When a creditor or lender accepts less than they are owed, the debtor often receives a Form 1099-C. This form is essentially requiring the individual to pay taxes on the amount of debt ‘forgiven’ by the lender. For example, if you have a credit card debt of $50,000 and settle with the credit card company for $35,000, you may expect a Form 1099-C for the $15,000 of ‘forgiven’ debt. It is treated as income to you for tax purposes.

Forgiveness Of Debt

The most common types of forgiveness of debt result from foreclosure, short sale and credit card settlement. The income due on forgiven debt can be substantial and weakens your position in a settlement because it is a fee you ultimately end up paying. Even worse, it’s due to the federal government so they have the power to garnish your wages if you fail to pay it.

The Difference A Bankruptcy Makes

When you file a bankruptcy, tax issues from forgiveness of debt are a non-issue. Any and all debt discharged through the bankruptcy is addressed fully as part of the discharge. You will not have any tax consequences as a result. If you receive a Form 1099-C from a lender or creditor and that debt was discharged through bankruptcy, you should call your bankruptcy attorney so they can assist in making sure it is addressed. Often lenders and creditors use automated systems and a phone call from the attorney can fix the situation.

A Phone Call Is Free

If you have any questions about income from forgiveness of debt, or if you are trying to decide between short sale, foreclosure or bankruptcy, please call me. I’m here to help you understand your options and make a decision. The call is free. 704.749.7747.

Misconceptions

One misconception around bankruptcy involves the Means Test. Yes, such a test exists. It is designed to compare your Current Monthly Income to the Median Income that applies to your geographic area. If your CMI is lower than the Median Income, then the presumption is that you qualify for a bankruptcy filing. However, your Charlotte bankruptcy attorney will rightfully tell you this is not where the analysis ends.

Beyond Median Income

Even if your CMI exceeds the Median Income, it doesn’t necessarily mean you won’t be able to achieve a bankruptcy filing and discharge of debts. If your CMI exceeds the Median Income, the next step is to subtract your monthly expenses to determine your monthly disposable income. You are allowed some disposable income each month per the bankruptcy rules, without being disqualified for filing.

More On Disposable Income

If you exceed the allowable disposable income per month for qualifying automatically for a bankruptcy, the next option is for your attorney to determine what percentage of your general unsecured debt can be paid with your disposable income. Generally speaking, if your disposable income each month would pay less than 25% of your monthly debt to general unsecured creditors (Credit Cards, Medical Debts, etc), then you should still qualify for a Chapter 7.

Get Educated

There are many options in bankruptcy, including a Chapter 13 for individuals who are behind on mortgage payments but want to keep the home in bankruptcy. Call today to speak to an attorney about your options in bankruptcy. Getting educated is empowering and that’s part of the bankruptcy attorney’s job—take advantage of it! 704.749.7747.

Yes, married couples are permitted to file individually or jointly. To maximize the results of the bankruptcy, it sometimes makes sense to file individual bankruptcies simultaneously for both spouses. Your Charlotte bankruptcy attorney can assist with this calculation.

But Will It Stop A Foreclosure If We’re Both On The Note?

Yes, when one spouse files a Chapter 13 and proposes to keep the mortgage current while making up missed payments over time, the lender is prevented from pursuing a foreclosure again both the spouse that filed and the non-filing co-debtor spouse. Once you’ve completed your plan, you will be current on your mortgage.

What Happens To Jointly Owned Credit Cards?

When one spouse files bankruptcy and the other does not, the filing spouse receives a discharge of the debt. The non-filing spouse will still be responsible for the entirety of the debt (on joint debt); however, while the bankruptcy is ‘active’ the creditors are prevented from attempts to collect or take legal action against both spouses. In a Chapter 13, this provides essential time for the family to execute a financial plan prior to the bankruptcy ending.

Why Would One Spouse File And The Other Not?

Preservation of the non-filing spouse’s credit is a great reason to consider a single filing. Provided that the relief granted by the single filing will be impactful enough, upon discharge, the debt (of the filing spouse) is discharged and the non-filing spouse still has good credit standing which can be used to purchase a home or car.

While the bankruptcy rules are generous to those preparing to file, there are some instances where one spouse may have inheritance or significant assets which prevent them from filing. In that case, the spouse with fewer assets can still file and will receive the relief from debt as a result.

