An Atlanta Area Attorney Discusses Debt Discharges In Bankruptcy

Many of my clients come to my office in Atlanta or Jonesboro seeking relief under Chapter 7 or Chapter 13 bankruptcy only to learn that their biggest debt obligations are not going to be discharged. While bankruptcy allows most types of debts to either be discharged in the case of Chapter 7, or paid off on a modified schedule under Chapter 13, there are some non-dischargeable exceptions that can interfere with an individual’s ability to financially recover.

Non-Dischargeable Debt In Bankruptcy

There are multiple categories of debt that are not dischargeable under Chapter 7 and Chapter 13. The following are some of the more common non-dischargeable debt classes:

• Tax Claims – Taxes may or may not be dischargeable. In order for a tax claim to be dischargeable under Chapter 7 or Chapter 13 bankruptcy it must meet all five of these criteria.
  1. The due date for filing the return was thirty-six months ago or greater.
  2. The tax return was actually filed at least twenty-four months before the date of filing for bankruptcy.
  3. The tax assessment is at least 240 days (approximately eight months) old
  4. The return was not fraudulent.
  5. The tax payer is not guilty of evasion.

If you are unsure as to whether your tax liability is dischargeable, contact a qualified Georgia bankruptcy attorney.

• Child Support and Spousal Support (Alimony) – Bankruptcy does not free you from the debt obligations that you have incurred through a divorce decree or judicial order to pay support. Even after you declare Chapter 7 or Chapter 13 bankruptcy, you will still owe child support and or alimony. However, modifications to alimony are often available when there has been a significant change in either of the former spouses’ income.
• Student Loans – As the costs of education rises, student loans have become a significant cause for bankruptcy in Georgia. However, the government backed student loan debt itself is not generally dischargeable.

Some of the other types of non-dischargeable debts listed on the U.S. Federal Court website include:

• Debts not set forth by the debtor on the lists and schedules the debtor must file with the court,
• Debts for willful and malicious injuries to person or property,
• Debts to governmental units for fines and penalties
• Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated,
• Debts owed to certain tax-advantaged retirement plans
• Debts for certain condominium or cooperative housing fees.

Speak to a GA Bankruptcy Attorney

Even if you’ve heard that the most significant portion of your debt is non-dischargeable Chapter 7 or Chapter 13 bankruptcy, they may still be a viable option for you. Oftentimes, the relief that you experience with regard to your dischargeable debt will allow you to manage your non-dischargeable obligations. If you find yourself unable to manage your debt, speak to a qualified Georgia bankruptcy lawyer at your earliest convenience.

A Jonesboro, GA Estate Planning Attorney Discusses Establishing A Special Needs Trust

As an Atlanta area estate planning attorney, it’s important to familiarize my clients with the various instruments that we use to accomplish their goals. Occasionally an individual will come to our Atlanta or Jonesboro office with concerns of a child with Autism, Downs Syndrome, a physical disability, or some other special need. Almost any parent or guardian who has a child or adult relative with special needs asks themselves the same question: what will happen if no one is around to care for him or her? The goal of any estate planning attorney is to provide his or her client with peace of mind, and in this type of situation, we often accomplish that with a special needs trust.

What is a Special Needs Trust?

A special needs trust is a financial instrument that is funded by a principal or benefactor to be used by a third party to provide for the care of a child or adult with special needs. A third party—the fiduciary or trustee—dispenses the funds in accordance with the beneficiary’s needs following a set of set of rules that are established by the trust maker and his or her estate planning lawyer. The fiduciary can be the guardian of the beneficiary or some other person. The fund is particularly useful for adults who aren’t able to take responsibility for their own finances due to a developmental disability or mental illness. A special needs trust can be set up to pay for housing, living expenses, clothing, medical care, therapy, or anything else that the benefactor wishes to allow.

Who Should Establish a Special Needs Trust

The following people should discuss special needs trusts with their estate planning attorneys:

• Parents of children with developmental disabilities or mental illnesses
• Parents or guardians of adults with developmental disabilities or mental illnesses who provide care for those individuals
• Parents, guardians, or other family members who care for a disabled or incapacitate child or adult
• Anyone who foresees having to care for a developmentally disabled, mentally ill, physically disabled, or incapacitated child or adult at any time in the future

Contact a Qualified GA Estate Planning Attorney

To discuss more specific issues related to special needs trusts, like Georgia estate planning law and federal income tax considerations, contact a reputable, GA estate planning attorney at your earliest convenience.

It is important to note, that in all cases, not just where debtors are married, if one person listed on a debt files for bankruptcy and the other person does not, the person that did not file is still financially responsible.  Basically, if you and your significant other own a car, you filed for bankruptcy and he/she does not, he/she is still responsible.  This is simply a more relevant issue when debtors are married because eliminating one spouse’s liability without the other doesn’t really accomplish much of anything.  Further, married couples will generally save money on attorney’s fees by filing together instead of filing two separate cases.

