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Can I Keep My Tax Refund if I File a Chapter 7 Bankruptcy?

If you are contemplating about filing for a bankruptcy, you probably have a lot of questions regarding the aftermath. At the top of the list will probably be questions about your tax refund.

Before you file, it’s important you understand that it could affect your refund. In this article, you will learn how chapter 7 could affect your tax refund and also what measures you can take to protect it.

Tax Refund and Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, a court-appointed trustee who is a representative of your creditors will collect your assets and liquidate them. The proceeds are used to pay your creditors.

All your assets will be transferred to the bankruptcy estate when you file chapter 7. This includes both tangible assets like your house and car, and intangible assets such as tax refund that is owed to you, but not yet paid.

If you have filed at a time when a tax refund is due, the trustee can claim it or a portion of it along with other assets. Even if your tax return is to be prepared a few months after filing, it will be claimed by the trustee if the refund is owed to you.

The fact that you didn’t know that a tax refund was due does not mean that a refund is not due.

How to Prevent Your Tax Refund from Being Transferred to a Trustee?

Proper timing is important if you want to protect your tax refund. You can prevent your refund from being collected by the trustee if you receive and spend the refund BEFORE you file a Chapter 7 as long asyou spend the money for necessities and you do not pay back money you owe to relatives, and also you do not pay back any creditor more than than the usual payment.  Be prepared to tell the trustee how you spent the money at the 341 creditor’s meeting.

However, you should consult with a bankruptcy attorney before using this strategy to protect your refund. You can easily spend the refund in ways that may seem sensible but can raise red flags upon close evaluation.

Another way you can protect your tax refund after filing for bankruptcy protection is through exemptions. Congress and state laws have established exemptions. The federal or state exemptions can be claimed by filing Schedule C: The Property You Claim as Exempt (individuals).

You can use cash-on-hand exemption ($475..00) or wildcard exemptions ($1,250.000) for protecting your tax refund, However, you can use the exemptions only if they have not been used to exempt other assets. Also, you should note that to claim exemptions in a particular state, you must have lived in the state for about two years prior to filing for bankruptcy.

Moreover, earned income credit (EIC) and child tax credit (CTC) are exempted from the bankruptcy estate without the need to claim them. EIC is a benefit for individuals with low to moderate income. On the other hand, CTC provides a credit of up to $1,000 per child under the age of 17.

You should consult with an experienced  Cleveland bankruptcy lawyer to know more options about protecting your tax refund when filing a chapter 7 bankruptcy.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience as an attorney in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

Can Taxes be Discharged in Bankruptcy?

It is a general misconception that taxes can’t be discharged in bankruptcy. While you cannot eliminate all taxes, there is a possibility of discharging some.

In this article, you will know the cases when you are allowed to reduce your tax liability in bankruptcy.

Taxes in Bankruptcy: What You Should Know?

Bankruptcy can provide you relief from the tax debt. How much relief you can get depends on different factors. Some of the factors that determine which taxes can be eliminated include the following.

  • Age of taxes — The tax amount due that you wish to discharge must be due at least 3 years before you file for bankruptcy.
  • Assessment of taxes — The IRS must have assessed your income tax due at least 240 days before filing for bankruptcy.
  • Type of taxes involved — Only income and sales taxes can be discharged in bankruptcy. You cannot discharge other types such as payroll or property taxes when you file for bankruptcy.
  • Timely submission of taxes —The tax return for the amount due must have been filed at least 2 years prior to filing a bankruptcy petition.
  • Apart from the above rules, you should also note that bankruptcy won’t help if a person has tried to evade taxes using a fake social security number or other fraudulent manner in the past. However, this exception applies only to willful evasion of taxes. If a person has made an honest mistake in entering the wrong information, the tax liability can be discharged through bankruptcy.

Another important thing you should note is that you can’t eliminate tax lien on your property when you file for bankruptcy. You need to pay the tax lien if you want to sell your property. However, the IRS sometimes agrees to lift the lien. You can request the IRS to lift the lien by filing tax Form 12277.

 

Final Remarks about Taxes in Bankruptcy

Taxes in bankruptcy is a complex topic. Make sure that you have all tax records before filing. The court will ask you to submit a copy of the most recent tax return.

Getting the help of a bankruptcy lawyer will help you navigate through these complex laws

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

What Happens to All my Debts on My Credit Report after I File a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a viable option when you’re overwhelmed with financial difficulties. It releases you from personal liabilities for most debts, depending on your financial situation. However, before you file, you should know about the aftermath.

One important question that you need to consider when filing a Chapter 7 is what happens to your debts on your credit report. Knowing the answer to this question will ensure that you don’t face unexpected financial problems after filing.

Debts on Credit Card Report After Chapter 7 Bankruptcy

After you file a Chapter 7 bankruptcy, there is a Stay imposed by the Court whereby creditors are prohibited from engaging in any more collection activities.  About 3 months after you file, or about 2 months after the 341 creditors meeting, the Court will issue an order, discharging you of you debts.

But discharge of a debt after a Chapter 7 does not erase your financial history.

