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INCOME TAX REFUND ISSUE ON APPEAL FOR BANKRUPTCY DEBTORS

Sun, 22 Apr 2012 08:13:51 GMT

In 2011, the Ohio legislature amended the exemption statute that protects certain types of property in bankruptcy (a discussion about exemptions may be found elsewhere on this website). The amendment was long past due, because the exemptions had not changed significantly in more than thirty years. The 2011 amendment increased the value of property that individuals may keep when they file for bankruptcy relief. Among many changes, the exemption statute now protects earned income credit and child tax credit. In both Chapter 7 and Chapter 13 bankruptcy, this means an individual may retain a large income tax refund that results from earned income credit and child tax credit. The child tax credit typically entitles parents to $1,000.00 for each child under the age of seventeen. Before the amendment, many individuals who filed for bankruptcy relief were forced to pay their income tax refunds to the Trustee for distribution to creditors. In most cases involving a large income tax refund, the majority of the refund is the result of earned income and child tax credits.

MORE BAD NEWS FOR CHAPTER 13 BANKRUPTCY DEBTORS

Tue, 20 Mar 2012 08:12:54 GMT

On February 15, 2012, the Sixth Circuit Court of Appeals (which governs bankruptcies filed in the Greater Cincinnati and Dayton areas) issued a decision in the case of In re Seafort, 669 F.3d 662 (6^th Cir. 2012). Although this decision did not directly affect my Greater Cincinnati and Dayton clients, the Court of Appeals implied it might effect a terrible change in the coming months. Currently, Chapter 7 and Chapter 13 bankruptcy debtors may contribute a reasonable amount each pay period toward a qualified retirement plan, such as a pension, 401(k), or 403(b). Over the past several years, a contribution of eight percent or less has been deemed reasonable, depending upon the amount of debt to be repaid, the total amount of household income and expenses, and my clients’ ages. The Court of Appeals hinted in the Seafort case, however, that no contribution should be permissible. I believe this to be a horrible decision. Although I understand the public interest in ensuring that as much debt as possible is repaid, I believe it is important to make the necessary change of lifestyle to ensure long term financial responsibility and success. This includes saving for retirement. So, if you are considering bankruptcy, save as much in your qualified retirement plans as possible before it is too late.

BAD NEWS FOR CHAPTER 13 BANKRUPTCY DEBTORS

Fri, 17 Feb 2012 08:12:01 GMT

On February 4, 2011, the Sixth Circuit Court of Appeals (which governs bankruptcies filed in the Greater Cincinnati and Dayton areas) issued a decision in the case of Baud v. Carroll, 634 F.3d 327 (6^th Cir. 2011). Prior to the Baud decision, “above-median” Chapter 13 debtors (please see my previous blog entry) could consolidate their debt into less than sixty monthly payments as long as they were able to pay the minimum amount required according to the “means test.” For most Chapter 13 debtors, this minimum amount is indeed minimal – frequently zero. However, the Baud decision now requires every Chapter 13 debtor who is “above-median” income during the six months prior to bankruptcy to make exactly sixty monthly payments, no more and no less. The rationale behind this decision is to ensure that creditors are paid a fair amount. Unfortunately, this decision will make it more difficult to accommodate emergencies as they arise. For example, if a Chapter 13 debtor misses work due to illness or injury, or incurs unexpected expenses for health care, car repairs, or home repairs, we can typically suspend the monthly Chapter 13 plan payments for up to three months at a time. Before the Baud decision, this was rarely a problem. After the Baud decision, however, it may be necessary to catch those payments up at a later date. This decision will have a particularly negative effect upon those who recently lost overtime income or part-time employment, and may require waiting a few months before filing a bankruptcy. Your bankruptcy attorney should carefully evaluate your income during the past six months, and be able to tell you whether waiting a few months could benefit you. Two of my clients recently were forced to wait several months before we filed their bankruptcy, despite the fact their wages were being garnished. By waiting, however, we shortened their repayment period from sixty months to thirty-six months, and saved a lot more than the amount garnished from their wages. The Baud decision can create a very bizarre and harsh result, and unfortunately we will have to live with it until the United States Supreme Court says otherwise. Rest assured that I will do everything possible to net the best result for you.

GOOD NEWS FOR CHAPTER 13 BANKRUPTCY DEBTORS

Mon, 02 Jan 2012 08:09:37 GMT

In determining whether an individual should file Chapter 7 or Chapter 13 bankruptcy, the primary threshold question is whether the individual’s gross income for the past six months is below or above median for the jurisdiction in which the individual resides. The median income for a single household in the Greater Cincinnati and Dayton areas is currently $41,748.00. The median income increases with household size. For example, the median income for a household of two is $51,839.00; for a household of three it is $60,219.00; and for a household of four it is $72,827.00. If the gross household income earned during the past six months is below median, Chapter 7 may be available, and a Chapter 13 debt adjustment (consolidation) would require thirty-six monthly payments (information about both chapters may be found elsewhere on this website). Further, there is no strict minimum amount of debt that must be repaid in a Chapter 13. Individuals filing Chapter 13 bankruptcy frequently pay mere pennies on the dollar.