Bankruptcy and Divorce

Posted by & filed under Chapter 13 Bankruptcy, Chapter 7, Detroit Bankruptcy, Divorce.

 Which Should Come First? Bankruptcy or Divorce?

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Most of our clients do not want to file for bankruptcy.  However, a life changing event usually makes bankruptcy the best option to eliminate their debt and start rebuilding their credit.  One of the most common life changing events is divorce.

Prior to filing for divorce or bankruptcy, it’s important to examine the timing of each and the impact it may have on filing bankruptcy.  Below are a couple examples of how the timing of a divorce can impact a bankruptcy filing.

 

Filing Bankruptcy Prior to Divorce

There are numerous reasons to file bankruptcy prior to getting divorced.  Filing bankruptcy prior to the divorce may alleviate some friction.  Since the majority of debts will be wiped out there will be no need to decide which spouse is responsible for which debts.

Another advantage to filing bankruptcy prior to a divorce is related to the cost.  There are three major costs associated with filing bankruptcy – attorney fees, court filing fees, and credit counseling courses.  Since you’re married you can file a joint bankruptcy.  By filing jointly you’ll only have to pay one attorney fee, one court filing fee and one credit counseling course fee.  This could end up saving you more than a thousand dollars!

By filing bankruptcy before you get divorced you’ll also be able to use the bankruptcy exemptions to your advantage.  In Michigan, when you file for bankruptcy you can choose between federal exemptions and Michigan exemptions.  There is a special type of Michigan exemption that can be used for property that is owned jointly between a husband and wife.

 

Filing Bankruptcy During a Divorce

If you need to file bankruptcy while in the middle of a divorce it may cause a slowdown in the divorce case.  This is primarily the case when property is being divided between the couple.  Once your bankruptcy is filed, all of your assets become property of the bankruptcy estate.  As property of the bankruptcy estate, the property cannot be transferred to your spouse while the bankruptcy is pending.  This may prevent the divorce from becoming finalized.

If you need to file bankruptcy while in the middle of a divorce it may cause a slowdown in the divorce case.  This is primarily the case when property is being divided between the couple.  Once your bankruptcy is filed, all of your assets become property of the bankruptcy estate.  As property of the bankruptcy estate, the property cannot be transferred to your spouse while the bankruptcy is pending.  This may prevent the divorce from becoming finalized.

Generally, filling a bankruptcy in the middle of a divorce makes things more complicated.  However, it might be the only option as some divorces take years to get resolved.

 

Filing Bankruptcy After a Divorce

There are also reasons to file for bankruptcy after a divorce.  If you cannot qualify for a Chapter 7 bankruptcy as a married couple due to your household income being too high, you may be able to qualify after the divorce is complete.  This is due to the means test, which takes into account your household size and household income.  Splitting into two separate households may allow you to qualify since the income limit for a household of two is not twice that of a single person household.

The exemptions mentioned earlier are another reason to file bankruptcy after a divorce.  If the divorce separates the property once owned solely by one of the spouses, and previously unexempt, you may now be able to exempt that property.

There are a number of other factors that need to be taken into consideration when determining the proper time to file for bankruptcy in light of a divorce.  Contact an experienced bankruptcy attorney to help determine the time most advantageous to your specific circumstances.

Dealing with Judgments

Posted by & filed under Chapter 7, Detroit Bankruptcy, Michigan Bankruptcy.

Untitled

Judgments in a Nutshell

We see it all too often: A family purchases a used vehicle from a dealership down the street. Although initially unhappy about the 24.99% interest rate, they are relieved to have a method of transportation to take them to work and back, drop the children off to school and get groceries. Unfortunately the car doesn’t last. The transmission blows or there are engine problems. There is no warranty on the vehicle and the repairs are too costly to pay. The family is now forced into a decision to stop paying on the vehicle in order to save for yet another form of transportation. After a few months of missed payments, the creditor repossesses the vehicle. Not long thereafter, the family is served a complaint demanding the total unpaid amount on the automobile loan. The family is confused and scared and do not respond to the complaint. A judgment is entered on behalf of the collector. What can the family expect now? Are there any options to make it all go away?

