June 26, 2017

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.

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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.

Bankruptcy Exemptions: Tools of the Trade

When filing for bankruptcy, a consumer is afforded numerous exemptions, or laws that protect a person’s property. These exemptions help to protect a homestead, livestock, household goods and furnishings, vehicles, and other property.  There is an exemption that protects tools of the trade as well.  This post will detail the tools of the trade exemption, and what constitutes “tools of the trade.”

Broadly speaking, tools of the trade relate to books, implements, and tools related to a person’s trade or vocation.  For example, a mechanic has power tools, air compressors, and the like; a woodworker, may have a lathe, router, electric saws, books on woodworking techniques, and so on.  All of these “tools of the trade” are covered by the tools of the trade exemption.  Other tools of the trade, depending on a person’s vocation or trade, may include: equipment, machinery and tools, books and trade libraries, specialized furniture, vehicles, animals, and so on.

Depending on which exemption scheme you may choose, a person filing bankruptcy in Oregon may choose the Oregon Tools of the Trade Exemption or the Federal Tools of the Trade Exemption.

1. Oregon Tools of the Trade Exemption – ORS 18.345:   The Oregon Tools of the Trade Exemption is defined as “The tools, implements, apparatus, team, harness or library, necessary to enable the judgment debtor to carry on the trade, occupation or profession by which the judgment debtor habitually earns a living, to the value of $5,000.”  The Oregon Tools of the Trade Exemption is a bit more than the Federal Tools of the Trade Exemption; however, usually applying the Federal exemption has more beneficial results as a person also has a wild card exemption that can also be applied to tools of the trade.

2.  Federal Tools of the Trade Exemption – 11 USC 522:  The Federal Tools of the Trade Exemption applies to a debtor’s aggregate interest, not to exceed $2,300 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.

The Federal Wild Card exemptions can also be used in conjunction with the Federal Tools of the Trade Exemption, which, when used together, can protect over $14,000 in tools of the trade.  In most instances, it makes better sense to use Federal Exemptions, despite the fact that the tools of the trade exemption is less in the Federal exemption scheme than it is in the Oregon exemption scheme because of the wildcard exemption.

If you would like to learn more about bankruptcy and how bankrutpcy may benefit your financial situation, please contact me today for your free bankrutpcy consultation.

Divorce Debts & Bankruptcy: What is Covered & What is Not

Certain divorce debts are non-dischargeable in bankruptcy, meaning they do not go away. Other divorce debts may be dischargeable in bankruptcy. This posts details how bankruptcy and debts related to divorce interact.

CHAPTER 7 BANKRUPTCY & DIVORCE DEBTS

A chapter 7 bankruptcy, or a “liquidation” bankruptcy, has little effect on divorce debts. Virtually all obligations owed to the ex-spouse are not covered by a chapter 7 bankruptcy, particularly any spousal or child support. Now, if a consumer incurred legal fees for that consumer’s legal representation (i.e., you owe your divorce attorney $5,000 for representation in a divorce), these fees are dischargeable in a chapter 7 bankruptcy. But little else relating to divorce debts, particularly spousal support or child support, are dischargeable in a chapter 7 bankruptcy.

Where it gets a bit tricky is any debt-assignment pursuant to a divorce decree and chapter 7 bankruptcy. For example, let’s say you have a Chase credit card that was jointly held with your ex-spouse for $10,000. In the divorce decree, you agreed to pay this debt solely. Now, 1 year later you file a chapter 7 bankruptcy. Chase will recognize the bankruptcy, and will not attempt to collect the debt from you. However, your former spouse is on the card as well, so Chase will go after the former spouse. BUT, in the divorce decree you said you would take care of this debt – what now? If the ex-spouse ends up paying for the Chase credit card, despite the fact that in the divorce decree you indicated you would pay it, the ex-spouse can come after you for recoupment, or the amount he had to pay on the card. Sometimes, however, when one former spouse files a bankruptcy, the other former spouse will file bankruptcy shortly after, making the above situation moot.

