Chapter 13 Hearing
I was a brand new attorney and following the suggestion of a friend of mine, I attended some chapter 13 bankruptcy hearings in Downtown San Diego. Intent on gaining a greater understanding of the process I made my way to Trustee David Skelton’s offices to watch the hearings for a couple of hours.
The audience was made up of people who had filed bankruptcy, their attorneys, some creditors and attorneys for creditors.
File Bankruptcy Instead.
Did you know that paying off $60,000 in credit cards at 20% interest in minimum payments will take decades and you’ll pay nearly $200,000 back in payments of nearly $2000 per month?
Did you know that if you paid back the whole $60,000 at 0% interest through a Chapter 13 Bankruptcy, you’d pay back about $70,000 at $1,167 per month and be out of debt in 5 years.
With Chapter 13, you might not even have to pay back the whole kit and kaboodle, because it’s based on what you can afford to pay. Of course it also depending on the property you own as well and every case is different.
With Chapter 7, if you qualify, you could have your debt nubbed down to 0% principal and 0% interest. Of course it also depends on the property you own as well and every case is different.
I’m located in Murrieta close to Temecula, Lake Elsinore, Menifee, Winchester, Moreno Valley, Riverside, Corona, and Wildomar.
What if you make a lot of money but have a lot of debt?
Has a process server shown up at your door yet with a summons and complaint? When you have a higher income, this is a serious problem. If your wages get garnished and you make $9000 per month, then 25% of your check after taxes is a couple of car payments. So now the cars are about to be repossessed. How are you going to get to work? You risk losing that job if you let it move forward.
Have you ever thought that if you could just pay your credit cards what you owe them, you’d be able to handle the payments?
Protection of the Automatic Stay when filing your Chapter 13 Bankruptcy is a much better solution than signing up for a traditional debt consolidation. The Automatic Stay is a Temporary Restraining Order prohibiting Collections! The order comes from a federal court and therefore preempts or supersedes state laws allowing creditors to collect.
A Debt Consolidation program, is a wish and a phone call to beg the creditor not to sue you while you are in repayment. While most creditors will play along, there are many that will not.
A Debt Consolidation is a mangy dog begging for scraps at the doors of justice. “Stay Boy! There’s a good doggie!”
When your chapter 13 bankruptcy payment plan is completed in 3 to 5 years, your temporary restraining order is made into a permanent injunction called your Discharge Order. Even better these Court Orders have teeth. If a creditor violates one of them whether during or after your bankruptcy, you can sue them in the bankruptcy court and they have to pay your attorney to sue them to get them to back off or even pay you back. When you hear the word “stay” think of the word “stop”. The Automatic Stay stops foreclosures, repossessions, wage garnishments, bank levies, creditor harassment and driver’s license suspensions. Debt Consolidations do not provide the same protection as that of a Federal Court Order. Debt Consolidations can possibly help you reduce your interest rates if you beg.
Chapter 13 Bankruptcy forces your creditors to work with you and your attorney whether they like it or not. While in debt consolidation which is voluntary, some of your creditors aren’t going to work with you. The debt consolidators pretty much know which ones and under what circumstances they won’t work with you. The debt consolidators that have been working the deal for a while should already know which ones are not going to play along. But for some reason, they never tell you: “Oh and by the by, Equable Ascent Financial (or Asset Acceptance or Your Creditor Here) is not going to take your offer and they’re going to sue you now. But just keep paying the monthly payment so that I can take my percentage and pay the other creditors slowly but surely while you get sued. And I also told them that you have a new address, but oh ya, I forgot to tell you that too, even though you didn’t move or anything . . . but just keep paying your monthly payments so that I can get my monthly percentage of your payments, okay, thanks.”
The Chapter 13 bankruptcy repayment plan reduces interest rates down ZERO 0% and can reduce principal balances down to as little as ZERO 0% on your credit cards, medical bills, personal loans to private lenders, even older taxes as well. Debt consolidations outside of bankruptcy can reduce interest rates too, so long as the creditor in question goes along with it. On rare occasions principal balances might be reduced too for the few creditors who decide to go along with it.
