Property Taxes and Bankruptcy

If your home is owned outright, or you do not have an escrow account set up through your mortgage payment, you will be responsible for paying your yearly property taxes. It will be important to keep your property taxes current, as failing to pay them can lead to a lien being placed on your home.

Property taxes are secured by your home and therefore are not outright dischargeable in bankruptcy. In Chapter 7 bankruptcy, your property taxes will remain a lien on your home even if you have other debts discharged in the bankruptcy, such as credit cards and medical bills.

In Chapter 13 bankruptcy, your property taxes will need to be paid in full over the course of the Chapter 13 plan. These taxes are generally paid with interest, normally at about 10%. So, if you owe $10,000 in property taxes in the chapter 13 bankruptcy, you will need to re-pay that amount plus interest over the three to five-year plan. It will also be important to pay the yearly property taxes as they come due during the bankruptcy plan. Otherwise, you may still owe on property taxes even when you come out of a bankruptcy designed to pay off the old property taxes.

Your property taxes are not a debt that you should ignore for long. Some tax collection agencies and municipalities are aggressive about collecting, and as home values go up more and more, they have more equity in your home to go after. Unfortunately, property tax liens do not go away, and they can accumulate significant interest and penalties. These liens will remain even if you attempt to sell the house or leave it to someone in your estate after death. If you want to be able to sell or giveaway your home free and clear, you will need to make sure all property tax are current.

Contact us to set up a free consultation if you find yourself unable to catch up on your property taxes or if a tax lien has already been placed on your home. Chapter 13 bankruptcy could buy you three to five years to catch up and can stop a sheriff sale at any point before it occurs. Call us at 412-414-9366 to discuss your situation.

Tax Returns and Bankruptcy

Individuals filing bankruptcy must provide copies of their past two years of Federal income tax returns and the accompanying W-2s and 1099s. Also, they must have filed all Federal tax returns for the past four years that were due. I am often asked why this is so.

The bankruptcy trustees, in both Chapter 13 bankruptcy and Chapter 7 bankruptcy, want to review your tax returns for several reasons. First, it gives them an idea of how much money has been earned in the household the past several years. When you file a bankruptcy, you submit proof of your income via paystubs and verified statements. The trustee needs this information to determine whether or not you have sufficient funds to repay your creditors. Your tax returns provide further proof..

Tax returns may also show if you were making large amounts of money at some point in the past two years. This will not necessarily prevent you from filing bankruptcy, by any means. However, you may need to explain to the trustee why your income has dropped. It could be for a reason as simple as you lost your job or had a paycut.

The second reason that you must provide copies of your tax returns is that it is required under the Bankruptcy Code. The Bankruptcy Code requires you to have filed all Federal income taxes for the four years previous to the year of the filing of your bankruptcy case. In rare occasions the trustee may ask for older returns, but this is far from normal.

If you are not required to file tax returns, for instance because your only income is for Social Security or you have not worked during the tax year, a verified statement can be provided telling the trustee as much. You do not have to file just for the sake of filing.

The final reason it is important to provide your tax returns is so that your bankruptcy attorney can make sure to exempt any tax refund that you may receive. A potential tax refund is considered an asset and must be protected from your creditors. Early in the tax year, the trustees may hold open your case to see how large your tax refund will be. If your tax returns have been filed, we will know what your likely return will be, and we can protect it from your creditors.

Call us at 412-414-9366 if you have any bankruptcy related questions. We would be happy to set up a free consultation to discuss your situation, whether it involves a tax issue or not!

Paying Your Chapter 13 Bankruptcy

Payments are due within 30 days of filing your Chapter 13 bankruptcy, and they continue to come due every month thereafter. So, it is important to make sure that every payment reaches the Chapter 13 Trustee to be processed.

There are generally three ways to make your Chapter 13 bankruptcy payment. The most direct way is to pay the trustee directly with a cashiers check or money order. This would require you to mail in a payment every month, through the regular mail, with your case number and name in the memo line. While this method is completely acceptable, there are sometimes problems with the mail. You will need to keep track of all the payments to make sure they are all being processed. If they are mailed to the wrong location or lost, your bankruptcy will not be paid for that month, which can obviously cause problems.

