Cancelling mortgage debt, either through a short sale, foreclosure, or loan modification, can lead to a painful income tax bill if you don't follow IRS rules. Usually when a creditor cancels a debt, such as unpaid student loans or credit cards, the amounts forgiven are treated as ordinary taxable income. You have to declare it as income on your tax returns and pay taxes on it. Congress passed a law creating an exception covering distressed home mortgages. But you don't automatically qualify for special tax treatment when a lender writes off part of your mortgage debt. The cancelled debt must have been used by you "to buy, build or substantially improve your principal residence." If the debt is not on your principal residence, or if you took out money to use for something else other than the purchase of the home or to substantially improve it, (such as paying off other debts, taking a vacation, buying a car, etc.) then you won't qualify for the special tax treatment. You could end up owing a lot of money to the government even after you lost your house.
For a more detailed discussion on this issue, follow the link below for the complete article from the Los Angeles Times.
http://www.latimes.com/business/realestate/la-fi-harney-20110313,0,6669801.story
If you would like more information on this topic or other bankruptcy topics, please contact our Pasadena office at 888.368.8941 (toll free) or 626.389.8575. Mr. Phillip Myer will be happy to answer your questions for you. . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help! Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/ to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.
Wednesday, March 16, 2011
Friday, March 11, 2011
Debt Consolidation or Bankruptcy: Which is Better?
One of the most frequently asked questions I hear from potential clients is whether they should file bankruptcy, or use a debt consolidation company to make payments towards their debts. For those lucky debtors who qualify for Chapter 7 (which requires no repayment of debts but allows in most cases for discharge of all dischargeable debts), the decision is markedly easier to make.
But what about those who have the ability to make some monthly payments to their creditors and don’t qualify for chapter 7? Their primary bankruptcy option in many cases is Chapter 13, which allows for, usually, a partial repayment of the debt. Armed with this choice, most people decide that debt consolidation, rather than filing a Chapter 13 bankruptcy case, is their optimal solution. However, this is almost never true.
In Chapter 13, the amount you have to repay to your creditors will almost always be less than what you will have to repay outside of bankruptcy. This is true even if you are required to repay 100% of your debts in a Chapter 13 case. Depending on various factors–primarily your income and expenses– you can get a discharge of your debts in a Chapter 13 case repaying anywhere from 0% to 100% of your unsecured debts for 36-60 months.
Why is it better to repay 100% in a Chapter 13 rather than doing debt consolidation? Because you do not have to pay for interest accrued on unsecured debts in a Chapter 13. Even under the best consolidation deal outside of bankruptcy there is going to be interest paid. Also, in Chapter 13 your repayment plan will be for a maximum of 60 months (and in many cases can be as little as 36 months). This can result in significantly less paid out over time than if you paid off your debts under a consolidation arrangement.
So if you are in a position where you may have too many assets or income to qualify for a Chapter 7 case, but are having trouble managing your monthly payments on your credit cards or other unsecured debts, you should consult with a bankruptcy attorney about the possibility of filing a Chapter 13 case. You very well may be able to pay off all your unsecured debts with affordable monthly payments in less than 5 years!
But what about those who have the ability to make some monthly payments to their creditors and don’t qualify for chapter 7? Their primary bankruptcy option in many cases is Chapter 13, which allows for, usually, a partial repayment of the debt. Armed with this choice, most people decide that debt consolidation, rather than filing a Chapter 13 bankruptcy case, is their optimal solution. However, this is almost never true.
In Chapter 13, the amount you have to repay to your creditors will almost always be less than what you will have to repay outside of bankruptcy. This is true even if you are required to repay 100% of your debts in a Chapter 13 case. Depending on various factors–primarily your income and expenses– you can get a discharge of your debts in a Chapter 13 case repaying anywhere from 0% to 100% of your unsecured debts for 36-60 months.
Why is it better to repay 100% in a Chapter 13 rather than doing debt consolidation? Because you do not have to pay for interest accrued on unsecured debts in a Chapter 13. Even under the best consolidation deal outside of bankruptcy there is going to be interest paid. Also, in Chapter 13 your repayment plan will be for a maximum of 60 months (and in many cases can be as little as 36 months). This can result in significantly less paid out over time than if you paid off your debts under a consolidation arrangement.
So if you are in a position where you may have too many assets or income to qualify for a Chapter 7 case, but are having trouble managing your monthly payments on your credit cards or other unsecured debts, you should consult with a bankruptcy attorney about the possibility of filing a Chapter 13 case. You very well may be able to pay off all your unsecured debts with affordable monthly payments in less than 5 years!
If you would like more information on this topic or other bankruptcy topics, please contact our Pasadena office at 888.368.8941 (toll free) or 626.389.8575. Mr. Phillip Myer will be happy to answer your questions for you. . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help! Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/ to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.
