In order to assist you in selecting the right bankruptcy attorney, you should strongly consider the following evaluation factors when interviewing or consulting with any attorney:

Experience – The knowledge and ability to successfully handle the variety of issues that may arise before or after the filing of a bankruptcy petition is the most important factor for the evaluation of a bankruptcy attorney. Each bankruptcy case in unique and your case is unique within itself. The great number and more extensive of the diversity of bankruptcy cases that your attorney has worked on, means that is more likely that your bankruptcy attorney will be able to obtain your bankruptcy discharge or have your repayment plan approved.

Your bankruptcy attorney should not have filed less than 20 bankruptcy petitions within the last six months. Beware of firms that do not specialize in bankruptcy law, or firms that have just started to practice bankruptcy within the past 12 months. Make sure that the bankruptcy attorney or Massachusetts law firm that you chose to work with has a longstanding track record of success in the bankruptcy court, and makes you feel confident that they have expertise in bankruptcy law.

Multi-disciplinary expertise – Your bankruptcy attorney should have significant expertise in real estate, tax and corporation’s law, as well as civil litigation experience. Typically, with most bankruptcy cases, issues may arise in the areas of real estate, corporations, or tax law, or sometimes lawsuits result in a bankruptcy case. A bankruptcy attorney who has experience and the resources to advise you on different areas of law and resolve potential issues that may arise in a bankruptcy case will greatly ease the progression and success of your bankruptcy case.

Communication – Effective communication from the beginning of any client- bankruptcy attorney relationship, and is essential for the success of your bankruptcy case. An experienced bankruptcy attorney will provide his/her clients with many methods of communication (phone, e-mail, web, fax), as well as a bankruptcy support staff that can quickly assist any bankruptcy client with their needs. It is important that your bankruptcy attorney not “leave you in the dark,” as the bankruptcy process can sometimes become daunting and intimidating. It is also important for any bankruptcy attorney to keep any bankruptcy client updated on the status and progress of their case, and advised if any issues with the bankruptcy trustee or creditors should arise during the process.

Professionalism - Your bankruptcy attorney should come across as professional. Does the attorney have a physical office that you can visit? What type of impression do you get from the attorney’s website, is it informative, professional looking, current? A first impression can say a lot about an attorney. Did the attorney present you with a fee agreement before he asked for money? All these things show how professional your attorney is, if you answer no to any of these questions, then you should look for someone else.

FACTORS THAT YOU SHOULD NOT USE WHEN CHOOSING THE RIGHT BANKRUPTCY ATTORNEY

Cost – The legal fees charges by your bankruptcy attorney should not be your primary decision factor when selecting the right bankruptcy attorney for you. Many attorneys who charge their clients lower attorney’s fees than the industry average have less experience and a short track record of success in the District of Massachusetts Bankruptcy Court. Naturally, the more qualified, diverse, and well experienced attorneys charge greater legal fees than inexperienced attorneys new to the bankruptcy practice in Massachusetts. The old adage applies here:”You get what you pay for.”

Location – Selecting a bankruptcy attorney in your town or city, or a bankruptcy attorney who is within short distance to you place of employment is not always the best decision factor. Many bankruptcy clients who look for a bankruptcy attorney within the Boston-metro area of Massachusetts or outside of their immediate location are likely to find bankruptcy attorneys who meet the important criteria discussed above.

Any prospective client considering bankruptcy should interview several attorneys before making a final decision on who will assist them in putting in place their financial future. Asking questions about experience, multi-disciplinary expertise, and capabilities to communicate will help you determine the right attorney for you. Also you may want to ask yourself during the initial consultation whether you have developed a comfort level with your bankruptcy attorney and feel confident in hiring that individual to assist you in your bankruptcy needs. Selecting the right Massachusetts bankruptcy attorney is an important life decision, and we hope that these important factors assist you in your search for legal representation.

When you file bankruptcy, an “automatic stay” goes into effect, immediately halting nearly all collection attempts against the person filing the petition.  One of the things that is “stayed” are evictions.  Once your bankruptcy petition is filed, either Chapter 7 or Chapter 13, your landlord may not proceed with eviction attempts except under certain circumstances.

However, you must be cautioned against filing bankruptcy for no other reason than to stop an eviction.  Some bankruptcy courts consider this to be an abuse of Chapter 7 bankruptcy. If the bankruptcy court finds that this is true, the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.