Lastly, sometimes one spouse has engaged in transfers of property within the last year which would prevent or frustrate a bankruptcy filing. Again, in that case, the other spouse can file and the court is not interested in the transfers of the non-filing spouse.

Talk To An Attorney

Don’t delay on finding out more about your options. I spend much of my time each day advising individuals over the phone about the possible relief they can achieve through bankruptcy. Call me today for a conversation which will provide clarity and help you decide. 704.749.7747.

Once you file a Chapter 7 or Chapter 13 bankruptcy, all creditor calls and attempts to collect on debt will stop. After receiving your discharge in bankruptcy, the creditors have no legal rights against you. But what if you missed a creditor and didn’t list them in your filing?

Missed Creditors

Quite often, a bankruptcy client may have a debt where the creditor has given up on collection attempts. When it comes time to list all unsecured debts (credit cards, medical bills, etc), the client may forget that creditor exists and therefore the creditor is not listed in the bankruptcy. In most cases, this is not a problem.

No Assets Case

So long as your bankruptcy case was a “No Assets” case—meaning the trustee did not sell any of your property as part of the bankruptcy—then all unsecured debt, whether listed or not, is included and that debt is discharged as part of the bankruptcy. Most Chapter 7 cases that I file are no assets cases.

Honesty and Disclosure

The bankruptcy court requires honesty and disclosure from the client filing the petition. Where the client inadvertently forgets to list a creditor in a no assets case, this will not be held against the client. If a creditor insists that they have a valid claim against a client because they were not listed in the filing, a simple phone call or letter from my office reminding them of the client’s rights solves the problem.

Talk To An Attorney

The bankruptcy code is written in a way which is meant to support clients who have a legitimate need for relief. As you get more comfortable with your options in bankruptcy you’ll find many of the myths around bankruptcy are just not true. Unintentional omissions and errors in filing are easily correctable and typically have no negative impact on you.

Call me today if you’d like to discuss the reality of filing a bankruptcy, and the many ways it can change your life dramatically for the better.

Call me today at 704.49.7747 for a free phone consultation. I’m here to help.

Clients about to file bankruptcy understandably are interested in retaining a credit card or excluding certain debts from the bankruptcy. Usually this stems from a sense of responsibility to the creditor, or the desire to have available credit after filing. While these are admirable reasons, generally speaking all debt needs to be included in the bankruptcy.

At its core, the bankruptcy code is written in a way that all creditors are treated equally in a bankruptcy. In many instances, Chapter 13 bankruptcy clients will be paying back some percentage of unsecured debt and each creditor takes a pro rata share. In a Chapter 7 case, where you may not be paying any creditors, it is still vital that all creditors receive the notice of your filing that they are entitled to receive.

Debt To A Family Member

Often a bankruptcy client will have a loan from a family member. The bankruptcy filing will need to include that debt. Usually, a quick conversation with clients about this puts them at ease. While the bankruptcy filing eliminates the legal obligation to repay that debt, the client can choose to pay back the family member after the case is closed or a dismissal is reached. A phone call from the client to the family member is almost always well received. The family member gets written notice of the bankruptcy and nothing else happens.

When Can I Pay Back Friends And Family?

It’s important that you treat all creditors equally as you approach filing for bankruptcy. The trustee will typically ask you if you have made any payments to creditors, including friends and family, in the past year. If you paid one creditor and not another, the trustee may have an obligation to try to recover that payment so that all creditors can take a pro rata share. Again, payments to friends and family need to wait until after the case is closed.

Your Concerns Are Admirable And Legitimate

You’re asking all the right questions. You are trying to meet your obligations. Call me today to discuss a strategy for re-establishing your financial footing, while maintaining healthy relationships with friends and family at the same time. You can reach me directly at 704.749.7747.

 

Many clients are concerned that the collective income in their household will bar them from filing a Chapter 7 bankruptcy. While there are income thresholds whereby you automatically qualify for a Chapter 7, there are also adjustments that can be made when your income exceeds those thresholds. Married couples have options when it comes to filing, and sometimes leaving a non-filing spouse makes the most sense.

