BANKRUPTCY EXEMPTION PLANNING TO AVOID LOSING TAX REFUNDS:

Bankruptcy trustees can take the next tax refund you receive after your bankruptcy case was filed. Do you like to use tax withholdings as a savings account?  Some people like to save with Uncle Sam at the bank of IRS.  Perhaps these people like this method of saving because it is automatic.  While it is true that you don’t have an option when it comes to paying taxes, you could be creating some undesirable consequences if you instruct your employer to withhold more than is necessary to pay your tax liability.

The most obvious negative consequence is that you will have less money to spend each month because you send more cash than is necessary to the IRS.  Remember, the government does not pay you interest for using your funds.  Another negative consequence is that you cannot simply withdraw that extra cash when you need it.  You can only withdraw it after completing a somewhat burdensome form once a year.

For bankruptcy filers the negative consequences associated with over withholding taxes can be much worse.  Tax refunds are not exempt.  Bankruptcy trustees love the tax payers who over withhold taxes from their paycheck.  The tax refund checks which might have been sent to the person filing bankruptcy will, instead, be sent to the trustee in the bankruptcy case and used to pay the trustee who gets a 25% commission on the funds collected and the balance will be used to distribute to the creditors.

 WHAT CAN YOU DO TO PROTECT AGAINST THIS POTENTIAL LOSS?

As soon as possible, adjust your withholdings so you will break even at tax time.  If you have been over withholding for more than half of the year, you need to compensate by withholding less during the remaining months in the year.

If your bankruptcy case was filed on August 11, 2011, 222 days have passed since January 1, 2011.  The tax refund you might have received in 2012 will be divided between you and the bankruptcy estate with 61% of the refund going to the trustee unless you take appropriate action now.

If necessary, get help now to evaluate whether you are withholding too much from your pay check for taxes.  The sooner you take action in reducing your withholdings, the less you will lose to the bankruptcy trustee.

Protect your bank account in bankruptcy through exemption planning:

Most people filing bankruptcy, even in chapter 7 cases, don’t lose their stuff if they have prepared before filing bankruptcy so that on the date they file bankruptcy, they don’t own any non-exempt assets.  Some states, like Arizona, do not have a wildcard exemption.  Therefore, the exemption laws may only protect a certain amount on deposit in a bank account.  In Arizona, the amount which can be exempted is only $150 per debtor in a single bank account.

Most people have their paychecks automatically deposited into their bank account and pay their bills with either paper checks or with pre-arranged automatic debits from the account by those who provide regular services to the account holder.  The amount on deposit in the bank account will fluctuate greatly throughout the month and careful planning is necessary to avoid loss of money to the trustee in bankruptcy.

Below are some good practices to avoid loss of money in your bank account to the trustee:

1.  Don’t file bankruptcy on the day of or soon after your paycheck is deposited to your bank account.
2. Stop writing checks to pay bills approximately 2 weeks before filing bankruptcy and make sure your outstanding checks have all cleared your account before filing bankruptcy.
3. Use cashier’s checks or money orders to pay bills.  This will immediately deduct the money from your account.  However, be certain you actually deliver the cashier’s check or money order prior to filing bankruptcy.  Some courts have ruled that the mailing rule does not apply here.  Because a person could stop payment on a cashier’s check or money order, the debtor still owns the money until the check or money order is in the hands of the payee.
4. Debit card transactions can be better than a cashier’s check if there is a problem delivering the cashier’s check or money order.  However, make sure the debit transaction actually clears your bank and is not just “pending” at the time your bankruptcy case is filed.
5. If you have multiple bank accounts close all but one account for each debtor or alternatively deplete the extra accounts down to a level that is below what you are willing to lose to the trustee.
6. If you receive Social Security benefits use a separate bank account which you should have the bank label as your Social Security account and don’t comingle the Social Security funds with any other funds.  There is no limit to the amount of money you can have on deposit in a bank account which is entirely money from Social Security benefits.

Bankruptcy Exemption Planning Could Save Your Car:

Most people don’t lose their car when they file bankruptcy because the applicable exemption laws of the state usually allow the debtor to exempt one car per debtor up to a certain dollar amount of equity.  However, if the amount of equity (Fair Market Value minus all valid liens) is more than the exemption amount, the trustee may choose to sell the car, pay the person who is filing bankruptcy the exemption amount, and use the balance to pay creditors.

WHAT CAN BE DONE TO PREVENT THE POSSIBLE LOSS OF YOUR CAR?

The equity in the car can be reduced by a valid lien perfected prior to filing bankruptcy.  This practice is legal and will usually not cause any problems for the debtor filing bankruptcy if the debtor takes care to avoid certain situations which will cause problems. Below are some good practices to follow and also some traps to avoid:

Was the granting of the lien supported by consideration?

