How Long Do I Have to Wait Between Bankruptcies?

If you’ve filed for bankruptcy protection in the past and are thinking about doing so again, there is a certain period of time that you must wait before filing bankruptcy again. So how long is it? Well, it depends on what chapter you filed under in the past and what chapter you want to file under today.

If you want to file for Chapter 7 bankruptcy protection, you typically must wait 8 years since your last filing. There is a possible exception if your past bankruptcy was a Chapter 13, however. In order to meet this exception to knock the time down to 6 years, your Chapter 13 had to have met one of the following criteria:

  • You paid 100% of your allowed unsecured claims under the plan, or 
  • You paid 70% of your allowed unsecured claims under the plan AND the plan was proposed in “good faith” and was your “best effort.”

The timing requirements on filing for Chapter 13 are much more straight-forward. It is simply 2 years if your last filing was also a Chapter 13 and 4 years if it wasn’t. No odd exceptions, no additional criteria to worry about.

Filing for bankruptcy can be a complicated process if you try to go at it alone. Do you have everything you need to file for bankruptcy? The best thing you can do is make an appointment with a bankruptcy attorney and explain your situation.

By |Sep 29, 2014|Bankruptcy|

Judicial Conference Increases Dollar Amounts in Bankruptcy Cases

The Bankruptcy Code is full of specific dollar limitations and allowances. These figures include dollar limits on eligibilty for use of Chapter 13 and many other amounts, such as the value of exemptions permitted to bankruptcy debtors under 11 USC §522. All of these dollar amounts are adjusted by the amount of change in the Consumer Price Index for All Urban Consumers in the manner set out in 11 USC §104(a), a part of the bankruptcy code. The adjustment occurs every three years on April 1st and is based on the amount of change that has occurred over the previous three years ending December 31 the year before the adjustment. Dollar amounts are rounded to the nearest $25 and the adjustment applies to other limits set forth in the bankruptcy code.

Well, it is that time of year for an announcement of the change and 2013 is a year when the changes are made as of April 1st. The Judicial Conference of the United States has just released a notice of the changes proposed to come into effect for cases filed after March 31, 2013. It looks like Chapter 13 cases will now be permitted for individuals with unsecured debts of no more than $383,175 and secured debts of no more than $1,149,525 for cases filed April 1, 2013, and later. This is an increase of more than $22,000 with unsecured debt and more than $58,000 in secured debt, over the Chapter 13 debt limits imposed April 1, 2010.

In states where federal exemptions are allowed, the homestead will be increased from $21,625 to $22,975 per person. The federal exemption for a car will rise from $3,450 to $3,675. Under the statute, if the amount is increased it will go up by at least $25. While 32 states have opted out of federal exemptions and limit bankruptcy exemptions to those provided in state statute, many other dollar amounts apply to all cases filed in bankruptcy court. Federal exemptions are not yet allowed in Oregon.  For a comparison between some common Oregon state exemptions and their federal bankruptcy counterparts, you can see my written testimony before the Oregon Senate Judiciary Committee.  These new dollar figures will only come into play for filings after the effective date, but they may allow filings that were previously impermissible.

By |Feb 20, 2013|Bankruptcy|

Major IRS Settlement Changes Announced

The IRS has announced a major change that will affect most people with unpaid tax debt who would like to resolve that debt with the government but can not pay in full. The settlement program used by the IRS to adjust tax debts is called Offer in Compromise. It is the basis for late night advertising that promises “pennies on the dollar” discounts for delinquent tax obligations. The idea of cheap resolution for outstanding tax debts has long been more promise than reality. This recent change could result in many more successful settlements.

On May 21, 2012, the Internal Revenue Service sent a memorandum to its settlement offer specialists with guidelines that authorize much more liberal procedures for analysis of offers. While many of the changes are applicable to only limited cases, there are several big changes that will impact most individual taxpayers. The change with the broadest impact will likely be the method the IRS uses to calculate future income.

Provided there is no misconduct involved, the IRS uses a tabulation method to evaluate a settlement offer. The IRS will generally accept a settlement of tax debt when offered the net liquidation value of the taxpayer’s assets and the net present value of the taxpayer’s future disposable income. Of course, as with most everything involving the government, the devil is in the details. The IRS has just changed those devilish details and made them much more favorable to the taxpayer.

To come up with the amount of future income that must be paid as part of a tax settlement the taxpayer’s disposable income must first be determined. Disposable income has long been calculated by deducting standard living expenses from net income received by the taxpayer. The IRS uses data from a federal data compilation agency, the Bureau of Labor Statistics, to establish standard living expenses for American families.

In the past, some major potential expenses were not allowed. For example, only the repayment of student loans used to fund post-graduate education was allowed as a deduction against income. In a significant change, the IRS will now allow the deduction of payments for all government guaranteed student loans used to pay for any education after high school. Guidelines prohibited the allowance of payments required on past due state and local tax. The payment of delinquent state and local tax will now be prorated with federal liability and proportionately allowed in most circumstances. These changes will impact many taxpayers with unpaid federal tax liabilities.

