Funding Your Chapter 13 Bankruptcy

Chapter 13 bankruptcy plans require regular automatic payments to be made to the Chapter 13 bankruptcy Trustee. This can generally be done in one of two ways.

The first way is a wage attachment served directly on your employer and payroll department. A wage attachment motion will be filed in the Bankruptcy Court and signed by the bankruptcy judge. I would then take the signed order and serve it on your payroll department. In this case, payments will come directly from your paystub, before reaching your bank account, as a voluntary garnishment. If you change jobs, you will need to let your bankruptcy attorney know right away, so that a new wage attachment can be filed.  This method does not cost you any money. It is your responsibility, however, to make sure that the payments remit every paycheck.

The second method for funding your Chapter 13 bankruptcy plan is through a direct bank attachment. This is done through the website tfsbillpay.com . There is a nominal fee for the service, but it allows you to make payments directly from your bank account that are secured and easily trackable. Once again, it is your responsibility to make sure that the payments come out every month, or whatever frequency that you choose to make them. 

The method that you choose will depend on your circumstances and wishes. If you do not want to have your employer know about your case, the bank attachment is the best choice. Also, if you do not receive regular paystubs, or your income varies widely, the bank attachment is probably the best option.

If you wish to avoid any fees, or if you believe it is simplest for the money to come out before it hits your bank account, the wage detachment is the best option. You can discuss these options with your bankruptcy attorney in more detail. If you’re considering filing Chapter 13 bankruptcy and have any questions, feel free to reach out and set up a free consultation by calling me at 412-414-9366. I would be happy to discuss your situation and see if there is a good bankruptcy option for you.

Tax Refunds and Bankruptcy

Tax season is upon us, and there is only one good thing about tax season (some of the time)… tax refunds.

If you are considering filing bankruptcy, and expect to receive a refund, it will probably be protected from your creditors. When you file bankruptcy, you must list all of your assets and all of your debts in the schedules. Tax refunds, or potential tax refunds, are considered an asset, and must be exempted from your creditors.

There is no specific exemption under federal law for a tax refund. However, the “wild card” exemption allows you to protect tax refunds, among other things. The first step if you are considering filing bankruptcy this spring is to actually file your taxes and determine what your refund will be. If you don’t do this, the bankruptcy trustees may hold your case open until the amount is determined.

Once you know what your refund will be, consult with your bankruptcy attorney to determine how best to exempt it. If your refund is particularly large, you may need to spend it down naturally, over several months. If, however, your refund is more modest, it is likely just a matter of excempting it with the available exemptions under federal bankruptcy law.

A second note about taxes and bankruptcy is you must have all of your taxes for the last four years filed. If you are not required to file taxes (because you are on Social Security or have no income), this is not an issue. But, if you are required to file taxes, it must be done before you file. Otherwise, you may not receive a bankruptcy discharge. Now, the taxes must just be filed, not necessarily PAID. So, if you believe you’ll owe the IRS money (or the state or local authorities), it will not prevent you from filing bankruptcy. 

If you have any questions about your tax refund and bankruptcy, or any other bankruptcy questions, contact us at 412-414-9366. I would be happy to set up a free consultation to discuss your situation and see if I can help.

Liquidation Alternative Test

The liquidation alternative test is a somewhat confusing aspect of bankruptcy law. It requires debtors to repay unsecured creditors for any amount above the exemptions allowable for their property. Let me give a basic example.

Let’s say your house is worth $100,000 and it is owned outright with only you on the deed. With no mortgage or any other liens, you have $100,000 in equity. Under the bankruptcy code, you can exempt roughly $25,000 of this equity. This leaves $75,000 in equity that is not exempt. If you were to file a Chapter 7 bankruptcy in the scenario , the United States Trustee could theoretically liquidate your house and use this $75,000 in unexempt equity to pay your creditors! Obviously, this is not a good option.

The alternative to liquidating your home would be paying back your unsecured creditors up to the $75,000 in unexempt equity. Now, in this example , that may prove to be impossible as it is a lot of money to repay. However, in many examples the unexempt equity is much less. Let’s try a different but similar scenario.

