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tax refunds in bankruptcy

Tax Refunds In Bankruptcy

Your tax refund is an asset in bankruptcy. This is true whether you file Chapter 7 or Chapter 13. Your refund is treated differently in each chapter, but generally you can keep your tax refund in bankruptcy.

Chapter 7

In Chapter 7, your bankruptcy assets are any assets you already own, or reasonably expect to own. A tax refund is a great example. If you have not filed your taxes yet, but you know that you will receive a refund, that refund is part of your bankruptcy estate. Because the refund does not represent income earned in the last 60 days, it cannot be exempted under N.C.G.S. 1-362. It can, however, be exempt under N.C.G.S. 1C-1601(a)(2). This is commonly known as your “Wild Card” exemption. It can be applied to any assets.

By claiming an exemption, you are exercising your right to protect certain assets. Your Wild Card exemption is available to cover up to $5,000 of assets. So, as long as your refund is $5,000 or less, you can use your Wild Card exemption to protect it. If you’re filing with a spouse, you both have a Wild Card exemption, for a total of $10,000 in Wild Card exemption available.

By protecting your tax refunds in bankruptcy with an exemption, your bankruptcy case can move forward without the bankruptcy trustee taking that asset. You will receive your discharge, and when you receive your tax refund, it’s yours to keep.

Another option is to receive and spend your tax refund in bankruptcy before you file. So long as you spend the refund on normal living expenses, you are not running afoul of the bankruptcy rules. Additionally, if you purchase household goods like furniture, you can still protect those new purchases with your household exemption under N.C.G.S. 1C-1601(a)(4).

Chapter 13

If you are in Chapter 13, the same rules apply as outlined above for Chapter 7. However, these rules are only applicable to the year in which you are filing your Chapter 13. Because a Chapter 13 case runs for three to five years, you need to be concerned about future tax refunds in Chapter 13.

If you receive tax refunds in Chapter 13 in a year beyond your first year, you must disclose this refund to the Chapter 13 bankruptcy trustee. Generally, you are allowed to keep $1,000 per debtor each year. Additionally, if you have any unused Wild Card you can apply it to your tax refunds received in subsequent years. Lastly, if your tax return shows that your refund is due to an earned income credit or a child tax credit, the refund is yours to keep.

If you cannot protect your tax refund in Chapter 13 in the above manner, you can also petition the court to keep your refund due to the fact it is necessary for living expenses. An example would be that you have been putting off repairs to your home or vehicle, and the non-exempt tax refund will be used for those repairs. Quite often, clients are making ends meet but putting off normal and routine household expenditures to do so. For this reason, the court entertains a request to use your tax refund in Chapter 13 to get ‘caught up’ on household expenses.

Adjusting Your Withholding In Bankruptcy

One allowable way to help insure you don’t lose any money in Chapter 13 is to adjust your tax withholding. This way, rather than receive a large refund in bankruptcy at the end of the year, you receive more income each month. Your Schedule I and J filings in Chapter 13 should reflect this, and your overall budget will change slightly; however, it will help you avoid an annual chore of trying to prove to the Chapter 13 court that you should be allowed to keep your tax refund.

Speak With A Charlotte Bankruptcy Attorney Today

Bankruptcy is a very powerful solution with long-lasting positive effects. If you’d like to speak with a lawyer about filing bankruptcy, we’re here to help. Consultations are free and answering questions is part of the job. Call us at 704.749.7747 or click for a FREE CASE EVALUATION and we will reach out shortly.

Bankruptcy And Mortgage Payments

Bankruptcy And Mortgage Payments

If you’re wondering how bankruptcy and mortgage payments work together, there is good news. Most bankruptcy clients are pleasantly surprised to find out they can keep their home in bankruptcy. After all, for most of us our home is our largest investment.

Chapter 7 And Mortgage Payments

If you are filing Chapter 7, you can keep your home if your equity in the home does not exceed the allowable exemptions in bankruptcy. Generally speaking, this is $35,000 per spouse or owner. Your equity is defined as the fair market value minus the total debt securing the home. We can also make adjustments for cost of sale (realtor fees, etc.) as well as repairs that you might expect a home purchaser to request. You can find one estimate of the fair market value of your home at Zillow.com.

