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Common Bankruptcy Questions & Myths

Common Bankruptcy Questions & Myths

Posted on by Jessica Nomie

Part 3. If I file for Bankruptcy will I lose my tax refund?

Short Answer: It depends.

If you are filing for Chapter 7 Bankruptcy Protection, then you are likely able to keep your tax refund. Your attorney will list your refund in your bankruptcy schedules and then claim an exemption to protect your refund for you. In other words, you are allowed to have certain values of assets when you file for bankruptcy. Depending on your other assets, such as money in the bank, personal property, and more, you may be entitled to keep some or all of your tax refund. The rules around exemptions can be technical and complicated. It is best to consult with an attorney to ensure that your property is protected to the fullest extent possible. There could be situations when you must pay some or all of your refund towards your debts for the success of your Chapter 7 bankruptcy filing. Usually and in most cases, you will get to keep your full tax refund when you file for bankruptcy.

If you must file a Chapter 13 Bankruptcy, then the answer depends on your income and your bankruptcy plan. Generally, you are required to pay the full amount of your refund into your Chapter 13 Bankruptcy case when you are in a Chapter 13 Bankruptcy. This is part of your bankruptcy plan and required to be done to ensure the success of your Chapter 13 Bankruptcy. In some cases, you may be able to protect a certain value of your tax refund each year while you are in the Chapter 13 Bankruptcy. You can talk to your bankruptcy attorney to determine whether you are eligible for this protection of your tax refund. If you are eligible for this protection, then your attorney will discuss the details and requirements with you, including at what point you might be required to pay some of your refund into your Chapter 13 Bankruptcy.

Since the rules around refunds and exemptions of your property can be complicated, you should consult with an attorney before filing for bankruptcy to determine whether you will be entitled to keep your tax refund.

We are a debt relief agency.  We help people file for relief under the Bankruptcy Code.

The information and materials provided in this article have been prepared for informational purposes only and do not constitute legal advice and do not constitute an attorney-client relationship between you and this law firm. If you believe you have a legal case or claim, you should contact an attorney promptly; strict time limitations may apply to your case or claim.

Common Bankruptcy Questions & Myths

Common Bankruptcy Questions & Myths

Posted on by Jessica Nomie

Part 2.  I need to file for bankruptcy protection.  Will I lose my car?

Short Answer: No.  It is not true that you must give up your car if you file bankruptcy.  When you file, you have the option to keep your car.

I’ve met with countless people who have stated that they’ve prolonged considering bankruptcy because they cannot “afford” to lose their vehicle.  The truth is, if you file for Chapter 7 or Chapter 13 bankruptcy then in most situations you have the option to keep your vehicle.

If you own a vehicle and are considering bankruptcy, the first question I would ask you is whether your vehicle is secured by a loan.  In other words; is your car paid off? 

If you still owe money on your vehicle, then you would have the option to retain your vehicle in the bankruptcy and enter into a reaffirmation agreement with the lender.  You can also choose to surrender, or “give up”, your vehicle.  The choice is yours. 

If you choose to keep your vehicle and your vehicle is secured by a loan, then you would elect to retain your vehicle in your Statement of Intention which is part of your bankruptcy filing.  Your creditor would then send you (or your attorney) a reaffirmation agreement for you to sign and to be filed with the Court.  A reaffirmation agreement is essentially a new contract between you and your creditor that will survive the bankruptcy.  Simply put, you get to keep your car.

If your vehicle is secured by a loan and you do not want to retain your vehicle then you would indicate your intent to surrender your vehicle in your Statement of Intention.  In this situation, the creditor can obtain permission from the Court to repossess the vehicle while you are in the bankruptcy, or may choose to wait until your bankruptcy is over before repossessing the vehicle.  In either case, once the vehicle is repossessed and sold, the deficiency, or unpaid amount on your loan would be a discharged debt in your bankruptcy.

In some instances, you might have equity in your vehicle.  If your vehicle is paid off, then you have equity in your vehicle.  Similarly, if your vehicle is worth more than what is owed on it, then you also have equity in your vehicle.  In these situations, we would discuss the value of your vehicle.  In Oregon you are allowed to have $3,000 of equity in your vehicle that can be exempted in your bankruptcy schedules.  Under federal law, the exemption is $3,775.  In other words, your car can be worth up to the amount of the exemption and be protected.  If your equity in your vehicle is more than the allowable exemption, then you may qualify for a “wildcard” exemption to protect the remainder of the equity in your vehicle.  

There are situations when you might run into problems with the allowable exemptions.  For example, if you have a significant amount of equity in your vehicle, or if you own multiple vehicles. 

Even though it is a myth that you cannot keep your car when you file for bankruptcy, the bankruptcy rules are complicated.  If you have one or more vehicles and you are planning to file for bankruptcy, then you should consult with a bankruptcy attorney to determine your options regarding your vehicle and to discuss the best ways to protect your assets when you proceed with bankruptcy.

We are a debt relief agency.  We help people file for relief under the Bankruptcy Code.

The information and materials provided in this article have been prepared for informational purposes only and do not constitute legal advice and do not constitute an attorney-client relationship between you and this law firm. If you believe you have a legal case or claim, you should contact an attorney promptly; strict time limitations may apply to your case or claim.

 

Common Bankruptcy Questions & Myths

Common Bankruptcy Questions & Myths

Posted on by Jessica Nomie

Part 1. I stopped paying my bills.  Can my creditor garnish my wages immediately?

Short answer:  No. A creditor must first sue you in court and get a judgment against you before they can issue a garnishment to your bank or your employer.

It’s a common misconception among consumers that I speak to, that as soon as they stop paying a debt, that their paycheck or bank account can automatically be garnished by a creditor.  While a creditor might scare you into believing that you must make a payment or else your next check will be garnished; the truth is that they cannot do this without first getting a judgment against you in Court.

What does this mean? The creditor must first file a lawsuit in court against you, serve you with that lawsuit and then go through the court system to get a judgment against you.  Once they have done all of that, then they need to find out where you bank or where you work.  Assuming they have (1) gotten a judgment in court; and (2)  found out where you bank or work, then they can send a garnishment to your bank or employer.  This process at the absolute quickest speed would take 2-3 months.

The bottom line is that, without a judgment, your creditors cannot issue a garnishment.  It’s as simple as that. 

You might ask, what about when your debt is transferred to a collection agency?  The answer is still no; not until they go through the courts to sue you and get a judgment against you.

Please note that for almost any rule there is always an exception.  It’s important to keep in mind that when you owe money to a government agency, such as the Internal Revenue Service or your state taxing agency, they do not have to sue you first.  They can immediately contact your employer to start garnishing your wages.

If you can’t keep up with your bills, have stopped paying bills, have been served with a lawsuit or even a garnishment, or are not sure what kind of debt that you owe, then you should consult with an attorney about your options.  The sooner that you consult with an attorney, the better positioned you are to protect yourself from the harsh reality of a bank or a wage garnishment.

We are a debt relief agency.  We help people file for relief under the Bankruptcy Code.

The information and materials provided in this article have been prepared for informational purposes only and do not constitute legal advice and do not constitute an attorney-client relationship between you and this law firm. If you believe you have a legal case or claim, you should contact an attorney promptly; strict time limitations may apply to your case or claim.