Archive for the ‘Chapter 13 Bankruptcy’ Category

Tax Refunds in Bankuptcy

One of the hottest times of the year for a bankruptcy attorney is tax refund time. That’s because clients usually use their tax refunds to pay their attorney’s fees, both in Chapter 13 bankruptcy and in Chapter 7 bankruptcy.

Why Should I Use My Refund to Pay For My Bankruptcy?

The simple reason is that this is one of the best ways you can spend the money. Instead of going to the casino, or to the movies, you can potentially take your tax refund and discharge thousands of dollars of debt. No more credit card payments! All with one check.

Secondly, if your tax refund is substantial, lets say anything more than $4000 you may not be able to protect anything more than that amount with your Illinois Bankruptcy Wildcard Exemption, which is capped at $4000. The Wildcard Exemption protects any asset in your possession, including your furniture, what you have in the bank and even your television, but only up to $4000. This means that in a Chapter 7 bankruptcy the trustee could potentially seize your tax refund and distribute it to creditors. Which means it makes much more sense to pay your attorney with those funds, especially if its a sizable refund. You must carefully plan your bankruptcy exemptions with an experienced attorney to protect your tax refunds. I have seen bankruptcy trustees ask for debtors to turn over the entire refund check in the middle of the 341 meeting!

In a Chapter 13 tax refunds are now factored into the means test, which means that the amount you receive back as a refund is considered part of your income for Chapter 13 planning purposes. It also may still be considered an asset on the schedules, depending on when you file, how much it is, and how your trustee sees the facts of the case.

To speak with a knowledgeable Chicago Bankruptcy Attorney around tax time about your strategy to protect your refund call Attorney Steven Grace for a free consultation at 312-493-6912.

Chapter 13 Debt Limits

As of April 1, 2017 the debt limits for a Chapter 13 Bankruptcy are $1,184,200 for secured debts, which includes mortgages and other liens secured by property, and $394,725 for unsecured debt, which typically includes credit cards and medical debt among others. If you are above these limits, you do not qualify for a Chapter 13 bankruptcy, which generally means you may have to explore your options under either Chapter 7 but more likely under Chapter 11.

Properly Categorizing Your Debts

If you are unsure as to how your debts should be treated, it is very important to hire an experienced attorney to properly analyze and schedule them on the Bankruptcy Petition. Debts may qualify as contingent or unliquidated, which means they must be listed on the bankruptcy but they do not count towards the debt limits mentioned above.

Contingent Debts

A contingent debt are debts you have no obligation to pay until a certain event or “contingency” occurs. Personal guarantees are usually considered contingent debts, because until a default has occurred, you have no obligation to pay. Cosigned debts are not considered contingent debts, the legal responsibility to pay is considered joint and several by the lender, thus cosigned debts count towards the limit.

Unliquidated Debts

These are the types of debts where your legal obligation to pay has not been determined, typically by a judge or other legal tribunal or arbitrator. Debts such as these typically include personal injury lawsuits, or other suits both civil and even criminal in nature, which typically involve restitution. Until a judge or fact finder has made a determination as to liability or guilt, these debts remain unliquidated, mostly because there’s a chance you could not be found liable.

Undersecured Mortgages and Lien Stripping Issues

The problem that I’m running into lately, especially with people with lingering real estate issues (dilapidated properties still in their name, lawsuits on very old mortgages) is that although you may think a debt is a mortgage and thus secured, that if the value of the property is worth less than what you owe, the remaining portion is considered unsecured debt for Chapter 13 debt limit purposes. So if you have a lot of mortgage debt, and the properties aren’t worth anything, it is very easy to push yourself over the $394,725 debt limit.

In addition, any amounts that are to be lien stripped in Chapter 13 are also to count towards the unsecured debt limit. Which generally means that if you own multiple properties and have an above median income, you are probably going to end up in Chapter 11 where there are no debt limits. But if you have recieved a denial of discharge under 727 then your only option for discharge is the Chapter 13, so keep that in mind.

If you would like to speak with a Chapter 13 bankruptcy attorney in the Chicago area please call Steven J. Grace at 312-493-6912 for a free debt consultation today.

My Chapter 7 Has Been Denied, Now What?

I recently had a client come to me who had his previous Chapter 7 denied under 727(a)(3), 727(a)(5) and 727(a)(6)(c). Evidently a creditor had started to request documents and since he was unemployed at the time, he could not afford the additional fees required to defend this separate adversary action. So the creditor ended up filing a complaint to deny discharge and the Client had to defend it pro se. Needless to say, he eventually lost at the hearing and his Chapter 7 bankruptcy was denied.

You Cannot File A Subsequent Chapter 7 to Discharge Previously Denied Debts

11 USC 523(a)(10) lays out all of the debts that cannot be discharged in a subsequent Chapter 7 case.

The statute states:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt…

(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;

So essentially any debt that “was or could have been listed or scheduled” in the previous case in which the bankruptcy was denied under 727 is automatically non-dischargeable under any subsequent Chapter 7 case. And there is no expiration on this, these debts cannot be discharge in any Chapter 7 case, ever.

There is Hope, the Chapter 13 Super Discharge

You may think you will never be able to get on your feet again, that you will die paying off these debts, but there is hope.

11 USC 1328 states:

(a) Subject to subsection (d), as soon as practicable after completion by the debtor of all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt-

(1) provided for under section 1322(b)(5);
(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a);
(3) for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime; or
(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.

As you can see, 11 USC 523(a)(10) is not listed above. Most courts have read this to mean that debts that were denied discharge under 727 in previous Chapter 7 cases can be discharged under Chapter 13, as long as all of the requirements are met under 1328. This means you pay as much as you can afford to pay under a Chapter 13 plan for a period between 3 and 5 years depending on you income and you can be debt free, even if you have received a denial of discharge.

If you are in the Chicago area and would like to speak further about your options in regards to Bankruptcy, both Chapter 7 and 13 please call Steven J. Grace at 312-493-6912 for a free phone consultation.

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At The Law Offices of Steven J. Grace, based in Chicago, Illinois, we represent clients throughout Chicagoland, including the cities of Deerfield, Jefferson Park, Lisle, Northbrook, Oak Brook, Park Ridge, Schaumburg, St. Charles and Warrenville; and other communities in Cook County, Dupage County, Will County, Grundy County, Kendall County, Kane County, LaSalle County and Lake County.