When you file Chapter 7, you should be current on your mortgage payments, or less than 30 days behind. By the time you have your 341 meeting (about 45 days after filing), you’ll want to be sure you are current.

Chapter 7 And Your Mortgage Obligation

By filing Chapter 7, your mortgage debt is discharged. This means you technically no longer owe it. However, if you want to keep the property, you’ll need to keep the debt that goes with it. You will be given the option to sign a Reaffirmation Agreement in Chapter 7. This agreement renews the contract terms between you and the mortgage company, to be exactly what they were before you filed Chapter 7.

There are instances where you can keep the home and avoid signing a reaffirmation agreement, and your Charlotte bankruptcy attorney can discuss those instances in detail with you. In summary, you can keep your home in Chapter 7 and you may sign a reaffirmation agreement to go with it.

Chapter 7 And Surrender Of Your Home

You can also surrender your home in Chapter 7 if the mortgage payments are too much for you, or if the home is “upside down” (mortgage balance is higher than the fair market value). By doing this in bankruptcy, you avoid a situation where the mortgage lender can pursue you for any loss they take on the property. Your Chapter 7 filing protects you. You simply give the lender the home, and walk away from the debt.

Chapter 13 And Mortgage Payments

If you want to keep your home in Chapter 13, you can do so. This is true even if you are behind on mortgage payments at the time you file. Chapter 13 is unique in that it allows you to continue to pay your normal mortgage payment while slowly making up the amount you were behind at the time of filing.

Provided your Chapter 13 plan is approved and you follow the rules of Chapter 13, there is nothing your mortgage lender can do to prevent a successful filing. In fact, your mortgage lender is probably happy they are being paid in Chapter 13. When your Chapter 13 ends, you will be current on your mortgage and all of your pre-petition back payments will be caught up.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about bankruptcy and mortgage payments, call us at 704.749.7747 to discuss your situation. You’ll get answers to your questions, and you’ll understand your options. You can also click for a FREE CASE EVALUATION and we will reach out to you to discuss your case.

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Social Security Benefits And The Means Test In Chapter 7

If your income is low enough, you will automatically qualify for Chapter 7 bankruptcy. However, many clients have income slightly above the median income level, and must pass The Means Test in order to qualify for Chapter 7. This is not uncommon. The Means Test is simply a comparison of your income to your debts—some actual, and some allowances by the bankruptcy code.

Fortunately, The Means Test focuses on your most recent six months of income. This allows you to take advantage of some timing, if you have inconsistent income or unusual income which will not continue into the future. Your bankruptcy attorney will discuss this in more detail with you.

Types Of Income Included In The Means Test

The safe assumption is that every dollar hitting your accounts each month will be considered income for the purpose of The Means Test. This includes spousal support, support from family members, W-2 income, 1099 income, retirement income, and 401k early withdrawals.

Types Of Income NOT Included In The Means Test

While Veterans’ benefits DO count as income for The Means Test, Social Security benefits DO NOT. This means you may pass The Means Test if a large part of your income each month is Social Security benefits.

Current Monthly Income

Current Monthly Income is different from The Means Test calculation. Once you pass The Means Test, you still have to complete a budget reflective of your current income for the month. This is different from your income from the past six months. Additionally, you get to compare your actual expenses to your actual income for the month, where The Means Test does not always allow you to take your actual expenses. Even though your Social Security benefits will be counted in your Current Monthly Income, if you passed The Means Test, you should have nothing to worry about when it comes to Current Monthly Income calculations.

Further Reading

Want to learn more? Read one of over 100 articles on our Bankruptcy Blog Articles.

Speak With A Charlotte Bankruptcy Lawyer Today

The easiest way to get a better idea of whether you qualify for Chapter 7 is to speak with a Charlotte bankruptcy attorney today. You can call us at 704.749.7747 or click for a FREE CASE EVALUATION. After a brief discussion with an attorney, we can usually give you a good idea as to whether you will qualify for Chapter 7. We can also help confirm if a Chapter 7 or a Chapter 13 is the best choice for you.

benefits of chapter 7

Downside Of Filing Bankruptcy

Clients routinely ask “What is the downside of filing bankruptcy?” While there certainly is a downside to filing bankruptcy, a thorough review of most clients’ financial situation reveals that a bankruptcy is the right financial move for them. This article will the downside of filing bankruptcy, but also help to put it in context. As a Charlotte bankruptcy attorney, my goal is to help you decide what’s best for you and your family.

