Articles Posted in Bankruptcy Pre-Planning

10-things-150x150I have listed some of the mistakes people make right before they file bankruptcy. People do these things because of mistaken information they got from someone else. Talk with your bankruptcy lawyer and ask questions. Your lawyer can protect you and your property as long as you tell them everything up front. Disclose all financial information to your attorney and prevent future surprises. You don’t want to end up losing the things you were trying to protect and save. If you have questions about the reasons why we don’t want you to do these things right before you file bankruptcy, call us. Once you hear the explanation, everything will make sense . Some of these thing you can do, you just need to wait for the right time.

  1. Don’t pay money to family or friends and don’t pay back loans to family members or friends.
  2. Don’t file if you are about to receive an inheritance, personal injury settlement, or large sum of money.

7-or-13-e1525536681230A chapter 13 bankruptcy can do everything a chapter 7 can do and more. A chapter 13 has  extra tools for special debts. A chapter 13 takes 3-5 years to complete and costs more than a Chapter 7 in the long run. Which one you should file depends on what you are trying to hold on to and save.

A chapter 13 has special powers which allow you to deal with foreclosure, tax debts, child support, and student loans better. You can catch up the payments on a home or car in a chapter 13 over 3, 4, or 5 years. A chapter 7 only lasts about 4 to 5 months from start to finish. It will only delay a foreclosure and put off student loan and tax problems. Chapter 7 will not help catch up the back notes on a mortgage. In a chapter 13 you can catch up the back notes over a longer period of time, lower the notes and the interest rate on vehicles and loans.

When to use a Chapter 13

breakup-with-bank-150x150No matter how much you love your bank, there are a lot of good reasons to leave them if you are going to file bankruptcy.  If you don’t want to leave them, you might want to keep your money somewhere else temporarily.

Reason #1 Frozen Bank Accounts

Several nationwide banks, like Wells Fargo, Bank of America, and Chase, freeze bank accounts with significant balances when they get a bankruptcy notice. This would apply to all bank accounts with your Social Security number attached. It doesn’t matter if you need the money to pay bills, or if the money is exempt, the account is frozen and you can’t get your money. Any money going into the account will be frozen.  The bank will claim they are helping the Chapter 7 trustee. The account can be released, but not always quickly or easily.

irs-taking-money-150x150If you get an income tax refund, money is being taken from your paycheck that you could use right now.  If you get an income tax refund, you are letting the government hold and use your money for a year without paying you interest. If you get an income tax refund, you are letting the government hold money that can be seized by other government agencies and some creditors.

Check your tax withholding so you are even at the end of the year. You don’t want to get a refund and you don’t want to owe additional taxes.

Review the amount of taxes withheld being withheld from your pay check. Everyone’s situation changes. A yearly review can help you avoid having too much or too little federal income tax taken from your paychecks. You want to have the correct amount taken out so you can be at a zero balance at the end of the year. The ideal situation is, no taxes owed and no refund due.

Bank-sign-150x150Banks do unexpected things when one of their customers files bankruptcy. Nothing they do is to help you. Even if you think your bank is the greatest, there may be reasons to change banks before you file your bankruptcy case.

  1. They May Take the Money in Your Account.

Your bank owes you the money that is in your account. But if you owe them money on a personal loan or a car loan, they have the right to take the money in your account to pay themselves what you owe them.  This is called a set off, or an offset.  While your bank can do this at any time, based upon the loan documents, the notice of bankruptcy is what will set this off.  All of a sudden, you can’t get to the money in your account. Your money is the bank’s money.

tax-return-150x150I’m speaking of your actual tax return – the 1040 Form with all schedules and attachments.  Make sure you get an electronic copy or a paper copy of your tax return if you’ve filed electronically.  Starting with 2017 tax returns, the IRS may ask you for the amount of your Adjusted Gross Income (AGI) from the last return you filed in order to verify your identity.

The Adjusted Gross Income (AGI) is the amount at the bottom of the first page of your tax return. So, if you file your own tax return, print a copy or save it to your computer before you log out. If you use a tax preparation service, make sure you get a printed or emailed copy from them when the tax return is filed.  Trying to track down the person that prepared your taxes six months or more later to get a copy can be a frustrating process.

There are also many other reasons to always maintain a copy of your tax returns.  For example, you may be asked to provide a copy of your tax return for your child when they apply for college and/or financial aid.  If you are considering filing bankruptcy, you will need to provide a copy of your last two years of tax returns to the Trustee. Whenever you wish to buy a home, you will be asked to provide copies of tax returns by whomever you are applying with for a mortgage loan.