• You cannot just give away your property to keep the creditors from benefiting from the sale of your assets.  Likewise, you cannot just grant someone a lien on your car without receiving valuable consideration in exchange for the granting of the lien. If that happens, the trustee, at best, will avoid (reverse) the transaction and take the car anyway.  In every case I have seen the valuable consideration exchanged was money.

Was the lien recorded (perfected) within 30 days of receiving the money?

• Avoid the trap of not perfecting the lien within 30 days of the receipt of the money and prior to the filing of the bankruptcy.  Failure to complete perfection in time could result in loss of the car.

Was the money received actually spent before filing bankruptcy?

• Remember, the money received is also non-exempt.  Unless the money was spent to pay living expenses or to purchase exempt assets, the trustee will require the money to be turned over to the trustee.  It is wise to keep receipts to show how the money was spent.

We are on track for another great seminar on Saturday, July 23rd from 10-11 A.M.  The seminar will take place at our offices in Chandler on Cooper and Ray.

This will be a great time for anyone in debt and not sure what to do.  Click on the link for more info.  Free Bankruptcy Seminar in Chandler.

Being in debt and dealing with the stresses that come with it can be painful.  Whether it’s creditors calling and harassing you, overdraft fees in your bank account, being sued or a late mortgage.  It’s a recipe for getting overwhelmed and sometimes trying to avoid even thinking about it.  Well, that doesn’t help.  Getting some control back into your life is the way to go.  Knowing your options will help you get a clear picture of how to move your life forward and get past the hard times.  We are putting on a seminar on Thursday, May 26th to help the local community.  This seminar will be about bankruptcy and how you can legally get a fresh start and stop the craziness.  Click here for more information about the seminar in Chandler.

Filing for bankruptcy is without question one of the most stressful periods of time in a person’s life. Unfortunately, society attaches a number of negative stigmas to personal bankruptcy leaving many debtors feeling insecure and devalued. Most people going through bankruptcy would rather keep it secret from their friends and family, and many debtors even experience severe emotional reactions to the stresses of bankruptcy.

But bankruptcy can be a good thing too. Not only for your wallet, but your emotions and health as well. All of the stress that comes with piles of debt and harassing creditors can cause serious health concerns for many people. Filing bankruptcy provides much needed financial and emotional relief. Most people feel a heavy burden lifted from their shoulders after filing their bankruptcy paperwork. And the day you receive your discharge paperwork, it can feel like a second chance at creating a debt free and financially healthy life.

Without question there are a lot of different emotions one goes through during a bankruptcy, but it’s important to keep your emotions separate from the bankruptcy process. Too many times people make emotional decisions regarding filing bankruptcy. Its all too common for homeowners to come to attorneys seeking bankruptcy information in an effort to save their home, the same house they have two mortgages on, owe more than the home is worth, and have all around negative equity in. Why do they even want to keep this house? It’s usually because of an emotional attachment to the home they can’t seem to shake. Often times they even know reaffirming their mortgage is a bad idea. I only share this story to illustrate how important it is to separate your emotions from the business of bankruptcy.

It’s also important to understand that millions of Americans go through the same process each year. Chances are, at least one of those friends or family members you don’t want to know about your financial troubles has gone through a bankruptcy themselves. But there is one person who you should never hide any aspect of your financial affairs from, your bankruptcy attorney. Your bankruptcy lawyer has been there before and it’s important to share everything with your attorney about your financial affairs. Talk with your attorney about your feelings and concerns, and listen to his input, as seasoned professionals who understand the bankruptcy process and how to get you back to a financially manageable life (after all that is the main goal of any bankruptcy) he will know what works and what doesn’t.

And most of all, remember there is a light at the end of the tunnel. Filing bankruptcy can help reduce all that stress and helplessness that comes with uncontrollable debt, putting you on the track to financial freedom.

We are having a free bankruptcy seminar on Thursday, January 27th at 7-8pm.  We have been putting on these seminars for a while and we really get great feedback.  If you looking to get a fresh start and eliminate your debt, this is great event for you.  If you are in foreclosure and you want clarity on what you should do with your home, register here.

Every now and again we come across the question, “What can I do if I forgot to add a creditor to my bankruptcy filing?” Unfortunately, this question isn’t really all that uncommon in the world of bankruptcy law.

Every bankruptcy filing should include a comprehensive list of all debts, both secured and unsecured. However, most bankruptcies are filed as a response to a financial crisis and occasionally some debts are inadvertently left off the original filing. Should this situation ever arise it may be possible to add an amendment to your bankruptcy filing to include the missing creditor(s).