If you are not filing for the sole purpose of stopping eviction, then you should consider the following:

If You File Bankruptcy Before Your Landlord Wins Possession

If you have fallen behind on your rent, or you have violated your lease and your landlord is seeking eviction and has not won a judgment for eviction; then bankruptcy automatic stay will stop the eviction proceedings. However, in most cases, this stay will be lifted shortly after you file.

Removing automatic stay. Most likely, your landlord will file a motion in the bankruptcy court that will allow him to “lift” the automatic stay and allow him to proceed with eviction.  In most cases, the stay will be lifted within a matter of days and your landlord will proceed with eviction.

Drugs and Damage exception: If your landlord has initiated the eviction process because of the use of illegal drugs and/or causing damage to the property, then your landlord may serve a certification with the bankruptcy court which will cause the automatic stay to be lifted.  You have fourteen days to contest this certification; however, you must prove your case in a series of hearings and other proceedings.

If You File Bankruptcy After Your Landlord Wins Possession

If your landlord initiated eviction and has already obtained a judgment for possession then the automatic stay does not stop eviction.  Your landlord may proceed with removing you from the property.  Although there is a very limited exception to this rule, it does not apply to tenants in Massachusetts.

Back Rent

While bankruptcy cannot prevent eviction in either of the two situations listed above, it will prevent your landlord from collecting back rent.  Back rent is an unsecured debt that will be discharged upon the completion of the bankruptcy proceeding.

Conclusion

If you are being evicted from your home, the automatic stay may buy you a few days or a few weeks. However, if your landlord asks the bankruptcy court to lift the stay and let the eviction precede, most likely, the court will agree. It is seldom a good idea to file for bankruptcy solely because you’re being evicted. You’ll be better off looking for a new place to live or fighting the eviction in state court.

If these bills are passed, they will have a major impact on all homeowners in Massachusetts and would significantly consumer bankruptcy in Massachusetts.

Proposed Changes to the Massachusetts Homestead Statute

Currently: to take advantage of the Massachusetts homestead statute a homeowner must actively file a declaration of homestead with the registry of deeds where their property is located.  If passed, the new legislation will do the following:

1. Create Automatic homestead protection:  every homeowner will automatically be entitled to a homestead in the amount up to $125,000. Individuals and families with more equity in their homes can still file a declaration of homestead with the registry of deeds and will be able to protect up to $500,000 of their equity (the amount of the declared exemption under current law).
2. Beneficiaries of trusts are entitled to homestead protection.  Therefore, if your property is held in a trust, then the beneficiary is permitted to a homestead in the property.
3. Mortgages cannot terminate previously filed homesteads.
4. If you sell your home, or it is destroyed and you receive insurance proceeds, those funds are entitled to homestead protection (for up to a year for sale proceeds, and two years for insurance proceeds)
5. Transfers among family members will not terminate a previously declared homestead.
6. Manufactured homes are eligible for protection under all provisions of the statute.

Increase in Personal Exemptions from Execution

Personal exemptions from execution are those personal items that cannot be seized if someone obtains a judgment against you.  These exemptions are also used on bankruptcy because they represent the maximum value of an asset that you can keep without having to forfeit.  The current values of assets has not changed since the 70’s.  This means that many times, debtors were forced to surrender certain belongings to the trustee because the value of the exemption was too low.

Significant Proposed Changes to Personal Exemptions Statute

1. the proposed legislation would increases most of the personal property exemptions to adjust for the cost of living since the exemptions were last revised in the 1970’s. For example, the exemption amount in an automobile increases from $700 to $7,500.
2. New exemptions are created to account for items necessary to a modern household
3. Two new sections would provide for a “wildcard” exemption to cover personal property not covered by a more specific exemption.
4. A new limited exemption for jewelry.
5. Moreover, there would be an automatic cost of living adjustment, which is crucial to keep the Massachusetts exemption scheme current.

These changes are long overdue and would go along way to helping protect debtors and homeowners by allowing them to keep the basic necessities.  Moreover, these two statutes would also align Massachusetts with most other states.

1. Under the new Bankruptcy Laws Everyone has to repay their creditors. False: In 2005, the bankruptcy laws were changed to provide a test to see who can qualify for a Chapter 7 Bankruptcy. Essentially, if someone has sufficient income, and the ability to repay a portion of their debt, then they will have to file a chapter 13 which will require them to enter into a court supervised repayment plan with their creditors. The new law does not prevent people from filing and in most situations people are still able to get the same relief now as before the law changed.

