HEARTLAND LAW BLOG

Bankruptcy and Form 1099-C

2012-02-17T11:58:00.000-08:00

According to the IRS, if a creditor writes off a debt that you owe, or if a debt with a creditor is settled for less than the full amount, you could owe money to the IRS. This includes debt from credit cards, car repossessions, foreclosures, etc. Creditors that forgive $600 or more are required to file Form 1099-C with the IRS. The IRS treats the forgiven debt as income, and therefore you may owe income taxes.

However, it is my understanding that when a debt has been discharged in bankruptcy that debt does not need to be included as income for tax purposes.

If you file an IRS Form 982 to counteract this, you may be able to avoid payment by proving you’re insolvent at the time the debt was forgiven. It is my understanding that the IRS has specific guidelines and a Worksheet used to define "insolvency".

You can prove your insolvency by filing IRS Form 982 and attaching it to your federal income tax return to combat Form 1099-C. This shows that your debt was canceled during a bankruptcy case and is now excluded from taxable income.

What if the debt is in an active Chapter 13 and the 1099 C was filed prior to Discharge?

You may want to check Line 1a on Form 982—but include an Attachment to the Form 982 that you file with the IRS that states that the debt has not yet been discharged—but it is included in a current Chapter 13 case. It would also be recommended to provide the IRS with your current case number. If you provide the IRS with ALL the information, I assume that they will notify you if you are mistaken.

**** Note: You should seek the advice of an accountant, as this is not legal advice regarding taxes.

How Can I Repair My Credit Score After Bankruptcy?

2012-01-24T13:09:00.000-08:00

If you have filed for bankruptcy, your credit score will be affected. So how can you be proactive and work to repair your credit? Here are some important steps to take to improve your credit:

1. Pay on Time (By Paying in Advance): Pay your current bills and loans reaffirmed in bankruptcy in advance. In an earlier post on credit and bankruptcy we looked at how the FICO score is calculated and saw that your payment history is 35% of your FICO score. Simply paying on time will go a long way to improving your score.

2. Follow Up with the Three Major Credit Reporting Agencies: Send each reporting agency a copy of your discharge notice as well as the schedule of creditors listed in your bankruptcy (schedules D, E, F). This is an important element to being repairing your credit after bankruptcy, as creditors are no longer able to report the discharged debt as owing on your credit file.

3. Monitor your Credit: Check with each credit agency quarterly to confirm that the creditors are abiding by the discharge order and your discharged debt is being accurately reported. If a creditor fails to accurately report the debt as discharged or is continuing to attempt to collect on the debt, they are committing “discharge violation”. If you notice such discharge violation, which is common in most cases, contact your attorney immediately.

4. Wait Before Seeking New Credit: Hold off as long as possible before seeking credit. You will find lenders who will make loans to you immediately after a bankruptcy, and they will seek you out. It is not uncommon to receive credit card offers in the mail even before you receive your discharge! However, you can expect to pay rates 5-10% higher than most people. That may not seem like a lot, but based on an average 30-year financial lifetime, the additional interest you could pay could end up as much as $200,000 or more.

5. Rebuild Credit with a Secured Credit Card: Many people looking to repair their credit start with a local credit union or bank and open a secured credit card. A secured card (meaning you back it with equal funds in a savings account) will help rebuild your credit history. After 6 months to a year of using a secured card you will find that you can get a more traditional credit card without having to put up the cash first. However, even then be very careful and read the fine print!

In summary: after you file for bankruptcy and receive your discharge, be sure to monitor your score diligently, pay your bills slightly in advance, wait until your score improves before seeking new lines of credit, and improve your score by using a secured credit card.

For more bankruptcy information, visit www.heartlandbankruptcy.com

Read more about repairing your credit after bankruptcy:

http://www.bankruptcyinfonetwork.com/credit-repair.htm

http://www.marketwatch.com/story/eight-credit-repair-tips-after-bankruptcy-2010-08-26

http://www.bankrate.com/finance/debt/fixing-your-credit-report-after-bankruptcy.aspx

Take care, Charice Holtsclaw, Kansas City Bankruptcy Attorney

Are you enjoying Twitter as much as I am? Find me at @HeartlandLawyer.

Bankruptcy Myth: I Can't File at All

2012-01-24T13:08:00.000-08:00

While the bankruptcy reform of 2005 did change a lot of things about bankruptcy, but it did not eliminate your ability to file bankruptcy at all. There are now income guidelines, known as the "median income" and if your household falls above the median income, you still may qualify for Chapter 7 bankruptcy.

Your attorney will use the "means test" to calculate your income minus allowable expenses, to determine whether by IRS standards you have disposable monthly income each month. If you do not, you pass the means test and can file Chapter 7. If you do not pass, you still have the option of filing a Chapter 13 bankruptcy to repay a portion of your debt (anywhere from 1%-100% repayment based on how much disposable income you have). Get the facts before ruling it out - go ahead and schedule that first consultation with your bankruptcy lawyer and see where you stand.

Contact us anytime to set up a consultation in Kansas City, MO; Gladstone, MO; Liberty, MO; Platte city, MO; Riverside, MO; Independence, MO; Kansas City, KS; Overland Park, KS; Leawood, KS; Shawnee, KS; Shawnee Mission, KS; and Leavenworth, KS.