Installment Plans

After receiving judgments, many creditors offer individuals court ordered installment plans in order to pay down the judgment. However, creditors aren’t very flexible with missed payments and a lapse in the payment plan may result in the installment plan being no longer available. This inevitably leads to drastic measures such as garnishments.

Garnishments

In order to collect on their judgment, creditors will often garnish the individual who the judgment is entered against. Garnishments are involuntary; meaning that once a garnishment is entered, there is nothing a person can do to stop the funds from being taken from them.

The first sign of a garnishment is a “Writ of Garnishment” filed in the court and served on the person who judgment was entered against. This pleading outlines the judgment amounts and indicates the Defendant has 14 days to object to the writ. If the writ is not objected to, then funds may begin to be withheld. You can object to a writ for a number of reasons: (1) your income is exempt from garnishment by law such as social security or unemployment income, (2) you have a pending bankruptcy, (3) you have an active installment plan with the court, (4) the judgment is paid in full, (5) the garnishment was not properly issued or (6) the maximum withheld exceeds allowable amount by law. Unfortunately, most individuals do not fall under any of the above categories.

Accompanying the writ, is a “Garnishee Disclosure” which must be filled out by the bank or company instructed to withhold funds. They have 14 days to fill out the form which indicates if the garnishment will be honored. The garnishment will be honored if the individual works at the place of business or has an account at the bank where the garnishment was sent. The garnishment will begin at different times depending on what type of garnishment it is. There are three forms of garnishment that creditors use: wage garnishment, bank account garnishment and tax refund garnishment.

Wage Garnishment

By far the most common form of garnishment we see is a wage garnishment. This occurs when the individual’s employer receives a writ of garnishment. As soon as the employer receives the Writ of Garnishment, withholding will begin on the first full pay period after the writ is served. The amount withheld is usually 25% of disposable earnings (gross income subtracted by taxes). After 28 days, the employer will send the funds to the creditor to pay down the judgment.

Bank account Garnishment

Another form of garnishment is a bank account garnishment. This occurs when a creditor sends a writ of garnishment to an individual’s bank account and the funds in their account are taken out and sent to the creditor. Once the writ is served on the bank, the bank will withhold all funds available. Twenty-eight days later the funds will be paid to creditors.

Tax Refund Garnishment

The final form of garnishment is a tax refund garnishment. This occurs when a creditor sends a writ to the state treasurer and the funds are taken from the tax return and sent to the creditor. The refund will be garnished for the full amount of the judgment or the total refund if the refund is less than the judgment. Twenty-eight days later the funds will be paid to creditors.

Stopping garnishments

At Detroit Lawyers, we have helped hundreds of clients stop garnishments. A Chapter 7 bankruptcy filing will stop a garnishment on the day the case is filed. If a creditor took $600 or more during the 90 days prior to filing, our clients will get that money back shortly after the case filing. Often, our clients have no out of pocket legal fees by using their garnishment recovery to pay for attorney fees.

Judgments can often be a source of major stress and concern. By scheduling a free initial consultation with a bankruptcy professional, you can take back the power and keep your hard earned money.

Employee Stock Ownership Plan (ESOP) & Bankruptcy

Posted by & filed under Chapter 7, Retirement Accounts.

What is an ESOP?

Employee Stock Ownership Plan ESOPAn Employee Stock Ownership Plan (ESOP) is a form of employee ownership.  This type of plan gives employees of a company an ownership interest through shares allocated to them.  The shares are held in an ESOP trust until the employee retires or leaves the company.

An ESOP is a form of retirement plan as defined by 4975(e)(7) of IRS codes.  Similar to a 401(k), 403(b), or pension plan, this is frequently an individual’s most valuable asset.    Because of their significant value, clients want to make sure they are able to keep their ESOP if they file for bankruptcy.

What Happens to my ESOP in Bankruptcy?

A two step process is required in order to determine if a client can keep a certain asset.  First, is the asset a part of the bankruptcy estate.  And second, if it is part of the bankruptcy estate, can it be exempt?

