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Written by Canterbury Law Group

Can You File Bankruptcy Twice?

It’s legal to file as many bankruptcy cases as necessary, but there are rules about how often you can file. The U.S. Bankruptcy Code regulates multiple case filings, how long a filer must wait, and other specifics that we’ll cover in detail below.

The mandatory waiting period between filings depends on several factors, including:

The result of your first bankruptcy case: If you received a bankruptcy discharge for your first case, the waiting period before you can file again is different than if your previous case was dismissed without discharge.

The type of bankruptcy you filed before: Individuals and families generally file either Chapter 7 or Chapter 13 bankruptcy. The time limits before you’re allowed to file again differ depending on the chapter of your previous filing.

The chapter of bankruptcy you file the second time: The waiting period between bankruptcy filings is affected by both the chapter of the previous bankruptcy and the chapter you plan to file in the subsequent case. 

What’s the Mandatory Waiting Period Between a First and Second Bankruptcy Filing?

Under bankruptcy law, people can file for bankruptcy more than once to get the fresh start they deserve. The mandatory waiting period between bankruptcy cases depends on whether the first bankruptcy case was successfully discharged, whether your first bankruptcy case was a Chapter 7 (liquidation case) or a Chapter 13 (reorganization with repayment plan), and what chapter of bankruptcy your second filing will be.

Successful Discharge of First Bankruptcy Case

The two main types of personal bankruptcy are Chapter 7 and Chapter 13. Most individuals and families file Chapter 7 bankruptcy. This is the quickest form of bankruptcy. It’s also known as a liquidation bankruptcy, though the majority of filers get to keep most or all of their belongings. 

It makes more sense for some people to file for Chapter 13 bankruptcy. Under Chapter 13, your debts are reorganized and you pay on a repayment plan that lasts three to five years. This has benefits that Chapter 7 doesn’t. 

Filers receive a bankruptcy discharge at the end of a successful Chapter 7 or Chapter 13 bankruptcy case. The discharge is a bankruptcy court order that erases certain debts and means lenders can’t ever legally attempt to collect on discharged debts again. 

The following outlines when you can file bankruptcy again and be eligible for a second discharge. The clock starts ticking on the date you filed your first bankruptcy, not the date of discharge.  

Filing Chapter 7 After Chapter 7

You must wait eight years between Chapter 7 bankruptcy cases. To receive a second discharge, you must wait eight years from the date you filed your first successful Chapter 7 case until you can file your second Chapter 7 case.

Filing Chapter 7 After Chapter 13

You must wait six years between filing a Chapter 13 case and filing a Chapter 7 case. This timeline starts on the date you filed your first successfully discharged Chapter 13 case. Once six years pass, you can file a second bankruptcy case under Chapter 7. The six-year waiting period can be waived if you paid all of your unsecured creditors in full during the initial Chapter 13 bankruptcy payment plan. Unsecured debts include credit card debt, medical bills, and other debts not secured or backed up by property.

Filing Chapter 13 After Filing Chapter 7

You must wait four years to file a Chapter 13 bankruptcy case after filing a Chapter 7 case. This four-year waiting period only applies if you’re hoping to receive a second discharge of debt in your second bankruptcy filing.

In some instances, it might make sense for a person to file a Chapter 13 bankruptcy after receiving a discharge in a Chapter 7 but before the four-year waiting period has passed. This is because Chapter 13 bankruptcy requires you to follow a payment plan to repay your debts. This can help you to catch up on missed payments. 

As soon as you file bankruptcy, creditors must stop all collection activity against you because of the automatic stay. This means that filing for bankruptcy can stop a foreclosure, at least temporarily. A Chapter 7 bankruptcy can stop a foreclosure while a person is in bankruptcy, but if you want to keep your house you have to make your monthly payments and catch up on any missed payments. 

A Chapter 13 bankruptcy includes a repayment plan that allows you to make up any missed mortgage payments over a three-to-five-year repayment plan. During this repayment plan, generally, your house can’t be foreclosed. This is why some people file Chapter 13 even though they’re not seeking to have their debts discharged. In this case, it wouldn’t be necessary to wait four years between filings. 

Filing Chapter 13 After Chapter 13

You must wait two years between Chapter 13 bankruptcy cases. To receive a second discharge of debts in Chapter 13, you must wait two years from the filing date of your first successfully discharged Chapter 13 case until the filing date of your second Chapter 13 case.

All waiting periods between bankruptcy filings are calculated from the filing date of the first case, not the discharge date. 