Follow me on Twittter @heartlandlawyer for all the latest updates!

How Does Filing Bankruptcy Affect My Credit Score?

2012-01-23T15:41:00.000-08:00

Your credit score is an important number that determines your rate of interest on loans and credit cards. The question of what happens to your credit score in the event you file bankruptcy a common one in my Kansas City bankruptcy consultations. Filing for bankruptcy will affect your credit score, but just how it affects your score depends on a number of factors.

An important thing is to first understand is how your credit score is calculated. The most common score used is the FICO score. The score, the 3-digit number, is calculated using several different inputs. The largest portion of the score is based on your payment history (35%); followed by your overall debt level, or amount you owe (30%); the actual length of your credit history (15%); the number of inquiries, also known as new credit, (10%); and closed out by your mix of credit (10%). A detailed explanation of a FICO score breakdown can be found here:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx.

If your credit score is already poor due to delinquent accounts, filing for bankruptcy won’t be a huge hit to your score. The reason for this is because once your debt is discharged, your creditors must update your credit report to reflect the account as being “discharged in bankruptcy” and must change the balance owing to “$0”, and all ongoing derogatory reporting must permanently cease. So the 30% portion of your FICO score which is "what you owe" will actually improve.

On the other hand, if you have remained current on all your payments and your credit score is immaculate, your credit score will take more of a hit after filing bankruptcy. However, many clients find that discharging the debt they may otherwise never be able to pay off is worth it. In the big picture, there are things you can do to improve your score after filing bankruptcy, and if you are facing debt that has become unmanageable, a temporary hit to your FICO score may be a worthy tradeoff for a more manageable financial future.

While filing for bankruptcy protection will affect your credit score, it may not be as negative as you assume. In the long term, bankruptcy can be the best path to a solid financial future. A good option is to consult with a lawyer who can look at your financial situation and give you options to consider, one of which may be bankruptcy.

Click these links to read more about how your credit score may be affected by bankruptcy: http://www.myfico.com/crediteducation/questions/bankruptcy-fico-score.aspx

http://www.lawhelp.org/documents/74261bankruptcy.html?stateabbrev=/az/#credit

http://www.ehow.com/how-does_4564668_bankruptcy-affect-credit-score.html

http://www.smartmoney.com/borrow/debt-strategies/declaring-bankruptcy-can-improve-your-credit-score-20681/

All the best~ Charice Holtsclaw,Kansas City, MO Bankruptcy Attorney.

Also serving Gladstone, MO; Liberty, MO; Platte city, MO; Riverside, MO; Independence, MO; Kansas City, KS; Overland Park, KS; Leawood, KS; Shawnee, KS; Shawnee Mission, KS; and Leavenworth, KS.

Follow me on Twittter @heartlandlawyer for all the latest updates!

Reaffirmations - Secured Debt

2011-12-15T08:11:00.000-08:00

- Written by Lindsey Gardner, Law Clerk, Heartland Bankruptcy

A secured debt consists of debt backed by collateral, for instance a home mortgage is backed by the home itself and a car payment is backed by the car. Debtors may choose to keep their secured property by use of a redemption or a reaffirmation agreement. Redemptions allow debtors to redeem the property by purchasing it from the creditor with a lump sum payment. Reaffirmations allow debtors to ‘redo’ the agreement with the creditor. The Federal Bankruptcy “Code permits reaffirmations of unsecured as well as secured debt.” In Re Kinion, 207 F.3d 751 (5th Cir. 2000).

The new agreement can have the same terms as the old one or set forth a new amount owed and terms of repayment, allowing possibly for better terms to be negotiated. As long as the terms of the new agreement are kept current, the debtor can keep the property. This is especially helpful when the property being reaffirmed is an essential item, such as a car as the only means of transportation. Under reaffirmation agreements the creditor must include certain disclosures about the reaffirmation. 11 U.S.C § 524(c).

As long as an attorney represents the debtor and the debtor's budget shows they can afford the payments, upon signing the agreement it becomes effective immediately. If the debtor is not represented by an attorney, he/she must file the agreement with the court, appear at a court hearing, and get the approval of the bankruptcy judge. Nothing in the Bankruptcy Code stops the debtor from voluntarily repaying any debt; however case law suggests that not reaffirming on property such as a vehicle may be grounds for repossession in some states, including Missouri. In addition, if the debtor reaffirms the debt and subsequently defaults on the payments, the debtor then becomes responsible for the debt as though he/she never filed bankruptcy. Be sure to read all agreements carefully and that the debtor can afford to make any payments agreed to.

A Kansas City Law Firm with True Heart

2011-12-05T16:46:00.000-08:00

Let Heartland Help.

Most people don't think of law as a "helping" profession. But we're not your typical lawyers. We are a Midwestern firm, combining the personal attention of small-town lawyers with the professionalism and expertise of a big-city office. Our Kansas City attorneys go beyond first-rate counsel to provide true service and compassion.

Take a look through our menu of services. If you don't see what you're looking for, get in touch with us to discuss other services we provide. And as always, your first consultation is free.