Filing for Bankruptcy May Permit Discharge of Tax Debt

Written by Harold Jarnicki on . Posted in Uncategorized

Contrary to popular belief, death and taxes are not equally certain. In bankruptcy, a debtor may be able to discharge certain kinds of tax liabilities under some circumstances. These liabilities include not only taxes, but also penalties on failure to pay those taxes. The rules for discharging tax debt vary according to a number of factors.

Chapter 7 bankruptcy applies to individuals and businesses and allows debtors to discharge certain debts, including credit cards, medical bills, and federal and state income tax debt. A debtor may be released from federal or state income tax liability in a Chapter 7 bankruptcy if certain conditions are met:

  1. First, the debtor must have filed a legitimate tax return for the years associated with the tax debt at least two years before filing for bankruptcy. If the debtor failed to file a tax return and the Internal Revenue Service assessed the tax debt, the debt cannot be discharged.
  2. Second, the tax liability must have been incurred at least three years before filing.
  3. Third, the IRS must generally have assessed the tax debt at least eight months before filing.
  4. Fourth, the debtor cannot have committed willful tax evasion or tax fraud, as demonstrated through inaccurate personal information, incomplete information, or evidence of intent to defraud.
  5. Extensions may apply to some or all of these requirements.

    Chapter 13 bankruptcy involves “reorganization” of a debtor’s debts. In some cases, the debtor’s tax debt may be discharged completely. However, non-dischargeable tax debt is generally paid off within three to five years under a court-approved repayment plan. The debt is paid back with no interest or late fees.

    There are also methods in both Chapter 7 and Chapter 13 bankruptcy to remove federal and state tax liens on property. A lien avoidance can be filed to strip the tax lien from the debtor’s real estate or personal property.

    There are alternatives to filing for bankruptcy due to tax debt. In some cases, the IRS may be willing to enter into an installment payment agreement or accept a settlement amount for less than the amount owed. However, the installment payments with the IRS generally include high interest. A cash settlement to the IRS, or offer-in-compromise, often requires a substantial amount of cash to settle the tax debt.

    If you are struggling with tax debt, it can benefit you to contact an experienced bankruptcy attorney who can help you understand all of your legal options.

Surrendering a House in Bankruptcy

Written by Harold Jarnicki on . Posted in Uncategorized

Often one of the reasons that people choose to file bankruptcy is that they are facing foreclosure and want to save their home. Bankruptcy can be filed to stop foreclosure and allow homeowners to keep their property. However, for some people, it makes more financial sense to surrender the property to the lender during the bankruptcy process. Those considering filing bankruptcy should understand the process for surrendering a home in bankruptcy and why the mortgage lender still needs to go through the foreclosure process after the debtor gives up the home.

The Process for Surrendering a Home in Bankruptcy

The first step to surrendering a home in the bankruptcy process is for the debtor to decide that surrendering the property is the best option for his or her financial situation. If the debtor determines that at the outset, he or she notifies the mortgage holder of his or her intent to surrender the property when filing the bankruptcy petition.

Those filing Chapter 7 bankruptcy do so by filing a Statement of Intention form. Those filing Chapter 13 bankruptcy do so by stating in the Chapter 13 plan that the debtor will surrender the home. If the debtor decides later on in the bankruptcy process to surrender his or her home, he or she may amend the bankruptcy petition at that point.

After the borrower gives the mortgage lender notice that he or she intends to surrender the property, the lender must petition the bankruptcy court for relief from the automatic stay that bankruptcy puts on creditor collections so the lender can repossess the house and begin foreclosure proceedings. The bankruptcy discharges (eliminates) the deficiency on the home, which is the difference between the amount owed on the mortgage and what the house sold for at the Sheriff’s sale.

Fortunately for the debtor filing bankruptcy, he or she may stay in the home for many months, sometimes over a year, without having to pay the mortgage. The debtor does not have to move out of the home until the Sheriff’s sale, which usually occurs several months to over a year after the homeowner began missing mortgage payments. In addition, the bankruptcy filing slows down the normal foreclosure process and may provide the debtor additional time to live in the home. This allows the debtor to save up money, as he or she can literally live in the home for an extended period of time without making a mortgage payment. Furthermore, the debtor/homeowner would not be liable for the property taxes, which are discharged (wiped out) in the bankruptcy.

