you think you owe in the notes).

You Must List All Claims in Bankruptcy

It’s common for someone to want to omit a claim from the bankruptcy paperwork for one reason or another. You can’t do it. You must list all claims—the claims you think you owe and those others believe you owe.

It’s in your best interest to do so. If you fail to list a claim, the claim might not be erased or “discharged” in your case, even if it would ordinarily qualify as a dischargeable debt.

Paying Claims in Bankruptcy

If money is available to pay creditors, here’s what will happen next:


The bankruptcy trustee appointed to the case will notify creditors that the case is an “asset case.”

A creditor will file a proof of claim form by a particular date to share in the available proceeds.

The trustee will review the claims and pay them according to the priority payment system in bankruptcy law.

Keep in mind, however, that each situation is unique. If you aren’t clear about what will happen to claims in your bankruptcy case, meet with a knowledgeable bankruptcy lawyer.


Written by Canterbury Law Group

Medical Bankruptcies

What Happens to Liens in Chapter 7 Bankruptcy?

Medical debt can be discharged in bankruptcy, but you should first look into nonbankruptcy options.

If you have decent credit and are having difficulties paying a significant medical bill, you might want to look into alternative possibilities before declaring bankruptcy.

It is true that declaring bankruptcy would probably result in a decline in your credit, albeit it might not last as long as you believe. However, you can be in an even worse situation if you can’t pay the medical expense and don’t declare bankruptcy.

Here is what to anticipate.

You’ll initially start getting reminders of late payments. The medical provider could eventually sue you and win a financial judgment. Then you might not be able to undo some of the effects of bankruptcy, such as wage garnishment, a bank levy, or the placement of a lien against your property.

Options Other Than Bankruptcy for Medical Debt

If you have strong credit, you might be able to use one of these methods to pay off your hefty medical cost.

Talk a Deal With the Health Care Provider

To begin with, confirm that all insurance payment difficulties have been resolved. Consider settling with the creditor after you have obtained all applicable insurance coverage. The medical provider may deduct a portion of the fee if it was for uninsured medical expenses. Many hospitals and other healthcare organizations often waive or reduce bills for patients without insurance.

Inquire Regarding Assistance Programs

Depending on your economic level, most hospitals have assistance programs that, if you qualify, will give you free or reduced hospital care. For instance, the Hospital Care Assurance Program (HCAP) will pay costs for procedures that are deemed medically necessary in several jurisdictions. Additionally, federally tax-exempt non-profit hospitals may have to be lenient with you and other patients who are in financial need when it comes to medical billing. This may be relevant to you. To learn more and apply for the necessary coverage, get in touch with the financial aid counselor at your hospital.

See Managing High Medical Debts for further information on these and other choices.

Bankruptcy for Medical Debt

Your good credit may suffer since a collection action will appear on your credit report if you are unable to pay the debt and it appears that the creditor may pursue you for payment. Additionally, if the provider sues you and wins, it may garnish your pay or pursue other forms of recoupment.

In addition to erasing your debt, filing for bankruptcy will put you back on the path to financial recovery as quickly as possible.

Medical debt and Chapter 7

A Chapter 7 bankruptcy may be the best option for you if you have low income and assets with little to no equity. You are not need to have a certain amount of debt. On a single, sizable debt, you may apply for Chapter 7. Medical debt will be eliminated in Chapter 7 bankruptcy, along with the majority of other unsecured debt (debt that isn’t secured by security).

Healthcare Debt and Chapter 13

You can file for Chapter 13 bankruptcy if you don’t meet the requirements for Chapter 7 bankruptcy or if you own assets that you might lose in a Chapter 7 bankruptcy. You will pay back the percentage of the medical debt you can afford through your repayment plan in Chapter 13 bankruptcy. At the conclusion of the case, the court will discharge (wipe out) the remainder.

Written by Canterbury Law Group

Should I File for Bankruptcy Before or After Taxes?

Making sure your tax returns are current is a smart idea if you’re considering filing for bankruptcy.

Waiting to file your income tax return until after you file for bankruptcy won’t give you any meaningful advantages. You should be current when filing your Chapter 7 or Chapter 13 matter, nevertheless, for a variety of reasons.

Bankruptcy under Chapter 7 and Tax Returns

The trustee in charge of your case will request your most recent tax return when you apply for Chapter 7 bankruptcy. The trustee will need an explanation if that isn’t the most recent return, even if it doesn’t have to be for the most recent tax year.