Tuesday, March 8, 2011
Using Credit Cards to Bide Time
This personal bankruptcy story was posted on the internet recently as a comment in a discussion on bankruptcy: “…My husband was a foreman in construction and made a lot of money. Then 9-11 happened and due to economic slowing, he got laid off and has been unable to find a steady job since…Now he is in trucking – and gets paid by the mileage – some weeks it is good pay – other weeks not so much. We really struggle. Many of our credit cards have gone into collections and we just do what we can to get by. We have started paying just minimum payments on everything…”
The debtor in this personal bankruptcy illustration lost income and replaced it with credit card debt in order to bide time. This practice is relatively common, and so are the results of getting so far into debt that you are "robbing Peter to pay Paul." As a general rule of thumb, you are financially bankrupt if your current sustainable income will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. Five years is the maximum legal number of years a United States Bankruptcy Court allows an individual to work their way out of bankruptcy protection. This is called a Chapter 13 bankruptcy case.
In 1980, the federal government passed a special law which allowed national banks to ignore state usury limits and peg the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers have their own rules. This means that the banks can charge ridiculously high interest rates which keeps you from ever paying off the account. As a result, in many cases, about the only way a person can relieve exhorbitant debt from various banking institutions is through filing bankruptcy
.
If you put $30,000 on your credit card and the company has a 24% APR attached to it with a 2% minimum payment, your minimum payment will never reduce your debt. If you pay $600 a month for the rest of your life, at our current federal maximum rate legally allowed, you will never pay down any of the $30,000 of credit card debt. That is why the debtors in our illustration are really financially struggling. They are making the minimum payments on many of their cards. This practice is a recipe for making a bankruptcy happen.
Using credit cards to bide time until you can replace the income you have lost may not always be a wise decision, and paying the minimum payment on credit cards may also cause you heartache in the long run. If you have found yourself in the situation of having recently lost income, you are using credit cards paying the minimum payments, and you cannot reduce your debt load within a five year period, you may be a candidate for filing a bankruptcy. Choosing the appropriate bankruptcy to file can be a complicated and tricky process, and common sense indicates you will need a bankruptcy lawyer in order to properly understand how complex bankruptcy laws may apply in your situation.
If you would like more information on this topic or other bankruptcy topics, please contact our Pasadena office at 888.368.8941 (toll free) or 626.389.8575. Mr. Phillip Myer will be happy to answer your questions for you. . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help! Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/ to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.
Tuesday, March 1, 2011
Chapter 13 Bankruptcy Overview
What Does Chapter 13 Mean?
In a chapter 13 proceeding under the U.S. Bankruptcy Code, the consumer reorganizes their finances with the approval of and under the supervision of the bankruptcy court. The debtor agrees to a repayment plan which allows creditors to be paid in a timeframe of 3 to 5 years. Those that file under Chapter 13 bankruptcy must have the ability to accommodate the repayment plan via a regular income. The repayment plan does not necessarily repay the total amount due to the creditors. In most situations the unsecured creditors, such as credit cards, are paid a reduced percentage of the total amount due.
Chapter 13 is often used to save the consumer's house. It gives the debtor time to repay the past due mortgage payments over the 3-5 year life of the repayment plan. The mortgage holder normally cannot proceed with foreclosure during the plan, assuming the debtor is making his plan payments and current mortgage payments on time.
A chapter 13 bankruptcy filing differs from a Chapter 7 bankruptcy filing. In chapter 7 the debtor is asking the court to discharge all of his unsecured debts. In a chapter 13 the debtor is repaying his creditors over time and needs some "breathing room.". In many chapter 13 cases a debtor who has a second mortgage on his house can have the bankruptcy court eliminate the second mortgage after successful completion of the repayment plan.
If you would like more information on this topic or other bankruptcy topics, please contact our Pasadena office at 888.368.8941 (toll free) or 626.389.8575. Mr. Phillip Myer will be happy to answer your questions for you. . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help! Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/ to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.
In a chapter 13 proceeding under the U.S. Bankruptcy Code, the consumer reorganizes their finances with the approval of and under the supervision of the bankruptcy court. The debtor agrees to a repayment plan which allows creditors to be paid in a timeframe of 3 to 5 years. Those that file under Chapter 13 bankruptcy must have the ability to accommodate the repayment plan via a regular income. The repayment plan does not necessarily repay the total amount due to the creditors. In most situations the unsecured creditors, such as credit cards, are paid a reduced percentage of the total amount due.
Chapter 13 is often used to save the consumer's house. It gives the debtor time to repay the past due mortgage payments over the 3-5 year life of the repayment plan. The mortgage holder normally cannot proceed with foreclosure during the plan, assuming the debtor is making his plan payments and current mortgage payments on time.
A chapter 13 bankruptcy filing differs from a Chapter 7 bankruptcy filing. In chapter 7 the debtor is asking the court to discharge all of his unsecured debts. In a chapter 13 the debtor is repaying his creditors over time and needs some "breathing room.". In many chapter 13 cases a debtor who has a second mortgage on his house can have the bankruptcy court eliminate the second mortgage after successful completion of the repayment plan.
If you would like more information on this topic or other bankruptcy topics, please contact our Pasadena office at 888.368.8941 (toll free) or 626.389.8575. Mr. Phillip Myer will be happy to answer your questions for you. . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help! Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/ to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.
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