Are There Tax Consequences for Filing Bankruptcy?

For the average individual, discharging a debt through a bankruptcy does not have a taxable consequence. This is often a reason for choosing to resolve debt through bankruptcy as opposed to debt settlement.

Internal Revenue Code §108(a)(1)(A) excludes debt discharged in a bankruptcy as taxable gross income. As such, there are no taxable consequences for a debt discharged in a bankruptcy.  However, debtors will sometimes receive a Form 1099-C, Cancellation of Debt in connection with a debt they discharged in a bankruptcy. If a Form 1099-C is received, a debtor should file a IRS Form 982 along with their applicable tax return. This form will tell the IRS that the sum included in the 1099-C should be excluded from their taxable income. This form can be found on the IRS website at www.irs.gov.

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The Meeting of Creditors

Upon filing a bankruptcy, a meeting of creditors is scheduled. This hearing is often referred to as the 341 hearing, which is a reference to Bankruptcy Code section 341. The hearing is scheduled approximately 30 days from the date you file a bankruptcy. The person filing bankruptcy, a "debtor", must attend the meeting of creditors.

Bankruptcies are administered by a person referred to as a Trustee. The Trustee, or their representative, conducts the meeting of creditors. At that hearing, the Trustee asks a series of questions designed to make sure the bankruptcy filing is accurate and to elicit certain information about the debtor's property and finances.

The meeting of creditors is also an opportunity for a debtor's creditors to appear and ask questions. While creditors or their attorneys have a right to appear and ask questions, they very rarely do.

Where Will My Meeting of Creditors Be Held?

Upon filing, the Bankruptcy Court will generate a notice of the bankruptcy filing. In Chapter 7, the notice is called Official Form 309A. In Chapter 13, the notice is called Official Form 309I. In both Forms 309A and 309I, the hearing date, time and location are located on the second page in box number 7.

The location of the hearing will depend on the debtor's county of residence. The following is a list of the hearing locations in the Western District of Michigan and the counties assigned to each location:

Grand Rapids: Barry, Ionia, Kent, Mecosta, Montcalm,  Muskegon, Newaygo, Oceana, and Ottawa

Kalamazoo: Allegan, Berrien, Branch, St. Joseph, Van Buren,  Hillsdale, Cass, Calhoun, and Kalamazoo

Lansing: Clinton, Eaton, and Ingham

Traverse City: Antrim, Benzie, Charlevoix, Emmet, Lake,  Kalkaska, Leelanau, Grand Traverse, Manistee, Mason,  Missaukee, Osceola, and Wexford

Marquette: All of the counties in the Upper Peninsula of Michigan.

What Do I Need to Bring to the Meeting of Creditors?

A debtor must bring photo identification (i.e. drivers license) and an original social security card. The Trustee is under strict orders to not hold the meeting of creditors unless these forms of identification are produced. It is a good idea to make sure you have these forms of identification prior to filing your case, so that if new copies need to be requested, they arrive prior to the scheduled hearing. If these forms of identification aren't provided at the hearing, the Trustee will adjourn the hearing to a later date.

Other documents may need to be provided at the meeting of creditors. What needs to be provided can vary by the practice of the assigned Trustee and what was or wasn't provided to the debtor's attorney prior to the hearing. Most required documentation is provided to your attorney prior to the filing of the bankruptcy. If all of the required documents aren't provided to your attorney prior to filing, they should be provided as soon as possible so that they can be sent to the Trustee in advance of the meeting of creditors as required.

What Will the Trustee Ask Me at the Meeting of Creditors?

When your case is called, you will sit at a table with your attorney and the Trustee and/or their representative. If there are creditors, they will sit at the table too. Before asking any questions, the Trustee and/or their representative will swear you in and collect your photo identification and original social security card.

Most debtors are asked the same or similar questions. However, the questions can vary depending on the assigned Trustee, what type of bankruptcy was filed, what was stated in the bankruptcy schedules, what documents were provided prior to the hearing, etc.

The following are examples of questions that are often asked at the meeting of creditors:

• What caused you to file bankruptcy?
• Have you listed all of your creditors and everyone you owe money to?
• Have you listed all of your assets?
• Do you have any ownership interest in any real estate? 
• How did you determine the value of your real estate?
• Do you own any vehicles?
• Does anyone owe you any money for any reason?
• Do you have a claim of any kind against anyone, or any business?
• Do you have a reason to file a lawsuit, or are you a plaintiff in any pending lawsuit?
• Have you been notified you may be party to a pending or future class action lawsuit?
• Have you suffered any accident or injury for which someone else may be at fault?
• Do you expect any inheritance or life insurance proceeds? 
• Are you the beneficiary or trustee of an estate?
• Do you have an interest in any trusts or estates?
• Have you owned or operated a business?
• Have you paid any of your creditors a total of $600.00 or more during the 90 days prior to filing bankruptcy?
• Have you repaid any family members or friends any money in the last year?
• Have you been divorced?
• Have you given away, or otherwise transferred real estate, cash, vehicles or property of any kind in the last several years? 

