Archives for September 2014

Using a Chapter 13 Bankruptcy Filing to Keep Your Home

Large HomeIf you face unmanageable debt and are facing foreclosure or behind on your mortgage payments, but still want to try to keep your home, a Chapter 13 bankruptcy may be your best option. A Chapter 13 bankruptcy is a simplified form of personal reorganization for individuals, in which you pay your creditors according to a court-approved plan. Here’s how a Chapter 13 works in this situation.

Once you file for protection under Chapter 13, an automatic stay goes into effect. Under the automatic stay, your creditors (including your mortgage lender) must immediately stop all efforts to collect the debt, other than through the bankruptcy proceeding. This stay means they cannot call, write or take any legal action — file or continue lawsuits, initiate foreclosure proceedings, etc. — in an attempt to get you to pay any amount on the debt.
In a Chapter 13 proceeding, you can take up to five years to bring your mortgage payments current, provided you start paying again and remain current after filing your bankruptcy. How you do this is based on a plan that needs to receive court approval and in most cases, to have the approval of the Chapter 13 trustee. Typically, you will work with your attorney to propose a plan that takes into consideration your income as well as all your debt. In order for the plan to be approved, certain requirements apply. First, you have to have money left over to pay the trustee after you meet your basic living expenses. (this is called “disposable income”). If your income is high enough, your minimum payment may be dictated by a formula commonly known as the “Means Test.” You must fully pay most taxes and any child support or alimony arrears, as well as other “priority” debts. You qualify only if your debts are under certain eligibility limits. You can expect to be required to contribute “substantially all” of your “disposable” income through the plan. You have to pay your creditors at least what they would have gotten in a Chapter 7 bankruptcy. If you meet all these requirements, court approval, or “confirmation” of the plan generally follows in due course.

While your plan is underway, the automatic stay remains in effect throughout the entire three-to-five-year period. You must, however, stay current with the payment arrangements or the bankruptcy court may terminate the bankruptcy and lift the automatic stay.

Bankruptcy is only one of the many practical and legal considerations in these situations. Getting early advice from an experienced and qualified bankruptcy attorney is very important to maximizing your chances of success.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every 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 Central and Southern New Jersey

How to Stop IRS Garnishments and Levies

Using Bankruptcy to Deal with Tax Problems

Hand written time sheetIf you have incurred tax liabilities and the IRS has either garnished your wages or threatened to levy your assets, you may have considered bankruptcy as a way to deal with the problem. A bankruptcy filing can help you manage tax arrearages, but there are specific restrictions.

Important first steps.

First, you need to assemble all your returns for which money is owed. If you have not filed any returns, now is the time to get them prepared and file them, even if you do not have the money to pay. You should have the advice of a qualified accountant or tax adviser.

If you do not have the returns, you or your tax adviser can request a tax transcript.

Take note if any state or federal tax liens have been filed. Federal tax liens are generally filed in the county where you live. In New Jersey, tax liens are called “debt certificates” and are docketed as judgments.

Using Chapter 7 to Address Tax Liabilities

Typically, a Chapter 7 liquidation proceeding is not the best way to resolve a tax liability. Most tax debts are simply not dischargeable in a Chapter 7 proceeding. To be discharged in a Chapter 7 case, a tax obligation must be:

  • Income based — you cannot discharge unpaid sales taxes, excise taxes, or taxes for money you collected from employee payroll but did not pay over to the taxing authority.
  • For a return that was last due at least three years ago and for which you actually filed a return no later than two years ago.
  • For a tax that was assessed at least 240 days ago
  • For a debt that was not incurred through fraud or willful evasion.

This is a simplified discussion. The rules and their application are more complex. Some taxes and most tax penalties can be discharged.

Because of the difficulty of discharging most tax debt, the practical effect of filing a Chapter 7 petition is that it will get you relief while the Chapter 7 case is in process, but the taxes and interest (but not most penalties) will immediately become due again once the Chapter 7 is complete.