Both Incomes Are Considered

Take an example where the husband makes $50,000 and the wife makes $60,000. If the husband were to file for Chapter 7 without the wife, the husband’s income would count at $50,000. The wife’s income, however, would not count dollar for dollar. The adjustment is made when completing the Means Test, which has two parts where you get to deduct expenses from your income. So, even with significant income, if your allowable expenses are high enough, you can still qualify.

Two Deductions

First, you are given deductions for your living expenses and debt payments. These are items you, the filing spouse, are contributing to, and they include your mortgage payment, your groceries, cell phone, etc.

Second, you look at any non-household expenses thaourt y non-filing spouse is regularly paying. These might include credit cards in her name only, medical bills, etc. These expenses being paid for by the non-filing spouse are then subtracted from her income. This serves to lower the total income counted for the Means Test and assists greatly in getting you qualified under the test.

Why Are There Deductions For The Non-filing Spouse?

The reasoning behind this is that those separately paid non-household expenses are not contributing to the household expenses. In this way, the bankruptcy code is not counting that income ‘against you.’ An attorney can assist you in a close examination of your total household expenses and help categorize them as household related or otherwise. Once the adjustments have been made, the attorney will let you know your options.

If you’d like to speak to a Charlotte Bankruptcy attorney today, call me at 704.749.7747. You can also email me HERE or take a few minutes to fill in our bankruptcy evaluation HERE. I will contact you immediately to discuss your situation and help you take next steps.

Clients are smart to ask about timing issues with filing a bankruptcy. I get a lot of questions about income, as some clients expect income to increase in the near future, but have struggled recently with insufficient income.

When you file a Chapter 7 bankruptcy, the income the bankruptcy trustee is most interested in is your earned income from the six months prior to filing. Specifically, the six month period ending the last day of the month preceding your filing date.

Current Monthly Income is an expansive term, so my clients and I always discuss full disclosure. For instance, money receive on a regular basis for your dependents is included in your CMI. If you are filing a joint bankruptcy case, then income for both spouses is included.

What Else Is Included?

In addition to regular income, payments received under the Social Security Act, tips, bonuses, overtime and commissions are included. If you’re a business owner, the net income from a business or profession is included. If you rent property, the net income from that rental property is included. Pension and retirement income is also included. Unemployment and disability benefits are also included.

Essentially, this is reflective of the goal in bankruptcy—to analyze your complete financial picture to determine whether you are entitled to relief.

Sometimes It’s Tricky

There are instances of course where income is not regular. Your bankruptcy attorney goes to bat for you in these situations where an argument can be made that the income should not be included as CMI, or should only be partially included. If you receive a one-time bonus for example, or have a business with irregular activity during the year. Often, the attorney can argue for you that you received income during the last six months that was attributable to employment over a longer period of time, including bonuses and commissions.

It’s A Phone Call Away

The answers are easily discoverable. My job as a bankruptcy attorney is to educate people about their choices. Call me to discuss your situation and I will do my best to help you get clarity. You can reach me at 704.749.7747 and the call is free.

While it may make sense for both spouses to file in a bankruptcy, a qualified Charlotte bankruptcy attorney will walk you through the options that suit your particular situation best. Typically, married couples hold debt in many different ways, so it makes sense to analyze the specifics of your situation before making a choice. Filing jointly may provide more debt relief, but there are other concerns to consider.

My Spouse’s Credit

One reason to file individually is to preserve the credit of one spouse. In cases where spouses do not hold debt jointly, this is typically a clear option. The filing spouse receives a discharge for the debt in his name, and the non-filing spouse retains her good credit, along with her debts.

North Carolina is not a Community Property state, so even where a married couple holds joint debt, if the non-filing spouse keeps payments current on her debt, her credit score will not be affected.

Collections Attempts

In a Chapter 13 filing, the automatic stay is effective for the co-debtor on consumer debt. This means that if one spouse files and another does not, and they hold joint debt, even if they are not paying on that joint debt, creditors cannot pursue collections against either spouse. So the calls stop, and you get to preserve your credit at the same time. Not only that, but for joint debt, creditors cannot repossess property or foreclose on your spouse just because she didn’t file.