However, the single largest change in the way in which the government calculates net future income involves the multiplier used to convert monthly disposable income into a settlement payment to the IRS. The IRS will accept payment of an accepted settlement in two different ways, lump sum or short term payments considered the same as cash, and deferred payment over a period of 24 months. Before the recent change, the IRS multiplied monthly disposable income by 48 to determine its net present value if the payment was to be made within six or fewer months from acceptance. If a 24 month payment period was chosen, the disposable income was multiplied by 60 to determine its net present value.

The future income net present value multiplier has been reduced by 36 months in each category. If a settlement is to be paid in cash or within six months, disposable income is multiplied by 12. If a settlement is to be paid over a period of 24 months, disposable income is multiplied by 24. For taxpayers with no home equity and few other assets, this will cut the amount of an acceptable settlement offer to as little as ¼ the amount that would have previously been required.

There are other changes that apply to the way in which the net value of the taxpayer’s assets is calculated that will be helpful to many average American families. For example, the IRS will now disregard the first $3,450 of equity in up to two vehicles in calculating asset liquidation value. Taxpayers can now keep one month’s worth of allowed living expenses in their bank account plus $1,000 without adding to the liquidation value calculation. Again, this will lower the settlement threshold for many taxpayers.

These welcome changes in the Offer in Compromise program standards should prompt a flood of new offers. In addition, many pending settlements that would not have been accepted will now be allowed. This is none too soon for many struggling Americans with unpaid tax debt. Now IRS collection officers can focus their time on cases that deserve their attention and direct besieged homeowners and wage income taxpayers to the Offer in Compromise program for relief from collection.

Image credit to Dreamstime

By |May 30, 2012|Taxes|

FHFA Head DeMarco Sandbags Home Loan Principal Pay Down Plan

FHFA's Edward DeMarco

Congress directed the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac to “implement a plan that seeks to maximize assistance to homeowners” as part of the Emergency Economic Stabilization Act of 2008.  The National Association of Consumer Bankruptcy Attorneys (NACBA), has proposed a plan that, in conjunction with Chapter 13, allows debtors to pay down principal balances on underwater home mortgages.  FHFA acting director Edward DeMarco initially praised the plan as a responsible proposal but later withdrew his support while quietly sidelining a similar principal reduction program proposed by Fannie Mae.

In a scathing 12 page letter, Congressman Elijah Cummings, ranking minority member of the Committee on Oversight and Government Reform, and another committee member, Congressman John Tierney, accused director DeMarco of withholding critical information from the committee while lying about the the costs involved and legal authority required for such a program. 

By |Feb 12, 2012|home loans|

Medical Marijuana Is Not Tax Deductible

Congress enacted the Tax Equity and Fiscal Responsibility Tax Act of 1982 and amended the federal tax code to prohibit deduction of ordinary and necessary expenses related to the illegal sale of controlled substances.  A recent Tax Court decision highlights this law as another challenge to the feasibility of marijuana growing operations.  Californians Helping to Alleviate Medical Problems, Inc. v. Commissioner, 128 T.C. No. 4 (5/15/07), demonstrated how the Federal tax code is being used to inhibit the medical marijuana industry.  In the California case IRC 280E was held to disallow the deduction of expenses attributed to the provision of medical marijuana because it was considered “trafficking” in a controlled substance.

The IRS has been unambiguous in its position on the issue of medical marijuana as a prohibited controlled substance.  Citing the 2007 Tax Court opinion and a 2001 US Supreme Court case, U.S. v. Oakland Cannabis Buyers’ Co-op., 532 U.S. 483 (2001).  IRS Chief Counsel Letter (2011-0005) makes it clear that absent a change in the tax code, medical marijuana will be treated as a controlled substance under 280E.  This could saddle any growing operation with a substantial federal income tax burden.  If growing marijuana is considered “trafficking”, federal income tax will be calculated on gross revenue without a deduction for expenses associated with its production.

By |Oct 16, 2011|Taxes|

Credit Card Payment of Tax May Not Be A Good Idea

Credit cards are becoming more common for use in payment of taxes.  With the rapid increase in electronic filing of tax returns, online credit card payments have increased as well.  Nearly 70% of 2010 personal income tax returns were filed electronically.  By 2012, the federal government hopes to increase online filing to 80% for all tax returns.  When the electronic filing has been done and there is tax to pay, it is convenient and even encouraged to pay by credit card.

Convenience of credit card tax payment comes at some cost.  The government uses third party companies to process payment in most cases and a “convenience fee” is charged to the taxpayer for the service.  The IRS has a webpage entitled “Pay Taxes by Credit or Debit Card” with information on how to do just that.  The IRS website suggests that fees for the card payment range from a low of 1.9% to a high of 2.35%.   The additional fee is included in the transaction at the taxpayer’s expense.  Most state and local governments will accept payment through such a company.

By |Sep 16, 2011|Bankruptcy, Taxes|