Tax Refunds and filing bankruptcy

It’s tax season again. That means that Chapter 7 Trustees and the Chapter 13 Trustee are looking for tax refunds from anyone who has filed for bankruptcy. Generally, a tax refund is earned over the course of the prior year and is a pre-bankruptcy asset that must be turned over to a bankruptcy trustee.

However, that tax refund is important to many families as a source of funds to use for long put off repairs, new clothes for the kids or any other unusual expense. When this time of the year comes around, one of the first questions that we ask potential clients is “Have you filed your tax return yet?”. If the answer is yes and a refund is coming, how can the refund be preserved when a bankruptcy filing is needed?

CHAPTER 7 AND TAX REFUNDS

As stated above, your pre-bankruptcy tax refund will generally belong to a Chapter 7 Trustee. Unless some collection activity is about to take place which will result in the garnishment of a paycheck, loss of vehicle or the foreclosure of a home, the filing of a Chapter 7  may not be immediately necessary. The delay in filing of the Chapter 7 can allow a family to utilize the tax refund for normal living expenses or to pay for long overdue repairs to a home or vehicle. You should keep a record of all expenditures which were paid for with the tax refund and be prepared to show that the refund was completely spent on the living expenses or repairs.

If you must file the bankruptcy and have not received your refund, be sure to attempt to exempt some or all of the refund. Earned Income Credit (EIC) refunds are exempt. Check your tax refund to see if some or all of the refund is EIC and exempt. Chapter 7 debtors are also entitled to personal property exemptions which may be used to cover some portion of the refund. In Florida, a married couple who does not claim a homestead can claim up to $10,000.00 in personal property exemptions which may be used to cover a refund that has not been received. At Mickler & Mickler, we can help to prepare your Chapter 7 case to maximize your exemptions as allowed by law.

CHAPTER 13 AND TAX REFUNDS

Chapter 13 is not a liquidating type of filing. That means that the Chapter 13 Trustee generally won’t be entitled to seize a pre-bankruptcy refund as a Chapter 7 Trustee would. However, the refund may be considered “disposable income” that may be subject to turnover to the Trustee. This disposable income requirement will cover all years that a Chapter 13 case is pending and tax refund may be received. Disposable income is generally defined as monthly income minus necessary living expenses. It is a flexible standard that can be tailored to fit many different lifestyles. What will normally end up happening in a Chapter 13 case is that the necessary repairs or other expenses will have to be submitted to the Chapter 13 Trustee or the Judge in a case to determine if the refund should be used to pay such expenses or will have to be paid to the unsecured creditors in a case.  Again, such determinations are made on a case by case basis and may change from year to year depending on the financial condition of the debtor. Our office routinely submits request for a debtor to be allowed to keep a refund in order to pay for necessary expenses. We are familiar with the requirements for such a request and can advise if such a request should be filed.

At Mickler & Mickler, we attend Court and see the bankruptcy trustees and judges in action several times a week. We have the experience to guide you to the right decision about whether to file a case, and if so, what Chapter to file.   When you contact our office, we can help you in your case with sound legal advice.

Please contact Mickler & Mickler at 904.725.0822 or bkmickler@planlaw.com. We will be happy to set you up a free appointment to discuss your situation and potential solutions.

Bryan Mickler

Stripping Second Mortgages in Jacksonville Bankruptcy

I have previously written about modification of Mortgages through Chapter 13 in Jacksonville, FL bankruptcy:

https://www.planlaw.com/modification-of-mortgages-in-chapter-13-in-jacksonville-fl/

But some people are not interested in modifying their first mortgage or may have already received a modification and would not be eligible for a further reduction in payments. In such a case, many people seek relief under Chapter 7 of the Bankruptcy Code. Chapter 7 is the basic liquidation Chapter which will relieve people from unsecured debts such as credit cards, medical bills, etc.

So what does Chapter 7 have to do with mortgage stripping? As of mid-2012, the Bankruptcy Courts in Florida, Georgia and Alabama have been able to strip second mortgages in Chapter 7 if the value of the home is less than the amount owed on the first mortgage. In  McNeal v. GMAC Mortgage LLC (In re McNeal), 2012 WL 1649853 (11th Cir. May 11, 2012), the Eleventh Circuit determined that lien-stripping of a wholly unsecured lien or second mortgage is allowed in chapter 7. GMAC Mortgage, currently in chapter 11 itself, has requested a rehearing, but the review of ruling has been held up by the GMAC Chapter 11 filing.

In order to qualify for this relief, you must file Chapter 7, have a home with a first and second mortgage (even homestead property is eligible) and the value of the home must be below the payoff of the first mortgage. Often, a tax value is appropriate to use to determine your home’s value or an appraisal may be ordered to determine valuation.

Whichever method you use to determine the valuation of the home, time is limited. The ruling is subject to reversal at any time due the pending rehearing motion. If your motion to strip has not been granted (and any applicable appeal/rehearing time has run) when the ruling is overturned, you will lose the ability to strip the second mortgage from your home. In such a case, a Chapter 13 may be the only avenue to obtain relief from the second mortgage.

If you feel that you may benefit from a loan modification or any type of mortgage relief, contact our office at 904.725.0822 for a free consultation.

Bryan Mickler

Can I get my license back if I file Bankruptcy?