All your debts will still show on your credit report. However, the report will also show that your debts are discharged and you have zero debt.

But why are your debts shown in the credit card report? Shouldn’t the debts be wiped out from the credit report once they are discharged?

To understand why credit card report shows discharged debts, you should know the purpose of the report.

Information in the credit report is used by credit agencies to assess your credit worthiness. In order to help credit agencies to properly assess your risk, the credit reporting agencies don’t wipe out debts that are discharged in bankruptcy.  The debts will remain in the credit report for 10 years after filing for bankruptcy protection.

How Will Bankruptcy Status Affect Your Credit Score?

A  bankruptcy can have a negative effect on your credit score;  However, it is possible to Repair your credit score over time. The most effective way to restore your credit score is for a creditor to report to the credit bureau that you paid a bill. . You should consider paying your bills as early as possible as this will have a major impact on your credit score.

In conclusion, a bankruptcy will have a negative impact on your credit score. But the negative consequence will wear off with time, and you will be able to rebuild your credit. For more information on how debts will affect your credit history after filing a Chapter 7, you should contact an experienced Cleveland bankruptcy attorney.

A bankruptcy lawyer will help you not only discharge debts quickly, but also provide guidance on how to improve your credit score. You can get information on how to discharge both secured and unsecured debts by filing a Chapter 7.  Moreover, he will assist you in removing false status reported in your credit report. This is a time-consuming and extremely difficult process that can only be solved with the help of an attorney.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

Can I Keep My Car if I File a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy involves the discharge of most, if not all, debts. The code gives power to the trustee to liquidate i.e. sell your assets, and give the proceeds to your creditors; however, depending on the value of your car, it can usually be saved when you file.

Let’s take a look at how you can retain your car in two different situations when you file for Chapter 7.

Scenario 1 — You Own Your Car or Have Outstanding Loan on Car

In case you own your car or have an outstanding loan on the vehicle, you can keep your vehicle if the equity value (after deducting the amount of the lien) is $3,750.00 or less.  That is the value in a car that is exempted or protected under the U.S. Bankruptcy Code for a car that you are currently driving. In considering the value of your vehicle, the trustee will take into account its condition as well as the number of miles you have on it.   If the value is greater than $3,750.00, the trustee may require you to pay him that additional amount, and use the proceeds to pay off your creditors.

If you are financing your car, subtract the value of the car from the amount you owe; as long as the remaining equity is $3,750.00 or less it will be protected under the Bankruptcy Code. If the equity in your car is over $3,750.00 it is possible the trustee will make a claim on your vehicle, and may require you to pay him that amount above.

If you are financing your car, and you want to keep it the car financer will require you to sign a Reaffirmation agreement.  By signing this agreement, you are reaffirming your car loan and agreeing to pay the car loan installments after the Bankruptcy. You are not required to sign a reaffirmation Agreement and you can instead surrender the vehicle and discharge the debt.

This agreement must also be approved by the Court.  For the Court to approve it, you must show that you can afford to make those payments; otherwise, the court can disapprove the agreement and you may lose possession of your car even if the value is under $3,750.00. You also have to maintain your regular payments and keep the car  insure if you want to keep your vehicle. You may want to consult a Cleveland bankruptcy lawyer about your options.

               

Scenario 2 — You Have a Leased Vehicle

If you have a leased car when you file for Chapter 7 bankruptcy,  you can continue that lease if you want.  You must sign a form known as the Statement of Intention for Individuals Filing Under Chapter 7 with the Court.  This form must be filed no more than 30 days after filing a petition.   This form should also be signed if you want signed a security agreement for furniture and jewelry and you want to keep those items after filing

The statement of petition tells the trustee what you want to do with the unexpired car lease.

  • You can decide to keep the lease and continue making timely payments until the lease expires.
  • You can reject the lease and let your creditor repossess your car. This is a good option if you have excess mileage or car damage since you will not be responsible for further installment and fees if you reject the lease.

Before filing for a bankruptcy protection, you should contact a qualified attorney. He will help you explore your options so you can keep possession of your car when you file.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

If the Bank Denies my Modification, what are My Options?

If the Bank denies your loan modification and you still want to keep your home, a  Chapter 13 may be an option; however, you will still need to show the U.S. Trustee that you can both afford to stay current on your mortgage payments as well as pay off your prearrange (the amount you are behind) over a 3 to 5 year period (see below for discussion on Chapter 13).

If you really cannot afford to keep your home, you should look into options to avoid the sale of your home at a sheriff sale, such as a deed in lieu or a short sale. If your home is sold at a sheriff sale, you will be liable to the bank for the total amount of the Court’s Judgment (the payoff); in addition, the foreclosure will hurt your credit score.

Summary

If a person does not qualify for a loan modification and still wants to keep his home, he can consider a Chapter 13 Bankruptcy.  If he cannot keep his home and wants to be free of liability on the mortgage note, he should look into a deed in lieu or a short sale
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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

The Court Approved My Request to Mediate; can the Bank still Refuse to Modify My Loan?