Again, this list is just an example of commonly asked questions and is by no means complete.

What Do I Do If I Have a Question About the Meeting of Creditors?

If you have a question about the meeting of creditors, you should contact your attorney. If you hire an attorney to represent you in a bankruptcy, they should be more than willing to answer your questions about this hearing and everything else that relates to the bankruptcy.

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Bankruptcy, Joint Debt and Non-Filing Co-debtor

This post is meant to be an update to the previous post How Will Bankruptcy Affect My Spouse. I get asked all the time how bankruptcy will impact a non-filing spouse or other party. The answer to this question can be a little twisty, especially with credit card debt. 

Liability for Credit Card Debt

It is often unclear if certain credit card accounts are joint or one person is just a permissive user of the account. What matters is whether a person agreed to be liable for the debt. To be liable, a person would need to sign an obligation (i.e. contract, application for credit, financing agreement, etc.). Having your name on a credit card does not automatically mean you are liable. 

So, what happens to debt that is joint and only one person is filing? Only the person filing is discharging their liability. The non-filing person would remain liable for 100% of the debt. So, when contemplating filing bankruptcy, it is extremely important to determine whether any debts are joint, especially if the debt is owed by your spouse. If the debt is joint and for an amount that exceeds your spouse's ability to pay, it may lead to two separate bankruptcy filings. While an attorney may really appreciate you paying them for preparing two bankruptcies, it just doesn't make financial sense when married individuals can file one joint case.

Current Joint Debt

What happens to the non-filing person's credit when there is joint debt that is current and remains current? Unfortunately, this question is not so simple to answer. The non-filing person's credit should not be impacted. However, a lot of things should not happen but they do. It is fairly common for creditors to report this type of an account as being in bankruptcy on a non-filing party's credit. It is also fairly common for creditors to shut the account down and transfer the debt to a collection company. If that happens, the debtor and the non-filing party should contact the three credit reporting agencies (Experian, Transunion and Equifax) and dispute the tradeline [Creditors refer to each separate reporting of the account as a "tradeline."].   

The Bottom Line

If you are considering bankruptcy, make sure you meet with an experienced bankruptcy attorney. Make sure to discuss your debts with the attorney in detail. Figure out whether any accounts are joint and discuss the best way to proceed so that you and any potentially non-filing party are protected. Maybe it makes sense to file with your spouse, maybe it doesn't. Just make sure you and your spouse aren't paying to file two separate cases when it could have been take care of together for half the cost.

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

How Do I File Bankruptcy?

If you're facing overwhelming debt, garnishment, foreclosure, or other aggressive creditor collection activity, filing Chapter 7 or Chapter 13 bankruptcy may be the best solution for you. To determine whether you should file bankruptcy, your first step should be to consult with an experienced bankruptcy attorney.

Consulting with a Bankruptcy Attorney

By consulting with an experienced bankruptcy attorney, you should be able to determine what your options are and what solution makes the most sense for you. I offer free in-person consultations. So, there is no harm to sit down with me and discuss your situation. When I consult with potential clients, I review their situation in detail, examining their finances, assets, debt obligations, and personal goals. This information allows me to not only explain a person's options, but also the best way to resolve their problems while moving toward their personal goals, such as saving a home or car, or rebuilding their credit.

Researching Bankruptcy

I always appreciate it when I speak with a potential client that has taken the time to do a little research about what bankruptcy entails. There are some very good bankruptcy information sources on the internet; however, there is also a lot misinformation. When researching bankruptcy, a person should always use great caution when basing a decision on what they read on the internet. Getting the opinion of an experienced bankruptcy attorney that practices in your area is always the best option for getting the right information. If your looking to get some basics and you live in the Western District of Michigan, the Bankruptcy Court's website is a good place to start: U.S. Bankruptcy Court - Western District of Michigan 

How to Choose an Attorney

Attorneys can vary greatly in experience, manner, and cost. While I think paying a fair price to file bankruptcy is extremely important, I think it is equally, if not more important, to find an attorney that you feel comfortable with and that has the experience to effectively represent you. When you consult with an attorney, don't be afraid to ask what their experience is. Also, don't be shy asking the attorney to explain how bankruptcy works. While bankruptcy law is very technical and confusing, a good attorney should be able to translate the complex concepts and legalese in a way a layperson can understand.