Why the Mortgage Lender Still Forecloses on the Home

The lender needs to foreclose on the home even though the debtor has voluntarily surrendered it in order to get legal ownership of the property and extinguish any other liens that the debtor may have on the property. And, only after the lender has legal ownership of the property can the lender sell it to another buyer.

Making the decision to surrender a home can be difficult. Many people want to save their home from foreclosure, which can be done through a Chapter 13 bankruptcy, but sometimes it makes more financial sense to let the property go.

The decision whether to keep your home or let it go is very important and based on many variables. If you are facing foreclosure, talk to an experienced bankruptcy attorney who can discuss your situation with you and advise you of your options, which include either saving the home, or letting it go and eliminating the debt owed on the mortgage and property taxes.

Do Not Fall Victim to Mortgage Modification Scams; Get Real Help

Written by Harold Jarnicki on . Posted in Uncategorized

The recession has hit families hard, and many Americans are willing to try just about anything to escape from burdensome loan payments, including their mortgage. But, some companies offering a way out are scammers in disguise, whose “services” often leave already-struggling individuals in a far worse predicament.

Avoid Foreclosure Rescue Companies

They go by many names, such as loan modification companies, foreclosure rescue services, or mortgage relief providers. But, one thing these services generally all have in common is promises that never seem to materialize.

Some foreclosure rescue companies are completely fraudulent; others may delay foreclosure for a brief amount of time, but fail to ultimately save your home despite, walking away with a hefty fee from you. These companies will typically charge you an excessive fee to file an answer on your behalf to the foreclosure summons, which will stall the foreclosure lawsuit temporarily. However, the foreclosure proceedings will eventually be reinstated, and before you know it, your house is up for auction at a sheriff’s sale.

A typical mortgage relief scam has several stages. First, homeowners are seduced by advertisements promising that a mortgage relief company can get banks to lower monthly mortgage payments. After collecting a fee, the company will advise the homeowner to stop making mortgage payments while they negotiate with the bank. Generally, these negotiations never result in lowered mortgage payments, and the homeowner is often left months behind on their payments, and often in facing an imminent foreclosure sale.

Mortgage relief companies have no legal authority to stop foreclosure proceedings, and once the homeowner gets behind on payments, late fees can quickly stack up, or the bank may act to seize the property. In the end, when loan modifications fail, as they usually do, disreputable mortgage relief services walk away with their fee and homeowners are left even further behind, facing a scheduled sheriff’s sale, or out of their home completely.

The Real Solution to Saving Your Home

The best way to avoid being scammed is to simply ignore solicitations from mortgage relief agencies and foreclosure rescue companies; if it sounds too good to be true, it probably is.

Getting in touch with an experienced bankruptcy attorney is the most productive avenue for exploring your real, legitimate options to deal with oppressive debt, including high mortgage payments. Filing for bankruptcy legally stops all collection activities, including foreclosure, and can also allow you to save your home.

Chapter 13 bankruptcy legally stops foreclosure proceedings and prevents all creditors from pursuing collection efforts against you. A Chapter 13 allows you to get caught up on missed mortgage payments (arrears) over the course of three to five years, while eliminating some, if not all of your unsecured debt. In a Chapter 13, you can often completely wipe out a second mortgage or judgment liens on your property. The Chapter 13 plan is regulated through the Federal Bankruptcy Laws, and provides you legal protection from your creditors while allowing you to keep your home and vehicles. Many instances, you can lower your vehicle loan payments through a Chapter 13. When you have completed the Chapter 13 payment plan, your remaining debts are discharged, meaning they are totally eliminated, and your mortgage will be deemed current.

Remember, if you are struggling to make your monthly mortgage payments or have already fallen behind, do not get scammed by the so-called mortgage relief, loan modification and foreclosure solutions companies that may solicit you. Instead, know your legal rights by contacting an experienced bankruptcy attorney. Bankruptcy can legally save your house, vehicles and give you the protection you need from your overwhelming debt.

Bankruptcy Exemption Basics in Ohio

Written by Harold Jarnicki on . Posted in Uncategorized

People may be wary of filing bankruptcy because they have heard that they may lose many of their assets, including their homes and cars. This is totally incorrect, as there are exemptions under Ohio Law that allow you to keep most, if not all, of your property in bankruptcy. No two bankruptcy cases are the same, as everybody has different and varying amounts of assets, but our attorneys will determine the best bankruptcy to protect your assets while eliminating your debt. Below you will find information on the available bankruptcy exemptions under Ohio law. For more information on how these exemptions will apply to your specific case, contact Harold Jarnicki and Associates.

