Archives for July 2013

How Chapter 13 Really Works When You Are Behind on a Mortgage

Using a Chapter 13 Bankruptcy Filing to Restructure Your Mortgage

If you are in arrears on your house payments, a Chapter 13 bankruptcy reorganization filing can help you get your financial situation under control while simultaneously putting a stop to the seemingly endless calls, letters and threats of legal action from your mortgage lender. When you file for protection under Chapter 13, an automatic stay immediately goes into effect, preventing your lender from calling, writing or taking legal action to collect on the mortgage debt. At the same time, you can negotiate new terms to your mortgage loan so that your payments are within your means.

How It Works

In a Chapter 13 bankruptcy petition, you work with your creditors to put together an acceptable reorganization plan, whereby you agree to repay your creditors over a three-to-five-year period. In most instances, however, the amount due on your mortgage cannot be repaid in this period of time. Instead, what you will do is work out a new payment plan that is within your means during the bankruptcy period. Ideally, when you complete the Chapter 13 process, all or most of your other debts will be eliminated and discharged. You will then be able to afford your mortgage payment, and may even enter into an agreement to pay your home off in a shorter period of time.

You don’t need to worry that your mortgage lender will demand an unreasonable payment from you during the bankruptcy period. A bankruptcy “levels the playing field” and gives you and your lawyer the ability to counter unreasonable positions taken by secured creditors. This is the point when a good lawyer will help your creditors understand that smaller payments that you can afford are better than larger ones that you cannot.

Contact Neuner & Ventura, LLP

Let us help you take back control of your life! We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every new potential bankruptcy client. (We do, however, reserve the right to charge a fee to review any work done by another attorney). For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request
Representing Clients across South Jersey

Health Savings Accounts not protected in bankruptcy, 8th Circuit BAP holds

Many people today have “Health Savings Accounts”, to provide tax free access to income that can be used to pay qualified medical expenses. These accounts were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and allow persons covered by a  “high deductible health plan” to save money tax free by payroll deduction for future medical expenses.

Generally, pensions and retirement plans are protected from creditors in a bankruptcy. The debtor in In re: Leitch tried to protect his account from being grabbed by the trustee in his bankruptcy, claiming it had the same protection and that it could be exempted as a disability or unemployment benefit, or as the proceeds of a personal injury claim.

The 8th Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court in rejecting all these claims. The HSA account, it agreed, was a trust account to which the debtor had unrestricted access for any purpose. Although withdrawals to pay qualified medical expenses were tax free, the money could be withdrawn for other purposes, in which case it became taxable.

 People with these types of accounts will have to use other exemptions to cover them. In New Jersey and Pennsylvania, that exemption is the “wild card” exception under 11 U.S.C. 522(d)(5) which can afford protection up to a total of $12,050.00 for property that does not qualify for other exemptions.

As always, the most critical decision people in financial trouble can make is to get the right advice from professionals who have both the knowledge and the willingness to take time going over the details.

How Chapter 13 Really Works When You Owe Income Taxes

Reorganizing Tax Debts through a Chapter 13 Filing

As a general rule, most income tax obligations cannot be discharged in a Chapter 7 bankruptcy filing. You can, however, include tax debt in a Chapter 13 reorganization. When you do, you will propose a “Plan” that includes arrangements to repay or otherwise deal with your tax debts over 3 to 5 years. Just as important, you will have the benefit of the automatic stay, which prohibits the IRS, state treasury departments and other revenue agencies from calling, writing or taking legal action to collect a debt from you while the bankruptcy is underway. You can also challenge the amount claimed due as taxes in the “friendly” forum of a bankruptcy court, rather than a more distant “tax court”.

How It Works

When you include tax debt in a Chapter 13 reorganization filing, that debt will be classified either as priority debt or non-priority debt. Priority debts must be repaid in full as part of a reorganization plan, but non-priority debts need not be fully paid. Non-priority debts include most tax penalties. Older tax debts may also be non-priority. Since most tax debts cannot be discharged in Chapter 7, filing for protection under Chapter 13 will provide the added advantage of forcing the taxing authorities to accept payment out over a longer period of time at lower interest. If you file for Chapter 7, your tax debt will still be due in full after your discharge.

Priority tax debt includes:

  • Income taxes due under a timely filed non-fraudulent tax return which was last due over 3 years ago.
  • Any taxes you were required to collect or withhold, such as sales or use taxes, and income tax, employment taxes, Medicare and Social Security for employees
  • Excise taxes or customs duties

Even if the tax does not fit into this category, there may be tax liens against your property. These liens will remain if not satisfied or dealt with in bankruptcy. In a Chapter 13 case, it may be possible to substantially reduce the amount of these liens.

Tax issues in bankruptcy are complex and very fact specific. Qualified legal and tax advice is very important. We have helped many people obtain relief from taxes through bankruptcy.

Contact Neuner & Ventura, LLP

Let us help you take back control of your life! We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every new potential bankruptcy client. (We do, however, reserve the right to charge a fee to review any work done by another attorney). For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

IRS CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.

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