CHAPTER 13 BANKRUPTCY & DIVORCE DEBTS

How does this same situation play out in a Chapter 13 bankruptcy? If there is a debt-assignment, whereby one spouse takes on responsibility to pay a joint debt, a chapter 13 bankruptcy will take care of this debt, despite the divorce decree and debt-assignment. Debt-assignments, such as the above example, are dischargeable in a chapter 13 bankruptcy only. Furthermore, equalization judgments, or property settlements contained in divorce decrees, are dischargeable in a chapter 13 bankruptcy.

BANKRUPTCY & “IN THE NATURE OF SUPPORT”

In order to discharge a property settlement or debt-assignment in a chapter 13 bankruptcy, it must not be “in the nature of support.” If it is in the nature of support, it will be a non-dischargeable debt. For example, what if you agree to pay the Chase bill, and as a result, your spousal support is dropped by $300 per month. This may be a form of support, and non-dischargeable in a chapter 13 bankruptcy. Many of these cases are fact specific as to whether or not the debt-assignment was “in the nature of support.”

The intersection of bankruptcy and divorce debts can be a complicated area, with multiple factors at play. As part of my document production list I provide consumers at my free in-office bankruptcy consultation, I request a copy of the divorce decree. Due to issues relating to the divorce decree, clients may opt to file a chapter 13 bankruptcy to avoid property settlements and debt-assignments.

If you are interested in learning about bankruptcy and how it may interact with divorce debts, please call today for your free in-office bankruptcy consultation in Eugene.

There’ll Be a New Trustee in Town

Longtime Chapter 13 Trustee Fred Long (who covers the Eugene Region of the District of Oregon) will be retiring in several months.  There is now a search committee at the United States Trustee, a division of the Department of Justice, looking for qualified applicants to fill this position.

The Chapter 13 Trustee’s job, along with his staff, is to administer Chapter 13 Bankruptcy Plans.  Chapter 13 bankruptcy, as discussed in previous posts, is a reorganization bankruptcy, where a consumer makes payments for 3-5 years into a bankruptcy plan; the Trustee’s role is to make certain the plan is feasible (enough money is going into the plan to fund it) and to disburse those funds to creditors.

We’ll keep a close eye out to see who the new Chapter 13 Trustee, for the Eugene Region of the District of Oregon, will be.  Stay tuned…

 

 

Bankruptcy Myths Debunked: Part 2

There are many persistent myths and misconceptions surrounding bankruptcy.  In an earlier post, I addressed 5 such myths and misconceptions.  This post will discuss an additional five myths and misconceptions that may surround bankruptcy.

MYTH 1:  If You Are Married, You Must File Bankruptcy With Your Spouse:  This myth is untrue.  An individual spouse may choose to file by himself or herself, without bringing the other spouse into the bankruptcy filing.  Often, if there is joint debt in the marriage, it will make sense to file for both husband and wife (a joint bankruptcy).  But there are reasons for only one spouse to want to file bankruptcy and not include the other spouse; for example, the spouse filing bankruptcy may have incurred the debt prior to the marriage, the other spouse may have pending legal claims that he or she does not want to get wrapped up in a bankruptcy, the other spouse has no debt to speak of, and so on.

MYTH 2: I Will Lose All My Property If I File For Bankruptcy: This is completely untrue.  In fact, in the vast majority of bankruptcies, consumers will loose no property.  This is largely due to bankruptcy exemptions, or laws that protect your property when you file for bankruptcy.  In Oregon, for example, we have many exemptions that will protect most, if not all, property owned by a consumer.  There are exemptions that help protect household goods, vehicles, real estate, tools, and so on.

MYTH 3: You Can Pick And Choose Who You File Bankruptcy On:  This is also untrue.  When you file bankruptcy, you must list all of your creditors, including any family members, friends, doctors, and so on.   In fact, you are signing under penalty of perjury in your bankruptcy petition that you have listed all known creditors.  Now, after the bankruptcy you may voluntarily pay any creditor that was discharged in the bankruptcy.

MYTH 4: Your Immigration Status Will Be Jeopardized:  This is not true.  Bankruptcy is a federal procedure to discharge debt, not a crime.  Merely filing bankruptcy will not affect an immigrant’s ability to obtain citizenship or maintain permanent residency.

