Posts Tagged ‘Minnesota bankruptcy attorney’

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Why did a debt collector send me a 1099-C?

Wednesday, February 22nd, 2012

1099-CRe-posted for the upcoming tax season! This post describes how tax reporting of forgiven debt works. It also gives some solutions if you’ve been hit with a 1099-C for debt forgiveness.

It’s time to face the tax man again, and some consumers are surprised to receive a 1099 from a lender or debt collector they dealt with in the last year, counting income to the consumer for debt forgiveness. The amount on Form 1099-C states the income “derived” from the forgiveness or settlement (for less than the full value) of a debt. Because the lender wrote off a debt (or a portion of a debt) it believed it was owed, it has the right (but not necessarily the obligation) to charge the income to you. Here are some exceptions.

1. A lender can’t send a 1099-C for debt discharged in bankruptcy. If a debt was discharged in bankruptcy, the lender can’t issue a 1099-C for debt forgiveness. However, let’s say a debt was settled in January of 2010, and then you filed bankruptcy in February–then the debt forgiveness would be income.

2. Discharge of debt on principal residence. The federal Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude debt forgiveness income from the discharge of debt on their principal residence up to $1 million. So debt reduced in a mortgage modification, as well as debt forgiven as part of the foreclosure process, will not generally count as income.

3. You were “insolvent” when the debt was forgiven. The insolvency exception is a powerful tool for many people. If, on the day before the debt was settled or forgiven, all your assets (including your retirement accounts) were less than your total debts (including your mortgage)–then you don’t have to count a 1099-C as income. File IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

4. The debt is disputed and the lender can’t prove you owed it. If you don’t owe the debt and the lender can’t prove it’s legit. you may be able to contest a 1099-C. Contact a tax attorney for help.

We aren’t tax attorneys. If you need help with a tax issue, please consult a specialist. But if you’ve received a 1099-C and you think you fall under one of these exceptions, get in touch.

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Posted in Bankruptcy, Debt Collection | 1 Comment »

How do I stop foreclosure?

Tuesday, December 6th, 2011
foreclosed house

Photo by Kevin Dooley

The most common problem people come to see about is foreclosure. Knowing you might lose your home in foreclosure is scary, but there are a lot of ways we can help you get back into good standing on your mortgage so we can keep you in your house. In this post I run down some of the options out there:

1. Try for a loan modification. In our opinion, most of the loan mod programs out there are nearly worthless. HAMP can be a good fix for a homeowner behind on payments, since it reduces monthly payments AND puts your loan back into good standing. But since there’s no way to force lenders to comply with HAMP, most people are left out in the cold (and pushed into foreclosure). It’s been very rare to see a homeowner get a HAMP modification, but that doesn’t mean you shouldn’t try it, hoping to catch the right person on the right day and catch a lucky break.

As for the lenders’ “internal” modification programs, your guess is as good as ours whether you’ll qualify.  Since the criteria and terms of these mod programs are usually secret, you’re at the lender’s mercy. So if you go this route, negotiate and negotiate hard. Even though the customer service rep on the phone might not realize it, the bank is probably going to lose a lot of money if they foreclose on you. Show them why. It might be helpful to order an appraisal–if the lender knew your house was $100,000 underwater, they might not think it’s such a good idea to kick you out of it.

2. Don’t hire loan modification sleazeballs. If foreclosure is the number one problem we see in our office, 1A is people who have paid sleazy loan modification outfits to help them stay out of foreclosure. These programs are expensive, and most of the time they just don’t work. In particular, stay away from: 1) out-of-state companies (it’s harder to get your money back), 2) companies that tell you to stop making your mortgage payments; and 3) for-profits that ask for a large up-front fee without telling you what they can do for you or how they can do it. So many people get caught up in these scams, and it only creates a bigger mess to clean up once the scammer runs away with the money and leaves you right where you started or worse.