The filing of a bankruptcy petition creates an estate comprised of all legal or equitable interests of the debtor in property.  11 U.S.C. 541(a)(1).  Even though a debtor may have an interest in property, it may not be property of the estate.  11 USC 541(c)(2) provides a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law.  Therefore, it allows a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction which is enforceable under any relevant non-bankruptcy law.

The Supreme Court has held that funds in ERISA qualified plans constitute one form of the property described in 541(c)(2) and are thus excluded from the estate.  See Patterson v. Shumate, 504 U.S. 753 (1992).  The court found that the anti-alienation provision required for ERISA qualification constitutes a trust enforceable under applicable non-bankruptcy law.  The anti-alienation provision of ERISA accounts restricts the transfer of funds in those accounts.

Therefore, as long as the ESOP has an anti-alienation clause restricting the transfer of funds in that account, the ESOP will be excluded from the bankruptcy estate.

If you have any questions regarding an ESOP or retirement account being an asset of the bankruptcy estate, then please call our office.

Bankruptcy and Discharging Student Loans | Updates

Posted by & filed under Chapter 13 Bankruptcy, Chapter 7, Detroit Lawyers pllc, student loans.

Discharging Student Loans in Bankruptcy

Department of Education undue hardship letter

Student Loans and Undue Hardship Letter

The Department of Education has just released a letter indicating how it will handle a bankruptcy filing that attempts to be discharging student loans. Although there are no set rules and the practice has not been developed yet, the letter provides a road map for when an attorney should attempt to discharge student loans in bankruptcy.

Costs To Litigate Considered

In order to discharge student loans in a bankruptcy, the attorney must file an adversary proceeding prior to discharging student loans. In the adversary, attorney must allege that requiring repayment on the student loan will result in an undue hardship against the Debtor.  Once the complaint is filed, the Department of Education must make a decision whether to contest the attempt at discharging the student loans. This is where the Department’s letter is important. The letter indicated that if the costs to pursue the matter in bankruptcy court exceed one-third of the total amount owed on the load (included interest and collection costs), then the loan company may accept and not oppose the undue hardship claim.

Undue Hardship Factors

The Letter also listed a number of factors to be considered by lenders whether to contest a student loan discharge.  The following factors are:

  • Whether a debtor has filed for bankruptcy due to factors beyond his or her control and the impact such factor(s) have on debtor’s ability to repay the student loan debt. Which includesa divorce resulting in diminution of family income, which will not realistically be reestablished.
  • Whether a debtor who asserts undue hardship due to physical or mental impairment may qualify for Total and Permanent Disability Discharge (TPD) and/or other administrative discharges available. These include: Death Discharge Closed School Discharge False Certification Discharge False Certification Ability to Benefit Unauthorized Signature or Identity Theft Unpaid Refund Discharge Borrower Defense
  • Veterans who have been determined by the Department of Veterans Affairs to be unemployable due to a service-connected disability.
  • Whether a debtor is approaching retirement, taking into consideration debtor’s age at the time student loans were incurred, and resources likely to be available to the debtor in retirement to repay the student loan debt. Borrowers who choose to incur student loan debt at an older age, whether that debt is for themselves or a dependent (i.e,, Parent PLUS loans), should not be able to rely on their age alone and/or their entrance into retirement to prove undue hardship.
  • Whether a debtor’s health has materially changed since the student loan debt was incurred.
  • Whether significant time has elapsed since the debt was incurred.
  • Whether a debtor’s expenses are reasonable and indicate minimization of unnecessary expenses to provide funds for student loan repayment.
  • Whether a debtor had the mental and/or physical capacity to pursue administrative discharge options and/or income-driven repayment plans, if those options were not pursued, or whether a debtor had any physical or psychological factors that would have made the administrative process more burdensome to the borrower.

 

Hypothetical Examples of Undue Hardship Situations

The Department outlined a number of scenarios in which discharge should be warranted. Here is an example:

Facts: Borrower obtains student loans in order to complete a Master’s degree. Upon graduation she starts working and making payments. A few years after her graduation, her child becomes seriously ill, with no prospect of recovery, requiring round-the-clock care. The child’s illness is followed by a divorce, with no child support or alimony forthcoming. This set of circumstances makes the borrower unable to work full-time due to child care obligations. She works part-time, bringing in only a fraction of her full-time income. Her child’s medical expenses are also extremely high.