Documents Needed to File Bankruptcy

When you prepare a bankruptcy, Chapter 7 or Chapter 13, there are certain documents that must be provided to your attorney so that the filing can be correctly prepared. There are also documents that must be provided to the trustee that is assigned to your case. If you are going to file bankruptcy, you should expect to have to provide the following: (1) copies of your most recent city, state and federal tax returns, (2) proof of your household income, (3) bank statements, (4) vehicle titles, (5) real estate documents (i.e. recorded deed & mortgage, mortgage statement(s) state equalized statement, proof of homeowners insurance, etc.), (6) statement demonstrating the type and value of all investments, (7) statement relating to insurance policies, (8) judgments of divorce, and (9) copies of statements/bills demonstrating the debts owed.  This list is by no means complete. When you consult with an attorney they should be able to tell you exactly what is needed.

The Bottom Line

If you think you need to file bankruptcy, make sure to consult with an experienced local bankruptcy attorney. I have helped thousands of individuals through their difficult financial times. I offer free consultations and will take the time to understand your situation and help you determine what solution is best for you. Please call me at (616) 389-0629 or visit my website at www.ryanbeachlaw.com.

This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Repossession: Prevention and Recovery of Repossessed Cars

Whether your car is about to be repossessed or has already been repossessed, filing bankruptcy can help you save your car.

Upon filing a bankruptcy, an automatic stay takes effect, unless the person filing has had two more active bankruptcies in the last year. The automatic stay is essentially a federal court order that tells creditors that they cannot take any action to collect on a debt, such as phone calls, collection letters, lawsuits, garnishments, seizure, foreclosure, and repossession. The automatic stay also allows for recovery of "property of the estate", which includes a repossessed vehicle that can still be redeemed by law.

Pending Repossession

If your car is about to be repossessed, the automatic stay would prevent the auto creditor from taking your car. However, the relief provided by the automatic stay varies by the type of bankruptcy being filed. Chapter 7 would most likely provide protection that lasts 1-3 months, whereas Chapter 13 would provide protection for 3-5 years as long as the terms of the confirmed plan are being followed and the car is insured as required [see below for more information on how auto loans are treated in Chapter 13]. As such, Chapter 7 may not be the best option for saving a car if a person does not have the funds available to cure the default in payments or the ability to redeem the vehicle through the bankruptcy process.

Post Repossession 

If your car has already been repossessed, it is possible to force the auto loan creditor to return the vehicle and accept reasonable repayment terms through a Chapter 13 plan. However, once the vehicle has been  repossessed, action should be taken right away to recover the vehicle. Under Michigan law, an auto lender must allow a person 15 days to redeem the vehicle before they can try and sell the vehicle at an auction. In other words, if a person wants to save their car, they must file a Chapter 13 prior to the 15-day redemption period expiring. Once the car is auctioned it is too late.

Treating Auto Loans in Chapter 13

Chapter 13 allows an individual to prevent repossession and recover vehicles that have already been repossessed but not yet auctioned. Chapter 13 allows an individual to modify an auto loan in several ways. If a vehicle was purchased over 910 days prior to the date the Chapter 13 is filed, the auto loan can be modified as follows: (1) lower the total amount to be repaid in full as a secured claim to the market value of the car; (2) lower the interest rate to approximately 5%; and (3) extend the term of the repayment of the auto loan up to 5 years. If the vehicle was purchased within 910 days of the filing date of the Chapter 13, the auto loan can be modified as follows:  (1) lower the interest rate to approximately 5%; and (2) extend the term of the repayment of the auto loan up to 5 years. In most cases, Chapter 13 allows an individual to significantly lower an auto loan payment.

Treating Auto Loan Deficiency Debt

If your car has been repossessed and auctioned or you do not want to save the car, it is possible to get relief from the auto loan deficiency debt (difference between what is owed and the amount the car is sold for at auction). Auto loan deficiency debt is considered general unsecured debt. As such, it can be discharged by filing Chapter 7 or Chapter 13 bankruptcy. Chapter 7 would allow an individual to discharge the total amount owed with no repayment. Chapter 13 would allow an individual to discharge the total amount owed by paying a percentage or fraction of what is owed (typically 10% or less is paid through a Chapter 13 plan and the other unpaid percentage is discharged).

The Bottom Line

Most bankruptcy attorneys offer free consultations. If your car is about to repossessed or has already been repossessed, take advantage of a free consultation. By consulting with a knowledgeable bankruptcy attorney, you can find out what your options are and get help deciding what option makes the most sense for you.