Effect of Bankruptcy On Your Credit Score

Bankruptcy will no doubt affect your credit score. However, this is usually only a concern for those with perfect a perfect credit score coming into a bankruptcy. That situation is rare. More often, a client’s credit score is already low due to late payments, missed payments, repossessions, foreclosures, or other financial issues.

The good news is that for most individuals, your credit score one year after filing bankruptcy will be as good as it was on the day you filed. In other words, one year after filing, your credit score has already recovered and you no longer have the debt issues you had prior to filing. From there, it’s easy to re-build your credit if you’re intentional about it. Our firm always offers tips on rebuilding credit after bankruptcy, and they do make a difference.

Effect of Bankruptcy On Credit Cards

When you file bankruptcy, you can’t keep “a few credit cards”. All of your credit cards will be cancelled upon filing. The good news is you’re no longer living on credit cards. A common question arises regarding having a credit card for emergency purposes. Most clients report to us that credit card companies offer them credit soon after they receive their discharge in bankruptcy. The reason is the bankruptcy filing improved your Debt To Income ratio and made you a great candidate for credit cards. Additionally, creditors like extending credit to individuals who recently filed bankruptcy because they know you’re more likely to repay the debt. After all, you can’t file bankruptcy again for a long time.

Effect of Bankruptcy On Getting A Mortgage

It’s true, you won’t be able to obtain a mortgage for two to four years after bankruptcy. However, you have to ask yourself if you could obtain a mortgage with your current credit score and debt situation. Most clients can’t. So while the intention to purchase a home is a good one, filing the bankruptcy is actually the first step in the right direction. During the two year waiting period, you can save for a down payment or pay down student loans, or contribute to your 401k. You won’t fall behind by filing bankruptcy.

Not All Debt

Bankruptcy does not discharge all debt. Some debt takes priority and survives a Chapter 7 or needs to be paid in full in a Chapter 13. For instance, Child Support, Recent Taxes (less than 3 years old), Mortgage Arrears, and Student Loans. Clients report that by filing bankruptcy and eliminating credit card debt and medical debt, as well as other types of debt, it enables them to focus on re-paying the types of debt which do not go away with a bankruptcy filing.

Speak With An Attorney Today

We know deciding to file bankruptcy is an important choice. We tell some clients it’s not a good choice for them. We’re happy to hear your story and help you decide. We know you have choices. We hope you choose to Recover With Us. If you’d like to speak with an attorney today, call 704.749.7747 or click for a FREE BANKRUPTCY CONSULTATION and we’ll give you a call or reply to your email.

Filing an Elderly Bankruptcy in CharlotteWhile there is not a bankruptcy filing specific to elderly individuals, filing an “elderly bankruptcy” is something to consider if you’re entering into your golden years with considerable debt. Most elderly individuals are living on a fixed income without a significant ability to repay creditors. While younger individuals can look forward to increasing their income as a way to manage debt, the elderly do not have that option.

Future Credit

Most elderly individuals are not anticipating taking on large credit obligations in their later years. This means a new car, new home, or even credit cards, are not in the foreseeable future. As a result, an elderly bankruptcy will not serve to disrupt an  individual’s lifestyle or future financial needs. In fact, it will serve to immediately increase their monthly disposable income, because that income will not be going toward the repayment of debt.

Financial Stress

The ability to handle the stress caused by debt diminishes as you grow older. Losing sleep over credit card balances or medical bills can take a toll on an older individual in ways which may even manifest in their physical health. It’s simply not worth it.

Nursing Home and Senior Living Concerns

Having a bankruptcy on their credit report will typically not affect an elderly person. So long as they can demonstrate the ability to pay, most senior living facilities are not concerned with an elderly individual’s credit report.

Call An Attorney

If you have questions about filing an elderly bankruptcy, or whether bankruptcy might be right for one of your parents or grandparents, please call 704.749.7747 to get your questions answered.

Credit Cards After Filing Bankruptcy in CharlotteIt makes sense to me that clients ask questions about obtaining credit cards after filing bankruptcy. After all, a credit card is a great resource for emergency situations, and the reality of life is we don’t always have money on hand that we need for purchases today. And yes, obtaining credit cards after filing bankruptcy is an option.

