Debt collectors will take advantage of you. I can help end the harassment
A helpful article about the effect foreclosure may have on your credit report versus a bankruptcy from MSNBC. LinkThe Arizona Republic cites some statistics that indicate the number of people choosing to use bankruptcy as an option to deal with debt is on the
rise. Read the article here.
There are signs all over the streets in Arizona offering credit repair services. If you type in credit repair in Google, you will find hundreds as well.
Most claim that they can clean your report for a fee. Many of those most, claim to be able to remove accurate information related to your bankruptcy, foreclosure or tax lien. Those that do are not being completely honest.
There are a few rules when it comes to repairing your credit report.
1. Review it often. You can visit my website page here that will direct you to the website where you can review all three of the major credit reports you have for free if you haven't pulled the report for 1 year. I pay Equifax a small fee for the ability to see my report anytime. This may be overkill for some, but it will help you keep your credit in the front of your mind.
2. Maintain good records.
3. Do not pay anyone to help you "clean" your report. The process to remove inaccurate information is actually fairly simple. To pay someone to do it makes no sense. There are a number of talented credit attorneys who will help you for free. Go here to see some basic steps to do so. In fact there are ways to tell that the credit cleaning service you are using is not on the up and up. The California Credit Law Blog, a service of the law firm of Kemnitzer Anderson et al has a short blog about what to look for to avoid a rip off here
4. Always contact the CRA first . When you are disputing an incorrect item, always write a certified letter to the credit reporting agencies(s) and copy the creditor. If you write the creditor, you will have lost some rights under the fair credit reporting act.
5. Contact a Lawyer . If you have contacted the credit reporting agencies and incorrect information still exists on the report, you may have a valid legal claim against the creditor and possibly the credit reporting agency as well. These cases are usually taken on a contingency basis by the qualified counsel.
If you are having problems with your report as a result of a mixed up file, identify theft, or post bankruptcy issues, steer clear of the "non-attorney" "for a fee" help that is all over the place. If you live in Arizona, contact me and I will speak to you for free.
In a different world, issues like the "taxation of forgiven debt", would never cross the mind. In our world, with the current tax code and the state
of the real estate market, forgiveness and taxation discussions are rampant.
This entry is just a quick note about why it may be important to file a bankruptcy case sooner rather than later if you are about to lose a home.
As many are aware and has been written about here recently, when a mortgage lender formally forgives the deficiency balance on a foreclosed home it has the right and indeed it is required to issue a 1099 form. This form shows the IRS the amount of the debt that was owed by the recent homeowner and how much was forgiven.
Under current IRS rules, that forgiven debt is income to the foreclosed upon, and must be reported on the tax return as such, unless the taxpayer is insolvent OR (the point here) he or she filed bankruptcy before the debt was forgiven.
Legal reasoning for this exception aside, if you are losing your home, short selling etc. and you expect a deficiency and a forgiveness, and you have other debt that is causing you to consider a bankruptcy, you will want to consider it sooner rather than later in order to avoid the tax.
Business Week has an interesting article today about post bankruptcy discharge issues as they relate to the debt buying industry.
Most bankruptcy filers are under the impression that if they have filed a bankruptcy, properly noticed the creditor of the filing, and received a formal discharge, the unsecured debt is gone forever. This is not always the case.
According to the article, the debt industry is flooded with companies who actually buy discharged debt. and report the amount on the debtor's credit report in hopes that this will eventually force confusion, frustration and thereby payment. Original creditors do it as well.
Gauging this phenomena just by the number of calls I receive from post bankruptcy filers who are confused about their credit report, I can attest that it happens, and that it likely happens...often.
You can read the article here.
If you have filed a chapter 7 or 13 bankruptcy, received a discharge and see that your credit report is still showing a balance as it relates to a particular discharged creditor, visit my post bankruptcy page
Follow the instructions making sure that you lay out the facts clearly when writing the credit reporting agency. If you do not have success removing the item after sending the request(s), contact me, I can help.
For Most Homeowners, the most effective way to prevent a foreclosure is to "workout" an agreement with the lender. Lenders today, often provide a number of solutions for those who have fallen behind on their mortgage such as:
1. Loan Modification - Available on a limited number of VA loans with lender approval, loan modification is for those who have suffered a long term hardship. After supplying the appropriate information to the lender you may qualify to lower the interest rate or extend the term of the loan resulting in lower payments. There are fees, property taxes must be current, and other lienholders or mortgagees must agree to be subordinate to the first mortgage.