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

What Does a Discharge Really Do?

An attorney should be able to explain to a client or potential client how bankruptcy works and what certain legal terms mean. Bankruptcy can be complicated and hard to understand, even for an attorney. So, it is not unusual that certain terms or concepts are simplified so that a person can have a better understanding of what going through bankruptcy means for them.

A discharge is one of the main purposes or goals of filing a bankruptcy. So, discharge is a word that bankruptcy attorneys use constantly and is a term that is often oversimplified. As a result, many debtors or potential debtors believe that a discharge extinguishes a creditor's claim. While a discharge does extinguish a creditor's claim to some extent, it is not accurate to say that the creditor's claim is extinguished. When a debtor receives a discharge, their personal liability for debt is being extinguished (assuming the debt is dischargeable). That means that the creditor's claim may survive in some form and may be enforceable in some way other than collecting against the debtor personally.

Secured Debt

When a person receives a discharge they are extinguishing their personal liability for debt. It is important to understand what happens when debt is secured by property, such as a home or car. If a person continues to make payments on secured debt either according to the applicable contractual terms or through a Chapter 13 plan, there is rarely any issue with keeping the property. However, if payments cease, necessary reaffirmation agreements are not signed, and/or the property is declared surrendered, the creditor can collect against the property that secures their claim. For example, when a debtor files Chapter 7 they discharge their liability on a home mortgage (unless a reaffirmation agreement is executed).  Discharging the debtor's personal liability on a home mortgage does not mean the mortgage company can't collect against the home that secures their claim. So, if a debtor is surrendering a home through the bankruptcy or they fail to pay the home mortgage and the debt is not reaffirmed, the mortgage company can't collect against the debtor personally, but they can foreclose on the property.  In other words, the debtor's personal liability is extinguished, but the creditor's claim still exists and can be enforced against the home itself.

Joint Debt - Codebtors/Cosigners

Understanding what a discharge does is also very important when there is codebtor or cosigner on a debt. Again, when a person receives a discharge they are extinguishing their personal liability for debt (assuming the debt is dischargeable). If someone else is liable for a debt, that person will remain liable after the debtor receives their discharge. For example, a father cosigns on an auto loan for his son. The son files Chapter 7 and surrenders the auto. Upon receiving a discharge, the son will no longer be personally liable for the auto loan. However, the father will remain liable on the entire balanced owed. The creditor can collect on their claim by repossessing the vehicle and collecting personally against the father for any unpaid balance.

The Bottom Line

An individual can obtain a discharge by filing Chapter 7 or Chapter 13 bankruptcy. Some debts are non-dischargeable in Chapter 7 and Chapter 13. Some debts are non-dischargeable only in Chapter 7.
Most bankruptcy attorneys, myself included, offer free consultations. By consulting with an experienced bankruptcy attorney, you can determine what your options are, how Chapter 7 or Chapter 13 can help you, and what obtaining a discharge would mean for you. A bankruptcy discharge can provide incredible relief. Make sure you understand your options so that you can choose the right course of action.

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This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Can I Eliminate Medical Bills in Bankruptcy?

Medical debt is considered general unsecured debt and is dischargeable in a Chapter 7 or Chapter 13 bankruptcy. How you discharge or eliminate that debt is determined by what type of bankruptcy you file.

Chapter 7 

As long as you are eligible for Chapter 7, the discharge will eliminate your personal liability for your medical bills, regardless of the amount owed. In other words, there is no limit to how much medical debt you can get rid of by filing Chapter 7.

Chapter 13

Chapter 13 bankruptcy will also eliminate your personal liability for your medical bills; however, there are debt limits in Chapter 13.  Currently, the unsecured debt limit in Chapter 13 is $383,175.00. If you exceed the unsecured debt limit, you are not eligible for Chapter 13.

In Chapter 13, medical bills are put into a creditor class referred to as general unsecured debt, which would also include such debts as credit cards and unsecured loans.  These types of debts are generally paid back at a fraction or percentage of what is owed. The unpaid fraction or percentage is eliminated or discharged upon plan completion and entry of a discharge order. The amount that much be repaid to general unsecured creditors depends on several factors, such as your income, budget and unexempt equity in personal or real property that you own.

The Bottom Line

Medical debt can be eliminated or discharged by filing bankruptcy. If you are struggling with medical debt or other debts, consult with a bankruptcy attorney to determine what type of bankruptcy makes sense for you and how your debts would be treated. I, like most bankruptcy attorneys, offer free consultations. So, take advantage and make sure you avoid garnishment and other nasty collection actions.

Visit Law Offices of Ryan F. Beach

This website is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.