December 15, 2019

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…]

Can I File Bankruptcy in Georgia if I Live Outside the United States

I was recently contacted by a potential client who wanted to file bankruptcy but lived outside of the United States. He lived and worked overseas, but owned property in Georgia.

The simple answer is YES, he would be eligible to file bankruptcy in the U.S.   But the bigger question remains:  does he really need to file bankruptcy from a foreign country? It might not be necessary for a debtor to file bankruptcy in the U.S. if he lives abroad and plans to remain overseas.   Filing bankruptcy here would protect his assets and income from domestic creditors by discharging the debts.  However, a Georgia bankruptcy may or may not protect his assets in the foreign country, depending on that country’s laws.

What if our prospective client does nothing?  Often, because of time and cost factors, credit card lenders and other American creditors will not spend the time and money to search for and litigate to go after assets in a foreign country.   If one plans to remain overseas and has no assets (such as real estate or bank accounts) doing nothing may make the most sense. [Read more…]

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