Under Ohio law, certain types of property are considered exempt during bankruptcy. This means that in a Chapter 7 or Chapter 13 filing, the bankruptcy trustee cannot seize this exempt property and sell it to satisfy some of the debt you owe. At the law office of Harold Jarnicki and Associates, our attorneys know the detailed exemptions and will explain your rights to wiping your debt while keeping your assets.

Three of the most important exemptions under Ohio law are for the house, the car, and retirement accounts:

The Homestead Exemption

Under Ohio’s exemption statute (ORC §2329.66), individuals filing for bankruptcy are allowed to exempt 132,900 in equity in their primary residence. Those filing jointly with a spouse are generally allowed to double this amount to $265,800.

If there is still a mortgage on the property, the equity is determined by subtracting the amount owed on the mortgage from the value of the property. The value is the current, real market value of the property if you were to sell it today, not what you paid for it. For example, if you and your spouse’s home would sell for $400,000 in today’s market and you owe $180,000 on the mortgage, then the amount of equity you would own in your home is $220,000 – well within the joint homestead exemption. Remember, even if there is more equity in your home than the allotted exemptions, our attorneys will provide you the best options to filing a bankruptcy and still keep the excess equity in your home.

The Auto Exemption

State law also allows individual Chapter 7 bankruptcy filers to exempt equity in their car, and if the bankruptcy is a joint filing (husband and wife), exemptions are generally allowed for two vehicles, one exemption for each spouse’s vehicle. Our attorneys will discuss all of the specific exemption allowances and determine which bankruptcy is most appropriate for you, so you can keep your vehicle and eliminate your debt.

Retirement Account Exemptions

In general, all of the money you have in your retirement accounts is exempt from bankruptcy proceedings. This includes 401ks, IRAs, Roth IRAs, pensions, annuities, 403B’s, education individual retirement accounts, Keogh IRAs, H.R. 10 plans, PERS, SERS, Deferred Compensation, and Ohio Public Safety Officers Death Benefit Funds and other tax exempt retirement funds, including direct transfers and rollover distributions. Therefore, DO NOT cash out, withdraw from, or take a loan against any of your retirement before speaking with one of our bankruptcy attorneys! We can advise you on how to keep ALL of your retirement while still filing bankruptcy.

Bankruptcy filers are allowed to exempt the full value of the following assets, with certain restrictions. This means that usually, none of the following assets will be taken from you in a bankruptcy:

  • Life Insurance
  • Health Insurance Proceeds
  • State and Federal Benefit Programs, Including Workers’ Compensation, Disability, and Unemployment Benefits
  • Ohio Works First Cash Assistance
  • Benefits-Services from Prevention, Retention, and Contingency Programs
  • Child and Spousal Support
  • Federal Earned Income Tax Credit and Child Tax Credit
  • Tuition Payment Contracts
  • Reparations for Crime Victims
  • Awards in Wrongful Death Actions
  • Partnership Property
  • Seal and Register of Public Notary
  • Health Aids
  • Burial Lots

Additional Exemptions

Some of the other exemptions that are available under Ohio law include:

  • Cash
  • Jewelry
  • Tools of Your Trade, Business, or Profession
  • Proceeds from a Personal Injury Award

The Wildcard Exemption

Finally, Ohio law provides a general exemption up to $1,225 that may be used by filers to provide additional equity protection to any of the exemption classes. For example, if you had $4000 excess equity in your car, you could use the wildcard exemption along with the vehicle exemption to help protect your car from the bankruptcy estate.

Conclusion

Those who have found themselves struggling with debt should not write off bankruptcy as an option before speaking with an attorney. Last year, Ohio expanded the value of its exemptions to make it easier for those filing for bankruptcy to keep more of the property they have worked so hard to acquire.

At Harold Jarnicki and Associates, our lawyers will explain which exemptions apply to your case and how bankruptcy can clear up your debts and protect your assets. For more information on bankruptcy exemptions in both Chapter 7 and Chapter 13, contact Harold Jarnicki and Associates today.