MYTH 5: It Is OK To Max Out Credit Cards On The Eve Of  Bankruptcy:  This is absolutely false!  If there is a clear way to get in trouble, this is it!  Creditors can file an objection in a consumer’s bankruptcy case to make this debt non-dischargeable, or, in other words, the debt may survive the bankruptcy.  In egregious cases, creditors (including the United States Trustee) can move the court to deny a bankruptcy discharge altogether based on such activity, meaning all the debt will come back on the consumer.

This wraps up Part 2 of “Bankruptcy Myths Debunked.”  If you have any questions relating to this material or how bankruptcy may improve your financial situation, please call today to schedule your free in-office bankruptcy consultation in Eugene.

 

New Office Mascot – Bruce the Bankruptcy Beta Fish

Office Mascot - Bruce the Beta Fish

New Office Mascot – Bruce the Bankruptcy Beta Fish

Important Questions to Consider at Your Bankruptcy Consultation

There are many important questions that are addressed at a bankruptcy consultation.  Below are a few questions I answer for clients during our free in-office bankruptcy consultations.

1.  Should I File Bankruptcy?  This is by far the most important question.  At my free bankruptcy consultation, I will review with you your financial situation and if bankruptcy makes sense.  We will discuss the different chapters of bankruptcy (chapter 7 bankruptcy or chapter 13 bankruptcy) and which chapter of bankruptcy is most appropriate.  We may even discuss reasonable alternatives to bankruptcy, if such alternatives exist.

2. What Are The Benefits And Consequences Of Filing Bankruptcy?  This is a very important question that I address at my free bankruptcy consultations.  The benefits of bankruptcy usually include eliminating unsecured debt (in a chapter 7 bankruptcy) or getting into a reasonable payment plan or restructuring of your debt (chapter 13 bankruptcy).  I discuss with clients the credit-implications of bankruptcy, such as how long it may take to obtain a home mortgage loan after filing for bankruptcy or rebuilding credit after bankruptcy, and how filing bankruptcy will affect a credit score and access to future credit.

3.  How Much is Your Practice Committed to Bankruptcy?   I believe it is important to find an attorney who focuses primarily on bankruptcy law for your bankruptcy needs.  My practices is focused about 95% on bankruptcy law.

4.  How Much Do You Charge And What Is Included In Your Bankruptcy Fee?  My attorney fee is extremely competitive and based on the complexities of the case.  I generally charge a flat fee for core chapter 7 bankruptcy service.  Chapter 13 bankruptcy is a bit more complex, but most of my fee is paid through the chapter 13 plan (meaning I have the flexibility of reducing my upfront attorney fee).

5.  Who Will Come With Me To Court?  I will.  As your attorney, I will stand by your side through the entire bankruptcy process, from the starting line to the finish line.

6.  What Is The Best Way To Contact You?  I am easily accessible by phone, cell phone and email.  I provide multiple ways for clients to contact me.

7.   What Information Do I Need to Provide You To Start The Bankruptcy Process? I request that clients provide the following documents in order for me to prepare a bankruptcy case: 1) 6 months of income statements, 2) last two years of taxes, 3) copy of your bills/collections notices, 4) credit reports (free at annualcreditreport.com); 5) 6 months of bank statements; 6) any court documents including divorce decrees; 7) any other document pertinent to the particular client’s case.

There are many more important questions to ask, but the above questions are a good start.  At my free consultations, I provide answers to each of these questions plus many, many more.   I strive to offer a respectful and calm approach to clients considering bankruptcy.  This can be a very stressful time, and I believe it is part of my job to help alleviate any stress associated with this process.

Please call today for your free in-office bankruptcy consultation in Eugene.  I look forward to hearing from you.

 

Sincerely,

Tom Butcher

Attorney at Law

 

 

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

CAUTION: This website is to provide visitors with basic information about my law office, and information about how to contact me. Every situation is different, and no information on this website is legal advice on any specific question. You should not act on any of the information without first conferring with an attorney licensed in your jurisdiction. No attorney-client relationship or privilege is formed by visiting this site or by unsolicited email. Therefore, initial emails should not contain any confidential information. I may already represent parties adverse to you and cannot advise or represent you until we check for conflicts. I am licensed only in Oregon and offer my services only to those doing business in Oregon, unless I am associated with local counsel in accordance with other states' laws. The applicable laws may have changed after the information on this website was published. While effort is made to keep the information current, you should not presume that all information is up to date. You must confer with an attorney to be sure you have current information.

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