2. VA Loan Refunding - In certain cases the VA may agree to purchase the loan from your lender. When they do so that are acting according to federal law and the delinquency is added to the principal balance and the loan is re-amortized.
3. Deed in Lieu of Foreclosure - If you are facing a long term hardship and the house has been on the market for 90 days, you might be able to deed the home back to the lender in lieu of a foreclosure. The house has to of course be actively listed and you must be able to prove that as well as provide a complete financial package. No other liens can exist as well. When you deed the home back you give up all of your rights to the property and the lender should waive all potential deficiency judgement rights.
4. Short Payoff or Short Sale - Again, if you are suffering from a long term financial hardship, and cannot maintain the loan or if you need to sell to avoid a default loss on the property, the lender may be willing to help you complete a "short sale". In order to do this you have to find a "qualified buyer". If successful there may be consequences as a result of the settlement for less than owed on your credit report and the IRS will want you to treat the forgiven debt as income. Depending on where you live the lender may be able to seek a deficiency judgement as well.
5. Repayment Plan - If you have incurred a short term financial hardship and the loan is at least two months past due, a payment plan may be negotiated based on your income and budget allowing you to catch up the mortgage arrears.
6. Special Forbearance for FHA loans - For those with a short term financial hardship and a loan delinquency of 3 months to 1 year. This is designed to give a little more help than the repayment plan as the repay term can be as long as 12 to 18 months.
7. Partial Claim - Certain types of loans FHA and Some Freddie Mac loans qualify. This is essentially the movement of your arrears into a second mortgage. The Secretary of Housing Urban Development is the lienholder. There is no interest and there is no payment until the the first loan is paid off. It is limited to no more than 12 months of past due payments.
OPTION 2 - REFINANCE
If you have equity, a decent credit score, and no default notice, you may be able to get a loan with a better payment. Be careful though, you may end up with a worse loan in the long run.
FHA insured borrowers may be able to borrow money interest and "payment free" to catch up the loan (see no. 7 above)
OPTION 3 - SELL THE HOME
If a modification or a refinance is not working, you can try to sell. You may have to give up some equity to get out of the situation but often it is a worthwhile price to pay to preserve your credit and peace of mind.
If there has been an error in the loan and the mortgage holder refuses to correct it, the loan appears to have been "abusive", or some serious mortgage servicing problems exist, than litigation may be an avenue to deal with the foreclosure.
OPTION 5 - BANKRUPTCY
Bankruptcy is often an effective way to deal with a foreclosure. A chapter 13 bankruptcy allows the homeowner to reorganize their debt and pay it back according to a plan that is approved by the court. A bankruptcy can be an option regardless of the results of the mortgage workout results and often is. I will usually analyze a foreclosure in relation to a chapter 13 bankruptcy in order to ensure that this option exists if the workout fails.
If you are facing a foreclosure, you need to obtain your information from a licensed and experienced attorney. Click here to contact me with questions.
Prior to the passage of BAPCPA, debtors who could "afford" to make some reasonable payment toward their consumer debt were challenged by
the U.S. Trustee's office under the "bad faith" provisions of Section 707b of the bankruptcy code. This was really the only test available to the government to challenge a chapter 7 filing based on income level. It seemed to work very well in terms of keeping those who could afford to pay a reasonable amount to their creditors out of chapter 7s and in chapter 13s.
Most debtors would gather their average monthly expenses and calculate what they believed would be their average income. If it appeared that they had enough to make a "reasonable" dent in their unsecured debt over a 3 year period, they would typically file a chapter 13 bankruptcy instead of a chapter 7 to make a good faith effort to pay some of the debt and to avoid this 707b challenge.
Now, under BAPCPA, the debtor must go through the process of completing a complicated means test, Despite this, they appear to be governed by the bad faith test of 707b as well.
The problem you ask? A realistic picture of what a debtor earns and is going to earn is not necessarily found as a result of this extra level of testing. Also, it causes a myriad of additional paperwork, attorney liability issues and complications. Attorneys have raised their fees as a result, and the honest debtor is forced to move through a very grey and more expensive system to achieve the same result.
I'm not the only one complaining. A short article written by a member of the "Bankruptcy Network" which I read almost daily lays out the 10 biggest time wasters as a result of BAPCPA. See it here.
Professor Mark S. Scarberry of Pepperdine Law School and Robert Zinman of the American Bankruptcy Institute have created a comparison chart
of the three present competing bills dealing with home mortgage modification in bankruptcy.