The trustee will contrast the amount stated in your bankruptcy petition with the income you show on your tax return. The trustee will also want to make sure you have the right to protect (exempt) the refund if you can demonstrate that you are entitled to one and that you have claimed the correct exemption amount. If not, you would have to give the trustee your refund so they could give it to your creditors.

Before filing for the case, many people arrange their bankruptcy so they can use the return for essentials like living expenses. It’s a good idea to maintain track of your expenses if you adopt this strategy.

Bankruptcy under Chapter 13 and tax returns

Before filing a Chapter 13 case, you generally need to have all of your tax returns current, but there are several exceptions to the requirements. Before the 341 meeting of creditors (the hearing that all filers are required to attend), you must give copies of your returns for the four tax years prior to that to the Chapter 13 trustee.

Your trustee may request a letter, an affidavit, or a certification explaining why you are exempt from filing a return if you are. There are situations when district-specific local courts set additional guidelines for papers.

Things could go wrong in your case if you owe the IRS a return but fail to pay it in a timely manner (before to your 341 meeting of creditors).

a movement. You will have only a very short time to submit your returns when the trustee files a motion. If the time passes without being met, the court may automatically dismiss your case, denying you the opportunity to present your case before the judge.
a replacement return. Based on your prior income, the IRS may be required to submit a claim with its best guess as to how much you owe. The issue? IRS projections are typically larger than the amount you would ultimately owe after filing a correct return.

Utilizing Chapter 13 Bankruptcy to Manage Taxes

Once you recognize that filing for Chapter 13 bankruptcy to handle your tax obligation can be a wise choice, filing your tax return might not be as difficult. This is why:

Depending on how much disposable income you have left over after deducting your reasonable and necessary costs from your salary, dischargeable taxes (usually those older than three tax years) may be forgiven without any payment at all.

While you are in Chapter 13 bankruptcy, you won’t be subject to any further interest or penalties on past-due dischargeable taxes (you will, however, be required to pay interest on non-dischargeable taxes).

The Chapter 13 plan can be used to discharge an IRS tax lien.

As long as you include all owed income taxes, file your tax returns on time, and maintain your post-petition tax responsibilities current throughout your Chapter 13 plan, the IRS must abide by the plan.

Keep in mind that any non-dischargeable taxes (usually those incurred during the last three tax years) that cannot be discharged in bankruptcy must be paid in full throughout the three to five-year Chapter 13 plan. You will have paid off the majority or all of your other debts by the time it is finished, along with your taxes.


Written by Canterbury Law Group

The Differences Between a Charge Off and Repossession in Bankruptcy

What Happens to Liens in Chapter 7 Bankruptcy?

Learn the difference between a charge off and a repossession and how they’re handled in bankruptcy cases.

A charge off and a repossession are two very different things—although both could happen to one debt. In this article, you’ll learn what each term means, as well as how the bankruptcy court handles these events in Chapter 7 and Chapter 13 bankruptcy.

What Is a Charge Off?

“Charge off” is an accounting term that simply means that the account has been removed from the company’s books because no payments have been made in 120 to 180 days (depending on the type of account.)

Most people come across the term “charge off” after reviewing a credit report. Because a charge off is associated with an unpaid debt, many assume that charged off means that the debt is no longer collectible and that you no longer owe the money. That’s not the case.

A notation of a charge off indicates that the lender is no longer showing the account as a bad debt on the bottom line. That usually doesn’t stop the lender’s collection efforts. The lender can continue trying to collect the debt. Often the lender will transfer or sell the debt to a collection agency. In turn, the collection agency either collects the debt for the lender or, if the collection agency purchased the debt, collects it for its own benefit. Either way, a charge off is merely an accounting term, and you still owe the debt.

The Federal Reserve requires a lender to charge off a credit card debt when it is 180 days late. A car loan or installment loan must be charged off when it is 120 days late.

Can a Charged Off Loan be Reinstated?

Once a loan is charged off, don’t count on the loan showing up on the company’s books again. Even if you offer to pay it, chances are it’s been transferred or sold and the original company no longer has an interest in it. If you pay the debt, the company that purchased the account should show that you paid it off, but unfortunately, the original lender can continue reporting the charge off for seven years.

How are Charge Offs Treated In Bankruptcy?

