Posted on Friday, March 4th, 2011
IRS regulations require creditors to issue Form 1099-C to report to the IRS cancellation of indebtedness, which is counted as income for tax purposes. The purpose behind the regulations is to stop potential fraud. In general, loans are not considered income and are not taxable as you are required to repay the amount borrowed. However, if you borrow money and then do not pay it back, the amount not paid-back becomes income for tax purposes.
The regulations provide for certain exceptions to the requirement to count as income the forgiveness or cancellation of a debt. For individuals in distressed financial circumstances, the most significant are:
When reviewing your options for reducing/eliminating your unsecured debt, you need to consider the tax implications of all options. If you choose to settle your debts for less than is owed, you could have a future tax burden. Additionally, if you settle some of your debts and then file bankruptcy, those debts that were previously settled would not fall into the first exception, as they were not discharged in bankruptcy. Before deciding on a course of action for reducing or eliminating debt, you should consult with a bankruptcy attorney to discuss the implications of each option.
Posted on Thursday, November 18th, 2010
In today’s economic situation, foreclosures are happening in record numbers. As such, one of the most frequent questions we receive from clients is “Can I save my house?” However, for people experiencing financial difficulties, the more applicable question is “Should I save my house?”
Your bankruptcy attorney’s job is to review your complete financial picture and discuss all your options – one of which is whether it is in your financial best interests to remain in your home. Some of the key issues to review when discussing whether to keep or surrender your home are:
In most cases, Chapter 13 bankruptcy can be used to avoid foreclosure and save your home, if that’s the right financial decision. Please contact our office for more information or to schedule a consult to discuss your specific circumstances.
Posted on Tuesday, November 9th, 2010
Most people feel that bankruptcy is the very last option and will only consider it after trying everything and anything else – debt negotiation companies that charge huge fees, high interest payday loans, borrowing from retirement accounts, selling personal property, etc. However, what most people don’t know is that some of these actions could actually reduce some or all of the protections and benefits allowed under bankruptcy law.
For example, bankruptcy law allows for individuals to protect qualified retirement plan accounts. This means that generally, these funds will not be available for the court to take to pay creditors and you can protect them during the bankruptcy process. Additionally, if you take a loan against your 401(k) account, it can potentially impact your ability to file as 401(k) loan repayments generally are not considered an allowable expense to reduce your income on the means test calculation. This could result in your means test calculation showing discretionary monthly income greater than it actually is, preventing you from qualifying to file under Chapter 7.
Please contact my office before you begin selling your assets or raiding your retirement plans to discuss whether filing bankruptcy is a good alternative for you.
Posted on Friday, September 17th, 2010
This is one of the most common questions that clients ask: Whether they will be able to keep their home if they file for Chapter 7 bankruptcy protection.
Yes, it is possible to keep your home under a homestead exemption, under certain circumstances. Under both federal and state laws, there is an allowance for certain property to be exempt from sale during a bankruptcy proceeding. One of these exemptions is for your home. If the equity in your home is less than or equal to the homestead exemption applicable to you (depending on what state you live in), then the bankruptcy trustee will not sell your house to repay your creditors.
One thing to keep in mind is that you must continue to make the mortgage payment in order to keep your home. If the equity in your home exceeds the homestead exemption amount or if you are behind on your mortgage payments, then you may have to file for bankruptcy protection under Chapter 13 instead of Chapter 7, in order to keep your home.
Your bankruptcy attorney will be able to assist you in determining the best way to keep your home during the bankruptcy process. Please contact our office for more information or to discuss how we can help you.
Posted on Friday, September 17th, 2010
Yes, one spouse can file for bankruptcy protection without bringing the other spouse into the bankruptcy action.
However, an additional question that should be considered is “Should I file bankruptcy without my spouse filing?” In answering this question, there are some issues you should consider before moving forward, including, the fact that:
Everyone’s situation is unique and should be treated as such. Because of this, unfortunately, there is no “one-size-fits-all” answer to filing bankruptcy.
Just because it is possible to do something doesn’t mean that it is a good idea to do it. Consulting with a bankruptcy attorney can provide guidance on what avenue is best for your particular situation.