3. Consider Chapter 13 reorganization. Chapter 13 is a way to force a lender to accept repayment of your arrears over time. It’s ideal for the person who missed a bunch of payments, but now has the income not only to make the payments, but also to catch up and stop foreclosure. Chapter 13 allows you to pay your mortgage arrears in equal installments over a three- to five-year period. It can be surprising when a lender refuses to let you catch up on your mortgage, even when it knows you have the income for it. This way you can call the shots and force them to accept your money.

4. Strip off your second mortgage. If you didn’t have to pay your second mortgage, could you afford to catch up on your mortgage? As of earlier this year, in a Chapter 13 reorganization we can strip second mortgages (and third mortgages, and fourth…) where the value of the house is less than the balance of the first mortgage. It’s called lien stripping. To do this, we need an appraisal to prove the value of your home. Once we can prove that your second mortgage is fully unsecured, we can strip the lien in Chapter 13.

5. More people have just been moving on. If you can’t afford your mortgage payment, can’t qualify for a modification, and bankruptcy won’t help your situation, it’s time to make some hard choices. If you have an underwater house, meaning you have no equity, what do you really own? And if you have to pay $10,000 just to get back into good standing, is it really worth it? If you decide to abandon a home to foreclosure, you can usually live in the house mortgage-free for at least six months while the foreclosure runs its course. For many of our clients, this is just enough time to save up some money to make the transition to a new place to live comfortably. And if you have a second mortgage that won’t go away in the bankruptcy, well we can usually wipe that out in Chapter 7.

Have questions about what to do with a mortgage about to go into foreclosure? Give us a call for a free consultation.

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Posted in Bankruptcy, Foreclosure | 3 Comments »

Can I be sued for my spouse’s debt after divorce?

Tuesday, November 8th, 2011

People going through divorce often wonder what’s going to happen to their and their ex’s debt. If they haven’t resolved it before the divorce, people going through divorce will need to deal with their debt after divorce. In many divorce decrees, debt can be allocated–for example, the husband agrees to take responsibility for the Capital One card, while the wife agrees pay the B of A Visa. Life is good.

But here’s something that people often forget to tell you. If you were jointly liable on the Capital One card before the divorce, the divorce decree doesn’t get you off the hook. Even though a judge ruled that you don’t have to pay Capital One, the divorce decree doesn’t change your legal obligation to CapOne. If your ex stops paying his monthly payments, the credit card company can still sue you. In addition, they can come after the full amount of the debt, not just half the balance, or just the purchases you made.

This doesn’t mean you can’t enforce your divorce decree and go after your ex for the money, but if your ex had the money to pay the card, wouldn’t he have paid it to Capital One?

If you were wondering why divorce is one of the three biggest causes of bankruptcy (the other two are medical emergency and job loss) this might be a clue. If you’re dealing with debt after divorce, going through divorce, or you’re being sued for an ex-spouse’s debt, give us a call.

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Posted in Bankruptcy | No Comments »

Bankruptcy filing fees will increase Nov. 1

Monday, October 17th, 2011

With budget crunches hitting U.S. and state governments, the federal court system seems to have forgotten about your budget crunch. Bankruptcy filing fees will become more expensive starting on November 1, 2011.

The new filing fee for each chapter of bankruptcy will be as follows:

Chapter 7: $306 (was $299)

Chapter 11: $1046 (was $1039)

Chapter 13: $281 (was $274)

So consider this a coupon from us to you. File Chapter 7 between now and October 31 and save $7!

Can’t beat this deal!

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Posted in Bankruptcy | No Comments »

Means test income figures changing Nov. 1

Monday, October 17th, 2011

That wacky Department of Justice is at it again. Starting November 1, the means test household median income numbers will be changing. These changes will make it slightly easier for some debtors to file for Chapter 7 after November 1 (and slightly harder for others).