Chapter 13 Bankruptcy can reorganize all of your debts, such as repaying and restructuring your recent back taxes, your missed house payments, and even spread the last 2 or 3 years on your car payments out over 5 years thereby reducing the car payments by half or more. Often even if you repay your credit cards and medical bills in full but cut the interest rate down to 0%, in every case I’ve seen, you will have a lower payment than if you go to a debt consolidator outside of a bankruptcy.
45 Celebrities and Entrepreneurs who Filed Bankruptcy
Chapter 7 is a short procedure.
The California Board of Equalization and California Franchise Tax Board are a bunch of rats clamoring over a cadaver with very little meat left on it’s bones. If you ever make an offer to compromise a debt, never have the money in an account with your name on it. Your attorney’s trust account might be a good place.
DISCLAIMER: Nothing in this article OR WEBSITE may be mistaken as legal advice. Attorney David Nelson, is licensed only in California, and this article is intended only for readers in California. This article is for entertainment, educational, extra-curricular, and medical purposes only. If you decide to rely on this, heaven help you. Remember also that I’m not a tax attorney, I’m a bankruptcy attorney in Murrieta near Temecula CA.
Yes, you can discharge taxes in bankruptcy. No, not all of them but some of them. I hate to mention this part, when it comes to credit cards, medical bills and collection agencies, I only want one statement so that I have the addresses, account numbers and balances. But with the IRS, Franchise Tax Board and Board of Equalization, I want you to bring every letter with you that they ever sent you. In those letters are the answers to many of the questions and rules we will go over below. California sales taxes are calculated against gross receipts and therefore discharge in bankruptcy under ALMOST the same rules. For the specifics of the noticing requirements which you must give the California Board of Equalization in an article written Mark Sharf regarding the Ilko case, Ilko v. California Board of Equalization, click HERE.
To discharge income taxes, whether Federal or State, or California Sales Taxes, many rules have to be followed. Because this article only discusses income taxes, then it is important to remember that these are taxes that are assessed against gross income or gross receipts. See 11 USC 507 a 8 and 11 USC 523 a 1
There are several rules involved. What’s worse is that the rules all involve the timing of the bankruptcy. Often you’re in my office because of a lawsuit or a wage garnishment, or your bank account has recently been levied and you want to file immediately in order to stop the bank or your employer from sending your money to the Sheriff’s Office.
Problem is this, if you owe a bunch of money to the IRS and have to wait to file your bankruptcy in order to get rid of the tax, you’re going to have to decide whether the amount of tax to be discharged is more or less important than the amount of money the Sheriff is about to take away from you. Notice that I said more important not bigger.
- The tax year must be over. Kind of a “No Duh” moment.
- The tax return (if required) must have been filed. This is also sort of a “No Duh” moment. Prior to 2005 you used to be able to discharge the tax even you hadn’t filed your return if you chose to file a chapter 13 bankruptcy instead of a 7. Many great things about the bankruptcy code were eviscerated in 2005 when republicans and democrats who had taken hundreds of millions of dollars in lobby money over the course a decade finally gave us bankruptcy reform. Conveniently this happened right at the start of the economic downturn. Literally, the housing market went flat one month before the bankruptcy reforms went into effect. Hmm, I wonder how the banks knew it was finally time to get the bankruptcy reforms passed? Bottom line is, if you owe federal or state income taxes in California and you haven’t filed your returns, your bankruptcy is not going to help you get out of paying your taxes. So file your tax returns, make sure you get proof that they received them, and call back in two years. But what if you were audited, and at the end of the audit, you signed the audit, that is not a substitute for your filing of your return? What if you didn’t file a return and the IRS files one for you? When it comes to filing returns, YOU must be the one who files it, not the IRS, or other taxing authority. If you cannot remember if you filed the returns, contact the IRS and get an IRS Transcript for the tax year or years in question. You can download the Transcript request from the IRS website.