Now, in some cases, debtors will file together, but later decide that they do not want to be a part of a joint bankruptcy.  This may be for any number of reasons, including but not limited to, the spouses are separating or divorcing or one spouse is going to become entitled to a sum of money or property that would have to become a part of the bankruptcy estate. (Editors note: there are state specific elements of property rights that might make this evaluation different between a Missouri bankruptcy attorney and a Forsyth County Georgia bankruptcy lawyer).

You generally have a right to voluntarily dismiss you case.  There are a few very limited exceptions to this rule that will not be discussed here.  If one person no longer wants to continue your attorney can simply dismiss one debtor from the proceeding and not the other.  Of course, in doing this, you want to weigh the fact that the dismissed party will still have a financial obligation to pay for any debt discharged in the bankruptcy unless he/she re-files.

If you have questions about whether or not you should file together, or whether one party should dismiss oneself from the case, you should speak with your attorney as soon as possible.

This guest article was written by Tobias Licker, St. Louis bankruptcy attorney.

The best way to avoid these issues is to know your rights under the law. Most reputable agencies will push the limit of the law—which can still be embarrassing for the debtor—without exceeding their mandate. However, some credit collectors will cross the line in the hope that the debtor is ignorant of their legal limits.

The Fair Debt Collection Practices Act was developed to protect people who are being pursued by creditors for personal, family, and household debts, such as credit cards, auto loans, mortgages, and medical expenses.

Under FDCPA:

• Debt collectors are not permitted to contact you outside the hours of 8 a.m. and 9 p.m.
• Debt collectors are not allowed to call you at work if they have been told not to by you.
• FDCPA prohibits debt collectors from contacting third parties (employers, neighbors, family members, et cetera) more than once. Conversations must be restricted to obtaining information about you and your debt may not be discussed. Hiring a Georgia debt attorney can help with this matter. Once you’ve retained the services of a qualified attorney, he or she will be the contact person for your creditors.

Harassment – Debt collectors are strictly prohibited from making threats of violence, publishing your name on a list of people who refuse to pay debts, using obscenities or profanity, using the phone repeatedly to harass or annoy someone.

False Statements – Creditors can’t lie to induce you to pay your debt. For instance, they can’t pretend to be government officials, or claim that they work for a credit-reporting bureau like Equifax, Experian, or TransUnion.

Unfair Practices – Debt collectors are not allowed to attempt to collect fees in excess of what you contractually or legally owe, threaten to take your property unless it can legally be done in the Georgia courts, or contact you with an open postcard.

The Fair Debt Collection Practices Act covers many more practices that are considered “out of bounds” by the Federal Trade Commission. Your best line of defense in combating embarrassing and unlawful credit collections practices is to retain the services of a qualified Georgia credit counseling and bankruptcy attorney. Once you hire a lawyer, he or she becomes the point of contact for all creditors and collections agencies. Furthermore, your attorney can negotiate with your creditors more effectively.

If you are being pursued by creditors—whether or not you are considering Chapter 7 or Chapter 13 bankruptcy—you should contact an experienced Georgia debt-counseling attorney before your lenders and their agents have an opportunity to embarrass you with your family, friends, and coworkers.

A debtor decides to file Chapter 7. This allows him to discharge all of the debt that he or she is able. However, not all debt is dischargeable under Chapter 7 bankruptcy. For instance, student loans, child and spousal support, and certain taxes cannot be discharged in Chapter 7 bankruptcy. If the debtor has remaining balances that fall under these categories, he or she may then opt to have his or her GA bankruptcy attorney file a Chapter 13 bankruptcy. Under Chapter 13, these debts won’t be discharged, but they will be subject to a three to five year payment plan. Sometimes this is a much better prospect for the debtor.

Consider the following scenario. A Cumming, GA homeowner becomes financially insolvent. Along with his dischargeable debt, he still owes the majority of the balance of his student loan, back taxes, and penalties. He does have a substantial amount of dischargeable debt, but the real problems are the student loan and back taxes. With a Chapter 20, he can rid himself of the dischargeable debt during the first phase, and work out a payment plan for the student loan and taxes during the second.

Another reason a debtor might attempt this strategy is to save his/her home after receiving a Chapter 7 discharge. Perhaps the debtor was months behind on his mortgage and filed Chapter 7 to discharge $50,000 in credit card debt. If the debtor’s Chapter 7 closes without the bank having yet foreclosed on the property, but subsequently sends the debtor a foreclosure notice, the debtor could actually file Chapter 13 to pay off the mortgage arrears. The debtor in this scenario will have already discharged all of his credit card debt, so even if the Chapter 13 plan fails, it will not impact the debtor’s Chapter 7 discharge of his credit card debt.

