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Frequently Asked Questions

Happenings you shouldn't miss in the weeks ahead.

1

Oct 10

Will I lose my home?

If your attorney knows what they are doing, the answer should always be no. There are three types of consumer bankruptcy proceedings. We pick the one that is correct for you and allows you to keep your home. Remember though, we can't solve a low income problem. If you simply can't afford the home there is not much we can do unless its a rental property.

2

Oct 10

I need my car for work. Will I lose it?

In general the answer is always no. However, if you are filing a Chapter 7 and you own a home with equity in it, we may have to use your homestead exemption to save your home. This would allow us very little in the way of exemptions to save your car. If you are considering filing for bankruptcy and you have equity in your home that is protected by a homestead, and you have equity in your car, you may want to take out a loan on the car to protect it and use the money to catch up on your mortgage payments. Then both the car and home would be protected.

3

Oct 10

My children are in private schools. Is that a problem?

Yes it is. Realistically should you be paying for private schools when you can't afford to pay your debt? That is the position that the United States Trustee takes. Bankruptcy is a common sense proceeding. If you can't afford to pay the credit cards you have run up, why should the government allow you to wipe out those debts and send your children to private schools. It only makes sense.

4

Oct 10

I have a 401K deduction, may I keep contributing to that fund?

Again you have to go back to a common sense approach. If you have $30,000 to $70,000 in credit cards, as an example, why should you be allowed to save money for yourself and not pay your bills? Again that is the approach the United States Trustee takes. They also feel you should not get credit for paying back a 401k loan. Again you are paying yourself instead of creditors. So if those items were removed from your budget, how much would be left to pay creditors? That is the analysis we have to look at.

5

Oct 10

Will the trustee take my 401k, IRA or other retirement plans?

Your retirement is exempted up to $1,000,000. This means it cannot be touched by anyone.

6

Oct 10

Are taxes dischargeable?

Yes. There are four factors that must be satisfied:

  • The taxes must be at least 3 years old.
  • Even if the taxes are 3 years old they could not have been filed in the two years prior to filing the bankruptcy petition.
  • The taxes have to have been assessed for 240 days with no offer and compromise. Taxes are usually assessed within 30 days of receipt by the IRS. During next 240 days there can be no offer and compromise. If there is, the days the client is in the offer and compromise are added on to the 240 day period For example: If the taxes were assessed on January 1st, the assessment period would end 240 days later. However, if the client filed for an offer and compromise on February 1st and was in the proceeding until March 31st, that 60 day period would be added on to the initial 240 days
  • Finally, the IRS could not have filed the taxes for the client. There are times when a client does not file taxes and the IRS receives information of earnings. If the IRS files the taxes and assesses them, those taxes are never dischargeable.

Only when all four factors are satisfied, are the taxes dischargeable. California follows the

Feds in terms of dischargeability.

7

Oct 10

If the above conditions are satisfied are all taxes dischargeable?

No. Generally payroll taxes and sales taxes are non- dischargeable.

8

Oct 10

Does a corporation protect my assets?

Yes and No. 

A corporation will shield the shareholders (The owners) from liability from injuries, lawsuits against the corporation and a variety of other problems. However the problem is that the shares of a corporation are an asset to the individuals holding those shares. Thus, if the individual who owns the shares files a bankruptcy petition, the trustee stands in the shoes of the debtor and owns those shares. If the shares represent a majority shareholder, the trustee can sell the corp, close it down or place it into

bankruptcy. In other words the trustee can do anything the debtor would have done with the ownership shares.

9

Oct 10

Should I hired a Debt Settlement Company?

Generally the answer is no. There are some good ones, but most appear to be scams. Also what they don't tell you is that if they settle your debt, the amount they write off is charged back to you as income. So if you owe $500K and they reduce it to $100K, you get a 1099 for $400K and have to pay taxes on that amount which is usually 40% or in that case $200,000. So sometimes it is not worth it to settle unless you have losses to carry forward.