- If it turns out that you didn’t file your return, then you will have to decide if you want to file your tax return now and then wait for just over two years to file your case, can you handle the other wage garnishments, bank account levies and lawsuits that will take place during that time. You will have to weigh the amount of tax you can get rid of compared to the amount of wages that will be garnished and what will happen to your bank accounts and having to go to court for judgment debtor exams, and if you don’t go to the judgment debtor exam, the court will issue a bench warrant for your arrest and on and on.
- DISCLAIMER: Make sure that you speak with an attorney now and get this advice from an attorney as bona fide legal advice before you make your decision. This article is not your legal advice.
- The tax return’s due date must have been more than 3 years prior to the filing date of your bankruptcy petition. Notice it says “Return’s Due Date”. Commonly called the 3 year rule, this is where most people stumble and file their bankruptcy petition too early. Tax Returns are due in April! On top of that, if you got an extension to August, then they were due to be filed in August. What if you extended to October? If you cannot remember if you extended, contact the IRS and get an IRS Transcript for the tax year or years in question. You can download the Transcript request from the IRS website. Alternatively if there is nothing else pressuring you to file you could just wait until October 20th to file. I assume you can get a tax transcript from the Franchise Tax Board or Board of Equalization if you need one. A little while ago, the IRS decided that all extensions were automatically extended to October 15th, I don’t remember which year that started, but from now on, if you think you filed your extension to August, then you must file your bankruptcy in November 3 years later.
- If you filed your tax returns late, your returns had to have been filed with the IRS or other taxing agency at least 2 years prior to filing your case. This is true whether you owe income taxes to the IRS or the State of California or whatever state you owe taxes too.
- Assuming you have beaten the 3 year rule, and the late filing rule, you still have to have beat this one. The tax must be assessed at least 240 days prior to filing your bankruptcy petition. That’s about 9 months. Assessed means that they have decided you owe, how much and told you so. In California, you get a letter that says: Notice of tax due. It won’t say “assessment” and probably won’t say “assessed” either. California’s notice of tax due is a weird animal, it does not become effective until 60 days after they send it. So, in California, it’s a 300 day rule from the first letter. Our Franchise Tax Board will send a 2nd letter stating that the notice is “final” and from there your 240 days starts. At this point people often ask the IRS, Franchise Tax Board or Board of Equalization if they will take less, give them a break. Called an offer to compromise, if you’re going to file a bankruptcy, DON’T DO IT. An offer to compromise delays the 240 day rule. Sort of like the extensions on filing your tax returns under the 3 year rule. You have to add 60 days to the time that your offer is pending plus the time that your offer is pending to the 240 days. That can extend your 240 days automatically by 60 days even if you withdraw the offer to compromise the tax debt on the same day as you make the offer. If you filed a bankruptcy previously during the 240 day period and it was dismissed and now you have to refile, you must add the amount of time your bankruptcy was pending to the 240 days plus another 90 days. So, even if your previous bankruptcy was dismissed after a month you must add 4 months to the 9 months. That’s an overdue baby.
A client, and no kidding his real name was Groucho Marx, (the names were changed to protect the innocent) owed $50,000 to the Board of Equalization, and $250,000 to the IRS. And no kidding, his rich uncle, (it wasn’t his uncle) died and left him some money, 15% of the total taxes owing. After calling the IRS and talking them into taking a 15% pay off, the IRS put a condition on the deal, he had to get the State of California’s Board of Equalization to take the same deal. Stupid condition but that’s what they told him. So, he calls the BOE and says hey they’ll take 15% if you do, what do you say? Unfortunately, they said, “we’ll get back to you.” A week later they answered by taking all of his money out of his bank account.
Even if since Bush the IRS is kinder and gentler, the Board of Equalization and Franchise Tax Board in California are a bunch of rats clamoring over a cadaver with very little meat left on it’s bones.
In Murrieta and Temecula a chapter 13 bankruptcy is a fantastic financial tool for restructuring your debt and making life easier and finances manageable. You could potentially reduce your monthly payments by several hundred or more than a thousand
In Murrieta and Temecula there are great places to obtain debt consolidation loans. In many cases a debt consolidation loan is a fantastic financial tool for restructuring your debt and making life easier and finances manageable. Particularly when your debts are for the types of obligations that are not revolving or renewing.