The United States Code: Title 11, 523,(3),  states that a debt not listed on the debtor’s schedule can not be discharged if the creditor has a claim to any of the following:

• Fraud
• Theft
• Willful or malicious actions by the filing party
• The creditor would have/could have received monies owed through the bankruptcy estate.

If none of the above circumstances exist, than discharging the unlisted debt can most likely be accomplished. Of course the debt can not be a “new” debt meaning it had to exist prior to the filing guidelines for your bankruptcy. Any debt incurred during or after the point which you originally filed your bankruptcy paperwork will not be accepted or discharged as the debtor’s schedule is viewed as a final ledger of the debtor’s financial standing.

Adding a debt to the bankruptcy filing after the fact will result in additional penalties and fees to the court.

Of course the best course of action is to carefully prepare for your bankruptcy filing ahead of time. Make sure to divulge all your debts when you meet with your bankruptcy attorney and let your attorney determine which debts can be discharged and which can not. Don’t assume that a debt can not be discharged or conceal or hide any debts or financial activity from your attorney. Pulling a credit report 30 days prior to your bankruptcy filing date is also a good way to ensure you haven’t left any debts off your schedule.

One of the most important things you can do as you prepare to file bankruptcy is to stay well organized and keep exact records of all your financial dealings. These documents and expenses are used by the court to determine your financial capacities and what forms of bankruptcy protection you are eligible for.  In simple terms, saving all your receipts is a must when filing for bankruptcy protection. This is because like any other area of law, a bankruptcy hearing requires evidence; evidence in the form of financial documentation.

According to the US Bankruptcy Code Section 727, a bankruptcy discharge can be denied if a debtor has “concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information” that might be used to ascertain the debtor’s financial situation and standing. In other words, the trustee is going to examine all of your assets and expenses. Failing to adequately record and document your financial transactions can create all kinds of problems in a bankruptcy case, ranging from having an expense disallowed in your budget to having your entire bankruptcy case tossed out for failing to adhere to Section 727.

While preserving receipts for all your transactions should go without mention, it happens more often than one might think. Common problems that can arise in bankruptcy filings stem from debtors paying rent with cash, to even handling smaller expenses without receipt such as childcare fees, charitable donations, and even loans. Debtors who pay rent or the nanny with cash (especially to relatives or friends) risk the appearance of “fraudulent transfer” which if suspected can be disastrous on a bankruptcy hearing.

The best practice in any situation, but especially leading up to bankruptcy is to collect receipts for all your expenses, large or small, and let the trustee determine which are meaningful. Always create documentation for loans, even if the loan came from a family member. Otherwise the loan could be included as monthly income and affect your means test score. Keep copies off all your bank statements as well, and be sure to provide all your receipts and financial documents to your bankruptcy attorney prior to the filing date. And of course, if you are unsure about whether or not to include an expense or receipt consult with your attorney beforehand.

In summary: Make sure to put everything in writing before filing for bankruptcy.

It’s almost official. It looks like for the first time since 2005 Arizona will surpass the previous record for bankruptcies.

Phoenix area bankruptcy filings already hit an all time high for 2010. According to an Arizona Republic article and U.S. Bankruptcy Court in Maricopa County there were 28.849 separate bankruptcy filings between January and November 2010. Even with December filings left to be counted, this beat the previous record of 28,277 filings in 2005. The 28,000 plus filings also surpasses the number of bankruptcies conducted in 2009.

Statewide the record looks to be broken as well. Through November the number of bankruptcies state wide sits at 38,522. Once December’s numbers are included all indicators are Arizona will almost certainly pass the 39,204 filings record set in 2005 as well.

It’s not a huge surprise that more people sought bankruptcy protection in 2010 than previous years. A lagging job market combined with record unemployment highs and a slumping housing market made Phoenix a volatile market for the 3rd straight year. While there is no way of knowing for certain, there are no signs of bankruptcy filings significantly slowing down through 2011.

The article on azcentral.com also points out Chapter 7 filings accounted for roughly 4 out of every 5 bankruptcy filings in Phoenix in 2010.  Chapter 7 bankruptcy eliminates all consumer debt (minus debts like child support and student loans) and is provides consumers with a fresh start. Additionally, chapter 7 is what most people think of when they think of bankruptcy and is the most common form of bankruptcy for individuals.

Still there are signs that bankruptcies nationwide could have peaked in 2010. Bankruptcy filings have been down 13% since October and filings seem to be curbing in the metro Phoenix area as well. The number of bankruptcies expected in 2011 is anyone’s guess but it’s possible that the number of filings will be close to but not break the records set this year.

If you didn’t have a chance to read the Arizona Republic article you can view it here, http://www.azcentral.com/business/articles/2010/12/19/20101219Valley-bankruptcy-filings-hit-record-1219.html