First Bankruptcy Case Not Discharged

There is a difference between a bankruptcy case that’s discharged and one that’s dismissed. If your first bankruptcy case was dismissed, you didn’t receive a discharge so you may be able to file a second bankruptcy case immediately. When a bankruptcy case is dismissed without a discharge, it means that none of the filer’s debts are erased and they’re still obligated to pay back their debts. 

Bankruptcy cases can be dismissed if:

  • You don’t appear at a required bankruptcy hearing, including the 341 meeting of creditors. 
  • You fail to file all necessary documents properly and on time or fail to pay required bankruptcy filing fees.
  • You don’t pay the required Chapter 13 plan payments.
  • You aren’t truthful in your bankruptcy filing.

Depending on the reasons your case was dismissed, you may be able to file for bankruptcy protection again right away or you may need to wait before filing again. Under the Bankruptcy Code, you must wait 180 days to re-file a bankruptcy case if your first case was dismissed by the bankruptcy court for not following the court’s orders or appearing before the court when required. 

You may also need to wait 180 days before filing a second bankruptcy case if you asked for a voluntary dismissal of your first bankruptcy case after one of your creditors filed for relief from the automatic stay. This means that a creditor formally asked the court to let them continue collection activity against you even though you filed for bankruptcy protection. 

When people file a second bankruptcy case after a first case is dismissed, the court will evaluate if the bankruptcy was filed in good faith. Good faith means that you’re not trying to take advantage of the bankruptcy process. For example, if your first case is dismissed for failure to pay the necessary filing fee, it’s generally okay for you to file a second case immediately as long as you pay all necessary fees in the second case. 

Is It a Good Idea To File Bankruptcy a Second Time?

Filing for bankruptcy is a powerful debt relief tool. You’ll need to look at your financial situation to determine whether filing a second bankruptcy case is a good idea for you or not. Filing for bankruptcy will harm your credit score and negatively impact your credit report, at least in the short term. A Chapter 7 bankruptcy will stay on your credit report for 10 years from the filing date and a Chapter 13 bankruptcy for seven years. 

While bankruptcy can harm your credit, not filing can also be harmful due to missed payments, outstanding debts, and lawsuits for unpaid debts. If you’re facing a second bankruptcy after many years have passed, it’s important to explore why you’re in this situation again. Then take steps to ensure your financial well-being moving forward.

In some cases, it’s a good strategic financial move to file a second bankruptcy after a successful discharge. For example, you may benefit from filing a Chapter 13 after a Chapter 7 discharge to set up a repayment plan to pay off past-due mortgage payments to save your house, catch up on child support arrears, or pay tax debts that were too new to be discharged in your Chapter 7 bankruptcy case. In the case of child support arrears or back taxes, filing a Chapter 13 second bankruptcy could help you avoid wage garnishment and stretch out your repayment plan over three to five years. There are many valid benefits to filing a second bankruptcy case. 

Abusive Bankruptcy Filings

The bankruptcy court looks closely at cases that may be abusing the bankruptcy process. An abusive bankruptcy filing could be a Chapter 7 filer that fails the means test. It could also apply to cases where an individual is inappropriately using the bankruptcy process to avoid paying back a debt, avoid a creditor, or buy time in a collection action, such as a foreclosure or pending lawsuit for unpaid debt. 

The court frowns upon people who abuse the bankruptcy process or who have no intention of following through with their bankruptcy case. People who file multiple cases are more heavily scrutinized by the bankruptcy courts. Repeat filers may lose some of the benefits of bankruptcy protection. For example, the court may deny their discharge or revoke the automatic stay, which stops collection activity. 

If You’re Seeking a Second Financial Fresh Start, Get Professional Help

Filing bankruptcy can be complex — filing successive bankruptcies can be difficult, confusing, and financially dangerous if you don’t plan well. An experienced bankruptcy attorney can help guide you. Bankruptcy attorneys are well-versed in the pitfalls of bankruptcy and multiple filings, the advantages bankruptcy offers, and court requirements. Many bankruptcy lawyers offer free consultations. 

Many people who are struggling with debt start their debt relief journey with credit counseling. Pre-bankruptcy credit counseling can help you evaluate all of your debt relief options, including bankruptcy, debt consolidation, debt settlement, and other debt management options that may be right for you. Debt relief solutions are never one-size-fits-all. You need to know what’s best for you given your financial situation.

Below is a summary of filing fees for bankruptcy, the price of required credit counseling, and if you qualify for fee waivers or installment payments.