Right now, a debtor may be able to discharge or strip away a second mortgage on a personal residence only if the 2nd mortgage is 100% unsecured. An example. If the home is worth $200,000.00, the first mortgage is $150,000.00 and the second is $30,000.00, the second is fully secured and not discharged. If the Home were worth $150,000.00 or less the second would be completely unsecured.
These bills are geared to allowing the mortgage(s) to be stripped to the value of the home whether or not the loan is completely unsecured.
You can see the chart here.
Attorney Bill Mcleod has a short blog found here outlining ten reasons to always use an attorney when filing a chapter 13 bankruptcy. I
suggest that if you have a consistent income, and are facing some serious debt or foreclosure problems that you visit my reasons to file a chapter 13 bankruptcy page as well.
issue from people facing foreclosure and settling credit card debt, and want to make the issue and solution more clear.However, section 108 of the Tax Code provides a variety of exceptions to the general rule of Section 62(a)(12), most importantly Section 108(a) which excludes cancellation of debt to the extent of insolvency.
For purposes of the insolvency exception of Section 108(a), the term insolvent means the excess of liabilities over the fair market value of the taxpayer's assets immediately before the cancellation event. IRC Section 108(d)(3). Therefore if you don't have assets that are worth more than your debts prior to the COD you don't have income.
Many individuals are "insolvent" according to this definition, and should ask their accountant about the attachments necessary when filing the return, to ensure that the IRS does not treat the debt cancellation as income.
If the individual files a bankruptcy before the COD event occurs, the bankruptcy acts as an exception to IRS section 61 as well.
Bankruptcy Attorney Johnathan Ginsberg has pointed out a fairly common problem in chapter 13 cases. Specifically,
chapter 13 budgets (both before and after bapcpa) are not realistic and lead to failed chapter 13 plans.
In a chapter 13, the debtor must propose a budget. That budget is scrutinized by the Chapter 13 Trustee. The trustee will often challenge any portion of the budget that is not for the purpose of paying a fixed expense or common expense. The problem with this approach, life is full of "unexpected" expenses.
For instance, what happens in Arizona when the air conditioning unit breaks and the cost to repair is $1200.00 and the cost to replace is three times that. Where is the chapter 13 debtor supposed to obtain the funds if some savings are not built into the plan. Do they live without air conditioning or quit making the chapter13 payment. what do you think....
This problem crops up often in chapter 13 cases and is probably one of the main contributors to the overall poor success rate of chapter 13 filers.
Attorney Ginsberg rightly points out that if the purpose of BAPCPA or at least one of them, was to produce chapter 13 bankruptcy filers instead of chapter 7 filers, then the Trustee and the Court should allow some argument for realistic budgets that include room for unforeseen problems. Read it here.
The IRS is required to follow some specific procedures when collecting delinquent income taxes. The first step in the
collection procedure is the "assessment" of the tax.
For a federal tax, the assessment is the entry of a determined tax liability on the books of the Internal Revenue Service. The Internal Revenue Code, (IRC) section 6201(a) authorizes the Secretary of the Treasury to make assessments and 6201(a)(1) directs the same to assess all taxes that are determined by the taxpayer on a return or list, or as determined by the Secretary of the Treasury on a return or list.
IRS Regulation Sect. 301.6203-1 states requires that the district director and the director of the regional service center appoint one or more "assessment" officers. The assessment of the tax is actually made by this assessment officer when he or she signs the summary record of assessment. The IRS uses a form 23-C to make the assessment. This is why the assessment date is often known as the 23-C date.
Before the IRS can make an assessment of the tax, someone has to determine the amount owed or the tax liability. As stated above, this is done by the taxpayer when a return is filed. The Commissioner of the Internal Revenue can make a determination of additional tax liability by simply issuing a "notice of deficiency". In order for this notice of deficiency tax to be assessed it must "mature". This means that 90 days has to pass from the date the IRS notices the taxpayer of the deficiency. If the Taxpayer challenges the deficiency notice by filing a Tax Court Petition, the maturity date is 90 days after the Tax Court decision becomes final.
The assessment is PRESUMED to be correct and the taxpayer has the burden of proving otherwise.
A lien arises on all of the taxpayer's property both real and personal, rights to the property after the assessment is properly made and noticed. This lien is often called a "secret" lien because only the IRS and the taxpayer are aware of it. It is effective against all others with the exception of those specifically identified in the Internal Revenue Code.