This automatic stay remains in effect until the bankruptcy is over. However, once the bankruptcy concludes, the creditor can resume attempts to collect against the non-filing spouse for those joint debts. At that time, the hope is that you’re able to make payments on that debt because of the relief the bankruptcy provides.

A Backup Plan

Another reason to have one spouse file is to provide a backup plan if you get into a spot where you cannot make your Chapter 13 payments. If the first filing is dismissed for non-payment, the non-filing spouse could consider filing a new Chapter 13 to get relief from creditors.

Talk To A Lawyer

Debt can be all-consuming. It’s not your job to know the law. But do know that you have options. Call me if you’d like more information or have a question. Answering questions is part of my job. 704.749.7747. You can also email me HERE

Generally, unemployment benefits are exempt from garnishment. Like everything else, there are exceptions. Orders for garnishment may be granted for priority debts like child support or taxes, for example.

Protect The Status Of Your Unemployment Benefits

If you believe someone may be attempting to garnish your wages, you should speak with an attorney. If you’re looking to take action immediately, in addition to speaking with a bankruptcy lawyer consider where you are depositing your unemployment benefits.

If you’re depositing unemployment benefits into a joint account—an account with your name and another individual’s name on it—you may have trouble clearly identifying your unemployment benefits when someone attempts to garnish them. Additionally, if other funds are being deposited into that account, those additional funds, because the account is in your name, may also be subject to garnishment.

The simplest way to insure your unemployment benefits retain their protection from garnishment is to have them deposited into an account in your name only, and to not mix other funds in with that account.  If those funds are somehow garnished, you’ll stand a much better chance at recovering them by arguing they were protected and identifiable as unemployment benefits.

How Will I Know If My Funds Are Being Garnished?

A creditor has to go through the court system to garnish your funds. You will receive notice of this process if it is happening. It’s important to act quickly and speak with an attorney if you receive a notice from the court with a hearing date regarding the garnishment of funds. The hearing is your chance to defend against the garnishment and your attorney can advise you the best way to do that.

If you have any questions about garnishment, bankruptcy or any other legal matter affecting you financially, please feel free to call me at 704.749.7747. I’m here to help.

I spoke with client this morning who is moving forward with filing a Chapter 13, but is wondering whether she can convert to a Chapter 7 filing at some time during the Chapter 13. The answer is yes. In fact, converting from a Chapter 13 to a Chapter 7 is commonly done by bankruptcy clients.

Why Not Just Start With A Chapter 7?

There are numerous reasons for choosing a Chapter 13 bankruptcy filing at the outset. The most common is that the client is facing a foreclosure and wants to save their home. A Chapter 13 filing allows you to go into a bankruptcy even if you are behind on your mortgage. This freezes the foreclosure process and creates monthly payments that allow the client to make up the deficiency over time.

Additionally, clients may have equity in a home or in other property they are not willing to turn over to the bankruptcy trustee. While it’s rare that a client has to give up property in a Chapter 7, the Chapter 13 allows clients to keep the property and make all creditors ‘whole’ over the course of the Chapter 13 payment plan.

Why Would I Convert?

Circumstances change. Sometimes, after a few months in a Chapter 13, a client reconsiders their objectives and decides they want to surrender the home. Because that was the primary reason for entering into a 13, a Chapter 7 now makes sense. As a result, the client converts, and the Chapter 7 is concluded in a much shorter time period. This allows the client to begin rebuilding credit more quickly. It also means there’s not a monthly Chapter 13 payment obligation to keep up with.

Another reason for converting might be that the client’s income increases some time during the repayment period and they are able to make up the deficiency on the mortgage. At that time, if they submit the remaining deficiency they are typically eligible for a Chapter 7. The client keeps their home, the monthly payment obligation goes away, and they focus on rebuilding their savings and their credit.

What Do I Lose When I Convert?

You don’t lose anything when you convert. You’ll receive credit for any attorney’s fees you’ve paid, and you’ll receive credit for any deficiency on a mortgage that you’ve paid. You should speak with your attorney about the conversion and whether it makes sense for you, but in all, the ability to convert is representative of the flexibility extended to us under bankruptcy law.

Call Today!

If you’d like to speak with me about your options, please call 704.749.7747 today. I’m happy to have a free phone consultation to help you move forward. Getting educated about your choices feels good and it’s the smart thing to do.