You have to pay filing fees and expenses for credit and debt counseling when you file for bankruptcy. You may be eligible for a fee waiver or be able to pay in installments if you are unable to pay the filing fee.

You can find a summary of what needs to be paid, when, and how to be eligible for installment payments or a fee waiver in this article.

Bankruptcy Petition Fees: Chapter 7 and Chapter 13 Filing Fees

The total amount of fees you have to pay in order to file for bankruptcy is as follows, as of December 1, 2020:

For Chapter 7, $338
For Chapter 11, $1,738
Chapter 12: $278; Chapter 13: $313
Periodically, the bankruptcy court raises these fees. The U.S. Courts fee webpage has the most recent fees available.

Chapter 7: Installments and Waivers of Filing Fees

The filing fee is usually due at the time your bankruptcy petition is filed. There are two exclusions from Chapter 7 bankruptcy, though. Asking the court to waive the fee completely or allow you to pay it in installments is an option.

Application for Installments of the Chapter 7 Filing Fee

You file Form 103A Application for Individuals to Pay the Filing Fee in Installments to request permission from the court to pay your filing fee over time. You must indicate on the form that you are unable to pay the fee in full and that you will make no more than four payments within 120 days of the petition’s filing.

Request for Waiver of Chapter 7 Filing Fee

If the court waives the fee, you are not required to pay it. If you are eligible for a fee waiver, you

must be unable to make payments in installments and have an income that is less than 150% of the federal poverty threshold (official poverty line estimates are available from your bankruptcy court).
Fill out Form 103B, Application to Have the Chapter 7 Filing Fee Waived, and send it in to request a fee waiver. In many cases, the judge will approve the application without requiring you to appear in person, but you may still be required to appear in court so the judge can question you.

See how to make changes to bankruptcy forms.

In Chapter 13, there are no fee waivers or installment payments.

Fee waivers and installment payments are generally not available to Chapter 13 filers because they must have sufficient funds to support a repayment plan for three to five years following filing for bankruptcy. When submitting the case, budget for the cost.

Extra Fees Associated with Bankruptcy Filing

Credit counseling from an authorized provider must be completed no later than six months prior to filing for bankruptcy under Chapter 7 or Chapter 13. To get your bankruptcy discharge (the order that eliminates qualifying debt), you have to complete a debtor education course after filing your case.

For the necessary counseling, the majority of approved credit counseling providers charge $15 to $30, but you might not be required to pay anything. In accordance with the law, agencies must offer counseling regardless of your financial situation, so please inform the agency if this is not possible for you.

Additionally, the debtor education classes run about $35. You can request that the provider waive the fee or let you pay a smaller amount if you are unable to pay the full amount.

How to Pay Your Attorney Fees in Bankruptcy

Since many bankruptcy attorneys charge as little as $100 to begin, finding a way to pay Chapter 13 bankruptcy fees is not too difficult; the remaining amount can be rolled into your Chapter 13 repayment plan. You can pay your Chapter 13 fees gradually with this method.

You must pay your attorney in full before filing for Chapter 7 bankruptcy. For what reason? because legal fees are eliminated in Chapter 7 bankruptcy. Your attorney won’t get paid if you don’t make the entire payment.

To file for Chapter 7, how do you obtain the necessary funds? Most Chapter 7 filers divert their payments intended for bill cancellation during bankruptcy to pay their attorney. The funds will be borrowed by others from friends and relatives.

But there are other approaches. If you are unable to pay for a bankruptcy attorney, you can find out more information here about your options.

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Bankruptcy Filing Fees and Costs

Below is a summary of filing fees for bankruptcy, the price of required credit counseling, and if you qualify for fee waivers or installment payments.

You have to pay filing fees and expenses for credit and debt counseling when you file for bankruptcy. You may be eligible for a fee waiver or be able to pay in installments if you are unable to pay the filing fee.

You can find a summary of what needs to be paid, when, and how to be eligible for installment payments or a fee waiver in this article.

Bankruptcy Petition Fees: Chapter 7 and Chapter 13 Filing Fees

The total amount of fees you have to pay in order to file for bankruptcy is as follows, as of December 1, 2020:

For Chapter 7, $338
For Chapter 11, $1,738
Chapter 12: $278; Chapter 13: $313
Periodically, the bankruptcy court raises these fees. The U.S. Courts fee webpage has the most recent fees available.

Chapter 7: Installments and Waivers of Filing Fees

The filing fee is usually due at the time your bankruptcy petition is filed. There are two exclusions from Chapter 7 bankruptcy, though. Asking the court to waive the fee completely or allow you to pay it in installments is an option.