2. Once I file Bankruptcy my credit is ruined for life. Not Quite…while bankruptcy is a blow to your credit rating; it is not permanent. Because most people have numerous charge offs and sometimes even a collections lawsuit on their credit report before they decide to file, most people will actually seen an increase in their credit score within 1-2 years. Moreover, most of our clients report that they are able purchase cars and homes within 2 – 3 years.

3. Only deadbeats and losers file for bankruptcy. False…Most people file for bankruptcy after a life-changing experience, such as a divorce, unemployment or a serious illness. They’ve struggled to pay their bills for months and just keep falling further behind.
Moreover, some famous people who have filed bankruptcy who were (or are) successful include: Walt Disney, three US Presidents, Larry King, Donald Trump, and Henry Ford.

4. All debts can be discharged in a bankruptcy filing. False…certain debts cannot be discharged through bankruptcy. For example, child support, student loans and most taxes, and debts incurred by fraud (to name a few) cannot not discharged. This list has exceptions and is not exhaustive. If you have questions, contact a bankruptcy lawyer.

5. You can’t get rid of back taxes through bankruptcy. Generally speaking, this is true. However, under some circumstances income taxes are dischargeable. The rules concerning discharging taxes are complicated; so if you owe income taxes, an experienced bankruptcy lawyer can tell you if you can discharge the taxes.

6. Filing bankruptcy could cost you your job. No. The current bankruptcy code prohibits discrimination against an individual who is in bankruptcy or who has bankruptcy in the past.

7. You will never be able to own property again. Not True. Once you receive your bankruptcy discharge, you bankruptcy if finished. You can continue to live your life and can purchase and sell property like everyone else. Creditors will eventually lend to you again to help you with large purchases and you are able to purchase whatever you can afford.

8. Everyone will know I filed for bankruptcy. False. Bankruptcies, like all court records are public; however, in order to see the records, one has to actually go to the court and look for them. Bankruptcy is not published generally the only people who are going to know are those who you tell. Some people think that newspapers carry bankruptcy filing information, this is simply not true.

9. I will lose everything I own. Again this is false. Once you file bankruptcy, you will be able to keep certain property up to a certain value; this property is known as exempt. Most bankruptcies are known as “no asset” bankruptcies, meaning that you get to keep all of your property and all of your unsecured debts are discharged. Exemptions vary from state to state, so it is important to speak with an experienced bankruptcy attorney in your area.

10. Creditors can still harass me if I file for bankruptcy. Not Legally. When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.

11. I can be turned down for filing bankruptcy. Mostly False. So long as you are honest on your petition, don’t try to conceal assets and don’t lie about your income an experienced bankruptcy will be able to file you in the proper chapter bankruptcy and your debts will be discharged. The bankruptcy statute is designed to help ALL honest debtors who need help. If you lie on your petition, or try to conceal assets, then the justice department will seize your assets to repay your creditors and you will not have your debts discharged. Moreover, you could end up in jail.

12. Bankruptcy is easy; I don’t need an attorney. False. The bankruptcy code is extremely complex; so complex that a lot of attorneys choose not to practice in the field. If you fail to take all the proper steps leading up to filing bankruptcy, then you risk losing your home, and/or all of your assets. We have represented several clients who wanted to save money and who filed bankruptcy without an attorney and messed up on their petition and/or filed under the wrong chapter. They ended up paying us three or four times more in legal fees to fix the mess that they made than they would have paid us to file their bankruptcy in the first place.

By no means is this an exhaustive list and there are many more misconceptions out there. If you have any questions, then you should contact us and schedule a free appointment. You have nothing to lose and we can provide you with the facts you need to make an informed decision.

When deciding to file bankruptcy, it is important to understand that Bankruptcy can remain on your credit report for up to 10 years.  However, when you consider that a collection lawsuit, repossession, or foreclosure will also remain on your credit report for the same period of time; bankruptcy may be the best option since the bankruptcy eliminates your obligation to the underlying debt.  This is an important consideration when you consider that in a repossession, you will be responsible for the remaining outstanding balance.  Moreover, although a bankruptcy may stay on your credit report for 10 years, it will only take a few years after a bankruptcy discharge to rebuild your credit.

Step 1: Filing Bankruptcy

Believe it or not, the bankruptcy discharge itself, which liquidates all, or most of your actual debt, improves your income-to-debt ratio instantly.  This, by itself, will help to increase your credit score.