The second way to make your payments is through a wage attachment on your paycheck. If you have regular pay, you are required to have a wage attachment or a bank attachment. Your bankruptcy attorney will file a motion, which will be signed by a bankruptcy judge, that is then forwarded to your payroll department. The payroll department will be required to remit your payment every month to the Chapter 13 bankruptcy trustee. This method is preferable because it is easier to track and it is automatic. You will only need to get your bankruptcy attorney your payroll contact info and they will do the rest. If you change jobs or lose your job, you will need to let your bankruptcy attorney know so that they can amend or terminate the wage attachment.

The final acceptable method for paying your Chapter 13 bankruptcy is to do a direct bank attachment. The trustee’s office accepts payments from a company called TFSBillPay. You will set up a payment by attaching your bank account using your bankruptcy case number. This allows you to know exactly when the payments are coming out and provides a clear record of all the payments that are made. The only downside to this method is that there is a fee. A wage attachment will not cost you anything. If you mail the payment directly , obviously there will be fees for both the money order and postage.

It is important that your monthly bankruptcy payments are processed and on time every month. Discuss these options with your bankruptcy attorney to determine which one is best for you. If you have any questions about bankruptcy or you are having any credit problems, call us at 412-414-9366. I will be happy to do a free consultation and let you know whether or not bankruptcy is an option for you.

Rising Car Values And Bankruptcy

The value of your car is an important consideration when filing bankruptcy. This is because your car, like the rest of your property, must be exempted from your creditors.

Exemptions are available under state and federal law. These exemptions exempt, or protect, your personal property and real estate from being liquidated to pay your creditors. Most exemptions are sufficient to protect the property of most people.

This is also true of vehicles. The exemption must only protect your equity in the vehicle. Equity is the value of the vehicle minus what you owe. Most people owe nearly as much, or more, as the vehicle is worth. Normally, as you paid on the vehicle, the value dropped as well.

However, the shortage in car production the past two years has led to a strange situation where car values have gone up, even as the cars have gotten older. Shortages in car production have led to shortages in used cars. So, in some situations there have been problems with filing bankruptcy when individuals have some equity in their cars.

The motor vehicle exemption is $4,000.00 per debtor. The wildcard exemption can be used as well to top-up the amount. For most debtors, this issue with exemptions will only be a problem if they have paid down the car a fairly significant amount since purchasing it . This may be an issue you need to touch on with your bankruptcy attorney. Getting an accurate vehicle value will be important in ensuring that you get to keep it after filing your bankruptcy.

Contact us at 412-414-9366 to set up a free consultation to discuss your situation!

Post-Holiday Debt

The period after the holidays and leading into Spring is normally the busiest time of year for bankruptcy attorneys.

It makes sense in a lot of ways. First of all, not many people want to deal with debt and credit issues during the holidays. Which is entirely understandable. So, it is often put off until the next year sometime after New Year’s.

Another reason it is a busy time of year is because people will make resolutions to clear up their debt and credit issues. A fresh year is a good time for a fresh start. I have many new clients during this time of year who will say as much.

A less obvious reason that this is a busy time of year for bankruptcy filings is that many people are able to use their tax refunds to pay the filing fees and costs. Some clients on payment plans are able to finish them up once they receive their tax refund. You tax refund may be earmarked for repairs, household expenses, or utilities. But, using it to file bankruptcy may make your entire year easier and less stressful.

The most unfortunate reason that bankruptcies pick up in the Spring is that foreclosure actions tend to spike during the Spring. This may be especially true in 2022 as mortgage companies are once again allowed to foreclose on homes after the lengthy COVID moratorium. A Chapter 13 bankruptcy is a great way to stop a foreclosure. It allows you to catch up all arrears and fees spread out over 3 to 5 years. Even more importantly it will stop a foreclosure or even a sheriff sale up until the final moment of the action. Your home need not be in danger.

All of these reasons tend to cause bankruptcies to increase at the beginning of the year. However, it’s no reason to despair. As mentioned earlier, New Year’s is a great time for a fresh start. With the holidays behind us it is often times a good moment to get our affairs in order. If you’ve been considering filing bankruptcy, but put it off because of the holidays, call us at 412-414-9366 to set up a free consultation and see if it’s a viable option for you. The new year is a great time to end the stress related to creditors and collection actions.