Application for Installments of the Chapter 7 Filing Fee

You file Form 103A Application for Individuals to Pay the Filing Fee in Installments to request permission from the court to pay your filing fee over time. You must indicate on the form that you are unable to pay the fee in full and that you will make no more than four payments within 120 days of the petition’s filing.

Request for Waiver of Chapter 7 Filing Fee

If the court waives the fee, you are not required to pay it. If you are eligible for a fee waiver, you

must be unable to make payments in installments and have an income that is less than 150% of the federal poverty threshold (official poverty line estimates are available from your bankruptcy court).
Fill out Form 103B, Application to Have the Chapter 7 Filing Fee Waived, and send it in to request a fee waiver. In many cases, the judge will approve the application without requiring you to appear in person, but you may still be required to appear in court so the judge can question you.

See how to make changes to bankruptcy forms.

In Chapter 13, there are no fee waivers or installment payments.

Fee waivers and installment payments are generally not available to Chapter 13 filers because they must have sufficient funds to support a repayment plan for three to five years following filing for bankruptcy. When submitting the case, budget for the cost.

Extra Fees Associated with Bankruptcy Filing

Credit counseling from an authorized provider must be completed no later than six months prior to filing for bankruptcy under Chapter 7 or Chapter 13. To get your bankruptcy discharge (the order that eliminates qualifying debt), you have to complete a debtor education course after filing your case.

For the necessary counseling, the majority of approved credit counseling providers charge $15 to $30, but you might not be required to pay anything. In accordance with the law, agencies must offer counseling regardless of your financial situation, so please inform the agency if this is not possible for you.

Additionally, the debtor education classes run about $35. You can request that the provider waive the fee or let you pay a smaller amount if you are unable to pay the full amount.

How to Pay Your Attorney Fees in Bankruptcy

Since many bankruptcy attorneys charge as little as $100 to begin, finding a way to pay Chapter 13 bankruptcy fees is not too difficult; the remaining amount can be rolled into your Chapter 13 repayment plan. You can pay your Chapter 13 fees gradually with this method.

You must pay your attorney in full before filing for Chapter 7 bankruptcy. For what reason? because legal fees are eliminated in Chapter 7 bankruptcy. Your attorney won’t get paid if you don’t make the entire payment.

To file for Chapter 7, how do you obtain the necessary funds? Most Chapter 7 filers divert their payments intended for bill cancellation during bankruptcy to pay their attorney. The funds will be borrowed by others from friends and relatives.

But there are other approaches. If you are unable to pay for a bankruptcy attorney, you can find out more information here about your options.

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Senior Citizens & Bankruptcy
Regular Post
Written by Canterbury Law Group

Senior Citizens & Bankruptcy

Bankruptcy is not always a good option for senior citizens who are having financial difficulties.

Older Americans filing for bankruptcy are not unusual when inflation and health care costs are rising. Furthermore, even though seniors have some benefits over other debtors, filing for bankruptcy is not the best option for people who stand to lose a lot of property. Learn more about other typical problems that senior citizens face when filing for bankruptcy by reading on.

One simple method to eliminate debt and increase the amount of money available to pay monthly bills is to file for bankruptcy. Still, a lot of seniors don’t feel comfortable declaring bankruptcy, and it’s not always a good idea or even necessary.

For seniors, filing for bankruptcy is questionable in the following two scenarios:

There is nothing that a creditor can seize from you. The items required to keep a house, like furniture, a small car, Social Security money, and numerous retirement accounts, cannot be taken by creditors. Since these items comprise the entirety of what many seniors own, many of them are “judgment proof,” meaning that declaring bankruptcy is not required. Nevertheless, some impervious to judgment will file to block creditor calls and get rid of the anxiety associated with losing money from a bank account. (See Also: What Is a Levy on a Bank Account?)
You are too wealthy to gain anything from filing for bankruptcy. In situations where your assets and earnings aren’t shielded from creditors, declaring bankruptcy might not be the best course of action. It’s likely that you would forfeit the property in Chapter 7. Because you have to pay for any property that you are not entitled to protect (but can keep), you would have to make a large Chapter 13 repayment plan payment in Chapter 13.

Discover the benefits and drawbacks of declaring bankruptcy for your financial situation.