If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need. A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes. You can reduce a car payment, both by cutting the interest rates and extending the term of the loan and paying it off ahead of the credit cards. You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too. Your credit cards and medical bills and gambling markers get paid whatever is left over.
Example: if you owed $15000 on a car, $15000 in back child support and $30,000 to credit cards, and if your budget only allowed a payment of $700. You’d setup a 60 month plan for $700/mo. Normally you’d have to pay probably $1500 to $2000 per month on that debt depending on interest rates and terms. Of the $700/mo that you would pay for the 60 month plan, your credit cards would get approximately only $200/mo. Less in fact because the bankruptcy trustee would take his fees out of that $200 and also the car would have a small interest rate applied but not compounded.
While sufficiently old enough income taxes can be discharged in a bankruptcy, more recent income taxes cannot be. Income taxes that date back only one, two or three years cannot be discharged in bankruptcy. This is true in California for the Federal and State income taxes as well as California Sales Taxes. If the debt is sufficently high you may want to consider waiting out the time required and then filing a bankruptcy when they are ripe enough to do a bankruptcy.
However, if the debt would be manageable if you just had a low interest rate and a fixed payment for 36 or 48 or 60 months, then a debt consolidation loan might be right for you. Keep in mind that the interest that the IRS charges is 10% but on top of that, stiff penalties are added whenever the debt has a remaining balance. If you set up a minimum payment plan directly with the IRS, you’re having more than a 20% interest rate and unpaid interest and penalties are capitalized back into the loan. Worse is that if you end up owing money next year your payment plan will be cancelled and the full balance on both years will be immediately required by the IRS.
A Debt Consolidation Loan may be exactly what you need in this situation. As a quick side note there is a special bankruptcy rule which states that if you obtain a loan to pay a tax and then try to discharge the new loan in a bankrutpcy, you must follow the same bankruptcy rules as though it were still a tax in order to discharge it.
Student Loans and Back Child Support
Neither of these is dischargeable in bankruptcy. However, neither Student loans nor Child Support have that same rule as the income taxes. If you obtain a consolidation loan to pay off student loans or child support, and you later find yourself unable to pay off the new loan, there is no bankruptcy rule forcing you to follow the student loan bankruptcy rules nor the child support rules for the consolidation loan. So, they get discharged.
There are plenty of student loan debt consolidation programs and some have 20 year payment plans, or extended plans and some have income contingent plans. However my favorite is to just get a normal consolidation loan. It does better things for your credit files and credit scores and if you fall on hard times afterwards, you can discharge it in a bankruptcy.
Open Credit Cards with Zero Balances
By far the worst thing you can do is to consolidate credit cards with a new loan or line of credit. Examples I’ve seen come into the office include but are not limited to the following, a couple has $60,000 in debt consolidation loans and another $60,000 in revolving credit on 10 different credit cards. Ike, the husband had gambled up $60,000 in credit cards so his wife, Inez went to the bank and got a consolidation loan and paid them off. However, it left 10 credit cards open with zero balances.
That’s like handing an open bottle of Rum to an alcoholic pirate; no impulse control and he gambled them all up again.
In Murrieta and Temecula, if your debts are primarily credit cards consider filing chapter 7 bankruptcy or if you make too much money, file a chapter 13. Imagine how much happier Inez would be if she’d talked him into filing a bankruptcy instead of running up the 10 credit cards over again. How many arguments about money could have been avoided? How many arguments did they have about the low income, the missed vacations, missed investments, missed retirement savings? If those credit cards had been closed permanently, they might have stayed married.
I’ve seen a spouse get a consolidation loan, and then call all the credit card companies and close the accounts. It didn’t work. The other spouse just called all the credit card companies the next day and asked for the cards to be opened back up again. And the credit card companies did it.
