Tag: Utah Bankruptcy

What are my options for paying my bankruptcy filing fee?

Posted on by Sean Wood in Bankruptcy, Chapter 13, Chapter 7, Court Filing Fee, Fee Waiver, Fees, Filing for Bankruptcy

Short answer: (1) pay in full, (2) pay in installments, or (3) apply for a fee waiver.

1. Pay in full21 Cash Register

This is the easy option for both me and for the client. When you make a payment to my firm for the attorney’s fees you also make payment for the filing fee. Paying in full makes it easier for me because I don’t have to worry about reminding the client to pay the filing fee. It’s also easier for the client because there is nothing else you have to do.

2. Pay in installments

Coming up with the money for attorney’s fees can be difficult when you are considering bankruptcy. Fortunately, the Court allows you to pay the filing fee in three installments. You don’t even have to pay the first installment when you file.

What the Court does require is that you make your first payment two weeks within two weeks of filing, the second payment within two weeks after the first payment, and the third payment within four weeks of the second payment.

Let me use an example. Let’s say you filed chapter 7 bankruptcy on Monday, February 1, 2016. The total amount for the filing fee is $335.00. Your first payment is due on or before February 15, 2016. Your second payment would be two weeks after that, on Monday, February 29, 2016, Leap Day (watch out for Leap Day William). Your third and final payment would be due four weeks later on Monday, March 28, 2016.

Below is a table showing how this works.

Payment Date Amount
File Bankruptcy February 1, 2016 $0.00
1st Payment February 15, 2016 $110.00
2nd Payment February 29, 2016 $110.00
3rd Payment March 28, 2016 $115.00

3. Apply for fee waiver

The last way to pay for your filing fee is to not pay at all. If you meet the guidelines then you file what is called the “Application to Have the Chapter 7 Filing Fee Waived”. This is only available to chapter 7 debtors; it is not available to chapter 13 debtors.

There are several factors the Court considers when deciding to grant or deny your application for fee waiver. The most important factor, however, is your income. If your monthly income is 150% or less of the poverty level for the number of people in your household then the Court will likely grant your application for fee waiver. I covered this in more detail in an earlier post.

Talk to your attorney about which payment method is best for you.

What happens if I do not give my bankruptcy trustee a copy of my next year’s tax return?

Posted on by Sean Wood in Bankruptcy

Short answer: revocation of discharge (this is bad).

7134294207_4beca17693_b

Nearly every bankruptcy trustee asks you to send to him/her a copy of your tax return. If you do not send the trustee a copy of your tax return then the trustee can, and usually will, motion the Court to revoke the discharge of your debts. You do not want this to happen.

Trustees have to put on a tough face because debtors are always forgetting to hand over their tax refunds. As I mentioned two weeks ago, collecting tax refunds is low hanging fruit for trustees.

Just last week one of the trustees here in Utah implemented a new policy. At the 341 Meeting of Creditors the trustee will schedule a 2004 Examination with you for next year sometime in January to April. This is an extended Meeting of Creditors but the trustee is given great powers to demand that you hand over documents and information. The trustee said that if you get a copy of your tax return before the date you decided on then you will not have to attend the 2004 Examination.

If you filed for chapter 7 bankruptcy then please, PLEASE talk to your bankruptcy attorney before you spend your tax refund.

Where does my discharged debt go when I file for bankruptcy? Do my creditors get paid for my debts?

Posted on by Sean Wood in Bankruptcy

Answer: your debt is gone; no one pays your creditors.

5106441340_558d48fb05_b

It’s a good question and one that I had when I was first introduced to bankruptcy law. This is a question that many of my clients ask me. Often they ask “who pays my creditors after bankruptcy?” It makes sense that people would think that someone, whether it’s the government or the trustee, will pay the creditors the debt that is owed to them.

Unfortunately for creditors (but fortunately for debtors) if the case is a “no-asset” chapter 7 (where the trustee does not take and sell any of your property), that debt is money they will never see again. Legally your debts are discharged at the end of a bankruptcy and the creditor cannot try to collect that debt ever again.

If there are assets that are sold in the bankruptcy case then the trustee will return to creditors a pro rata share of whatever is collected. This amount is always less than the original amount that is owed.

In many cases the debt being discharged is owed to a company, often times a credit card company or a hospital. These companies build into their business models the reality that they will not collect some debts. And despite having hundreds of thousands of dollars owed to credit card companies being discharged every day, everyone still gets credit card offers from credit card companies in the mail.

I don’t want to diminish the pain that many creditors feel, particularly individuals. While these big companies are able to absorb these losses, individuals feel the hurt a lot more when a debt is discharged. Not infrequently, these creditors had sympathy for someone and lent them money to help them overcome a problem.