Choosing the Right Time for a Senior to File for Bankruptcy
Bankruptcy isn’t always required or even advantageous, but for some seniors, it can be effective. Consider the following questions for yourself:

Do you have the kind of debt that Chapter 7 allows you to discharge?
Would you like a Chapter 13 repayment plan to help you catch up on unpaid mortgage or auto loans?
Can you protect all or most of your property with an exemption?
Will you be able to pay off enough debt to justify filing if you have to give up (or pay for) some property?
Will you have to pay on a monthly basis under Chapter 13 or is your income low enough to pass the Chapter 7 means test?
Other matters that seniors should contemplate are as follows:

Paying off credit card debt and medical debt. These are the two categories of debt that are most easily discharged in bankruptcy. Actually, qualifying debt can be eliminated in a matter of months by filing for Chapter 7 bankruptcy. But keep in mind that the creditor probably won’t be able to collect these bills anyway if you’re judgment proof.

Keeping your home’s equity safe can be difficult. Significant equity is held by many seniors in their homes. A certain amount of equity is protected by the homestead exemption, though the exact amount varies based on state laws. In order to settle debts with creditors, the trustee in Chapter 7 will seize nonexempt property, including home equity. (See the Homestead Exemption in Bankruptcy for further information.)

Safeguarding retirement funds. Nearly all tax-exempt retirement accounts, such as profit-sharing, 403(b)s, defined-benefit plans, and 401(k)s, are exempt in bankruptcy under federal bankruptcy law. To a certain extent, IRAs and Roth IRAs are also protected. You should consult a bankruptcy lawyer to confirm whether bankruptcy protection is available for your retirement. (See Your Retirement Plan in Bankruptcy for more information, including the current IRA limits.)

Safeguarding Social Security income. Your Social Security benefits are exempt (you can keep them) in bankruptcy, but only if the money stays in a different account. Your creditors cannot seize your benefits outside of bankruptcy. They become unprotected once they are mixed in with other money. Also, when completing the bankruptcy means test, your Social Security benefits are not taken into account as income for qualifying purposes. However, your Social Security income needs to be included in your bankruptcy budget and could still be used against you if your budget indicates that you have a sizable monthly disposable income. See Is Social Security Income Included in the Chapter 7 Means Test for additional information.

After they are taken out, retirement funds are not secured. Getting paid from your retirement account can also be difficult. When you file for bankruptcy, your retirement withdrawals are considered income for qualifying purposes and like cash for exemption purposes (most states don’t offer a significant cash exemption). A creditor may obtain these funds through a bank levy since, once withdrawn, they are no longer protected. Additionally, Social Security funds lose their protected status if they are combined with withdrawn retirement funds in the same account. Once more, keeping Social Security money in a different account is the best course of action.)

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Will I Lose My Home If I File for Chapter 7 Bankruptcy?

You won’t necessarily lose your home in Chapter 7 bankruptcy, especially if you don’t have much home equity and your mortgage is current. But it can happen. Whether you’ll lose your home after filing for Chapter 7 bankruptcy will depend on the following factors:

  • whether your mortgage is current
  • if you can continue making the payments after bankruptcy
  • the amount of your home equity, and
  • whether your state’s homestead exemption will protect all of the equity.

If you’re behind on your payment, in foreclosure, or can’t exempt all of your home equity, you’ll have a better chance of keeping your home using Chapter 13 bankruptcy. Filers faced with those circumstances should learn more about choosing between Chapter 7 or Chapter 13 when keeping a home.

Your Home and the Chapter 7 Bankruptcy Trustee

Chapters 7 and 13 work very differently, so it’s essential to understand what you must do to keep valuable property in Chapter 7. Here’s how it works.

After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. The trustee will sell property in the estate for the benefit of creditors.

However, you don’t lose everything you own.

You can “exempt” or remove property from the estate your state determined is reasonably necessary to maintain a home and employment. You’ll find out what you can keep by reviewing your state’s bankruptcy exemptions.

Here’s the tricky part—if you make a mistake, it’s unlikely that the bankruptcy judge will allow you to dismiss the case, and you could lose the house. So you must follow the rules carefully.

Are Your House Payments Current?

The automatic stay will temporarily stop a foreclosure when you file for Chapter 7. But if you’re behind on the mortgage payment when you file, the best you can hope for is delaying the process for a few months.