Step 2: Obtain Credit and Use It

After your discharge, you will receive credit card and other solicitations fairly shortly. Most of these will be high-interest, low limit credit cards.  Normally, I would recommend that you avoid these offers like the plague; however, it is a simple truth that you have to be in debt to establish credit.  Therefore, I recommend that you obtain one of these cards and actually use it, sparingly.

Bankruptcy eliminates your past credit history.  Therefore, you must establish a new credit history to rebuild your credit score.  By using the card and making payments, you will establish a new credit history.  Your use of credit is reported to the credit bureaus and will help accomplish this goal.

Step 3: Stay Current and Lean From Your Bankruptcy Experience

I hope that Bankruptcy was a learning experience.  Follow these rules when using your credit card.

1. Do not use your credit card if you do not have the money to repay it.  A credit card is a tool; not a crutch.
2. Use your credit card only for emergencies or large necessities and don’t use it again until the balance is paid.
3. Never carry a balance on your card more than two months of disposable income.
4. Pay more than your minimum balance.  If you cannot afford to pay more than your minimum balance, then you can’t afford a credit card and should wait to try to rebuild your credit.
5. Never transfer a balance unless you actually intend to close your account with the card you are transferring.  Most people get in trouble by transferring balances and then running up a new balance on their old card.  GET RID OF IT!
6. Do not get a “store card.” The cards you get from Home Depot, Macy’s, and Target have interest rates that usually exceed 30% and cannot be used anywhere else.  Stay away from them!
7. YOU DON’T NEED MORE THAN ONE CREDIT CARD; EVER!

As time goes by, you will begin to rebuild your credit score.  You can eventually replace the high interest credit card with one that has better terms.  However, don’t start overextending yourself. Learn from your bankruptcy experience!

Step 4: Avoid Credit Traps

Credit card companies are sneaky.  They will offer all sorts of “offers” such as “90 days same as cash” or “no interest for six months.”  However, don’t fall for these traps.  Ninety percent of consumers do not repay the principal balance within the “interest free” period and if you have even $1 left owed on the principal, you will be charged interest on the entire balance.  For example, if you purchase a dishwasher for $500 with no interest for six months.  At the end of six months you still owe $5.00; the credit card company will then charge you the full six months interest on the entire $500 purchase.

Step 4: Monitor Your Credit Report

As a Massachusetts resident, you are entitled to 2 free copies of your credit report from each of the credit reporting agencies per year.  Therefore, you should monitor your credit report every six months.  If you find an error on your credit report, or find that a creditor that was discharged in bankruptcy is still reporting, you should report the error with the credit reporting company.  If you still have problems fixing the error, you should contact your bankruptcy lawyer who will probably be able to help you.

This is by no means an exhaustive list; but just a guide.  Credit is a two edged sword and should be used wisely.  If you obtain new credit and do not control your spending, then you will likely be back in the same boat that you were in when you filed bankruptcy in the first place; only you will not have the option of filing again for 8 years.  If you live in Massachusetts and you are considering bankruptcy, please feel free to contact us.  Your consultation is free.

1. Guaranteed Success: Bankruptcy wins here. In debt settlement, your creditors do not have to participate in your debt negotiation program. However, in Bankruptcy your creditors don’t have an option. In a Chapter 7 bankruptcy your unsecured debts are discharged (they go away) and in a Chapter 13 Bankruptcy, the court sets up a repayment schedule that is based on your available monthly disposable income.

2. Credit report: this could go either way. Bankruptcy stays on your credit report for at least 10 years. However, most people who file bankruptcy have a better credit score within a year after filing. Debt settlement does not do much better.  Even if you repay your creditor, your participation in the program is reported to the credit reporting agencies;  not to mention that it will generally take longer to repay your debt.  If a creditor has already sued you, this will also stay on your credit report for 10 years.

3. Taxes: This is a big one. Did you know that if you settle your debts with your creditors for less than the full value that your creditor will issue you a 1099 for the amount that the creditor wrote off…and it is considered income for you. So assume that you owe a creditor $10,000 and settle the debt for $5,000. At the end of the year, the $4,000 that was written of, is considered income; so you have to pay taxes on that $4,000. The IRS considers this a forgiveness of debt and it is taxable income. This is not the case in Bankruptcy; once your debt is discharged, there is no tax consequence.

