November 25, 2017

Unfiled Tax Returns and Chapter 13

unknown tax liability and chapter 13 bankruptcyChapter 13 bankruptcy cases filed in the Northern District of Georgia cannot be confirmed by the bankruptcy court judge if the IRS or State of Georgia files documentation reporting unfiled tax returns.  The reason?  If you have unfiled tax returns, your potential tax liability is unknown.  Since Chapter 13 consists of a payment plan that must fit within five years, an unknown liability means that there is no way to calculate whether your proposed plan payment will work.

Further, prior to your Section341 hearing your Chapter 13 trustee will want to see a copy of last year’s tax return to (a) confirm that you have filed it, and (b) to cross check the annual income figure reported on Schedule B of your petition with the income figures shown on your tax return.

As you can see, therefore, your Chapter 13 cannot get past the trustee or the judge if you have unfiled returns.  Currently the IRS reports unfiled tax returns over the past 10+ years, so you should not assume that if your unfiled returns date back many years, you are in the clear.  In fact, the statute of limitations to determine when tax debt may be discharged in bankruptcy as stale does not begin to run until your returns have been filed.

What can you do, however, if you need to file Chapter 13 to stop a foreclosure, repossession or other emergency, and you have unfiled tax returns? [Read more…]

Chapter 13 Bankruptcy Fraud Case Reaches 11th Circuit Court of Appeals: Why You Should Care

conviction for bankruptcy fraudEarlier this week, the 11th Circuit Court of Appeals issued a ruling in the bankruptcy fraud case of United States v. Turner. Here are the relevant facts:

Mr. Turner owned a parcel of rental property that was destroyed by fire. His insurance carrier issued a check to him for $40,000. Two days after receiving this check, Mr. Turner filed Chapter 13. Three days after filing, Turner deposited the check, used $11,500 to pay off the mortgage on the destroyed property and kept the rest of the money.

Several weeks after these financial transactions, Mr. Turner filed his bankruptcy schedules. He did not list receipt of the $40,000 check. He also claimed that the balance on the rental property mortgage was $50,000, rather than $11,500.

The bankruptcy trustee discovered these inaccuracies and moved to convert Mr. Turner’s case to Chapter 7, which the court approved. Three years later the United States attorney filed an action against Turner for bankruptcy fraud for making false statements and he was convicted. The 11th Circuit agreed to consider Turner’s appeal. [Read more…]

Pay Your Mortgage After You File Chapter 13 if You Want to Keep Your House

In my latest Bankruptcy Law Network post, I talk about a Chapter 13 debtor’s obligations after his case is filed.  In this video I talk more specifically about a Chapter 13 filer’s obligation to make his on-going mortgage payments, on time, as they come due after filing.


Am I Required to Make Mortgage Payments After Filing Chapter 13? from Jonathan Ginsberg on Vimeo.

Don’t Forget that You have Payment Obligations in Chapter 13

Chapter 13 can transform an upside down budget into one where your income equals your outflow, and it can reduce your total debt, sometimes by thousands of dollars.

Chapter 13 only works, however, if you pay what you are required to pay by your Chapter 13 plan.  Specifically, for cases filed in the Northern District of Georgia, you will have to pay your mortgage(s) directly and you will need to pay your Chapter 13 trustee your plan payment until the payroll deduction kicks in.

You cannot and must not be passive about your payment obligations – if you are not current with your post-filing mortgage payments and your initial trustee payments, your case may be dismissed.  In this brief audio podcast, I discuss what you need to keep in mind about your direct payment obligations in your Chapter 13 case.

Car Titles and Chapter 13

return of vehicle titleAn issue that that seems to arise in more and more Chapter 13 cases has to do with the release of car titles.  Even when the vehicle lender has been paid in full in the Chapter 13, there seems to always be a delay or problem getting the vehicle title released back to my client.

It seems that vehicle lenders are taking the position that they do not have to release a vehicle title back to the bankruptcy filer until the case is over, instead of when the lender is paid in full.  In my view, lenders are acting improperly when they do not return my client’s title, and in most cases they will back down, although it may take a letter or a phone call from me.

As you probably know, Chapter 13 modifies the installment contract between a debtor and his vehicle lender.  In effect, Chapter 13 allows a bankruptcy filer to refinance his vehicle loan.  In a recent case I filed, for example, my client owed $12,000 to her lender and was paying over $450 per month, with just under 2 years left on the loan.  I proposed a Chapter 13 plan that paid $275 per month to the lender.  The lender was going to be paid in full but under my plan, it was going to take just over 4 years to get the lender paid.  The Chapter 13 plan also set out an interest rate for the payout.

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Chapter 13 Trustees Looking to Squeeze Every Last Dime from Debtors

Over the past couple of years I have noted an unsettling trend in my Chapter 13 casesTrustees in the Northern District of Georgia are scrutinizing budgets line by line and are objecting to budget items in an attempt to force debtors to increase their trustee payments.