This double bankruptcy strategy is not ideal for every situation. Before committing to any type of bankruptcy, you should contact a Georgia bankruptcy lawyer.

Everyone wants a do over in life sometimes. In Chapter 7 bankruptcy however, that is not always possible.

Many times, I will get asked “can I dismiss my bankruptcy case?” The answer to that depends on a variety of factors. The most pertinent question to ask is which chapter the debtor filed. If the debtor filed Chapter 13 bankruptcy, then almost without exception, the debtor can dismiss the bankruptcy case.

Chapter 7, however, is another story. Inevitably, the most popular reason a debtor wishes to dismiss a Chapter 7 case is because the debtor’s trustee has discovered assets to liquidate as part of the debtor’s bankruptcy estate. The debtor does not wish to lose these assets in a distribution to its creditors, so the debtor prefers to dismiss its own case, even though it means the debtor will not get to discharge any debts.

Many debtors might be surprised that in this instance, the Chapter 7 trustee can essentially block the dismissal of the case. The debtor will then have to decide between converting to Chapter 13 or allowing the distribution and Chapter 7 case to continue.

Essentially what the debtor should understand from all this is that Chapter 7 is not a free bite at the apple to see if it can get a discharge without losing any property. Note however than an experienced bankruptcy attorney should be able to detect the likelihood that any assets will be liquidated before the case is filed.

This is not meant to imply that a Chapter 7 cannot be dismissed. There is certainly a chance that even if there are assets to liquidate, the trustee might allow the dismissal to go through for whatever reason. However, the debtor cannot bank on that.

Instead, the more common scenario that the debtor could dismiss its Chapter 7 is where there are no assets to distribute and therefore the creditors are not harmed, but are actually helped, by the dismissal. This is because there were no assets to distribute and the debtor was not discharged of its debts.

However, it is few and far between that this scenario will take place, as the debtor would not have a good reason to dismiss its own case if there were no assets to distribute and it was on path for a discharge. For the debtor to dismiss a “no asset” case, the odds are either the US Trustee or a creditor is challenging the debtor’s discharge.

Logically, you want to know if this debt forgiveness is income and possibly even if they owe this tax on debt forgiven, why did they even file bankruptcy in the first place? The short answer to that question is no, the debt forgiven is not taxable income; however, I should point out that exclusion is contingent on whether the debtor actually received a discharge.

This means that if you filed bankruptcy and received a discharge, even though you might receive a 1099, you are almost certainly excluded from paying taxes on the forgiveness of income.

Regardless of whether the income is taxable to the debtor (and in almost all circumstances in which the debtor received a bankruptcy discharge that year, it is not), it can still be proper for the creditor to send the debtor a 1099. The debtor needs to then fill out the IRS Form 982, which gets the debtor out of paying taxes on the 1099 income due to insolvency.

The very first box of the form, 1a, gives the debtor an exclusion by virtue of a discharge of indebtedness in a title 11 case, which is the bankruptcy chapter.  If the debtor has any questions how to complete the form 982, he/she should consult a qualified tax professional.

This is not to say that bankruptcy is the only reason for someone to fill out the form 982. If you did not file bankruptcy, you still might qualify as “insolvent” for the purposes of avoiding tax liability. Or perhaps you are solvent, but qualify for the Mortgage Forgiveness Debt Relief Act and Debt Cancellation. This act current extends through 2012 and forgives most debt associated with losses on a primary residence.

In other words, the person who short sold their home to avoid bankruptcy might qualify to avoiding taxable income under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation, but the person who filed bankruptcy qualifies for insolvency automatically.

This question came as quite a surprise to me given that I did not remember her reaffirming the debt in her chapter 7 bankruptcy. It had however been almost three years since her case was filed and over two years since it closed, so I was not too sure on the details. I pulled her case docket and sure enough, she had not reaffirmed.

I then took a look at the bank’s state court complaint and noticed that without my knowledge, they had my client sign a new promissory note in the middle of her case. This was not a reaffirmation agreement, since all reaffirmation agreements must be approved by the judge. Under 11 USC 524, a creditor must get the debtor to sign a reaffirmation agreement if the creditor wants to bind the debtor to the debt post bankruptcy, assuming it is for the same collateral as the pre bankruptcy note. This bank had skirted the reaffirmation process by getting the debtor to sign a new note that was not approved by the bankruptcy court.

So what was the end result of the creditor doing things the wrong way? I notified them that they must dismiss their suit, as it is a violation of the debtor’s discharge order. Furthermore, this debtor has grounds to bring an adversary proceeding against the bank for its violation of the discharge order and possible damage to the debtor’s credit.