The Assessment Lien and the Notice of Federal Tax Lien should not be confused. The Notice of Federal Tax Lien is the public proclamation of the existence of the assessment lien.
Some good news: The IRS is limited in the time it has to assess a tax debt. It has three years to assess a tax determined to be due per IRC Sect. 6501. The three year period begins to run from the latter of the due date of the return or the date the return is filed.
There are a few exceptions to the three year limit rule and a number of things that can extend the time period of course.
First, if the taxpayer voluntarily agrees to extend the three year period. See IRC 6501(c)(4).
Second, the timely issuance of a notice of deficiency
Third, an application for a taxpayer assistance order
Fourth, a bankruptcy petition filing
Fifth, a Receivership
Sixth, a Designated summons issued by the IRS to a corporate taxpayer
Seventh, a summons issued to a third party where the taxpayer moves to quash it.
Eighth, the IRC sect. 6501(e) six year exception. The statute of limitations on assessment is extended to six years if the taxpayer under reports more than 25% of the gross income stated on the original tax return.
Ninth, the Fraud Exception. The three year rule does not apply to the assessment of taxes attributable to a false or fraudulent return that was filed with an intent to evade the payment of taxes.
The IRS cannot assess a tax after the statute of limitations has expired even if the taxpayer agrees to the assessment.
Sometimes a defense exists within the details surrounding the assessment of the tax, or care must be taken if banrkutpcy is being filed just prior to the date the statute on assessment is about to run. If you have been assessed or are about to be assessed, you should speak to a qualified tax attorney about potential defenses and options.
1. You will have to give up your vehicles if you file.
2. The IRS will audit all of your prior tax returns if you file.
3. The Court will take all of your property.
4. You can no longer stop foreclosure by filing.
5. If you file all bank and tax records will be audited.
6. You must pass written tests to file and to receive a discharge.
7. You must pass a lie detector test to complete the bankruptcy.
8. You will never receive another tax refund.
9. You are no longer allowed to file at all.
10. You cannot discharge any credit card debt.
11. You cannot discharge any tax debt.
12. If you file for bankruptcy you will no longer receive any new credit, ever.
13. You can never own a home if you have filed for bankruptcy.
14. You do not have to list all of your debt if you file. You can pick and choose.
15. If your former spouse files on a joint debt, that bankruptcy will discharge your obligation to pay it.
16. You don't have to list all of your property.
17. If the property is owned by you and the bill is in your name but a friend or relative uses it and or pays for it you don't have to list it.
18. Only the rich can afford to file.
19. Back child support can be discharged in bankruptcy.
20. You don't need a lawyer, it is just about filling out some forms.
21. You should max out your credit cards just before you file.
22. If you give your property away just before you file, the property will be safe.
23. You must give up your home if you file.
24. Everyone will know I have filed for bankruptcy.
25. All debts are wiped out in a chapter 7 bankruptcy.
26. If you are married both spouses have to file.
27. Only dead beats file.
28. I don't want to include certain creditors in my filing because it's important to me to pay them back someday and if the debt is wiped away I can't repay it.
29. Filing bankruptcy will improve my credit score because all of the debt will be gone.
30. You can only file once.
An interesting historical review from Emily Kadens at "credit slips" about the use of capital punishment on those who were "fraudulently" bankrupt in England. Read Here.
In a Bankruptcy case out of Florida, the debtor's income tax debt met the criteria for discharge except one according to the IRS challenge.
11 U.S. C. Sect. 523(a)(1)(C) requires that the taxpayer-debtor cannot be guilty of a willful attempt to defeat or evade the tax.
The taxpayer had filed all of the returns but was just unable to pay.
This is an interesting case. If the IRS is right about their position in a general sense then if returns are filed and not paid section 523 (a)(1)(C) is violated in every case- no one who owes unpaid income tax debt could discharge it.
In this case the Court looked closely at the specific facts surrounding the failure to pay the tax and decided that the taxpayer didn't "willfully" attempt to defeat the tax or evade it even though he did not pay.
Facts do make a difference and that is why an experienced attorney is important in dealing with unpaid tax debt.
[In re Pisko, 364 B.R. 107 (Bkrtcy.M.D.Fla. 2007), ]
The taxpayer settled a case form more than 2.7 million dollars. The settlement documents were drafted in such a way that it appeared the proceeds were for her personal injury. She reported the income on an attachment to the the return and explained the non-taxable nature of the proceeds.
