I’m often asked what is unsecured debt? Why does is matter and why do you ask me all these questions?

There are two main types of debt – secured and unsecured. Secured debt means that there is a lien on some property that guarantees the debt. For example, a loan on a house has a mortgage that is recorded against the property. A mortgage is a secured debt with a lien against the house.  It must be recorded with the local county recorded.

Likewise an automobile loan is secured by the automobile and the lien is recorded with the Department of Motor Vehicles.  If you borrowed money but the lender isn’t on the title then the loan isn’t perfected and there is no lien.

Most credit card debt is unsecured. Once in a while there is a security interest as in a Sears’s account or other store where you make a major purchase. They may have you sign a document that states they have a security interest in the property until it is paid for. The majority of credit card debt is not secured by the purchases that are made.

Medical debts are also usually unsecured. One in a while a practitioner may ask for a security document but it is very unlikely. The normal procedure is to submit the bill to your insurance company and then bill you for the unpaid portion. If you have any major medical issues it can quickly add up.

Sometimes unsecured debt can become secured debt. If there is a judgment taken for a past due credit card debt it can become a lien against property which will change the nature of the debt.  Never ignore court paperwork as the time lines run quickly and a creditor can obtain a default judgment.  That means you never even went into court but they got a judgment and can enforce it in many ways.  One way a creditor tries to collect is to record a lien in the county where you live.

It matters because secured and unsecured debts are treated differently under the law and must be designated properly for each case that is filed.

Tax and BankruptcyUnsecured income taxes first due over three years before a bankruptcy is filed can be discharged in full in any chapter of bankruptcy if a timely and non-fraudulent tax return was filed. It is a myth that taxes are never discharged in bankruptcy.

Priority taxes are taxes first due within three years of the bankruptcy filing and taxes assessed within 240 days of the bankruptcy, or which are unassessed but assessable when the case is filed. These taxes are priority claims which are not subject to discharge. Priority taxes will survive a Chapter 7 discharge to the extent that the trustee does not have money in the estate to pay them.
In Chapter 13, such taxes must be paid in full through the plan; penalties associated with those taxes, however, can be treated as a non-priority claim and paid a fraction along with other unsecured claims. In Chapter 13, the tax does not continue to incur interest during the case; if the plan is completed, no post filing interest is due.

Taxes for which no income tax return has been filed are not dischargeable in bankruptcy.
If a return was filed late, for a year outside of the priority tax period, the return must have been on file for two years for the tax to be discharged in bankruptcy.

Five Rules to Discharge Tax Debts
If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.
1. The due date for filing a tax return is at least three years ago. The tax debt must be related to a tax return that was due at least three years before the taxpayer files for bankruptcy. The due date includes any extensions. (It should be noted that all dates are subject to tolling events. This means that different circumstances may impact the time. For example, if you live outside the United States for six months or more you need to add this period to the time. It is best to speak with a knowledgeable local lawyer regarding your specific circumstances.)
2. The tax return was filed at least two years ago. The tax debt must be related to a tax return that was filed at least two years before the taxpayer files for bankruptcy. The time is measured from the date the taxpayer actually filed the return.
3. The tax assessment is at least 240 days old. The IRS must assess the tax at least 240 days before the taxpayer files for bankruptcy. The IRS assessment may arise from a self-reported balance due, an IRS final determination in an audit, or an IRS proposed assessment which has become final.
4. The tax return was not fraudulent. The tax return cannot be fraudulent or frivolous.
5. The taxpayer is not guilty of tax evasion. The taxpayer cannot be guilty of any intentional act of evading the tax laws

Some Tax Debts Not Dischargeable
Tax debts that arise from unfiled tax returns are not dischargeable. The IRS routinely assesses tax on unfiled returns. These tax liabilities cannot be discharged unless the taxpayer files a tax return for the year in question.

Other Tax Issues in Bankruptcy
Before a Chapter 13 bankruptcy can be granted, the bankruptcy petitioner is required to prove that the four previous tax returns have been filed with the IRS. The four previous tax returns must be filed no later than the date of the first creditors’ meeting in a bankruptcy case.

Additionally, bankruptcy petitioners are required to provide a copy of their most recent tax return to the bankruptcy court. Creditors can also request a copy of the tax return, and petitioners must provide a copy to them.

If you are expecting a tax refund and want to keep it must be listed as an asset and exempted. Otherwise the Trustee will take the refund for the benefit of your creditors.

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Bankruptcy Statement of Financial AffairsWhat does a SOFA have to do with bankruptcy? Part of the required paperwork is called the Statement of Financial Affairs or SOFA. The SOFA is a series of questions that must be answered. This is where everything that has not already been provided in the petition and schedules is listed.