Analysis: The facts above show that debtor demonstrated willingness to repay her loans and did so when her resources permitted, and that her bankruptcy filing and circumstances were a result of circumstances beyond her control. Furthermore, the circumstances that caused her financial difficulties are likely to persist. The Department believes that a pattern such as this would warrant exploring some of the income-driven repayment options. If these options are not available and/or do not alleviate the financial hardship, a consent to undue hardship discharge, either in full or part, may be appropriate.

Bottom line, if the consumer and bankruptcy attorney put forward a reasonable and well documented case the student loans will create an undue hardship, the guidance offered today by the Department of Education is “If this consideration leads to the conclusion that repayment would impose an undue hardship, the holder should consent to, or not oppose the discharge, as authorized by the governing statute and regulations.”

So- does this mean I can discharge my student loans in bankruptcy?

The net effect of this letter allows attorneys to understand what the Department of Education deems significant enough to avoid litigation when attempting to discharge student loan debt. Although the practice is far from developed, this letter will result in attorneys trying new cases, which will in turn result in a better understanding on which student loans can be discharged going forward.  We encourage individuals to examine the letter and see if any of the listed scenarios apply to them. Further, if you are student loans are minimal and you have a case that your student loans are causing a hardship; it may be likely that the loan holder does not contest an attempt at discharging them. Regardless, if you are experiencing financial difficulties as a result of student loans, please contact an experienced bankruptcy attorney today at 248-237-7979.

Check the Accuracy of Your Credit Report

Posted by & filed under Credit Score, Detroit Lawyers pllc.

via the NYTIMES:

TransUnion, Equifax and Experian Agree to Overhaul Credit Reporting Practices

Over the past few blogs we have talked about ways to clear up your credit history and superficially discussed some of the different things increase your credit score.  In order for your credit score to be accurate, it’s important that there are no errors on your credit report.  With the meteoric rise in identity theft and fraud it is very important to ensure the accuracy of your credit report.  You are entitled to one free credit report (not score) from each of the three credit reporting agencies (Experian, Equifax and TransUnion) once a year.  We recommend that our clients pull a credit report from one of these agencies every four months to ensure information is being properly reported.

It’s also important to remember that not all creditors report to the credit reporting agencies.  Many times credit unions, local retailers, and gasoline credit cards do not report to the agencies.

Just recently, the three major credit reporting agencies (Experian, Equifax and TransUnion) reported that disputing a mistake on your credit report could get easier.  Today, we will look at what the agencies said and what steps are necessary in order to correct erroneous information on your credit report.

What changes were made?

The announcement on March 9, 2015 indicated that people who contest items in their credit reports will receive more information concerning those disputes, including instructions on what they can do if they don’t like the response.

The credit reporting agencies also said that the effects of medical debt will become less severe.  Now, medical debts won’t be reported until after a six month waiting period to allow time for insurance payments to be applied.  Prior to this change the agencies would often report medical debts that insurance was responsible for paying but had yet to pay due to delays in the processing.  The agencies also said they would remove previously reported medical collections that have been paid or are being paid by insurance companies.

In addition, the three credit reporting agencies will stop reporting debts that are the result of tickets or fines.

You can expect to see these changes over the next several months.

What should I do if I see errors on my credit report?

Accuracy of credit report

Sample Credit Report Dispute Letter

First, throughout this process it’s very important to keep detailed and accurate records.

Under the Fair Credit Reporting Act (FCRA), you are allowed to dispute inaccurate information on your credit report.  To dispute any inaccuracies you need to write a letter to the credit reporting company and the creditor stating what information is inaccurate, what the report should state, the facts that support your position and a request that the information be removed or corrected.  It helps to include copies of statements or bills in support of your dispute.  Send the letter along with any supporting documentation by certified mail with return receipt requested.  This ensures you can document what the credit reporting company and creditor received.