4. Finality: Consider this; most people who try to settle their debts through one of those debt settlement companies ends up filing bankruptcy anyway; usually after they have paid thousands of dollars in fees to the settlement company; only to never have it paid to their creditors. Even if you stick to the program, it could take as much as 3 years before some of your debts are settled. If you file bankruptcy; you receive your discharge within three months of filing (for a chapter 7).

Every situation is different; bankruptcy is not for everyone. As I have always said, if you are in a lot of debt and you are considering bankruptcy, the first step is to talk to a Massachusetts bankruptcy lawyer.

Ok, another reprint.  But a lot of people are trying to save their homes and don’t know that Chapter 13 Bankruptcy offers homeowners a lot of options to save their home and actually reduce the amount owed on their mortgages.  For example; if you have fallen behind on your mortgage payments, Chapter 13 Bankruptcy will allow you to resume your normal monthly payments while setting up a repayment plan to repay your arrears (past due payment), over the course of five years. However, what if your property is worth less than what you owe? There are two situations that that bankruptcy may be able to help you avoid the unsecured portion of your mortgage.

Your Primary Residence
In the case of your primary residence, it is possible to completely avoid your second mortgage. Massachusetts bankruptcy courts have held that if you have a second mortgage on your property and it is completely unsecured, then you can avoid the second mortgage and convert it to unsecured debt. Here is how it works: Assume that you have a 1st mortgage for $350,000 and a second mortgage for $50,000. If your home value has dropped below $350,000, then your second mortgage is “wholly unsecured.” Using the Bankruptcy Court’s equitable powers, we can “strip” the second mortgage and make it an unsecured debt. Then at the end of your plan repayment, the remaining balance of your second mortgage will be discharged, leaving only your first mortgage on your property.

Investment Property
In the case of investment property, if your mortgage is more than the property is worth, the bankruptcy code allows you to “strip” the unsecured portion of the loan. Unfortunately, this option is not available if the property is your primary residence.

The current bankruptcy laws can’t help everyone, but there may be options available. To find out more, feel free to contact us for a free consultation. The attorneys at Grantham Cencarik, PC aren’t new to bankruptcy, we have been helping clients in the areas of Bankruptcy for years, call us today for your appointment.

Many of our clients tell us that they are considering bankruptcy because they are having difficulty making their monthly mortgage payment. If you fall into this category, you are not alone. Whether or not you can keep you home depends on several factors. To determine if you can/or should keep you house, follow these steps:

Create a budget:
First, you should total all of your net monthly income (take home pay) for both you and your spouse; be sure to include any rental income you receive. Second, write down all of your household expenses, which include: your mortgage payment, utilities, car payments, food, health care (if not deducted from your paycheck), transportation, insurance, gasoline, child care, child support, and other necessities that you require to meet your basic needs. Do not include payments to unsecured creditors, such as credit cards, medical bills, and personal loans in your budget.

Next, subtract the total amount of your monthly expenses from your family’s net monthly income; you should have an approximate total of your monthly disposable income. If this number is negative (or in the “red”), then it is likely that you cannot afford your mortgage while meeting your basic needs. In other words, you are sacrificing some of your basic needs to pay the mortgage, or you are paying for your basic needs while not making your mortgage payments. If the number is positive, then you can’t make your mortgage payments because of your debt burden.

Ask your mortgage lender about loan modification
If you cannot afford your mortgage payments; then bankruptcy cannot help you save your home. However, many times mortgage lenders will provide their customers an opportunity to lower their monthly mortgage payments by “modifying,” or changing the terms of the loan. These changes typically lower your interest rate, provide graduated repayment options, or extend the term of your loan. At times, mortgage lenders will also allow you to payback all overdue mortgage payments as part of a balloon payment, or permit you to make additional payments to “catch up” on the mortgage. The loan modification requirements vary among lenders and you should contact the “loan modification,” “workout,” or “loss mitigation” department at your mortgage lender.

Consider Chapter 13 Bankruptcy:
If you have sufficient income to pay your mortgage, but you are behind on your mortgage payments then a Chapter 13 Bankruptcy will allow you to “catch up” on your past due mortgage payments over a period of 24 – 60 months. You will be required to pay your regular monthly mortgage payment AND make a monthly payment to the Chapter 13 Trustee. The bankruptcy will stop any foreclosure action and will allow you to live in your home.