  • Why filing won’t cure a default. Chapter 7 bankruptcy doesn’t provide a way for you to catch up on the overdue payments. This presents a problem because a mortgage is a secured debt, and Chapter 7 doesn’t erase the lien that gives the lender the right to take back the home if you don’t pay. The lender can foreclose after the automatic stay lifts, and you’ll lose the house.
  • What will happen if you file. The lender can ask the court to lift the automatic stay to allow foreclosure proceedings to continue, which the court will likely grant if the trustee doesn’t plan to sell the home. Or, the lender can wait until the bankruptcy ends, proceed with foreclosure, and sell the house at auction.
  • Chapter 13 bankruptcy can help. If you’re behind and want to keep your home, the better option is to file a Chapter 13 case. Unlike a Chapter 7 bankruptcy, Chapter 13’s repayment plan provides a way for you to catch up on mortgage arrearages. Also, if you have more equity than you can protect with a homestead exemption (more below), you can prevent a home loss by paying your creditors the value of the nonexempt equity through the plan.

Can You Continue Making House Payments After Chapter 7 Bankruptcy?

It’s also essential to be sure you can afford to continue paying the mortgage after a Chapter 7, because losing the house after your case might put you in a worse financial position. Why? If the lender couldn’t sell the home for the amount you owe, you’d be stuck with a deficiency balance depending on the laws of your state.

Worse yet? You’d have to wait eight years to file a second Chapter 7 bankruptcy, leaving the lender plenty of time to collect a deficiency balance using collection methods such as garnishing your wages or levying on a bank account.

How Much Equity Is in Your Home?

If your mortgage payment is up-to-date, your next step will be determining how much equity exists. You’ll start by valuing your home.

Next, subtract any outstanding mortgage balance from the home value to get your “equity.” The equity is the amount you’d have in your pocket after selling the house and paying the mortgage.

If you don’t have any equity, you’re in good shape. Trustees don’t sell houses without equity. Otherwise, you’ll need to be able to protect your equity with a bankruptcy exemption to avoid losing the home in Chapter 7 bankruptcy.

Learn more about filing for bankruptcy if you have equity in your home.

Can You Protect Your Home Equity With Bankruptcy Exemptions?

State exemption statutes list the property its residents can protect in bankruptcy. Some states allow residents to choose between the state exemption list or the federal bankruptcy exemption scheme. Either way, almost all states allow residents to protect some home equity with a homestead exemption. You might be able to exempt even more with a wildcard exemption.

If your exemptions adequately cover your equity, the trustee won’t sell your home in a Chapter 7 bankruptcy. However, if your exemptions protect only a portion of it, the trustee will sell the house, pay off the mortgage, give you the amount you’re entitled to exempt, and use the remainder of the sales proceeds to pay creditors.

Although you can’t figure costs into your equity determination, the trustee will consider costs before selling the home. If, after deducting sales costs, the amount remaining isn’t enough to make a meaningful payment to creditors, the trustee will abandon the property, and you’ll get to keep it.

Source

https://www.nolo.com/legal-encyclopedia/lose-home-file-chapter-7-bankruptcy.html

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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.

Source: https://www.nolo.com/legal-encyclopedia/bankruptcy-tax-debts-eliminating-29550.html

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What Is Debt Restructuring?

What Is Debt Restructuring

Debt restructuring is a tool companies use to avoid default risks on lower rates of interest or existing debt. When you are nearing insolvency, debt restructure is an option for individuals and countries that are shortly to default on what is known as sovereign debt. Read on to learn more.

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How Debt Restructuring Works

For example, a company may take several loans and restructure them in a hierarchy of payment priority. Often this means long term debtholders are paid before newer debtholders. Unsurprisingly, creditors are sometimes prepared to offer alternative debt management terms to avoid default or bankruptcy. The restructuring process normally involves prolonging the dates when debts are due, and/or reducing the interest rate on existing loans. Creditors realize they would receive less without the restructure. Obviously, this can be a winning solution for everyone in otherwise bad circumstances. Individuals can do this as well as businesses. But individuals need to check the legitimacy of any debt relief services they use as well as checking with a reputable consumer protection agency and the attorney general of the state.

Types Of Debt Restructuring

One option is known as a debt-for-equity swap. This happens when a creditor cancels part or all outstanding debts in return for some equity. This is often preferable when there are significant assets and debts, and the creditors would rather take control of a company undergoing tough financial times. Another option is called “taking a haircut” where part of the interest payments would be written off or part of the principal is agreed not to be paid back. Callable bonds are often used by companies to obtain protection and then can be redeemed when interest rates decrease. Therefore, the issuer can restructure debt in the future as the debt currently existing can be replaced with fresher debt and a lower rate of interest.