The bureau will then forward a copy of your dispute to the creditor who provided the information.  The creditor needs to review the dispute and provide the bureau with a response.  If the information is found to be inaccurate then the creditor must notify the three major credit bureaus.

You will usually receive the results of your dispute within 30 days.  If the dispute results in a change then the bureau will give you another copy of your report with the corrections on it.  And, if you ask, the credit bureau must send notices of any corrections to anyone who received your report in the past six months.

In The End

In the end, it’s important to make sure that your credit report is accurate.  Because, as we have discussed in previously blogs, your credit report, and in turn your credit score, has an impact on a number of different things.

Give our office a call if you would like help disputing inaccuracies on your credit report.

A 2015 Michigan Foreclosure Crisis?

Posted by & filed under Chapter 13 Bankruptcy, Detroit Bankruptcy, Detroit Lawyers pllc, Homeowners, Michigan Bankruptcy.

Saving your house from foreclosure

Although we are a long way from the foreclosure crisis of 2006, experts predict that 2015 will represent a large spike in foreclosures forcing many families out of their homes.  This is due primarily many of the temporary relief measures during the crisis coming to an end.

The government programs, such as HAMP, that reduced interest rates will reset in 2015 resulting in higher mortgage payments.  In addition, many of the home equity line of credits that borrowers took out to get through the bubble years will have increased payments in 2015.

Stop Foreclosure and Save Your House

On top of increased mortgage payments, many families that we talk to face reduced hours and increased expenses.  These changes inevitably result in families falling behind on their mortgage payments. Soon, one past due payment turns into two, two past due payments turns into three …until the arrearage becomes albatross that cannot be overcome. Eventually mortgage companies attempt to foreclose on the property and take the home.

Families that experience this can often feel helpless and without the power or tools to keep their home. Fortunately, after speaking to an experienced bankruptcy attorney, families can regain the power and save their home on an easy court ordered payment plan based on their income.

Filing Chapter 13 Bankruptcy to Stop Foreclosure

As soon as a Chapter 13 bankruptcy is filed, the foreclosure proceedings are immediately stopped. At this point, a plan will be submitted to the court featuring the monthly mortgage payment and the arrearages paid out over a three or five year plan. The plan takes approximately three months to be confirmed.

Most families choose to have their payment taken out of their paycheck. Therefore, they no longer are burdened by sending out the monthly mortgage payment and arrearages.  A Chapter 13 filing can also take care of past due income tax debt and discharge other unsecured debt.

Stop Foreclosure for Past Due Property Taxes

A Chapter 13 filing can also stop foreclosure based upon past due property taxes. Pursuant to Michigan law, a county cannot foreclosure until the property taxes become past due for three years. For example, 2012 past due taxes cannot be foreclosed upon until April 1, 2014.

It is important to file a Chapter 13 bankruptcy before the property is foreclosed. In a Chapter 13 plan, the property taxes are treated differently based upon how long ago they were billed by the city. Delinquent property taxes, or those that are one year old, will be treated in the plan at 12% interest.

Forfeited property taxes, or those that are two years old or longer, will be treated in the plan at 18% interest. Paying the property taxes down over five years in a Chapter 13 plan, even at these high interest rates, are often much better deals than any payment plan the county treasurer can offer.

Save your home now

Oftentimes, families facing foreclosure will contact our office when it’s too late and the property has already been foreclosed. Even though they did not believe the received proper notice and were unaware of the proceedings, it is very difficult to save a property once it has already been foreclosed and title has passed to another party. Even if you are unsure if you are facing foreclosure, contact Detroit Lawyers today at (248) 237-7979 so an attorney can review your situation and keep you in your home.

Credit Scores and Renting from Landlords

Posted by & filed under Credit Score, Detroit Lawyers pllc, Renting. 

This is part 3 in a series on how credit scores can impact more than your ability to get a loan. Previously, we discussed insurance and employment.

Renting | Your Credit Score affects a lot more than credit

Clients often seek our help with their consumer debt issues.  We help clients with debt related to credit cards, medical bills, foreclosures, garnishments, or repossessions.  Often times we find that their best solution is to file for bankruptcy.  After this determination, the next question is usually, “how will this affect my credit score?” or “will I still be able to get a loan?”  The short answer is, it depends and yes.