Let’s say your home is still worth $100,000, but you also have $40,000 remaining on your mortgage. You also have a $10,000 tax lien . Finally, let’s say that you have a $15,000 home equity loan. That is $65,000 in liens on your $100,000 home. If this scenario you have $35,000 in equity of which $25,000 can be exempted. That leaves $10,000 in unexempt equity under the liquidation alternative test. In this scenario you can repay up to $10,000 to your unsecured creditors to satisfy the test.

If you owe $75,000 to your unsecured creditors, the balance of $65,000 is discharged in the chapter 13 bankruptcy.

So, it will be very important to determine several things when looking at the liquidation alternative test. The easiest thing to determine is what you owe. You can simply do that with mortgage statements and tax statements.  The trickier thing to figure out is what your home is worth. That may require a formal appraisal or a realtor assessment. Once you have both of those numbers, it will be easy to determine.

It should be noted, the liquidation alternative test does not just apply to real estate. Any property that you own that goes beyond your ability to exempt it  is potentially an issue. This may include cars that are owned outright, savings in a bank account, collectibles or antiques, or basically any other property. However, homes are the most common issue.

If you were considering filing bankruptcy, call us at 412-414-9366 to set up a free consultation , I would be happy to sit down and determine if the liquidation alternative test or anything else will be an issue with your filing.

Financial Resolutions

New Year’s is a time to both reflect and look forward. It’s also a time of the year when people make resolutions. A pretty common resolution to clean up your finances. What are some things that you should consider when resolving to clean up your finances?

The first thing I would suggest considering is whether or not you are able to pay down the balances on your outstanding debt, especially unsecured debt like credit cards. If you are continuing to aggressively pay down these balances, great, keep it up! If, even after you make payments to your creditors every month, the balances either stay the same or even go up, you should consider whether bankruptcy is an option. Chapter 7 bankruptcy may completely wipe out your unsecured debt. If you don’t qualify for Chapter 7 bankruptcy, a Chapter 13 bankruptcy can at least help you freeze your balances and stop the high interest payments.

A second thing to keep in mind when looking ahead is your secured payments like mortgages and cars. If you have a mortgage with an adjustable interest rate, you should plan ahead. With interest rates increasing you may need to make a higher monthly payment going forward. This is something to keep in mind when budgeting. If you need a new car, you should consider your budget as well. If you’re making payments that are handling your other debts, you were probably in good position to get a new vehicle. If you’re falling behind, or struggling to keep up, it may be best to try to get one more year out of your car.

Finally, you should consider sitting down and making a detailed budget. I mentioned this previously when considering whether or not to buy a new car. It sounds simple, but it really does help to sit down and write out all of your expenses, from mortgages and car payments all the way down to small things like streaming services and daily coffee trips. It may help you realize things that you can easily cut out. It may help you look at places to tighten the budget. If your income is going to go up, it could give you the confidence to invest more money or even plan a trip you have been waiting to take.

Personally, I occasionally go through my own budget to get a better feel for my finances. I think it helps.

If bankruptcy or possibly a debt settlement are in your plans for 2023, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation. Now is a good time to think about your financial situation and whether or not you are in a good place or if you need some help.

Means Test Update

The means test has been updated for the Western District of Pennsylvania, and has slighly increased.

The means test is a 6 month look-back at ALL sources of GROSS income. Household size is determined by IRS dependents and whether you are a married couple. If you are married and living together, the means test looks at both incomes, even if only one spouse is planning to file. The means test is discussed in more detail in this blog and on this website.

Here are the new means test limits for gross income earned in the six months before filing:

• Household of one: $30,765.00

• Household of two: $37,184.50

• Household of three: $46,706.00

• Household of four: $56,518.50

• Household of five: $61,468.50I

• Household of six: $66,418.50

• Household of seven: $71,368.50

If you have any questions about the means test and whether or not you qualify for Chapter 7 bankruptcy, call us at 412-414-9366. I would be happy to set up a free consultation to discuss your situation. I would be happy to review the means test and see whether or not you qualify.