The IRS sent a deficiency notice three years later. The taxpayer filed for chapter 11 bankruptcy and the IRS filed a claim for the amount of the tax claimed. She later dismissed her chapter 11 and filed a chapter 7 in which she filed a complaint to determine the dischargeability of the debt.
In order to find fraud, the IRS had to establish, that hte debtor had knowledge of the falsity of the return and that the debtor had an intent to evade the tax as well has proving that there was an underpayment of the tax.
The court found based on the facts in the record that the taxpayer had an honest subjective belief that the income was not taxable. No fraud.
See In re Jones, 364 B.R. 118 (Bkrtcy.M.D.Fla. 2007)
I have covered this in a previous blog entry and elsewhere on my site. It bears repeating, and an article on MSN money has repeated it. "Debt Settlement: A costly escape"
To quote from the article, "Debt settlement is in fact, a perfectly legal solution for consumers who are in deep and seeking an alternative to bankruptcy. But having a debt settlement company do the legwork for you is fraught with risk, not to mention outrageous fees".
Some risks: the creditor won't settle, the creditor sues you, your credit rating drops, the creditor settles for an amount you may have been able to achieve simply by asking, you over pay the debt settlement company ( some charge 10% set up fee, monthly fees and 25% or more of the savings"), the debt settlement company keeps your monthly payments to pay their non-refundable fee first, the IRS treats the forgiven debt as income.
I could go on...but won't.
It is enough to say that some people should try to settle the debt, and some of those people should use help, BUT everyone with serious credit card debt should have their situation fully analyzed by a licensed attorney who is experienced in bankruptcy, and debt settlement matters before they proceed.
A consumer bankruptcy should have no effect on the collection of spousal and child support. Although Bankruptcy stays all efforts to collect debts, the code excludes actions to collect child support and spousal support from that stay unless the creditor attempts to collect from the property of the estate.
In a chapter 7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time he or she files. Money earned after the bankruptcy is filed however is not property of the estate. Since most child and spousal support is paid out of the debtors current income, the bankruptcy should have little impact.
A chapter 13 filer must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in the dismissal of the case.
Neither a chapter 7 nor a chapter 13 discharge effects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on going obligations remain.
Educational loans are generally not dischargeable in a chapter 7 or chapter 13 bankruptcy. They may be if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. In order to qualify for the hardship discharge, the debtor must be able to demonstrate that he or she cannot make payments at the time of the bankruptcy filing and will not be able to do so in the future.
The debtor must apply for the hardship discharge before the discharge of the other debt is granted.
The Bankruptcy code doesn't specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied some different standards, but they often apply a three part test to determine eligibility.
1. income - if the debtor is forced to pay off the student loan, he or she will not be able to maintain a minumum standard of living ofr himself or herself and his or her dependents;
2. duration - the financial circumstances that satisfy the income test will continue for a significant portion of the repayment period and
3. good faith - the debtor has made a good faith effort to repay the loan prior to filing the bankruptcy.
If you are considering bankruptcy to deal with your student loan debt, get some good legal advice first. It may be a waste of time and money and there are some other things you can do to deal with the student loan.
A Creditor can object to the discharge of individual debts in a chapter 7. Certain debts are not dischargeable under section 523 of the Bankruptcy Code. These include but are not limited to 1) Debts for certain taxes, 2) debts arising from false pretenses, false representation, actual fraud or false financial statements 3) debts for certain lixury goods and cash advances 4) debts that a debtor fails to list in the bankruptcy schedules 5) debts arising from fraud, embezzlement or larceny 6) debts for spousal or child maintenance and other obligations arising out of a divorce proceeding, 7) student loans 8) restitution orders 9) debts arising from willful and malicious injury 10) certain condo or cooperative fees incurred after filing 11) obligations arising from death or injury caused by dui
When the debt is excepted from the discharge the debtor remains liable.
Please contact an experienced debt attorney if you are considering bankruptcy as a result of one of these types of debts. You may be wasting your time.
3 steps to take when being harassed or bothered by debt collectors. Debt credit Attorney Floyd Bybee specializing in Identity theft, collection harassment, and bankruptcy.
Copyright 2006-2021, BYBEE LAW CENTER, PLC. This website is not meant to provide legal advice and is informational in nature. This website is not and is not intended to be an advertisement outside of the State of Arizona. Attorney Floyd W. Bybee is licensed to practice law only in the State of Arizona. No attorney client relationship will be established with BYBEE LAW CENTER, PLC unless a written retainer agreement has been executed.