I’m speaking mainly to those who know that they need to file a Chapter 7 bankruptcy case.  If you wait until you are back to work for several months and everything is going well again (except for what is now the older debt), you run the risk of becoming ineligible to file a Chapter 7 case.  Eligibility is not based on how much debt you have – it’s based on your household income for the past six months and whether or not you have any “disposable” income that could go toward paying some or all of your unsecured debt.  The court looks at the past 6 months of your income, compares it to certain qualified expenses, and determines what is left over (your disposable income) that could go toward paying your other debt.  This process is called the Means Test.

For example, today I met with a newly married couple and they both were out of work for several months.  When things were bad, they did some research online about bankruptcy, talked to some friends, and pretty much knew that a Chapter 7 would be their best bet to pull out of this bad situation.  Their credit card bills, medical bills, and various other unsecured debts were all past due, but they had managed to keep their house and car payments current. In this instance a Chapter 7 would be their best option.  They did well in their research and friends had pointed them in the right direction, to my office.  They both got hired at really good paying jobs. However…..they waited and put off contacting me.  They didn’t have any idea how important the timing of the Chapter 7 bankruptcy filing would be. The hardest job I have is convincing people to come and see me early, sooner rather than later. Many times we just talk and make plans to file later on. But at least they would have the information and knowledge about what they need to do and when to do it.

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A paper written by David Bernstein, an economist at the U.S. Treasury, argues that credit card debt can play a part in families losing their homes and that this debt is deepening the mortgage crisis.  He posted this paper as a private citizen, but utilized information from the Survey of Consumer Finance.  Credit card debt, mortgage foreclosures, and access to bankruptcy are linked.

He studied families whose mortgage payments take more than 40% of their income.  Within this group, it is 21 times more likely that they will default on their mortgage payments than people who utilize less than 40% of their income to pay for their mortgage.  But, if these families eliminated their credit card debt, about 1.5 million households could bring their mortgage payments down below that 40% range and increase their chances significantly in keeping their homes.

He also noted that in order to save their homes, more homeowners should consider bankruptcy.  Even if you can’t redo your mortgage, if they were to write off enough of their other debt, they would be able to make their payments.  Bankruptcy offers many more options than people realize and often is significant in helping families to receive a modification to their mortgage.

Yes. You can file bankruptcy in the US if you do not have a Social Security Number (SSN).

  1. There is no requirement that you be a US citizen to file for bankruptcy in the US.
  2. There is no requirement that someone be a US resident to file for bankruptcy in the US.
  3. There is no requirement that someone be in the US legally to file for bankruptcy in the US.
  4. There is no requirement that someone live in the US to file for bankruptcy in the US.
  5. There is no requirement that someone have a SSN to file for bankruptcy in the US.

11 USC 109 states that a person “that resides or has a domicile, place of business, or property in the United States, or a municipality, may be a debtor under this title.”  Debtor meaning a petitioner, bankruptcy filer, person who wants to file bankruptcy.

If you do not have a SSN, you may need to sign a statement to that effect or you could request an ITIN (Individual Taxpayer Identification Number) from the IRS . These are provided by the IRS to those who cannot obtain a SSN.  Although you may file a bankruptcy without a SSN, you must provide acceptable proof of identity at your bankruptcy 341 meeting. Continue reading

Eggs in a basketBankruptcy exemptions are offered at the State and Federal level.  The bankruptcy exemptions determine whether or not your property is protected (exempt) and if not exempt, how much you might have to pay to creditors in order to keep it.   For example, if your household goods are valued at a total of $8,000 and the applicable exemption is $10,000, you would be able to keep (protect) all household goods.  But, if the value of your household goods are $15,000 and the exemption is only $10,000, you would need to possibly pay unsecured creditors the difference of $5,000, surrender a portion of your household goods, or take other steps that are available.

This is all an important part of bankruptcy pre-planning.  Taking a look at all your assets, establishing proper values according to how the bankruptcy courts value property, and then comparing to exemptions to determine if anything is at risk and if so, what are the options at that point. Mississippi offers great exemptions to it’s residents.

So, how do you know what bankruptcy exemptions you can use? In Mississippi, you must be a resident of this State to use Mississippi bankruptcy exemptions.  If you are not a resident, you have the option of using Federal exemptions (just moved to Mississippi, filing bankruptcy in Mississippi – your prior state won’t allow you to use their exemptions, so Federal exemptions are your only choice).  Each State determines the rules under what is allowed – whether you can use their exemptions, other States, or Federal, and if so, under what circumstances.  In Mississippi, you cannot choose to use Federal exemptions over Mississippi exemptions if you are a Mississippi resident.  You must then utilize Mississippi exemptions.