Many of our clients are aware that their credit score impacts the ability to get a loan or credit card.  However, most people do not know that credit scores also impact other areas of their life.  Over the next few blogs I will examine how your credit score affects insurance, renting, employment, and even utilities.

Today we will look at the impact of your credit score on renting.  In general, whether you’re trying to rent a house or an apartment, there is a good chance a landlord will ask to look at your credit report.  The landlord will use your credit report, employment history, bank statements, rental history and overall financial stability before deciding whether you will make a good tenant.  There are also landlords who will not use your credit report in determining whether or not you’ll make a good tenant.

What if I have a low credit score?

Even if you have a low credit score, there are a number of ways to show the potential landlord that you are going to be a good tenant who pays their rent on time.  The first thing you can do is to get a recommendation from a former landlord.  You can get something in writing or give your potential landlord the contact information for your old landlord.  This gives your potential landlord an opportunity to contact your old landlord to confirm that you were indeed a good tenant who paid their rent on time, regardless of what your credit score says.

Another way to increase your chances of renting with a low credit score is to offer the landlord more money up front.  This shows that not only do you have savings, but that you’re willing to part with those savings to secure a rental unit.  You may even be able to negotiate some sort of discount by paying more money up front as it would be guaranteed money for the landlord.

How can I increase my credit score?

There are a number of factors which will influence your credit score.  Some of those factors include: payment history, debts owed, length of credit history, new accounts, and balance of accounts.

One of the most important factors in your credit score is the amount of debt you owe.  This includes the number of debt accounts you currently have, the types of accounts (credit card, installment, collection, etc.), and their balances. It is best to have a few credit cards and open credit accounts with low balances.  In general, using only 30% of the available credit improves your credit score.

Another factor in your credit score is your payment history.  A long record of on-time payments demonstrates an individual who has been reliable for a significant period of time.  It’s vital to your credit score to always pay your bills on time.

Another factor is the length of credit history.  The longer your credit history with a certain account, the better.  These long payment histories can be for houses, vehicles or even credit cards.

Bottom line on renting

A low credit score may affect your ability to rent an apartment or house.  To give yourself more rental options you should:

  • (1) increase your credit score; and
  • (2) use some of the tips above to increase the likelihood of a landlord renting to you in spite of your low score.

If both those options fail, look for a landlord who does not check credit scores to determine a tenant’s rental payment ability.

Michigan Unemployment Overpayment and Bankruptcy

Posted by & filed under insurance, Michigan Bankruptcy, Unemployment.

Can Bankruptcy Discharge my Unemployment Overpayments in Michigan?

Many of our clients have collected unemployment insurance payments in the years leading up to their bankruptcy. For various reasons, our clients will occasionally receive more than they were supposed to. The State of Michigan demands that the overpayment benefits be paid back regardless of the reason behind the overpayment.

Understandably, this creates a difficult scenario for people who are already unemployed and then asked to pay back months worth of benefits. Depending on the specific circumstances to your case, these unemployment overpayments may be dischargeable in bankruptcy.

The State of Michigan’s Department of Licensing and Regulatory Affairs (LARA) has more information about how these unemployment overpayments are dealt with outside of bankruptcy.

If you’re still receiving unemployment benefits

If you’re still unemployed and receiving benefits then the state will recoup the overpayment by taking a portion of your ongoing benefits. This recoupment action will continue until the overpayment amount is paid. This recoupment is not subject to the Court’s automatic stay and will continue even after filing for bankruptcy.

MCL 421.54 and MCL 421.62 cover the penalties and recovery of unemployment overpayments. If you’re no longer receiving unemployment you’ll usually be able to discharge that debt in bankruptcy unless the overpayment is determined to have been fraudulent.

When is an overpayment fraudulent?

The Bankruptcy Court treats unemployment overpayments the same as any other unsecured debt. Because debts that are incurred by fraud aren’t wiped out in bankruptcy neither are unemployment benefits if there was an intent to deceive by the debtor in order to get those benefits. Section 523(a)(2) of the bankruptcy code discusses fraud.