As Jacksonville Bankruptcy Attorneys, we see numerous clients with driver’s licenses suspended when they come in to our office. One collection firm in town is notorious for suspending driver’s licenses after obtaining a judgment. This can create a great personal hardship due to the inability to drive to work, for family or any other reasons. Additionally, criminal problems may result if you are pulled over while driving with a suspended license.

The first question people usually have when they come to see us is, “How can they do that?”. The answer is that Florida law allows the creditor to suspend your driver’s license. Florida Statute 324.121 provides that a creditor may apply for a license suspension as follows:

Florida Statute 324.121 Suspension of license and registration.—

(1) The department, upon the receipt of a certified copy of a judgment, as provided in s. 324.111, shall forthwith suspend the license and registration and any nonresident’s operating privilege of any person against whom such judgment was rendered, except as hereinafter otherwise provided in this section, and in s. 324.141.

Our office routinely provides the ability to recover your driver’s license by the filing of a Chapter 7 or Chapter 13 bankruptcy. Upon the filing of your case, the creditor is bound to release the suspension by the operation of the “automatic stay”. This stay goes into effect upon the filing of the case and is the main protection from creditor harassment until your case has been completed and a discharge entered. If the creditor fails to release the suspension, you may have the right to sanction the creditor for violating the automatic stay. In such a case, you would be entitled to recover actual damages (such as taxi costs and lost wages), attorney’s fees and costs. You may also be entitled to punitive damages if the actions of the creditor were sufficient for the Judge to award such damages.

At Mickler & Mickler, we routinely stand up for client’s rights against creditor abuses. Whether its getting your license back after you have filed for bankruptcy or any other right that you are entitled to – our job is to make sure that you are given the full protection of the Bankruptcy Code. Our office has years of experience in handling abusive creditors and making sure that our client’s rights are protected.

Please contact us at 904.725.0822 or bkmickler@planlaw.com to schedule a free appointment to discuss

Divorce and Bankruptcy are like summer and ice cream – they just seem to go together.

The typical scenario is that divorce is followed by a bankruptcy filing for one or both spouses as a result of trying to support two households on the same income. If your ex owes you money as a result of the divorce, you may be wondering what will happen if they file for bankruptcy.

Depending on the type of obligation that your ex owes you, the result of a bankruptcy filing by an ex-spouse could end up in several different ways.

If the obligation is for child support or alimony (called a “domestic support obligation” in the Bankruptcy Code), then the obligation is not dischargeable in any type of bankruptcy filing. Chapter 7, Chapter 11 and Chapter 13 all exclude domestic support obligations from the discharge provisions of the Bankruptcy Code. See 11 U.S.C. §§ 523(a)(5); 1141(d)(2) and 1328(a)(2). Domestic support obligations also include past due amounts for child support or alimony, interest that has accrued on the past due amounts and any attorney’s fees and costs necessary to obtain or enforce the child support or alimony against the ex-spouse in State Court.   See In re Diaz, 647 F.3d. 1073 (11^th Cir.2011). A bankruptcy filing by an ex-spouse will also not serve to stop the Family Law Court from ordering child support or alimony to be paid if the bankruptcy was filed prior to or during a divorce. See 11 U.S.C. § 523(b)(2).

The tricky issues in bankruptcy and divorce come in situations where the obligation is not child support or alimony, or the ex-spouse may claim that the obligation is not covered by the domestic support obligation exception to the discharge. Typical situations include property settlement agreements where an ex-spouse is obligated to pay a lump sum or to pay a joint debt that was owed prior to the divorce. In these situations, a bankruptcy attorney is needed to determine whether legal action is needed to protect your rights to the future payments.

Chapter 7 and 11 and property settlement agreements

Any non-child support or non-alimony obligation incurred in connection with a divorce in Chapter 7 is covered by 11 U.S.C. § 523(a)(15). In both Chapter 7 and Chapter 11, the obligation is non-dischargeable. Such obligations take the form of “hold harmless” provisions for joint debts, obligations to pay joint debts, obligations to pay a lump sum in the future and obligations to sell property and split proceeds. It is generally a good idea to have the Bankruptcy Court issue a Judgment that such a debt has not been discharged by the Chapter 7 or Chapter 11. This requires the filing of an Adversary Proceeding with the Bankruptcy Court. Generally, no trial is required as the Court will issue summary judgment as long as the obligation was as a result of a divorce or separation. The Judgment will prevent any problems in the future with the ex-spouse attempting to claim that such obligation was discharged.

Chapter 13 and property settlement agreements

Chapter 13 is the one bankruptcy filing that may create an issue if you are owed a property settlement agreement obligation as described above. Remember, this is not a child support or alimony obligation. If you feel that you have an alimony or child support obligation that your ex-spouse is attempting to treat as a property settlement agreement, you can have the State Court or the Bankruptcy Court determine the nature of the agreement. If it is determined that such obligation is a property settlement agreement and not child support or alimony, Chapter 13 provides that such obligation may be discharged as an unsecured debt. See 11 U.S.C. § 1328(a)(2). If the Plan meets all requirements of Section 1325, the Chapter 13 may propose a Plan that contributes a minimal amount to unsecured debts over the life of the Plan and discharge any remaining obligation upon discharge in the case.

Conclusion

It is critical to have the correct determination of the type of obligation when assessing whether the debt may be discharged in any type of bankruptcy filing. Please contact our office at 904.725.0822 or bkmickler@planlaw.com for further information regarding any obligations from a divorce as they relate to a bankruptcy filing.