Using Chapter 13 to Manage Tax Debt

With a Chapter 13 filing, you will be entitled to the automatic stay, which applies to tax obligations. You will then propose a plan that must provide for full repayment over a period of up to five years of all “priority” tax obligations. As long as you make your payments as agreed, the tax authority may not seek to accelerate the amount due or attempt to collect more than you have agreed to pay.

Dealing with IRS or state tax liens

Often, the IRS or state taxing authorities will have filed tax liens. Unless paid or otherwise dealt with, these liens remain after bankruptcy, allowing collection of any otherwise unpaid balance out of income or property. In a Chapter 13 case, it may be possible to “cram down” these liens to the actual value of all your property.

Any way you look at it, tax problems are serious business. While we are not qualified tax attorneys or tax advisers, we can help you use and apply bankruptcy, in conjunction with your accountant or tax adviser.*

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. To set up a meeting, 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.

Chapter 7 Bankruptcy Filing to Keep Your Home

House and calculatorIf you are facing financial challenges, you may be considering filing for personal bankruptcy protection. If you want to keep your home, though, you may be uncertain whether you should file a Chapter 7 or a Chapter 13 petition. While a Chapter 13 is, in most instances, the best approach for restructuring your debt and keeping your residence, there are some instances in which you can use a Chapter 7 petition to protect your home.

The Exemption on the Equity in Your Home

In a Chapter 7 bankruptcy proceeding, a bankruptcy trustee is empowered to sell certain nonexempt assets in exchange for your receiving a permanent discharge of most debts. As part of your “fresh start” in bankruptcy you are allowed to keep for yourself certain assets up to permitted values. (In New Jersey bankruptcies, the federal bankruptcy exemptions are available and are almost always the ones selected by debtors). The trustee looks at a hypothetical sale to calculate what amount of money if any will be available after selling the home, paying the broker and other costs of sale, paying off any mortgages and unpaid real estate taxes, paying his own commission, and paying you the amount you have claimed as exempt. The remaining money for creditors is the “non-exempt equity”.

If there is nothing left for creditors, the trustee will “abandon” the residence by a Notice in the Bankruptcy Court. This abandonment is good for debtors. It means that the trustee is giving them back the property as being of no value to the Trustee.

This is the goal most debtors have. To achieve it, having some reliable proof of value to provide the trustee (and for you to know what the home is really worth) is essential. Just as important, however, is to have a current statement showing the balance due on each mortgage. An experienced and qualified bankruptcy attorney will know how to determine if your home is at risk and to help you protect it if a bankruptcy is needed.

In Chapter 7, another option if the home has too much value, may be to “redeem” the home by paying the trustee, from family loans, retirement funds, or other monies that the trustee has no right to. The amount the trustee will accept will be based, usually, on what would be left in a sale by the trustee.

In these situations, however, a Chapter 13 filing may be the better option. There, you can pay creditors the “equity” they would have gotten from a Chapter 7 trustee by payments over 3 to 5 years. The details of this and which is the better option are too complicated for discussion here. These are matters to take up with an experienced and qualified bankruptcy attorney.

You can still lose your home to foreclosure, even if the Chapter 7 trustee concludes he or she doesn’t want to sell it. The trustee may give up his claim to it, but the mortgage lender can still foreclosure, either after you receive a discharge or after the lender gets an order for “stay relief”. In these situations, Chapter 13 may be the better option. In Chapter 13, you can bring the mortgage current through an approved plan. An option if you want to keep your home is to obtain a personal loan or use retirement funds (which are exempt from bankruptcy) to pay the trustee the amount that would have been received in a sale of the house on the open market.

For many people who are struggling to pay their bills including their mortgage, a Chapter 7 bankruptcy can help them keep their home by freeing them from the burden of paying credit cards or other debts so that more of their available money is left to pay a mortgage.

All these considerations are heavily dependent on the facts of your individual situation. Getting early advice from a qualified and experienced bankruptcy attorney is essential. Early planning can make all the difference in the world.

Contact Our Office

At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across South and Central New Jersey

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