I am even receiving objections to the total amount of expenses claimed.  In a recent case, for example, the trustee filed a supplemental objection a week before confirmation which asserted that the debtor’s total claimed monthly expenses were too high.  When I called, he pointed out four or five specific line items and I obtained and presented supporting documentation from my client.

My client advises me that he is literally having difficulty buying food and the trustee acknowledged that our claimed expenses were legitimate but he would not back off his objection because the total payout to unsecured creditors was less than 50 cents on the dollar.  There is no resolution yet, but we agreed to reset the confirmation until after the date that all claims are due – presumably some of the unsecured creditors will not file claims, meaning that the ones who do will receive a higher payout. [Read more…]

Can Facebook Ruin Your Bankruptcy?

social media and bankruptcySocial Media sites, and Facebook in particular, have changed the practice of law.  Divorce lawyers regularly review the opposing party’s Facebook profile for evidence of adultery or hidden assets.   Prosecutors present online photos to juries as evidence of guilty behavior.  Bill collectors troll social media sites looking for assets and debtors.

And don’t think that limiting access to your profile to “friends” only will help.  Facebook information can easily be subpoenaed – do not assume any right to privacy for your online materials.

How has Facebook and similar sites impacted the world of consumer bankruptcy.  In this guest post, Charlotte bankruptcy lawyer Damon Duncan, identifies three situations where your careless use of Facebook could have serious bankruptcy implications: [Read more…]

What is “Lien Stripping” and Can I Use it to Reduce my Mortgage Payments

mortgage lien stripWith the decline in Atlanta area housing values, a seldom used bankruptcy technique has taken on new life.  The technique is called “lien stripping” and it arises from Bankruptcy Code Section 506(a) and (d).  A lien strip allows a Chapter 13 debtor to use the power of the Bankruptcy Court to transform a secured second mortgage or home equity line of credit into an unsecured debt, thereby eliminating a monthly payment and reducing total debt by tens of thousands of dollars.

Here’s how it works: Let’s say that you own a home worth $250,000.   Perhaps that home was worth $350,000 three or four years ago but its market value has dropped because of the recession.  The balance on the first mortgage is $270,000 and the balance on the second mortgage is $45,000.

In this case, a Chapter 13 debtor can ask his bankruptcy judge to “strip away” the second mortgage debt since all of the value in your home is encumbered by your first mortgage.  In other words, if you were to sell your house, the first mortgage lender would not be paid in full and the second mortgage lender would get nothing.  The second mortgage lender is, therefore, unsecured. [Read more…]

The Problem with 401(k) Loans and Consumer Bankruptcy

Most of the clients who I represent in Chapter 7 or Chapter 13 cases view bankruptcy as their absolute last resort.  Usually, by the time they get to me, these clients have exhausted every other alternative – they have borrowed money from relatives and friends, sold possessions on eBay and cashed out or borrowed against retirement plans.

All of these choices, by the way, create unintended consequences – if you are reaching that point of desperation where you are thinking about selling things, cashing out retirement plans, etc., I would rather that you call me  before taking any action because of the risk that you might unknowingly lose some of the benefit from your bankruptcy filing, or possibly disqualify yourself altogether.

Retirement plan loans such as 401(k) loans create a variety of issues and are almost always a bad idea in a bankruptcy context.   Presumably you borrow against your 401(k) because you need cash now, you expect to repay that loan in the near term, you want to preserve your 401(k) account for the future, and because you do not want the tax consequences associated with cashing out your 401(k).

Bankruptcy trustees, however, look at 401(k) loans in a different light.   They see any allocation to repay a 401(k) loan (and sometimes any ongoing contribution to a 401(k) plan) as an unnecessary reduction of disposable income that would otherwise be available to pay creditors.    401(k) loan payments cannot be counted as allowable deductions in your means test calculations.   And both Chapter 7 and Chapter 13 trustees and/or creditors will often object if you include a 401(k) loan repayment allocation in your Schedule I and J budget in either a Chapter 7 or Chapter 13. [Read more…]

Examples of Bankruptcy Fraud

bankruptcy fraudLast October, I wrote a post on this blog about bankruptcy fraud, and pointed out that everything included in a bankruptcy filing is subject to scrutiny by the office of the United States Trustee, which is an arm of the United States Department of Justice.  In other words, false statements on a bankruptcy petition could land a debtor in hot water – dismissal of the bankruptcy case, fines and even prison.

Because the bankruptcy process can seem informal, it can be easy to forget that a Chapter 7 or Chapter 13 filing is made up of documents filed in a federal district court and subject to investigation by the F.B.I.

Attorney Gini Nelson, a New Mexico bankruptcy lawyer, recently published a post about bankruptcy fraud in the Bankruptcy Law Network blog.  Gini’s post includes a link to the IRS.gov site containing examples of bankruptcy fraud investigations.   I found the IRS.gov link especially interesting in that one can get a sense of the type of fraud that bankruptcy debtors have attempted and the level of fraudulent activity that generated prosecution.  Given the highly interconnected and electronic public record access that is available to bankruptcy trustees as well as government investigators I can’t believe any of these folks believed that they would not be caught.

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