Credit Card Offers After Bankruptcy

Immediately after filing bankruptcy, you’ll start to receive offers for unsecured credit cards. This comes as a surprise to most clients, but keep in mind that after you filing bankruptcy you have very little debt. You actually look like an attractive candidate from a bank’s perspective. The bank also knows you can’t file bankruptcy again for another eight years, typically, so they feel confident you’ll pay back any debt you incur with a new card.

The downside to the offers you’ll receive on credit cards after filing bankruptcy is high percentage rates and high annual fees. This will lessen as you re-build your credit score in the months and years after filing bankruptcy.

Secured Credit Cards

One option for getting back in the credit game early and re-building your credit score, is a secured credit card. Credit unions offer these options and I recommend them for clients on the heels of filing bankruptcy. The arrangement is you give the credit union an amount of money (say $500), and they give you a secured credit card where you can charge a balance of up to $500.00. While you are technically using your own money, the upside is that each month you make a payment the credit union will report positively to the credit bureaus and your credit score will rise much faster than if you are just waiting for time to pass after filing bankruptcy. With several on time payments, the credit union typically will increase the limit on your secured card without requiring more money from you.

Your Credit Score And Bankruptcy

Typically, if you’re considering filing bankruptcy, your credit score has already taken a few dings. The filing of the bankruptcy will be the final ding on your credit but most clients find their credit score one year after filing bankruptcy is as good as or better than it was after filing. And the freedom from the pre-bankruptcy debt is priceless.

Call An Attorney

If you would like to speak with an attorney about credit cards after filing bankruptcy, or any other topics surrounding bankruptcy options, please call us at 704.749.7747. We’re here to help and we hope you choose to recover with us.

Bankruptcy Requirements In North CarolinaOne of the things I enjoy most about practicing bankruptcy law is that most clients have no problem meeting the requirements for filing bankruptcy. When clients realize this, the relief I see on their faces, or hear on the other end of the phone means they are one step closer to leaving financial stresses behind.

Chapter 7

Income—While there are a few exceptions, generally clients qualify for a Chapter 7 if they meet the income and assets guidelines set by the federal bankruptcy laws. If you make less than the median income in North Carolina, you automatically qualify. However, most who make more than the median income still qualify by passing what is called the Means Test (something your bankruptcy attorney determines for you).

Assets—Even if you meet the requirements to file bankruptcy, you’ll still need to use the bankruptcy exemptions to protect your assets in bankruptcy. For most clients this is not a problem, as the exemptions are generous and your attorney will work with you to apply them to all of the property you own.

Chapter 13

Income—If you have too much income for a Chapter 7, a Chapter 13 is available to you. In a Chapter 13, you pay back a small percentage to your creditors over time in bankruptcy—typically less than 10 percent—but nowhere near what you owe today.

Assets—A Chapter 13 also treats assets differently than a Chapter 7. If you run out of bankruptcy exemptions, you can still use a Chapter 13 to successfully file. Your Chapter 13 payment will reflect the value of any assets you could not protect with the bankruptcy exemptions.

Prior Bankruptcies

There are bankruptcy requirements related to prior filings. If you’ve filed a bankruptcy in the last eight years, you’ll want to let your attorney know the type of bankruptcy you filed, when it was filed, and whether you received a discharge. In many instances, you’re allowed to file more than one chapter of bankruptcy (Chapter 7 or 13) within the eight year timeframe.

Call An Attorney

The easiest way to get your questions answered is to pick up the phone and call us. We can usually answer your questions in one phone call and you’ll save time and energy searching the internet for answers. You can reach us at 704.749.7747. We’re here to help.

Generally speaking, your bankruptcy will not affect your spouse. In some instances, on joint debt, your spouse may benefit from the automatic stay in bankruptcy, but otherwise, your spouse will not be affected.

Credit Score

Filing bankruptcy will affect your credit score. If your spouse doesn’t file bankruptcy, his or her credit score will not be affected by your filing. When your spouse’s credit report is pulled, your bankruptcy will not show on their report.

Debt

For debt in your name only, your bankruptcy should serve to discharge your obligations under that debt. For joint debt you may have in both your name and your spouse’s name, while your obligation under that debt may be discharged by the bankruptcy, your spouse will still be responsible for that debt. Typically, you are both liable for 100% of the debt. So after bankruptcy, your spouse is still liable for 100% or the full amount, of the debt.