The first page of the SOFA gives specific instructions. The first few questions deal with income. Unlike Schedule I which is for current monthly income or the means test which looks back six months, the SOFA asks for your year to date income and the past two years of your income. It asks for wages and money from business as well as all other income. All other income includes annuity payments, interest income, rents, investment income, unemployment compensation, worker’s compensation payments, spousal support, child support and lottery winnings to name a few.

The next are questions about debt payments. If the bankruptcy consists of mainly consumer debts, then any payments made in the 90 days prior to filing that equal or exceed $600 must be disclosed here. These are considered preference payments and the Trustee can choose to go after return of the payments and divide them among the other creditors. All payments to insiders, like your family members, made within the past year must be listed. If you are married and filing a sole petition you must also account for any payments made by your spouse. If significant payments have been made to family members and none to other creditors then it is wise to wait until one year has past to file a bankruptcy. Otherwise there is a very real risk that your relative will be sued by the Trustee for return of the payments.

Repossessions, foreclosures and returns are also listed on the Statement of Affairs. All assignments, receiverships, transfers and set-offs are also listed and fully described. The bargain you make when filing for a bankruptcy is full disclosure of your entire financial picture in exchange for discharge of all dischargeable debts.

If anyone has sued you, there is a place to put the case information including case caption, case number and court. Any garnishments and repossessions are also listed.

Gifts to an individual or charitable contributions in the past year must also be listed with a few exceptions. All losses from fire, theft and gambling in the last year are described.

Payments to your attorney and for the credit counseling course are listed.

If you have a safe deposit box the contents are listed. If you are using anything that belongs to another person that is listed. Many people forget to list that DVR or cable modem that is rented or on loan.

If you live in California or any other community property state you must list your spouse if they are not filing with you.  If you have been divorced less than nine years, you must list the name of your former spouse.

If you have a business there are a number of questions that must be answered. The more complex the business the more questions that must be answered.

The SOFA is a lengthy and complicated series of questions that must be answered completely and correctly or your bankruptcy case could have problems. If the answers are not complete or don’t match with your tax returns and other materials that the trustee will review you will be challenged and may lose your discharge. Make use of a trusted and knowledgeable legal adviser to make certain that your case is well prepared.

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Image by Leo Reynolds.


Eranthe Law

New Office for Eranthe Law

Eranthe Law Firm Has New Convenient and Safe Office Location

San Rafael’s Eranthe Law Firm has moved to new digs right off the freeway at the Terra Linda exit. The new office is directly across the parking lot from the Four Points Sheraton in San Rafael at 1050 Northgate Drive, Suite 445, San Rafael, California.

San Rafael, CA, June 29, 2012 (PRWeb)– Law office of Catherine “Cate” Eranthe permanently relocates to new safe and convenient San Rafael location right off the freeway.

Several months ago an automobile jumped the curb, drove over the sidewalk, through the landscaping and partially entered the front of the old location of San Rafael’s Eranthe Law Firm. The impact was spectacular and collapsed the front of the building shattering the windows and door glass. Firefighters on the scene removed the doors so that the attorney, staff and clients could exit the building. The building was boarded up and stayed that way for a month. Business carried on as usual through these conditions.

Ms. Eranthe is happy to say that can never happen in her new location. The 1050 Northgate building is a substantial five-story office structure and her new offices are located in a suite on the fourth floor. Even the first floor conference room sits back far enough from the parking area that a random motor vehicle would not reach it. Speaking of parking, there is plenty of free parking in front of the building. The building also has an elevator and wheel chair access on the fourth floor.

The Eranthe Law Firm represents and counsels Alameda County, Marin County, San Francisco County and Sonoma County consumer debtors and small businesses in chapter 7 and chapter 13 bankruptcies and IRS tax disputes. The firm also handles select civil and family law matters in Marin County. Catherine Eranthe has over 20 years of successful legal experience.

Media Contact:

Lisa Steel
Office Manager and Media Relations


Bankruptcy FreedomOne of the primary questions I get as a Cumming, Georgia bankruptcy lawyer is how long does it take to recover from bankruptcy. While the financial fallout and rebuilding of credit will vary by person, so too will the emotional fallout.

Understandably some people are a nervous wreck throughout the process while others are actually quite glad to see me and get their case processed and done with. Those who have the easiest time dealing with their bankruptcy are completely emotionally committed to the process. Those sort of dipping their toe into the water, have a harder time with their case. Based on this, my advice is to not file bankruptcy until you are 100% sure this is the right step.