The median income for a single filer with no dependents is increasing from $45,760 to $46,161, meaning that singles making between $45,760 and $46,161 will no longer be subject to the long-form means test calculation. The median income for families of two and four will decrease slightly. What’s a little odd, is that the median income for a family of three has taken a dive from $74,082 to $71,784. Your guess why is as good as mine.

Want to know more about what these changes will mean for your situation? Give us a call.

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Car loans in Chapter 13

Monday, September 26th, 2011

Clients often want to know what we can do to help them with their car payments in Chapter 13. Often we can make it a whole lot easier for clients to pay their car loans. Here are some of the ways we can help.

1. Pay off the car in Chapter 13. Your car loan must be paid in full during a Chapter 13 Plan, as long as the last car payment falls within the term of the Plan. So if you have 49 months remaining on your loan and your Plan is 60 months long, your Plan must pay off the full balance. If you have 61 months remaining on your car loan, you can opt to continue making your normal car payments directly throughout your case and avoid the Trustee’s commission.

2. With older cars, “cram down” the loan to the value of the car. If you bought your car on credit more than 910 days (2.5 years) ago, we look to see if the value of your car is less than the amount of the loan. If your car is underwater, we can reduce the amount of the loan to match the value of the car. This is called cramdown, and it’s one of the most powerful remedies you have in bankruptcy..

3. Reduce the interest rate to the Till rate. Regardless of whether you bought your car more than 2.5 years ago, we can generally reduce your interest rate on your car loan to the Till rate (named after a Supreme Court case). The Till rate is generally the prime rate, plus some risk factor. So, the prime rate as of the date of this post is 3.25 percent. Assuming we add a risk factor of one percent, the Till rate is 4.25 percent. Very few borrowers already have interest rates lower than 4.25 percent (and many have them up to the mid-to-high teens), so this is a benefit for almost everyone.

4. Surrender the car. The last option, surrendering the car and wiping out the debt, is attractive if your car is a real beater. If the car isn’t worth the remaining loan balance, you can always give it up in Chapter 13 bankruptcy just like you can in a Chapter 7 case.

If you’re struggling to make payments on your car loan, give us a call. There may be lots we can do to make your car payment more affordable by filing a Chapter 13 case.

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Posted in Bankruptcy | 3 Comments »

Lien stripping–removing a second mortgage in Chapter 13

Wednesday, September 7th, 2011

One of the benefits of Chapter 13 bankruptcy over Chapter 7 is flexibility. There are just lots of ways we can help your financial situation in a Chapter 13 that we just don’t have the power to do in Chapter 7. One of the big ones is lien stripping–wiping out an underwater second mortgage.

1. What is lien stripping? Lien stripping is a way of removing an underwater second mortgage on a house in Chapter 13. If the house has two mortgages, and the second mortgage is fully unsecured, it may be removed. This means that if the value of the house is below the balance of the first mortgage, so that the second mortgage is technically not backed by any equity in the house, we may be able to wipe it out in Chapter 13.

2. How do I know my second mortgage is fully unsecured? You will most likely need to order an appraisal of your house. But the first step is to look at your property tax appraised value. During the housing boom, tax values used to be lower than the true value of the house. But now that housing prices are depressed, property tax appraisals are routinely higher than the appraised value of the house. If you have questions, we’re happy to give you a referral to a licensed real estate appraiser.

3. If I can lien strip, what happens to my second mortgage? Instead of classifying the second mortgage as secured debt, which would need to be paid in full over the life of a Chapter 13 plan, a stripped second mortgage is classified as unsecured debt, meaning that it merely needs to be paid prorated with your other unsecured debt. In most Chapter 13 plans, this money comes out of the same pot that will already be allocated to your other unsecureds, such as credit cards and medical bills, so the second mortgage won’t cost you any extra money over the plan. At the end of your plan, if you’ve made all your payments, the court issues an order that removes the second mortgage lien from your house, and you only have one mortgage to deal with.