The Bankruptcy Process

While your spouse’s income may be required for the purpose of determining whether you qualify for a Chapter 7 bankruptcy, or in determining your Chapter 13 payment, your spouse’s assets and other personal information are not needed nor disclosed in the bankruptcy filing. Additionally, your spouse will not need to attend the 341 meeting of the creditors.

Call An Attorney

If you have questions about filing bankruptcy, whether they relate to a non-filing spouse, or any other aspect of bankruptcy, please call 704.749.7747 to speak with an attorney. The call is free and we’re here to help.

First, it’s important to know that intentionally defrauding your creditors by transferring property can result in the bankruptcy court denying your discharge. That being said, there are many valid reasons and conditions for transferring property—if you can show the bankruptcy trustee that you received fair market value for your property transfer, or that the transfer falls outside the ‘look back’ period, then your property transfer will not adversely affect your bankruptcy filing.

Worst Case Scenario

A common worst case scenario in bankruptcy is that the trustee avoids the transfer and gets the property back for the purpose of liquidating it and distributing all or some of the money to your creditors. This is easily avoided by asking the right questions BEFORE filing your bankruptcy.

How Long Ago Is Long Enough?

Assuming you did not fraudulently transfer the property, you need to disclose transfers to insiders (family members, friends, etc) that occurred within the last four years. If the transfer was to a stranger (someone on Craigslist, for example) then the look back period is generally two years, for disclosing the transfer.

What Is The Trustee Looking For?

Essentially the trustee is looking to trace the value of the asset. If you had a vehicle (Keeping Your Car In Bankruptcy) worth $10,000 and you sold it for $10,000, you would be able to show the trustee that you got fair market value for it.

Next, the trustee may ask you what you did with the money. There are numerous appropriate answers, including spending it on household/living expenses, buying another car, or paying off debt, to name a few. The important thing is to discuss it with your attorney and make sure that the asset’s value can be traced and ‘exempted’ in the bankruptcy filing. If you sold a $10,000 car for $10,00 and still had $7,000 in a bank account, the trustee would want to see the bank account listed on the bankruptcy filing and showing the money in that account. Likewise, if you purchased a riding lawn mower with it, he would want to see that listed as an asset on your Schedule B for personal property.

What’s At Stake?

If you can exempt the asset, despite its value, you’re fine. If you liquidate the asset and can exempt the cash you received and/or the items you purchased with it, you’re also fine.

In Conclusion

It’s OK to transfer assets prior to bankruptcy. Discuss honestly with your attorney your intent in doing so, and where the money went. Your attorney can then help determine whether now is a good time to file bankruptcy or whether you may want to wait out the look back period on transfers prior to filing.

Call 704.749.7747 today to speak with a Charlotte bankruptcy attorney about asset transfers or any other questions you may have related to bankruptcy.

One critical part of qualifying for bankruptcy in Charlotte, North Carolina is disclosing to the court your average income over the past six months, as well as your Current Monthly Income. Many individuals filing for Chapter 7 or Chapter 13 are using regular retirement withdrawals, to meet monthly debt obligations. Generally speaking, those withdrawals need to be disclosed but are not counted as income.

Stop Using Retirement To Pay Debt

Retirement funds are excluded from your bankruptcy estate. Simply put, that means the bankruptcy court can not get to your retirement funds. They are protected. So, using those funds to pay debt which would go away in bankruptcy doesn’t make sense. You’ve worked your entire life to build up retirement funds. Save your protected funds, and prepare to file bankruptcy.

Retirement Not Counted as Income

Generally, withdrawals from retirement accounts are not included in the income calculation. These withdrawals are more akin to a withdrawal from a savings account. Additionally, your Charlotte bankruptcy attorney can argue to the court that the retirement account(s) are a limited resource and would not continue indefinitely, thus further distinguishing them from income.

Taxable Income Distinguished

The bankruptcy court defines income differently than the Internal Revenue Service. Just because a withdrawal from your IRA or Pension Plan may qualify as taxable income for IRS purposes, does not mean it’s counted as income in a bankruptcy.

If you have any questions about retirement funds, IRAs or bankruptcy, call 704.749.7747 today to get your questions answered. The call is free and we’re here to help.