In recent years, the Michigan Attorney General’s office has taken a more aggressive stance in how they handle these overpayments in bankruptcy. If you’ve received a letter stating that your overpayment is considered fraud or the result of misrepresentation then the State will probably file an adversary proceeding objecting to the discharge of their debt.

Bankruptcy options for unemployment debt

A letter from the State isn’t a determination that the debt will be found to be fraudulent in bankruptcy, but it’s a good clue as to whether or not they’ll fight you on the issue. Oftentimes the fines and penalties associated with the overpayment greatly outweigh the original amount that was overpaid. The principle amount originally owed is dischargeable but the fines are not(in a Chapter 7 – see 523(a)(7)).

In a Chapter 13, the penalties would be wiped out if properly listed in the petition and there is no adversary filed in the case. In either a Chapter 7 or a Chapter 13, however, the Michigan Attorney General appears willing to negotiate a settlement. While it’s impossible for us to tell you what would happen in a specific case, we’ve had success getting rid of all the fines (usually 4 times the amount owed) if the debtor stipulates to paying back the principle that was overpaid. If the debtor defaults then the State will accelerate the entire amount due.

Call our office if you were overpaid for unemployment and now the State is trying to collect. It’s impossible for us to tell you in a post like this exactly how your scenario will play out without knowing the facts specific to your case. The bottom line is that unemployment overpayments are just like any other debt in bankruptcy; you’ll be able to discharge the debt unless it’s found to be fraudulent. But even if it turns out to be a fraudulent debt our office has experience working with the State in order to reach a reasonable settlement.

 

Income Tax Debt and Michigan Bankruptcy

Posted by & filed under Chapter 13 Bankruptcy, Chapter 7, Income Tax Debt, Uncategorized.

Income Tax Debt in Bankruptcy

The start of a new year also represents a new tax year and many families feel will feel the increased burden of yet another year of unpaid income tax debt.  Many of our clients are unable to pay down their past due taxes or meet the minimum amount of the IRS’s payment plan. Fortunately, there are a number of options through bankruptcy that can reduce or eliminate your income tax burden altogether.

Totally eliminate your income tax debt

Through a Chapter 7 bankruptcy, you can eliminate your income tax debt if you meet the following requirements:

  • You did not commit fraud or tax evasion
  • Three Year Rule: Your tax debt is over three years old. The due date for filing the return for the tax year in question is more than three years old. This period is determined by the most recent date the tax return is due for the tax year. If you filed an extension for the return it will delay the start time for those three years. In short, as of January 1, 2015, your income tax debt from 2010 and earlier can be wiped out.
  • Two Year Rule: You filed a tax return two years before you file bankruptcy: At least two years preceding the filing date of your bankruptcy you must have filed a return or equivalent report. For example, if you file your bankruptcy on January 1, 2015, your 2010 taxes must have been filed before January 3, 2013.
  • 240 Day Rule: The taxes were assessed at least 240 days prior to the filing.

Pay off your income tax debt on a court ordered payment plan

Even if you don’t meet the above requirements to eliminate your tax debt, a Chapter 13 payment plan will still provide many benefits to individuals. First and foremost, Chapter 13 will provide relief from collection efforts from taxing authorities and may prevent the addition of penalties and interest.  In a Chapter 13 plan, the tax debt can be paid over a five year period.  Further, any penalties and post-petition interest on the taxes will be deemed unsecured and not required to be paid through the plan.

An Attorney will guide you through the process

Although the above guidelines can provide a framework for an individual to eliminate or reduce their tax debt, it is important to work with a licensed Michigan bankruptcy attorney to guide you through the process. At Detroit Lawyers, PLLC we will obtain an IRS transcript of your tax debt. The transcript will be used to determine when your returns were due, when your returns were file; and if you were audited, which increases the tolling period.

Take back the power

If you owe large amounts of income tax debt, you know the burden of receiving phone calls and letters with multiple years of unpaid taxes. Often, interest and penalties add up increasing the amount owed. By consulting with an attorney and using a form of bankruptcy, you can take back the power and subject the IRS to the rules and regulations of the court system.