Yes. Getting the court to agree to mediate your case does not always mean that the bank will modify your mortgage note. Even if court approves your request to mediate, the bank will still want to verify through financial documents that you can afford your loan.

There are Federal programs which may assist a homeowner to qualify for a loan modification. For example, there is the HAMP program, or Obama Plan, where the bank will try to lower ones mortgage payments to 31% of his gross income. However, a person may still not qualify under this if his total debt to income ratio is beyond 55%. There is also a new program called “Hardest Hit” whereby an individual hardest hit by this economy may qualify for government subsidization of his mortgage payment; however as of the writing of this pamphlet, the terms for qualification of the program have not yet been determined.

If a person’s income is high enough that he does not qualify for one of the above Federal Programs, he may still qualify for an “in house (bank)” modification; however the bank may still deny the loan modification if the payoff of the home far exceeds the appraised value.

If the bank does not approve your loan modification, your case will go back onto the Court’s foreclosure docket and your home may be sold at a sheriff sale.  If you cannot keep your home should still consider doing a short sale or deed in lieu to try to avoid  liability on the note.  Because of the various obstacles involved with mortgage modification, it is important to seek the advice of an attorney with strong experience in these matters.

Summary

When determining if a homeowner qualifies for a loan modification, there are various questions and issues that arise, namely, first, whether a person qualifies under a Federal program; if a person does not because his income is too high, then he may qualify for an “in house” modification; but the bank may still deny the modification if the payoff of the home is well above its appraised value.

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Attorney Eli Tamkin is a Cleveland bankruptcy Lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

What is a Reaffirmation Agreement in a Bankruptcy?

Many times when a person files a Bankruptcy, the bank will send him or his attorney a document called a “reaffirmation agreement.” With this, the bank is asking him to reaffirm the mortgage debt if he wants keep his home.  Many times the reaffirmation agreement will include better mortgage terms than the original note—this is done by the bank to induce your agreement.

Under the law, when one is in a bankruptcy, he is not required to reaffirm this debt or any other, but it is another option for him to keep his home. One should file the signed reaffirmation agreement with the court prior to the discharge, or within 60 days after the 341 creditor’s meeting. If one reaffirm’s his mortgage note and then goes into default because he cannot afford to make the payments, he will be liable for the note even though he had filed a Chapter 7 Bankruptcy.

There are instances when mediation is better for a homeowner than signing a reaffirmation with the bank (see below, for discussion on mediation).  For example, sometimes a person can discharge his mortgage note in a bankruptcy and then continue on to mediate the terms of his monthly payment, even though he may not liable for the note if he defaults; whereas, if a person signs a reaffirmation agreement, he will still be liable for the mortgage note if he later defaults.

Summary

When a homeowner is in bankruptcy, he may sign a reaffirmation agreement; many times, the terms in the reaffirmation agreement will be better than the original note.  There are instances when it is better for a homeowner to mediate his mortgage terms in court than to sign a reaffirmation with the bank in bankruptcy.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I Disharge my Mortgage Note in a Chapter 7 Bankruptcy and Still Keep my Home?

Generally, yes you may if your loan is modified in mediation; but you should consult an attorney about your particular situation.  In many instances the bank will approve a loan modification even though you have already discharged your debts, including your mortgage note, in a bankruptcy; however, as will be discussed next, you will nevertheless be liable for that note if you sign a reaffirmation agreement with the bank during your Chapter 7 Bankruptcy.

Summary

While a homeowner generally can proceed to mediation after discharging the mortgage note in a Chapter 7 bankruptcy, there are exceptions to this rule, and one should consult with a bankruptcy attorney.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I Mediate My Foreclosure Case if a Sheriff Sale Has Already Been Set?

Yes.  The Court may approve your request to mediate even though a sheriff sale has been set.  While the mediation will not stop the sale, that sale will not be approved or “confirmed” by the Court.  The Court will first wait to see what the outcome is of the mediation; ie., whether a deal can be worked out with the bank.

Nevertheless, you should still check the court’s docket periodically because at times the court can make a mistake and still confirm the sale. This has happened to me on occasion and I have had to file motions to vacate the sale in emergency hearings.

Summary

While mediation will stop the foreclosure process, it will not stop a sheriff sale; that sale goes forward as scheduled, but the court will generally not confirm the sale and will wait to see the outcome of the mediation.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I File a Bankruptcy and also Save My Home From Foreclosure?

Yes, you can file a bankruptcy and then afterwards try to mediate your mortgage note.

When you file a Bankruptcy,  all of your creditors must stop all collection activities, including the bank. This means that if there is a foreclosure against you that must stop, and your lawyer should tell the court about it. The bank will need permission from the bankruptcy court to foreclose on your home.

After the bank receives that permission and files a complaint, you can then request mediation from the court. However,  getting the Court to approve your request to mediate is only the first step; after that you must now get the bank to agree to modify your mortgage note.

Summary

The bank must ask the Bankruptcy Court for permission to file a foreclosure complaint against you. After you have been served with a complaint, you can then request the court to mediate.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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