4. Does Minnesota law allow lien stripping? Minnesota was the only state that did not allow lien stripping until August 29, 2011. The 8th Circuit Bankruptcy Appellate Panel, an appeals court that oversees Minnesota bankruptcy cases, issued its decision in Fisette v. Keller, allowing lien stripping in Chapter 13 cases filed in Minnesota. This caselaw is persuasive, but not technically binding. An experienced bankruptcy lawyer can advise you whether your second mortgage can be stripped.

If you want to know more about lien stripping, give us a call.

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Posted in Bankruptcy | 3 Comments »

Can I discharge student loan debt in bankruptcy?

Tuesday, August 30th, 2011
student loan debt in bankruptcy

Photo by Michael Hicks

This post describes how to deal with student loan debt in bankruptcy.

One of the only types of debt that can’t be discharged in a bankruptcy is a student loan, and even then, there are exceptions. But student loan debt in bankruptcy can be discharged in relatively rare situations of “undue hardship”–where the debtor cannot pay back the student loan and probably won’t be able to pay it anytime in the future. Under Minnesota (8th Circuit) caselaw, courts consider: (1) The filer’s past, present and future reasonably reliable financial resources; (2) a calculation of the reasonable living expenses of the debtor and his/her dependents; and (3) any other relevant facts surrounding the bankruptcy case.

1. How to discharge student loan debt in bankruptcy. To attempt to discharge student loans in bankruptcy, the debtor can file an adversary proceeding, which is a lawsuit-within-a-bankruptcy, against the student loan company. Starting an adversary proceeding is no biggie–there’s no court filing fee, and you just file a summons and complaint and send it to the creditor. After that it’s pretty much like any other lawsuit.

2. Undue hardship is based on your ability to earn money to pay off your loans.

  • -  Determining undue hardship has a lot to do with your past and present earning power. The court will look at your job qualifications and earning history. If you have had a long history of low earnings, that might play in favor of discharge.
  • -  Your ability to earn money in the future is even more important. The court may consider your future job prospects, especially as compared to the size of your loan. If there’s no foreseeable way to make a dent in the loan, this will play in favor of discharge.
  • -  Age may also be a factor. While a fresh-faced 22-year old has an entire life of indentured servitude ahead of him to pay his loans, a 65-year old may be considering retirement and won’t have the same long-term earning potential.
  • -  Disability also plays into the determination. Debtors with disabilities may have less earning potential in some cases. This is evaluated along a spectrum–a permanent and total disability that renders someone completely unable to work may be an easier discharge case, while a partial disability that reduces earning power will probably not be the basis for dischargeability on its own.

3. If there’s no money in your budget, there’s no money to pay off student loans. The court will look at your monthly income and reasonably monthly expenses, and determine if there’s any room for repayment of student loans. If your monthly budget is in the red, this will play in your favor.

The court may also look at your eligibility for various loan repayment programs, such as Income Based Repayment (both for federal loans only). If you can afford to make a reduced payment, that might be a factor against discharge. But even if you can afford a reduced payment, it’s not a discharge dealbreaker where the loan will continue to accumulate interest and grow even though you’re making payments.

If you’re struggling with student loan payments and you think some of the above criteria may apply to you, give us a call.

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Posted in Bankruptcy, Student loans | 2 Comments »

What are the Minnesota bankruptcy exemptions?

Monday, August 22nd, 2011

In this post we list the Minnesota bankruptcy exemptions.