Credit Scores and Employment

Posted by & filed under Credit Score, Michigan Bankruptcy. 

This is part 2 in a series on how credit scores can impact more than your ability to get a loan. You can find part one, which covers insurance, here.

Employment | Your Credit Score Affects a Lot More Than Credit

Clients often seek our help with their consumer debt issues.  We help clients with debt related to credit cards, medical bills, foreclosures, garnishments, or repossessions.  Often times we find that their best solution is to file for bankruptcy.  After this determination, the next question is usually, “how will this affect my credit score?” or “will I still be able to get a loan?.”  The short answer is, it depends and yes.

Many of these clients are aware that their credit score impacts the ability to get a loan or credit card.  However, most people do not know that credit scores also impact other areas of their life.  Over the next few blogs I will examine how your credit score affects insurance, renting, employment, and even utilities.

Today we will look at the impact of your credit score on current employment and potential employment.  We will also examine how bankruptcy may affect your employment.  In general, your credit score is rarely used to disqualify job seekers for most positions.  However, some companies run credit reports for candidates who would have access to the company’s finances.

Can an employer check my credit report?

No.  An employer cannot check your credit report unless you consent to it.  The Fair Credit Reporting Act sets limitations on who can access your credit information without your consent.

If you do consent to allowing the employer to run a credit report and the employer decides not to hire you based upon the report, it must provide you a copy of the report for you to review yourself before denying you the job.  This gives people a chance to address their credit report and make sure there are no errors.

How will bankruptcy affect my job search?

The impact bankruptcy has on your job search may depend on whether you are applying for a job at a private company or with the government.  If you are applying for a federal, state, or local government job then your bankruptcy will not be taken into consideration when determining whether or not to hire you.

Private employers are different.  There is no law prohibiting private employers from taking into account your bankruptcy when going through the application process before offering you employment.  However, like we said above, the company will still need your consent to run a credit report.

Many experts believe that due to the recent economic downturn, most employers are more understanding of blotches on credit reports.  Employers are aware that job loss and layoffs could lead to poor credit scores.  Take the initiative to explain what led to your poor credit score or bankruptcy.  More likely than not, the interviewer knows someone in a similar situation.

Can I get fired for filing bankruptcy?

No.  The fact that you filed for bankruptcy does not give your employer the right to fire you.  It does not matter if your employer is in the private sector or the public section.  Nor is the employer allowed to reduce your pay, take away any responsibilities or demote you.

The majority of the time your boss will not know that you filed bankruptcy.  However, in the case of a Chapter 13 it may be notified as the court requires automatic payments deducted from your paycheck.

Filing bankruptcy may actually help you in some instances.  On numerous occasions clients have come in at the request of their public or private employer.  Governmental agencies and private companies that contract with the government have recommended some of their employees file for bankruptcy in order to retain their security clearance or receive a higher security clearance.  The reason being is that a person with a lot of debt is more likely to be blackmailed.  By wiping out the debt in bankruptcy, the risk of blackmail is lowered significantly.

However, if your employment is terminated shortly after your employer is notified of the bankruptcy, you might have a case against the employer for discrimination.

How can I increase my credit score?

There are a number of factors which will influence your credit score.  Some of those factors include: payment history, debts owed, length of credit history, new accounts, and balance of accounts.

One of the most important factors in your credit score is the amount of debt you owe.  This includes the number of debt accounts you currently have, the types of accounts (credit card, installment, collection, etc.), and their balances. It is best to have a few credit cards and open credit accounts with low balances.  In general, using only 30% of the available credit improves your credit score.

Another factor in your credit score is your payment history.  A long record of on-time payments demonstrates an individual who has been reliable for a significant period of time.  It’s vital to your credit score to always pay your bills on time.

Another factor is the length of credit history.  The longer your credit history with a certain account, the better.  These long payment histories can be for houses, vehicles or even credit cards.

Bottom Line on Employment

Even though employers are less likely to look at your credit score as opposed to the past, you should work to improve it just in case they do.  And, be aware of what employers can and cannot do regarding employment and bankruptcy.

Come back next Wednesday to read about how landlords look at credit scores when renting to tenants.