September 25, 2017

Retaining Credit Cards through Bankruptcy

I have many clients who want to hold onto a credit card through bankruptcy. But this is not always the best idea and is a lot more difficult than it may seem at first blush.

In the first place, you must list all creditors you owe money to in your bankruptcy, including any medical bills and credit card debt. Omitting any creditor from your bankruptcy is perjury. But what happens when you want to keep a credit card open when you file bankruptcy? If you have a credit card open, in which you owe a zero balance ($0.00) on, this credit card is not actually a creditor and does not need to be listed in your bankruptcy.

However, just because a credit card has a zero balance ($0.00) and need not be listed in your bankruptcy as a creditor, the credit card may still be closed as a result of the bankruptcy filing. Most, if not all, credit card companies pay for a service to screen bankruptcies by social security number. Most credit card companies’ policies are to close the account once the bankruptcy is discovered, whether you owe $10,000 or $0.00.

While some people may think that if they pay the credit card down to zero ($0.00) prior to bankruptcy, they will not need to list the credit card as a debt for bankruptcy, and the card will remain open. The card in most cases will be closed. Additionally, this may create a recoverable “preference payment.” A recoverable preference payment essentially means you paid a creditor $600 or more in the 90 days before you filed the bankruptcy. In such cases, a bankruptcy trustee, or the individual who administers the bankruptcy, can recover this payment for the potential benefit of all your creditors. In this example, not only could your card with a zero balance on the day of bankruptcy filing be canceled, but a bankruptcy trustee could go after the credit card company for a recovery of funds.

But what about reaffirming the debt in bankruptcy? Certain debt can be reaffirmed through the bankrutpcy process, which essentially means you re-obligate yourself to the debt. Reaffirmation of debt makes better sense in the case where you get to hold onto the collateral, such as reaffirming a car loan and holding onto the car. I always advise clients never to reaffirm an unsecured debt, as there really is no benefit here.

After you file bankruptcy, opportunities for credit abound. An emergency credit card can be easily replaced after the bankruptcy is completed in most cases.

If you are interested in learning more about bankruptcy and its effect on credit, please feel free to contact me today for a free bankruptcy consultation.

Thank you.

Tom Butcher
Bankruptcy Lawyer
116 Highway 99 N #101
Eugene, OR 97402
541 762 1967
tom@butcherlawoffice.com

Time Barred Debt; or, Debt that Lives on Past its Expiration Date.

If debt were milk, this milk would be rotten. I am speaking about old debt, or time-barred debt.  This article addresses time-barred debt, how to respond to time-barred debt, and how bankruptcy may play into the analysis.

[Read more…]

Bankruptcy Hearing – What If I Cannot Attend on the Date the Hearing is Set For?

Every time a bankruptcy is filed, a corresponding bankruptcy hearing is set.  This hearing is commonly called the “Meeting of Creditors” hearing, or the 341(a) hearing (which is the section of the bankruptcy code that establishes this mandatory hearing requirement).  At this hearing, a bankruptcy trustee will ask a series of questions (as described in an earlier post) of the debtor, and creditors have a chance to ask the debtor (the person who has filed bankruptcy) questions under oath, as well.  Creditors, however, largely do not appear at this bankruptcy hearing, although they have the legal right to do so. [Read more…]

Debt Settlement – Why This May Not be A Good Option for You

Debt settlement is one option to consider when trying to resolve debt issues. However, sometimes this option may not the wisest option to choose. It will be a good idea to meet with a bankruptcy lawyer to weigh all your options first, including debt settlement or bankruptcy.

There is an entire industry focused on debt buying and debt collecting. Often, a credit card account or other account, may be sold off to a third party, known as a “junk debt buyer.” The junk debt buyer may offer the debtor a discount to paying off the debt; and sometimes these discounts are rather steep. In some cases, settling a debt in such cases may prove beneficial. However, many of these cases are rife with problems, which may include: [Read more…]

Should I Wait to File Bankruptcy Until After I Receive My Tax Refund?

This article is posted in a strange part of the year (August), but this question comes up usually starting around October:  “Should I wait to file bankruptcy until after I receive my tax refund?” Or a variation of this question: “If I file bankruptcy right now, will I lose a portion of my 2014 tax refund?”   [Read more…]

The Pitfalls of Receiving an Inheritance Shortly After You File Bankruptcy

Inheritance, including life insurance proceeds, and bankruptcy can prove to be a very serious issue if not planned for correctly. An individual, depending on timing, may have to surrender a portion or all of an inheritance or life insurance proceeds as a result of filing bankruptcy. This article discusses inheritance in the context of bankruptcy, and the potential issues that may arise.
[Read more…]

Where Do I File Bankruptcy If I Just Moved To Oregon?