Other Examples Of Debt Restructure

Countries sometimes have sovereign debt threatening their solvency. Some countries restructure their debt and some use bondholders to do so. This may mean moving from the private sector to the public sector (this happened in the United Kingdom, post-WW2.) Sovereign bondholders may have to “take a haircut” and pay a percentage of the debt offering the government issuer greater time to access funds to pay bondholders. There is not a great deal of oversight to this but is less expensive than bankruptcy when an individual, business or country is in peril.

Source: www.investopedia.com/terms/d/debtrestructuring.asp

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

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Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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4 Steps to Take to Avoid Filing for Bankruptcy Again

Going through bankruptcy is a stressful time. Although the stigma around bankruptcy and how we view it is changing, it is still something that many people are ashamed of. For some, going bankrupt was the result of a job loss or medical crisis they could not afford to pay back. But for others, bankruptcy is the result of overspending. No matter the reason though, bankruptcy tends to be the last option for families or businesses.

Sometimes, even after filing for bankruptcy and going through all the qualifications to continue, there may come the point when a second bankruptcy case is looking like the only option. If this is the case, you likely wouldn’t want to go through the process all over again.

There is a lot of bankruptcy help in Scottsdale if you find yourself in that position. However, there are steps you can take before possibly pursuing a second bankruptcy claim that could help get your debt under control.

Speak With Your Creditors

Just as much as you do not want to file for bankruptcy, neither do your creditors. When you claim bankruptcy, the creditors do not get the same amount of money as they would if you were paying the debt. You may be able to use that to your advantage.

Speak with your creditors and anyone else you owe money to. See if they would be willing to negotiate a payment plan or giving you a few extra grace months until you can gather enough money.

Sell Assets

If you are filing for bankruptcy again, it’s because you don’t have enough money. One way to bring in quick cash is by selling assets. The more you can sell, the more cash you can bring in.

Go through your home and see what items you have that you no longer use or need. It could be clothing, jewelry, artifacts, even a car. Make a list of what you could sell and see if it’s something you can live without.

Take a Second Job

If you are really close to filing for bankruptcy, it may be time to look for another job. The more money you can bring in, the quicker you can pay off your debts to avoid bankruptcy. Although taking on another job is not the most popular step to take, it could bring in enough additional income that you could get straightened out with your creditors.

Ask for Help

If you have exhausted all other avenues and are not sure what else to do, it may be time to ask for some help. Many find this embarrassing the first time, and likely more embarrassing the second time. However, if you can negotiate a loan from a friend or family member, it could be exactly what you need to put the idea of bankruptcy out of your head.

In the end, there is no quick solution to avoid bankruptcy. You will need to find ways to increase your income and reduce your expenses to help get you back on your feet. Work with a budget to keep track of your finances, and to help prevent you from falling into this situation again in the future.

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Why You Should Not File for Bankruptcy

In some circumstances, filing for bankruptcy is the only solution to deal with your financial crisis. For others though, bankruptcy is actually a bad idea and should be avoided.

Each situation will be different, depending on how much debt you have and what kind of debt it is. It’s essential that you seriously think about the benefits and downfalls of bankruptcy, and see if it is the best solution for your current situation.

Your top bankruptcy attorney in Scottsdale is ready to help you with all of your bankruptcy needs. First, though, see if your reason for bankruptcy is a good one.

Cannot Pay Small, Unsecured Debt

Unsecured debt is commonly known as past due to credit cards. It’s debt that has no outstanding collateral for the credit card company to seize from you. That means the lender lets you spend as much as you want without tendering any security in case you default on the loan. If you do default on your payments, there is nothing for the lender to repossess.  While they certainly can sue you, that again only gets them a judgment.  Eventually, that judgment will likely lead to garnishment of your banking accounts and a paycheck.

This isn’t to say that you can stop paying small loans and you’ll be fine. There are still issues involving your credit and the chance of the lender suing you in court. However, this is not a good reason to claim bankruptcy. In many cases, you or your bankruptcy lawyer can negotiate with the lender to set up a payment plan that works for you, or to pay a lump sum to clear up the debt.

There are also occasions in which the lender may write off your debt as uncollectable, but that isn’t a solution to rely on.

Student Loans, Income Tax, Court Judgment, or Child Support

Bankruptcy doesn’t necessarily erase all of your loans. In some cases, bankruptcy won’t help you with certain loans. Depending on what you owe, each situation is treated individually.

Filing for bankruptcy for debt like student loans, income taxes owed, certain court fines or penalties and child support won’t do you any good. There may be extreme cases when bankruptcy can quash this kind of debt. For the most part, though, bankruptcy can’t do anything about these types of debt.