The Chapter 7 Bankruptcy Alternative:
If you cannot afford your regular monthly mortgage payment, and you cannot workout an acceptable modification with your lender, a Chapter 7 Bankruptcy will permit you to leave the home while eliminating any financial liability on the mortgage loan. In other words, when the bank eventually forecloses the property you will not be responsible for paying back a deficiency assessment. This deficiency is assessed to you when the foreclosure auction sale price is not sufficient to payoff the mortgage loan in full. A Chapter 7 bankruptcy will permit you to leave the property without any financial liability and provide you with a fresh start.

Contact one of our Massachusetts Bankruptcy Attorneys:
The worst thing you can do is do nothing. While this article is designed to explain your options, it is not legal advice. Everyone’s situation is different, if you have any questions, you should consult with one of our Massachusetts bankruptcy attorneys toady; the consultation is free, so you have nothing to lose.

Income taxes present special problems and issues when it comes to bankruptcy. This article brief summary of this complicated rules that govern taxes for those who file bankruptcy.

The Bankruptcy Discharge
In bankruptcy, a “discharge” is the elimination of a debt. The goal of either a chapter 7 or a chapter 13 bankruptcy is obtaining a discharge of your unsecured debts. However, not all unsecured debts are dischargeable. Examples of non-dischargeable debts are student loans, child support and most taxes. However, while most taxes are not dischargeable, in some cases, income taxes are.

Bankruptcy Discharge of Income Taxes
In some instances Bankruptcy can be an effective way of dealing with past due federal and state income tax debt. Under the Bankruptcy Code, whether a tax obligation is dischargeable is determined by when the tax became due. If a bankruptcy debtor owes state or federal income taxes the taxes are dischargeable if the debtor filed their tax return and:

1. 3 Year Rule: The tax return was due more than 3 years prior to the bankruptcy filing. (If the debtor obtained an extension, the due date would be the extension deadline);
and
2. 2 Year Rule: The debtor’s income tax return was actually filed more than 2 years prior to the date the debtor files his bankruptcy;
and
3. 240 Day Rule: The income taxes were assessed by the IRS or Massachusetts DOR more than 240 days prior to the bankruptcy filing;
and
4. The debtor did not file a fraudulent return or willfully attempt to evade paying taxes.

If a Bankruptcy debtor meets all of the above criteria, then their income tax debt is dischargeable. However it is important to remember that these rules only apply to individual income taxes. Moreover, in a Chapter 7 Bankruptcy if the underlying tax obligation is dischargeable, the interest and penalties thereon are also dischargeable. However, if the underlying obligation is non-dischargeable, so are all related interest and penalties.

Tax Lien in a Chapter 7 Bankruptcy
If the IRS of Massachusetts DOR has already recorded a lien on your property, then their debt is secured, and in the case of a Chapter 7 bankruptcy, the tax cannot be discharged; even if a debtor meets all of the conditions listed above. However, that lien can only be assessed against the property that the lien is recorded. For example, if you owe the IRS $10,000.00 in taxes and you meet all of the qualification above, and the IRS records the lien against property that is only worth $5,000.00, after your bankruptcy, the IRS cannot record a lien against any other property that you own. Moreover, once the IRS sells the property that their lien is recorded against, the remaining balance that you owe is discharged.

Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, a bankruptcy debtor makes payments to a bankruptcy trustee for a period of 3 to 5 years. The trustee in turn pays the debtors creditors according to a repayment schedule, or “Chapter 13 Plan”. Certain debts are paid in full such as mortgage arrears and certain “priority debts” and general unsecured debts (such as credit cards, personal loans and medical bills) are paid with whatever is left over for a fraction of their value.

In a Chapter 13 Bankruptcy, income taxes are treated as priority debts; meaning that they must be paid before any other debts, and like all priority debts, they must be paid in full through the chapter 13 plan. However in order for an income tax to be considered priority the tax must meet only the 3 year rule and the 240 day rule. If the bankruptcy debtor has any tax debts that fall outside these two rules; that debt is considered a general unsecured debt and the tax debt will be treated the same as the debtor’s other unsecured debts during the repayment period. However, the tax debt will not be discharged. If the bankruptcy debtor does not satisfy these two rules, then the tax debt is considered a priority debt and it must be repaid in full through the Chapter 13 Plan. If the debtor cannot repay 100% of their priority debt through the Chapter 13 bankruptcy, they will have to convert their debt to a Chapter 7 bankruptcy.