The point to take away from all this is anytime the creditor does not get the debtor to sign a reaffirmation agreement during the pendency of the Chapter 7, the debt is forever discharged. The creditor still has its lien rights as to the collateral, but the debtor no longer can have personal liability.

Many debtors who are going through the bankruptcy process are intimidated by the idea of attending a 341 creditor meeting, or also called Trustee’s meeting. This isn’t surprising because the 341 creditor meeting is a legal proceeding that requires debtors to review their Chapter 7 or Chapter 13 bankruptcy petitions with a court-appointed trustee.

This meeting can feel intimidating because your creditors can ask you certain questions about your debts. However, you can take the stress out of attending this meeting if you plan ahead. In almost all cases, no creditor is showing up to ask questions. Normally, it is only the trustee and you. The trustee is not a Judge. He is an attorney who often besides of being a trustee handles his own bankruptcy cases and knows that debtors might be nervous at the meeting. In St. Louis, Missouri, for example the trustee’s meeting is held in the Federal Court Building but not in a court room.

Here are some suggestions that can help being prepared for your 341 creditor meeting:

1) Try to meet with your St. Louis bankruptcy attorney or an attorney in your area before you attend your meeting.

It’s a good idea to meet with attorney before your 341 creditor meeting because he can help you review your petition to help you understand possible questions that could be asked about your petition. Your bankruptcy lawyer in St. Louis or your area knows the trustee and questions he will ask about debts, income and your bankruptcy petition in general.

2) Try to watch a 341 creditor meeting in person.

A 341 creditor meeting is a legal proceeding that can be watched in person just like most other legal proceedings in this country. In St. Louis for example, many debtors have the 341 meeting at the same time, the meeting with the trustee takes only a few minutes. He will examine your social security card and picture I.D. to make sure you are the person who is filing bankruptcy and that no one else is using your personal information.

When waiting for your case to be called, you will have the opportunity to listen to the questions asked in previous cases. The trustee normally is asking the same or similar questions. You might be able to reduce the stress of attending your 341 meeting because you can see first hand how your meeting will be organized and conducted.

3) Be sure to arrive at your 341 creditors meeting at least 20 minutes early.

It’s a good idea to arrive at your meeting early because you will need to find your attorney who might have other clients scheduled for this time as well. Often, depending on the trustee, you might have to fill out a short questionnaire. In St. Louis, Missouri, for example, the chapter 13 trustee requires a two page questionnaire to be filled out before hearing your case. If that is not filled out, you have to wait until all other cases are heard.

If you don’t understand these rules, or if you need help with the paperwork, be sure to ask your bankruptcy attorney in St. Charles or your area for help. He can help you understand the rules and paperwork in a way that’s easy to understand.

4) Finally, don’t forget to have your Social Security card and picture ID ready for inspection.

It’s important to bring your Social Security card and picture ID to your 341 meeting because Missouri’s bankruptcy regulations require debtors to prove their identities before a 341 creditor meeting can take place. As a result, be sure to place your picture ID and Social Security card in your purse or wallet the night before your meeting. Doing this is the easiest way we know to have these important items with you when it’s time for you to check in for your 341 creditor meeting. If you forget your ID or Social Security Card, the trustee most likely will continue the meeting.

For more information about preparing for a 341 creditor meeting, please ask a bankruptcy attorney in St. Louis or in your area for more details. They can help you find more ways to prepare for your 341 creditor meeting that can help you feel more comfortable completing this important part of the bankruptcy process.

Guest post by Tobias Licker, St. Louis Bankruptcy Attorney

The easiest way to know that would not be correct is the old adage that if it is too good to be true, then it probably is. Think about it, if all you had to do to own your house free and clear was to file Chapter 7 bankruptcy and not reaffirm the mortgage, then a lot of people would do that.

The reason the debtor does not own the house free and clear after not reaffirming the debt is because the lender recorded a lien (often referred to as a security deed) when the debtor originally took out the mortgage. As consensual liens cannot be avoided in bankruptcy, the bank’s lien survives the bankruptcy, even if the debt does not.

Now some of you might have heard that you can get rid of the second mortgage lien in bankruptcy. That actually is true, but there are a couple of key differences. For starters, that can only be done in a Chapter 13 and not a Chapter 7. The second point is this “lien strip” can only be done when the debtor’s first mortgage (which survives the bankruptcy), is worth more than the value of the debtor’s home.

Another point to take out of this lien discussion is that it applies not only to real estate, but also to the car liens, provided the car was taken out with purchase money. Therefore, even if the debtor is in a state where he/she can continue to drive the car without reaffirming, the lender’s lien will still remain valid, and the debtor will have to pay off the lien to ultimately get free and clear title.