If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need. A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes. You can reduce a car payment, both by cutting the interest rates and extending the term of the loan, and you pay it off ahead of the credit cards. You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too. Your credit cards and medical bills and gambling markers and whatnot get paid whatever is left over.
All the cards are closed and no one is going to call back and reopen them either. Call me now and lets get you started doing something about your debts. Take action and fix your finances. 951-200-3613.
Non-Profit Debt Consolidation
There are tons of non-profit debt consolidators in the Murrieta and Temecula areas. In general what they do is, set you up with a debt consolidation plan. One place put it this way, “You will be able to combine most, if not all of your unsecured debt and make one single monthly payment.” Your accounts don’t vanish, you haven’t done a consolidation loan, but instead the debt consolidators pay your various accounts monthly as you pay the debt consolidation company. They claim that you will become more organized and eventually learn to understand your finances better through participation in the program. Finally they stated that debt consolidation “may reduce” your payments.
You may have heard that “those who can’t, teach.” Well, if someone wants to teach you about your debts, ask yourself how much they can do about it? (As an aside, most of the teachers I know are quite able and deserve more than they’re getting right now, but these debt consolidators are often not even college grads.)
Hmmm, “May Reduce”? Wait a minute, isn’t that why you are thinking about contacting these people in the first place, because you don’t have the income currently to meet all the financial obligations that you have right now? I doubt that’s the deal your looking for. I expect you’re looking for a will-reduce-your-payments type of plan. Certainly there are a few of you who can afford all of your debts and are just looking for a way to get organized and if that’s the case, maybe a debt consolidation company is right for you. But if you’re like most people who are looking into this you’re probably looking to make a bit more progress than that.
What most of these companies will tell you that they do is that they contact your credit card companies and medical bills and what not, and they negotiate a payment for you. Either they are going to try to reduce the principal, interest, extend the term of the contract or a combination of them.
But what they do not tell you is that, if they’ve been doing this for a while, they already know which of your credit cards are going to play ball with them and which will not. How could they not know? Think about it. However, they will never tell you that you have a card or account that won’t want to participate.
So, they set you up with a debt consolidation payment plan and never tell you that one of your accounts didn’t like the terms and decided not to participate. Instead, after getting a reduced payment or even no payment at all, 6 months or 10 months later, that card sues you. You call up and exclaim, Wells The Fargo! Why am I being sued? And the debt consolidators tell you, “oh goodness, it appears that they’ve decided not to participate.” At that point you’re going to have to file bankruptcy before you have your wages garnished or a bank levy hits your checking and savings accounts.
And why does that sweet little old non-profit debt consolidation company do that to you? For the money! Yes, fans that’s right, for the money. Just because they’re not for profit does not mean that the officers of the company don’t take a huge salary. It just means that they cannot declare a dividend to share holders. So, what difference does it make? Answer: You’re paying bankruptcy prices to non-lawyers for a non-legal service without the great results you’d get if you simply filed a bankruptcy instead.
So wait a minute, you’re only paying them $20/mo and about $300 down to set it up, right? (low end some charge you thousands) That’s a lot of months that they’ve set up your payment plan for. How much did they tell you? 48 months? 36 months? 36 x 20 = $720 and if they have 500 of you making payments through this type of plan that’s $10,000/mo plus $150,000 in set up fees. And as one debt consolidator put it, “I keep the float.” Meaning every month he’s got tens of thousands in his accounts collecting interest from his bank and he absorbs that interest for himself. And for all that they “may reduce” your payments which means that one of the credit cards may not participate and will sue you. Maybe not but good luck getting a guarantee out of them.
Chapter 13 Bankruptcy
Do you know what one is? It’s a debt consolidation plan with the Federal Bankruptcy Code behind it backing you up and forcing your creditors to listen up and back down. Creditors must take the plan. I love it, we reduce interest rates on creditors to 0% and often reduce principals down to 5% or 10% of the total balances.
Try as you might, you could pay off all your debts
First Stockton filed bankruptcy, then San Bernardino’s Bankruptcy followed now Compton, (not much of a shock), and rumors that Los Angeles’ Bankruptcy is on the horizon.