From time to time, I come across the issue of someone who recently moved to Oregon, and is considering bankruptcy. They come to my office, and I conduct my usual free bankruptcy consultation. I soon learn that the person has only been in Oregon but a few months, or for even less time. This raises a few issues regarding “venue,” or the proper place where a bankruptcy ought to be filed. This post discusses venue in the context of bankruptcy. [Read more…]

5 Mistakes to Avoid Before You File Bankruptcy

There are many mistakes for consumers to avoid before filing bankruptcy. The following list is what I consider some of the top mistakes to avoid before filing bankruptcy.

1. Not Being Honest With Your Attorney: Disclose everything to your attorney; [Read more…]

What Can You Do When You Accidentally Miss a Creditor in Bankruptcy?

Infrequently, a client will come to me after they receive their bankruptcy discharge with a debt that the client forgot to include in their bankruptcy. At the time the client filed the bankruptcy, the debt was not listed on their credit reports nor had the client received a bill for the debt to the best of their knowledge. Often, this type of missed debt is a medical bill from a small medical provider.

What can the client do? They received their discharge, and forgot to list a creditor. There is still hope! If the bankruptcy trustee determined that the client’s bankruptcy was a “no asset” case, meaning there was no property to liquidate and pay a dividend to creditors with, then a missed creditor is also discharged by operation of law. In Re Beezley is the court case in the 9th Circuit (Oregon is included in this Circuit) that sets forth that an unlisted creditor in a “no asset” case is still discharged, provided that the creditor was not fraudulently omitted from the bankruptcy.

However, if there are assets to be administered through the bankruptcy by the trustee, rendering an “asset case,” a consumer who missed listing a creditor and receives a discharge will still be liable for the debt to that creditor. This is based on the fact that the creditor may have received a distribution of funds from the bankruptcy had the creditor been listed in the bankruptcy.

The vast majority of chapter 7 bankruptcies are “no asset” cases, and probably twice a year a client will come to me with an old medical bill that they had forgotten to include in their bankruptcy. If the case was a “no asset” case, I will send a letter to the creditor informing the creditor that the debt was discharged by operation of law pursuant to In Re Beezely.

The idea and goal, however, is to capture all creditors in your bankruptcy when you file.

If you are interested in learning more about bankruptcy, please call today for your free in-office consultation in Eugene.

I look forward to hearing from you.

Sincerely,

Tom Butcher
Attorney at Law
116 State Highway 99 N #101
Eugene, OR 97402
541 762-1967 telephone
541 762-1968 facsimile

Potential Tax Consequences of Settling Debt Outside of Bankruptcy

Settling debt for less than what is owed on the debt can create tax liability. This article discusses this issue, and how bankruptcy and even insolvency may resolve this issue.

By settling debt for a fraction of what you owe may open the door to tax liability. For example, you settle a debt for $5,000 that has a face value of $12,000. By settling this debt, for $5,000, the creditor will cancel the remaining $7,000 owed. This cancelled debt then becomes taxable income to you and a 1099c is issued for $7,000. This $7,000 is added to your tax base for the tax year the debt was cancelled, and you must pay taxes on this $7,000. Many times, the cancelled debt is much larger than $7,000, and in some instances, may reach into the tens of thousands of dollars. As long as the cancelled debt is over $600, the creditor may send you a 1099c (and send a copy to the IRS as well), and this will become taxable income.

Bankruptcy, however, solves this issue, provided you file a bankruptcy prior to the cancellation of the debt. If you file bankruptcy, the debt will be discharged, not cancelled. The creditor will not be allowed to cancel the debt at this point, as it was included in the bankruptcy filing.

What if the debt is cancelled and a 1099c issued before you have an opportunity to file bankruptcy? Or, how can you deal with future cancelled debt if you choose not to file bankruptcy? Insolvency. If you can show that you were insolvent on the day that the debt was cancelled, causing the 1099c to be issued, then this cancelled debt income is waivable. Insolvency basically means that your liabilities exceed your assets. And to show that you are insolvent, IRS Form 982 must be completed and submitted with your Federal tax return. Upon receipt of IRS Form 982, the IRS will determine if you were insolvent and if the cancelled debt income thereby is waivable. Often, I will have clients who have cancelled debt income meet with a CPA to prepare the tax return and IRS Form 982.

If you are facing cancelled debt income (1099c income) or are interested in bankruptcy, please contact me today to schedule your free in-office bankruptcy consultation in Eugene.

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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