When you file for bankruptcy, you agree to disclose your entire financial situation in exchange for the benefits provided by the chapter that you file. (Find out which bankruptcy will be better for you in What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?)

You must list all debts when you fill out your bankruptcy paperwork—including charged off accounts. If you don’t list them, you risk the debts not being discharged (wiped out). All kinds of debt can be charged off, including car loans and other debt secured by collateral, and unsecured debt, like a credit card balance, medical bill, or personal loan. If you file for Chapter 7 bankruptcy, you can expect the court to discharge the charged-off debt within three to four months (the average time it takes for a Chapter 7 case to end). In a Chapter 13 bankruptcy, you’ll pay any discretionary income—the amount remaining after paying allowed monthly expenses—to your unsecured creditors over the course of your Chapter 13 bankruptcy payment plan. All eligible unsecured debts get discharged when you complete your plan.

If the charge off is a secured debt—such as a car loan or mortgage—then you’ve likely already lost the collateral (the house or the car) through repossession (see below) or foreclosure. In that case, you’ll list the account as an unsecured debt in your bankruptcy paperwork.

If a debt has been charged off but you still have the collateral, and you’d like to keep it, you should speak with a bankruptcy attorney as soon as possible.

What Is a Repossession?

A repossession occurs when a creditor takes possession of the collateral—usually a car—that you put up when taking out a loan. Here’s how it works.

Before a lender agrees to lend you money for a car purchase, you must agree to guarantee payment of the loan with the vehicle. The contract creates a lien in favor of the lender. The lien allows the lender to take the car, sell it, and apply the sales proceeds to the loan if you default on your payment. If the auction price isn’t enough to pay off the loan, you’ll still owe the remainder called a “deficiency balance.” (The lender releases the lien on the car after you pay the loan balance.)

Can a Loan on a Repossessed Car be Reinstated?

If you lose the car to repossession, most state laws will give you some time to get the car back. The process is called “reinstating the loan.” Reinstatement requires you to pay any past-due amount, as well as the lender’s costs for the repossession.

Repossessions can occur with property other than cars as well. Furniture, jewelry, and other personal property pledged to secure a loan can be repossessed, as long as the lender follows the state laws.

Can a Car Loan be Charged Off Without a Repossession?

It’s possible to charge off a loan without having the dealer repossess the car. As stated earlier, car loans are supposed to be charged off if no payment has been made for 120 days. But, unsecured debt, like credit cards or medical accounts, can stay on the books until they’re 180 days old. Usually, a lender will repossess the collateral and sell it, long before 120 days pass. Almost always, the proceeds of the sale won’t be enough to cover what’s owed on the loan, and most lenders will need to charge off the remaining balance.

No law requires the lender to repossess the collateral before charging off the loan. The lender could choose to do it the other way around or could choose not to repossess the car at all. The lender might be forced to forgo repossession if the car can’t be located or if the car’s value is less than it would cost to sell at auction (for instance, if the car was totaled in an accident). The lack of a repossession doesn’t alter the need to charge off the loan or prevent the lender from selling the charged off loan to a debt buyer.

How are Repossessions Treated In Bankruptcy?

If your car is repossessed before the bankruptcy is filed, you might be able to reinstate the loan and regain possession of the car, but you have to work quickly. You’ll have to file a Chapter 13 bankruptcy case and propose a three to five-year repayment plan.

In Chapter 13 bankruptcy, it’s possible to reinstate a loan by including it in your repayment plan. In fact, this is one of the key benefits of a Chapter 13 bankruptcy case. Not only will it stop a repossession (or a foreclosure) in its tracks, but you can spread out your payment arrearages over the repayment plan rather than paying the entire overdue amount right away. You’ll have to continue paying your monthly payments, too, but by the end of the payment plan, you’ll own the car free and clear. If you don’t want to keep the car, the balance owed will get discharged (wiped out) with other qualifying debt at the end of your plan.

Filing a Chapter 7 case instead will not help you get your car back, because Chapter 7 has no mechanism for getting you caught up or reinstating the loan.

Which is Worse: Charge Off or Repossession?