Stop Collection Agencies from Calling

If you are wary of collection agencies calling you all the time, there’s an easier way to make them stop than filing for bankruptcy. Through the Fair Debt Collection Practices Act (FDCPA), if you request them to stop calling, they must oblige under federal law.

Send a written letter to the collection agency stating you do not want them to contact you anymore. If they continue to call after your request, keep a record of the phone calls, you can sue the collections agency later and potentially collect damages and fees.

Want to Restart

If you’re looking at bankruptcy as an easy way out of your debt, you may want to reconsider that mindset. For starters, there will be certain debts as we mentioned that will never go away after filing for bankruptcy.

Filing for bankruptcy is also hard on your credit. Bankruptcy remains on your credit record for up to ten years. That means if you want to take out a loan for a new vehicle or a mortgage, you may have a hard time being approved for many years to come.

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My Workplace is Going Bankrupt – What Do I Do?

When a business goes bankrupt it, it isn’t the management and owner who tends to get hit the hardest. Instead, it is the on the ground workers who are more likely to feel the hit the hardest.

Higher paid employees like management who would know more about the bankruptcy likely have enough money saved up that they can get by. For entry-level employees and those not in management, however, chances are they won’t be as well off.

If you fall into this category and your business is going bankrupt, it can be a scary time. You are likely wondering what will happen to you. Will you still have a job? Are the bills going to pile up and will you have to file for bankruptcy yourself?

We want to provide you with the best bankruptcy help in Scottsdale. So, if your company is going bankrupt, as an employee, here is what you should know.

It depends on the Type of Bankruptcy

There are two types of bankruptcy claims that a business can go through. Depending on which one is being processed, will determine what happens to you as the employee.

If your company is filing for Chapter 11, the business is asking help from the courts to repay creditors and sell off assets. There is a chance you could get laid off as they go through cost-cutting measures. On the other side, the employer may retain all positions, but written employment contracts may be up for renegotiation that could not end well in your favor.

If your company is filing for Chapter 7 though, this is the liquidation of the entire business, meaning the company’s existence comes to an end. Most likely all employees will be out of a job after the end of the liquidation and the bankruptcy concludes.

Unpaid Wages Will Get Paid Out

If you get laid off due to the bankruptcy liquidation, any wages you’ve earned that has not been paid will be treated as a debt owed from the employer. There is a cap for wages, and salary earned up to 180 days before bankruptcy.

You cannot guarantee payment, however. In the Fair Labor Standards Act, unpaid wages are not covered. This means if there are not enough assets to pay for all of the unpaid wages, you may not receive anything at all.

You May Lose Your Pension

Most likely your employee pension plan will get terminated in the event of a liquidation. There was, though, the Pension Benefit Guaranty Corporation (PBGC) put in place to protect private sector workers. So, if your employer cannot pay your benefits, the PBGC will help out to fill the gap in pension assets. 

Vacation Pay

If you have accrued vacation days, they will fall into unpaid wages. This means you are likely to get compensated for them. However, once again, you cannot guarantee that you will receive your payout. The labor laws differ from state to state.

These are a few of the things to look out for if your company is filing for bankruptcy. If handled well, you could still be compensated for any unpaid wages, pensions, benefits, and vacation days after discharge. However, there is always the risk that you will receive nothing if the company cannot come up with enough money to pay their debts and your owed wages.

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5 Logical Ways to Grow Your Money

Saving and growing your money is, oftentimes, easier than you think. There are a number of rudimentary saving habits that you can start today that could positively impact your money. Top bankruptcy lawyer in Scottsdale recommends adhering to the following five tips in order to double your money this year.

Automation

It’s important to automate your financial life. This means transferring your funds directly from your checking account to an interest-bearing savings account. Think about it: when you automate your financial life (putting money into a retirement or savings account), you won’t feel inclined to cut back on savings.

Track Expenses

It’s absolutely critical to have an in-depth understanding of where your money is going. You must look closely at your spending habits in order to figure out where you can cut back.

Monitor

Another important component to growing your money is making sure you monitor and measure your progress. Consider evaluating your net worth on a daily basis; you will find this both motivating and rewarding.

Alter Your Mindset

It’s never too late to start saving. Thus, you need to commit to saving money right here, right now.

Invest

The only way to build significant wealth is to have your money go to work for you through investments. Rather than having your money idle in a savings account (which is still good), throw those funds right into the market. Ultimately, the compound interest you earn will provide great returns.

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