Lesson to creditors: be careful who you lend to. If you cannot afford to lose that money, then don’t lend it. There is a good chance if a debtor files a bankruptcy you are not going to see that money again.

Can I keep my tax refund if I file for chapter 7 bankruptcy? Will the trustee take my tax refund if I file for chapter 7 bankruptcy?

Posted on by Sean Wood in Bankruptcy, Bankruptcy Attorney, Chapter 7, Taxes

Short answer . . . it depends. (skip to the end for a summary on when to file)

Pieter_Brueghel_the_Younger,_'Paying_the_Tax_(The_Tax_Collector)'_oil_on_panel,_1620-1640._USC_Fisher_Museum_of_Art

I never counsel anyone to represent themselves pro se in a bankruptcy. The reason is this: it is very easy to lose more money representing yourself than it would be to hire a bankruptcy attorney.

The trustee assigned to your case has one goal which is to collect and liquidate as much non-exempt property as possible to return as much funds as possible to the creditors. The trustee also has an incentive to go after assets because he keeps a small portion of what he collects.

In almost every case the trustee can easily find some property that is not exempt. Typically those who file bankruptcy have less than $100 in their bank account. Why? Because money in a bank account is not exempt and the trustee could take all of this money if he chooses to. That being said, most of the time the trustee does not go after this money because it is not worth his time to file a motion to sell or liquidate property that will earn him a few dollars. Trustees call these types of assets “administratively burdensome” and do not pursue this property.

So what does all of this have to do with taxes? The trustee likes to collect more money without having to spend much time. Because of this all trustees goes after the low hanging fruit: tax refunds.

Bankruptcy attorneys know that the tax refund is not exempt and so they do not fight these types of motions. Bankruptcy attorneys will fight the trustee on how exemptions are applied. But for tax returns, there is no fighting. It is relatively easy for the trustee to collect a tax refund.

For many people who file bankruptcy, their tax refund is the single biggest windfall they will receive that year. The trustee knows this and will almost always go after your tax refund.

So how do you keep the trustee from collecting your tax refund? That depends on which month of the year you file. If you are one of the first people to file your tax return and get your tax refund in February then you can spend all of your tax refund and then file for bankruptcy. As long as you spent this money on non-exempt property (typically food, gas, necessities) then there is nothing the trustee can collect. If, however, you filed bankruptcy before you received and spent your tax refund then the trustee will require that you turn over the entire amount.

After about the month of May, most people have received their tax refund and the trustees stop pursuing the tax refund for that year. Depending on the trustee, around the end of June to the first part of August the trustee will start directing that you handover a pro rata share of your next year’s tax refund. Let me give you an example of how this works.

Let’s say you file a bankruptcy on July 1, 2015 and your 2015 tax refund will be $2,000. The trustee will ask that you handover your 2015 tax refund that you will get in early 2016. The trustee will then take a share that is equal to six months of the twelve total months of the year 2015, which will be 50% of the $2,000 which is $1,000. The reason is that all of the tax refund you are building up to the date of filing for bankruptcy is part of the bankruptcy estate. All tax refunds accruing after the date of filing is not part of the bankruptcy estate.

So let’s use another example. If you file on August 1, 2015 and your tax refund will be $2,000. This time the trustee will keep seven months of the total twelve months of 2015, which is $1,166.66.

If you file on September 1, 2015 and your tax refund will be $2,000 then the trustee will keep eight months of the total twelve months of 2015 (which is two thirds). That means the trustee will keep $1,333.33.

The later in the year you file, the greater the amount the trustee will be able to keep of your tax refund. Because of this, many of the people who file later in the year do not have a very sizeable tax refund if they have one at all. This also means that there are more bankruptcies filed in the months of February, March, and April. Debtors can receive their refund, spend it, and then file for bankruptcy without losing any of their tax refund.

Here are my basic guidelines for each month of the year.

January to April. Make sure you receive and spend your tax refund before you file for bankruptcy. The trustee cannot collect a refund if you have spent your refund (on exempt property).

May to June. Again, make sure you receive and spend your tax refund before you file for bankruptcy. Most trustees don’t start asking for the following years tax refunds until the end of June.

July to December. The trustee will take a proportional share of your tax refund. If your tax refund is large and you absolutely must file a bankruptcy then it is best to file sooner rather than later. If you aren’t getting much of a tax refund, or none at all, then it won’t matter when you file. If you are getting a large tax refund then it might, depending on your particular situation, make sense to wait until the next year to file for bankruptcy.