Archives for February 2015

Even the big guys are guilty of making matters worse through denial-Detroit’s bankruptcy experience is an object lesson for many others

As you know the City of Detroit filed a Chapter 11 bankruptcy, and after a lengthy and expensive process, is emerging from Chapter 11, ostensibly with its finances in order and its future brighter. A recently reported interview with the now-retired bankruptcy judge who handled the bankruptcy suggests that in the years leading to its bankruptcy, Detroit’s city fathers fell victim to a common malady, namely desperation and denial, and that this led to expensive mistakes.

According reports of an interview given by Judge Steven Rhodes, the city made an expensive and ill-considered deal to try to fend off  the pension default that ultimately was a major impetus to its bankruptcy filing. The suggestion is that the City would have been better off had it simply bit the bullet earlier.

This syndrome of denial and “kicking the can down the road” is, in my experience, all to common, and leads to desperate and ill-considered attempts to stop the inevitable bankruptcy.

A common example is the business owner who borrows money against her home (or from the IRS by not handing over employee withholding trust funds) to keep a failing business alive. To be sure, saving a viable business and carrying it through a temporary rough patch is not a bad thing. The problem is that too often, there has been no effort to find out what is causing the problems, and no effort to deal with those problems.

Another face of this is the refusal to even consider the option of bankruptcy as an alternative until quite late in the game. Sometimes by the time this is considered, the situation has gone from bad but cureable to desperate and incurable.

Our advice to business owners is to always consider all the options, and to do so earlier rather than later. An early bankruptcy might solve critical problems that will only get worse and save the business, whereas later matters have gotten out of hand, and the once-saveable business is doomed.

Individuals are just a guilty of this. I cannot count the number of times I have seen couples  whose solution to mounting credit card debt caused by income that was not enough to cover their spending was to borrow against home equity or emptying retirement accounts.  The underlying problem is still there, and like Detroit, they are just “kicking the can down the road”

The lesson of Detroit is that financial problems do not get solved unless one gets to the source. Short term solutions, such as borrowing more money to meet a cash flow deficit, just delays the inevitable and makes matters worse.

It is never too soon for people or businesses in financial trouble to engage in careful and broad based planning. All choices and options should be considered.

Can Bankruptcy Help You If You Owe Money Because of a Car Accident?

Can You Use Bankruptcy to Discharge a Judgment against You Resulting from an Accident?

Car accidentThough most judgments and settlements in motor vehicle accident cases are paid and defended by insurance companies, it is possible to have personal liabilities that are not covered by insurance. For example, you may not have any insurance coverage, or not enough coverage. In some cases, the insurance company, rather than defending, may “offer the policy limits” to the defendant. If the damages are more than that amount you may end up on the receiving end of a collection action.

Most insurance will not cover suits arising from an assault or other intentional tort, such as a bar fight.

So the first line of defense is making sure you are insured. But if you are not covered, a bankruptcy discharge may provide you the relief you need. But not all such debts are dischargeable.
Debts arising from death or personal injury caused by illegal operation of a motor vehicle boat or aircraft while drunk or under the influence of an illegal drug cannot be discharged in any bankruptcy. If there is insurance, the insurer will still have to pay, but anything the insurance does not pay will still be your liability after your bankruptcy discharge.

If convicted and required to pay restitution or fines as part of a sentence, that amount will be non-dischargeable in either Chapter 7 or Chapter 13. Note however that in New Jersey, motor vehicle insurance surcharges, but not criminal fines or penalties, can be discharged either in Chapter 7 or Chapter 13.

Debts arising from willful and malicious injury to a person or property may become non-dischargeable in a Chapter 7 case if the injured person files a lawsuit in the bankruptcy case seeking such a ruling. There is a limited time for such suits and if the deadline is missed, the debt is discharged. In a Chapter 13 case, no such requirement exists, and if death or personal injury was caused, the debt is not discharged. However, debts for willful and malicious injury to property (eg. vandalism) can be discharged.

A special caution is in order here. To qualify for Chapter 13, the total unsecured debt in a fixed and determinable amount cannot exceed a dollar limit, currently $383,175.00. Once a jury verdict, settlement or judgment is entered specifying the liability, that liability gets added to this total. Thus it may be critical to file a Chapter 13 case while the injury or criminal case is still pending and before any of this happens.
As always, it is best to avoid these types of situations, but if these issues exist,

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Chapter 13 to Manage Tax Arrearages

Managing Tax Debt with a Chapter 13 Plan

IRS buldingAs a general rule, a bankruptcy discharge will not remove personal liability for most tax debts. See our previous blog post on that subject. Generally, taxes that are non-dischargeable are also entitled to a priority in payment in Chapter 13, and must be paid in full over time under an approved Chapter 13 plan. Those debts that are not “priority debt” will be discharged with the same right to payment as other “non-priority, unsecured debt” such as credit cards. That debt will be pooled with other similarly situated debt, such as medical expenses and credit card debt, and the amount of payments on those debts depends on a number of factors, including how much income is available after priority and secured debt have been paid. Often, these debts are only partially paid, with any amounts still upon completion of all plan payments being discharged.

Tax Liens may be subject to “cram down”

Taxing authorities such as the IRS and states such as New Jersey will obtain tax liens by various means. For the IRS to have a valid enforceable lien in a New Jersey bankruptcy, it must file a Notice of Tax Lien in the county where you own real estate, or where you reside or where a business has its principal place of business. Unless modified, these liens must either be satisfied or remain undisturbed in a Chapter 13 bankruptcy. This would mean that the lien is still attached to real estate or other property when the bankruptcy is over.

However, under a procedure called “cram-down” a tax lien can be reduced to the value of all property to which it attaches, and if that amount is paid, can be removed at the end of a case. For example, if John has $120,000.00 in IRS liens, but the total value of everything he owns, (including profit sharing plans) is only $50,000.00, then he is permitted to pay only $50,000.00 and upon paying that amount to the IRS in his Chapter 13 plan, the lien will be discharged and removed.

Taxes are complex and specialized advice is needed. 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.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

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