Another important consideration for chapter 13 debtors is the accrual of penalties and interest. The filing of a chapter 13 bankruptcy stops the IRS and the Massachusetts DOR from assessing additional penalties and stops the accrual of interest.

Tax Lines in a Chapter 13 Bankruptcy
Another consideration in a chapter 13 is a tax lien. If the IRS of Massachusetts DOR has recorded a tax lien against a debtor’s property for unpaid income taxes, that debt becomes secured debt and cannot be discharged; even if the tax would have qualified for discharge under the 2 year and 240 day rules. However, if the amount of the lien exceeds the value of the property which the lien is attached, a debtor may seek relief from the Bankruptcy Judge and have the portion of the lien that exceeds the value of the property striped; something known as a “cram down”. The portion of the lien that is stripped then becomes unsecured.

Conclusion
The Bankruptcy rules are complex when it comes to dealing with income taxes and tax issues should not be handled by a pro-se bankruptcy filer or even an inexperienced bankruptcy attorney. If you have personal income tax issues you should consult with a Boston Bankruptcy Lawyer who is familiar with the bankruptcy rules regarding taxes and the many exceptions. ]]> http://boston-legal.com/news/2009/06/personal-income-taxes-in-bankruptcy/feed/ 1 http://boston-legal.com/news/2009/06/the-truth-about-debt-consolidation-and-debt-settlement-companies/ http://boston-legal.com/news/2009/06/the-truth-about-debt-consolidation-and-debt-settlement-companies/#comments Mon, 15 Jun 2009 02:48:56 +0000 Dax Grantham http://boston-legal.com/news/?p=38 Today I read an interesting article by a self proclaimed “financial expert” who has made himself rich by selling books and advice to people who are in debt. I will avoid using his name; but truth is there are quite a few “experts” like him on the internet; just look for the paid ads in Google that say “Avoid Bankruptcy”, “Bankruptcy Alternatives”. In his article, he states that even if he sees a situation where there is “no way out” that he would try to talk the person out of filing bankruptcy. His article was rattled with lies; such as “bankruptcy stays with you forever” and half truths such comparing bankruptcy to the death of a loved one. However, as I read on, one thing became clear; this expert was using a time tested marketing technique called fear. He was attempting to scare people into buying his product…a subscription to his website, or one of his many books.

This gets me to the point of this post: as financial times get tough, there are more and more unscrupulous companies out there that target and take advantage of people who are going through financial troubles…so be careful. Most people that consult with me have been programmed to believe that they should avoid bankruptcy at all cost and they have this huge social stigma against the bankruptcy; to the point that they are on the verge of becoming homeless. It is this “stigma” that has lead to more and more predators appearing on the internet, in the news paper or on the radio. These companies all have a common theme; they claim “reduce your debt by 60% or more” or that can negotiate a lower payment. I recently saw one site that promised to have you “out of debt in 18 months”. If this sounds too good to be true, well it is. Most people who use one of these services end up filing bankruptcy anyway after they have paid thousands of dollars to these companies while nothing is ever paid to their creditors.

Let me explain how most of these companies work. First is the payment reduction method, or debt consolidation. Through this method, the company sends a letter to your creditors asking for lower payments. They also ask that your creditor pay them a certain percentage of the loan, and may have you pay a fee also. You pay the consolidation company and they pay your creditors. Your creditor may participate in this program, but most don’t. This means that you end up paying the consolidation company for a few of your debts and paying your actual creditor for the rest.
The second method usually used by these companies is the debt settlement approach. Under this approach, the company will have you start making payments to them instead of your creditors. They tell you to stop paying your creditors, and some even say that they have already made arrangements with your creditors. These companies first collect their fees (most of the time several thousand dollars), then put the rest in a bank account. They then wait until your creditor defaults you for not making payments then they propose a “lump sum” payment in full that is a fraction of the outstanding debt.

Don’t get me wrong, debt consolidation and debt settlement do work for a relatively few people; I have done them myself for my clients. So my suggestion, before you waste your money on one of these companies, schedule an appointment with a good bankruptcy lawyer, most consultations are free. Ask your attorney questions about alternatives to bankruptcy and if he insists that bankruptcy is your best option, ask him to explain why. If he gets upset or short, or cannot answer your question, then end the consultation and call another attorney. Because the truth is; bankruptcy is not for everyone and a good attorney will tell you so.