The typical chapter 7 case lasts 4-6 months. As I explain to my clients, about 75% of the effort is put into the filing of the case. Once the case is filed, the debtor certainly has to appear in court for their meeting of creditors and take a financial management course, but those are relatively simple requirements. The hearing is usually five minutes and the trustee questioning the debtor usually respectful of the debtors’ situation.

Various motions or request for documents could be filed during the case, but these usually don’t require too much effort of the debtor, if any. The debtor also might sign a reaffirmation agreement along the way. I usually tell my clients after their trustee meeting that “no news is good news” and basically just go on with your life and expect to get a discharge in 2-3 months. This usually puts them at ease.

Even though they have not yet secured their discharge, the fact that their court appearance is done, the required paper work has been completed, their court costs and attorney fees have been paid and creditors are not sending them letters or making phone calls, is enough to put them at ease even though they don’t yet have the discharge.

Post discharge I occasionally communicate with my clients and they usually express happiness that the process is over but no regret that they decided to file. While they know if they are applying for a new loan or a new apartment lease, they might have to deal with the fallout from the pulling of a credit report that reveals a bankruptcy filing, the ones that deal with it best are the ones that know the issue might occasionally creep into their lives, but it’s not in the forefront like it was prior to their filing.

A chapter 13 process is a different animal, as it is a 3-5 year repayment plan. Unlike the chapter 7 meeting of creditors, the chapter 13 client’s meeting of creditors is more involved, as the testimony there impacts the debtor’s monthly trustee payment. The typical chapter 13 debtor is therefore more on edge about his/her case until it finally gets confirmed.

Once it gets confirmed, the debtor hopefully enjoys some normalcy again as he now has a set monthly payment he delivers to the trustee. Of course anything can upset that, like a medical emergency, and the debtor often needs adjusting to the plan. So the chapter 13 debtor can’t move away from the experience nearly as quickly as the chapter 7 debtor, because the 13 debtor is in it much longer. That being said, the chapter 13 debtor probably has more income than the typical chapter 7 debtor. He often has a good employment situation, which enables him to not be as stressed as a chapter 7 debtor would be trying to pay monthly living expenses.

This article was written by Peter Bricks, who is a Jonesboro, Georgia bankruptcy attorney with satellite offices in Atlanta and Cumming, Georgia.

Image courtesy of Leo Reynolds.

R is for ReorganizationA chapter 13 bankruptcy is often called a “reorganization.” In a reorganization you are allowed to catch up on mortgages or automobile loans over a period of time.

When a bank or other creditor is uncooperative you can force them to work with you by filing a chapter 13 bankruptcy case. As long as you can catch up under the plan you can force the creditor to let you keep the property while you make up the back payments. Depending on your situation you may be able to strip off an unsecured second or third mortgage. There must be no property value securing the loan and you must successfully complete your plan payments.

Chapter 13 cases also allow you to keep non-exempt property. In a chapter 7 you are allowed to keep only exempt property and non-exempt property would be sold for the benefit of the creditors. In the chapter 13, you can keep the non-exempt property if you pay for it over the life of the plan, usually a three to five year period.

Chapter 13 Eligibility

In order to qualify to file a chapter 13 you must be an individual with regular income and be within certain debt limits. As of the time of this writing, you may not have over $1,081,400 in secured debt (mainly consist of mortgages and car loans) and no more than $360,475 in unsecured debts (generally credit cards, medical bills, student loans, and income taxes). A corporation or partnership may not file a chapter 13.

You may not file a chapter 13 or any other chapter unless you have taken an approved credit counseling course within the preceding 180 days.There are very few emergency exceptions allowed.

You may not file under any chapter if within the preceding 180 days you had a prior bankruptcy petition dismissed due to your willful failure to appear before the court or comply with court orders, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property on which they hold liens.  11 U.S.C. section 109(g), 362(d) and (e).

Chapter 13 Plan

The plan is your description of when creditors will be paid, how much they will be paid and how they will be paid. After you pay your living expenses, the balance of your income goes into plan payments. Creditors can object if not all your disposable income goes into the plan or if they think they are being treated unfairly under the plan terms. The trustee will review your plan and make sure that it meets the legal requirements and that you have enough regular income to fund the plan. The trustee must approve your plan.

Many people make the mistake of waiting for trustee approval to begin making their plan payments. You must begin making these payments within 30 days of filing your bankruptcy case. The trustee will hold your payments until the plan is approved and then begin to pay them out to creditors. If you do not make your plan payments, your case will likely be dismissed.

Your plan can be modified if you lose your job or there are other changes. There is also a provision for a hardship discharge and you may convert your chapter 13 to a chapter 7 at any time.

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Image courtesy of Leo Reynolds.