If you default on your car loan, you could suffer a charge off, a repossession, or both. It’s hard to know whether the charge off or the repossession looks worse on your credit report. Credit scores are based on all the information in your credit report, good and bad, and the credit reporting agencies and companies that produce credit scores like the FICO score keep their scoring models a secret. Someone having trouble with one account like a car loan often has difficulty keeping other accounts in line. Your credit score can take a hit from late car payments, repossessions, past due credit card payments, judgments, tax liens, and other negative or derogatory entries.

Experience tells us that both a repossession and a charge off of the car loan can cause a significant hit, maybe as much as 100 points. Not only will both a repossession and a charge off have a profound effect on your score in the short run, but they will also continue to influence your credit score and the credit decisions of potential lenders for seven years (although the derogatory information has less effect on your credit score the older it gets.)


Written by Canterbury Law Group

Difference Between Dischargeable and Nondischargeable Debts in Bankruptcy

What Happens to Liens in Chapter 7 Bankruptcy?

Most people seek bankruptcy relief to wipe out their debts and get a fresh start. While you can eliminate many debts in bankruptcy, certain obligations (called nondischargeable debts) survive your bankruptcy discharge. Read on to learn more about the difference between dischargeable and nondischargeable debts and how they are treated in bankruptcy.

What Are Dischargeable Debts?

Dischargeable debts are obligations that can be wiped out by your bankruptcy discharge. When you receive your discharge, you are no longer obligated to pay any of these debts and creditors cannot come after you to collect them.

A few examples of dischargeable debt include:

  • credit card debt
  • medical bills
  • personal loans made by friends, family, and others, and
  • past-due utility bills.

Timing and Debt Dischargeability

If a bill comes due after you file for bankruptcy, you might find yourself wondering whether the balance will go away. It’s common to be confused about whether ongoing accounts, such as utility bills, get completely wiped out at the end of the case, or whether the bankruptcy discharge is limited to the portion owed before the filing date.

Post-petition debts—the new bills that you incur after you file your initial bankruptcy paperwork—don’t qualify for discharge. You’ll remain responsible for paying for them. The only type of debt eligible for discharge is “pre-petition debt,” or, debt that existed before you filed your matter.

Example. Suppose that you file a Chapter 7 case. In your bankruptcy schedules, you list your overdue water, sewer, and garbage bill. The Chapter 7 discharge will wipe out any portion of the utility bill account balance that predated your filing. However, you’ll be required to pay any charges that accrued after your filing date.

The same holds true in a Chapter 13 bankruptcy. All pre-petition debts get included in the Chapter 13 plan (the three- to five-year payment plan that you must complete before receiving a discharge). All of your post-petition debts, such as a monthly cell phone bill or a new gym membership, remain your responsibility to pay.

Be aware, however, that when you’re in a Chapter 13 case, unexpected obligations can come up. Not only is this understood, but the court might be willing to adjust your plan payments to accommodate you. To learn about your options, read Post-Petition Debts in Chapter 13 Bankruptcy.

How Are Dischargeable Debts Treated in Bankruptcy?

In most cases, you can eliminate dischargeable debts in bankruptcy without any repayment. However, whether your creditors will receive anything in your bankruptcy will depend on whether you are filing for Chapter 7 or Chapter 13 bankruptcy.

Dischargeable Debts in Chapter 7 Bankruptcy

Most Chapter 7 bankruptcies are no asset cases—there’s nothing for the trustee to sell to pay creditors with. As a result, dischargeable debts are typically wiped out without receiving anything in Chapter 7 bankruptcy.

Further, if there are any proceeds to distribute, general unsecured debts (such as credit card obligations) are the last to get paid and receive a pro-rata share of any money left over after all priority debts (such as alimony, child support, and some taxes) get paid.

However, keep in mind that your discharge only eliminates your liability for these debts. It does not affect liens on your property (such as a mortgage or car lien). As a result, if you stop paying your mortgage or car loan, your lender can still foreclose on or repossess your property even if it cannot sue you personally to collect the debt.

Dischargeable Debts in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, most dischargeable debts are considered nonpriority general unsecured claims. Depending on your income, assets, and expenses, they typically receive little or nothing through your Chapter 13 repayment plan. And they are discharged upon completion of your plan payments.

However, if a dischargeable debt is secured (such as your car loan), you have two choices. If you want to keep the car, you must continue making payments on it during your Chapter 13 bankruptcy (if you meet certain conditions, you might be able to reduce your principal balance through a Chapter 13 cramdown). Alternatively, you can surrender the car, and discharge your liability for the car loan.


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