November 20, 2017

What is the Secret to Making Your Chapter 13 Plan Work?

 

After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.

Chapter 13 Trustees are Increasingly Demanding

When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”

  • if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
  • if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
  • if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
  • if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
  • do not plan on keeping time shares or other non-essentials when you file Chapter 13

[Read more…]

IRS May Soon be Out of the Business of Seizing Income Tax Refunds for Benefit of Chapter 13 Trustee

As you probably know, there are two types of consumer bankruptcy cases available to you – a Chapter 7 which wipes out debt, and a Chapter 13 which creates a five year payment plan in which you pay back some or all of your debt with your “disposable income.”  When I prepare a Chapter 13 case, we work with you to create a liveable budget.  The money “left over” after you pay for housing, food, transportation, insurance, utilities and other necessities must be sent to the Chapter 13 trustee, who then disburses these funds to your creditors based on a plan of reorganization that we submit to the court.

What happens if you need to file a Chapter 13, you have not yet filed your tax return for last year, but you know that a refund will be coming your way.  The simple answer is that unless you are paying back your creditors at 100%, your Chapter 13 will demand that you turn over your tax refund check, and will use that money to pay your creditors.  If you know that a refund is headed your way, make sure to tell your lawyer before you file – there are some steps you can take to preserve some or all of your tax refund money.

Your Chapter 13 trustee will also want future refunds paid to the trustee.  This situation is easier to handle – you will want to adjust your payroll withholdings so that you do not have any refund coming.  As far as the Chapter 13 trustee is concerned, your tax refund is kind of like a savings account that artificially reduces your net pay amount.

All of the Chapter 13 trustees in the Northern District of Georgia require debtors who are paying less than 100% to creditors to include in their Chapter 13 plans a provision that authorizes the IRS to intercept any refund payable during the years that your plan is in effect and send this money to the Chapter 13 trustee.  And until now, the IRS has cooperated with the Chapter 13 trustees in redirecting refund money. [Read more…]

Does the Name on the Car Title Matter?

As a bankruptcy lawyer, I have to deal with the consequence of what I call “real world” activities.    In the non-bankruptcy world people make decisions that will save money and make life easier.  For example, blog reader Lou writes me with a question about car titles:

I might need to file chapter 13 in the future.  I filed a Chapter 7 in 2003 and now have a lot of credit card debt.  I have a house but I do not want to keep it. When the house goes into foreclosure the only property I will have in my name is 3 cars valued from $6000 to $8000 each.  I only own one of them.  The other two belong to my parents.  I got loans in my name for the cars because I got the best rates, but when they were paid off I never signed the titles over to my parents.  In a ch. 13 will all the cars be considered mine, or is there a way to prove that they belong to my parents?  My name is the only name on the titles.

It appears to me that Lou and his parents made a common sense decision at a time when bankruptcy was not a consideration.  Lou most likely qualified for better rates because he was working so he made a decision to help out his parents by applying for car loans in his name.   His parents have made all the payments so as far as they and Lou are concerned the cars belong to the parents.

Unfortunately this is not how the bankruptcy court will look at things.   [Read more…]

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