In an earlier post we told you about what items were exempt in a Chapter 7 bankruptcy (meaning you get to keep them).  Items that are not exempt may be taken by the trustee to pay your creditors. Although the great majority of Chapter 7 cases are no-asset, meaning that the debtor loses no property, people are often concerned about whether their property is exempt. In Minnesota, you can choose either the Minnesota bankruptcy exemptions or the federal exemptions, depending on which are more advantageous to you. In this post, we compare the two sets of exemptions for some of the most common property items:

Item Federal exemption Minnesota exemption
Your home $21,625 $360,000
Wildcard (any property) $11,975 (of unused homestead exemption) None
Household goods and clothes $11,525 $9,900
Jewelry $1,450 $2,595 (only wedding rings)
Motor vehicle $3,450 $4,400
Tools of the trade $2,175 $11,000
Life insurance policy with loan value $11,525 $8,800
IRA, 401k, ERISA pension $1,171,650 $1,171,650
Personal injury compensation payments $21,625 Unlimited
Social security benefits Unlimited Unlimited
Child support Unlimited Unlimited

By the way, the exemptions change every so often, so these may not always stay the same. The Minnesota bankruptcy exemptions are complicated, and don’t always apply exactly how they would appear to. Consult a bankruptcy attorney to find out whether a particular item of yours would be exempt in a Chapter 7 case.

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Posted in Bankruptcy | 2 Comments »

How much will my Chapter 13 payments be?

Tuesday, August 9th, 2011

For people behind on their mortgage payments and looking to keep their home, or people who make too much money to file Chapter 7, Chapter 13 can be a good solution. As we described in an earlier post, Chapter 13 involves paying your disposable income to creditors over a three or five-year period. Whatever isn’t paid during that period is discharged (wiped out). But to figure out whether this makes sense, the question for many clients is: how much disposable income do I have to pay in my Chapter 13 payments? Here are a few guidelines.

1. Your payment plan is based on your projected disposable income. To figure out your Chapter 13 payment, first we figure out your projected income. Your income over the past six months can a starting point for this calculation, but if you’ve recently taken a pay cut, or you know you won’t be receiving the same amount of overtime, we need to bump your income downward.

2. Next, we subtract all reasonable and necessary expenses. To get from just-plain-income to disposable income, we need to subtract your expenses. Here we look at all the expenses that are necessary to take care of your family’s needs, such as food, rent/mortgage, car payment, utilities, etc. We also look at things that you know you will be spending , such as car repairs, home maintenance or dental work. Then we look at things you should be spending on, but haven’t because you’ve been in financial trouble. This can include health insurance and other medical expenses, 401(k), life insurance, etc. If there’s something that’s not on our list of ordinary expenses, that doesn’t mean we can’t deduct it, as long as it’s reasonable and necessary. Once we count all these expenses, we subtract them from income and we get an idea of your disposable income.

3. Our job is to fight for your way of life. The Trustee evaluates the reasonableness of your expenses, trying to cut them down so that there’s extra money for you to pay to your creditors. Our job is to protect the money that is necessary for you to take care of yourself and your family. So we ask for two things: 1) verification of your expenses, so we can prove that you actually need to spend that money; and 2) information on why your expenses are reasonable and necessary. For example, one client had an $800 monthly bill for auto fuel. This seems exorbitant, until we realized that the client drives a gas guzzler and lives 60 miles from where he works. If we can explain to the court why an expense is reasonable, there is a better chance it will be allowed.

4. The plan must pay off certain required debts. Your Chapter 13 payments must be large enough to make certain required payments. For example, if you are trying to get current on a mortgage, your total plan payments must cover the amount of your mortgage arrears. Plan payments also must cover any secured debt (car loans) that end within the plan period. Also, plan payment must cover any priority debt, such as some tax debt or government penalties within the plan period. If the total plan payments are enough to pay all of these required debts over the plan period, your plan can survive.

 5. The plan must be in the “best interests” of your unsecured creditors. If you have unexempt property that you are looking to protect in a Chapter 13, your Chapter 13 payments must be at least the value of your nonexempt property. In other words, in Chapter 13 your unsecured creditors can’t receive any less in the plan than they would have received in Chapter 7 if your nonexempt property was liquidated.

These rules can be tricky, and Chapter 13 almost definitely cannot be done without the assistance of a bankruptcy specialist. Give us a call if you want to run a scenario by us.

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Posted in Bankruptcy | 4 Comments »

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