Bankruptcy Law Archives

AVOIDING 1099C TAXABLE INCOME THROUGH BANKRUPTCY

1099c income occurs when there is a cancellation of debt. For example, if you owe a creditor $10,000.00 and they agree to settle for $6,000.00, forgiving the $4,000.00, the sum of $4,000.00 can count as income to you. However, if instead the entire debt is eliminated through a bankruptcy, there is no income to you and no tax consequence since the debt is discharged rather than forgiven or cancelled. A tax can also result from forgiveness of debt with a foreclosure. Again, filing a bankruptcy before the completion of the foreclosure can help avoid a tax liability.

UNDERSTANDING BANKRUPTCY

Lets say you are having financial difficulties but are not sure if Bankruptcy is right for you. Where do you begin. The library is a good place to start. I checked out the Willingboro Library at 220 Willingboro Parkway near my Willingboro office. A review of some of the books available in the Willingboro Library such as Chapter 13: Keep your Property and Repay your Debts Over Time, by Stephen Elias and Robin Leonard or Bankruptcy Law for the Individual Debtor by Margaret Jasper are good places to start. Consulting with an attorney should also be considered since bankruptcy law can be complicated. Once you have the knowlege as to how bankruptcy works, it will allow you to make an informed decision as to whether it is right for you.

MEDIAN INCOME FOR BANKRUPTCY INCREASES IN 2019

Under Bankruptcy Law, the Bankruptcy Court takes into account the debtors household income and compares it to the median family income of their state to help determine whether a chapter 13 or a chapter 7 should be filed. On April 1, 2019 the household income numbers increased. In New Jersey, there is a presumption that a Chapter 13 should be filed (although depending on expenses a Chapter 7 is still possible) if income exceeds $68,349.00 for a family of one, $82,263.00 for a family of two, $103,634.00 for a family of three and $125,465.00 for a family of four. In Pennsylvania those numbers are $55,117.00 for a family of one, $66,649.00 for a family of two, $82,518.00 for a family of three and $100,078.00 for a family of four. Note that even if you make less than the average similiar family, equity in assets and expenses will still also be used to determine whether chapter 7 is appropriate.

Can I File a Bankruptcy a Second Time?

A bankruptcy can be filed a second time. The impact of filing depends on how long before was the prior bankruptcy filed and what chapter was filed and whether a discharge was received in a prior bankruptcy. If a discharge was received in a chapter 7, you cannot receive a discharge in another chapter 7 for 8 years. You can obtain a discharge in a chapter 13 filed  6 years after the chapter 7. Since bankruptcy is Federal law, these same rules apply even if , for example, you file the first bankruptcy in Maple Shade New Jersey and file second bankruptcy while livin in Philadelphia Pennsylvania. If you previously filed a chapter 13 bankruptcy and received a discharge you can obtain a discharge in a later chapter 13 filed 4 years later or a chapter 13 filed 2 years later. Keep in mind that you may benefit from a chapter 13 even if you cannot get a discharge, for example if a chapter 13 is needed to pay missed mortgage payments over time.

New Philadelphia Location for Meeting with Creditors

Whether you live in Northeast Philadelphia, Center City Philadelphia, or elsewhere in the city, when you file a Chapter 7 or a Chapter 13 Bankruptcy you are required to attend a "Meeting of Creditors". In most consumer cases none of the creditors show up. However, you still meet with the trustee to review your case. For a number of years the Chapter 7 meeting with the trustee took place at 833 Chestnut Street, Philadelphia PA. However, as of May 6, 2019 the Office of The United States Trustee has obtained space in the Nix Courthouse and Federal Building at 900 Market Street, room 304, Philadelphia PA. Since the meetings are now in a federal court house protected by US Marshall's office and metal detector's it is important that debtors allow additional time to make it to the hearing. The Chapter 13 Meeting of Creditors which moved a couple of years ago to 1234 Market Street (SEPTA Building) Suite 18-341 Philadelphia PA is to remain at that location.

Exceptions to the Bankruptcy Automatic Stay

As a general rule when a bankruptcy is filed the commencement or continuation of lawsuits or collection matters against the debtor are automatically stopped. However, there are exceptions where the matter can continue. For example, a criminal action is not stopped by a bankruptcy. Nor is a suit to establish paternity, establish support or establish visitation. Audits by the IRS or a demand for tax returns are also not stayed. However the government entity is stopped from collecting the debt while the debtor is in bankruptcy. The automatic stay that takes effect when a bankruptcy is filed stops most kinds of legal actions against the debtor, but keep in mind that it does not stop all of them.

Bankruptcy Exemptions Increase April 1, 2019

When a bankruptcy is filed the individuals filing are allowed to protect a certain amount of equity in their assets and keep those exempt assets. In New Jersey and Pennsylvania debtors filing bankruptcy can protect assets using Federal or state exemptions. Except for certain types of assets, most bankruptcies in New Jersey or Pennsylvina rely on Federal Exemptions. Those Federal Exemptions increased as of April 1, 2019. For example, the amount of equity in your residence increased from $23,675.00 per owner to $25,150.00 per owner. Household goods and furnishing exemptions increased from $12,625 to $13,400.00. Other increases include motor vehicle from $3,775.00 to $4,000.00, jewelry from $1,600.00 to $1700.00 and proceeds from personal injury lawsuit from $23,675.00 to $25,150.00. As a result, even when filing a chapter 7 bankruptcy often the debtor will not lose any assets in the process.

Exceptions to the Bankruptcy Automatic Stay

As a general rule when a bankruptcy is filed the commencement or continuation of a lawsuit or collection matters against the debtor are automatically stopped. However, there are exceptions where the matter can continue. For example, a criminal action is not stopped by a bankruptcy. Nor is a suit to establish paternity, establish support or visitation. An audit by the IRS or a demand for tax returns are also not stayed. However the government entity is stopped from collecting even if the bankruptcy does not eliminate the debt. An action involving domestic violence is also not stayed. The state is not stopped from suspending a drivers license or professional license. As you can see, while the bankruptcy stops most litigations against the debtor, there are some significant exceptions.

NJ Bankruptcy Court Impacted by Government Shutdown

The New Jersey Bankruptcy Court, which is part of the Federal Court System has addressed the impact of the federal government shutdown on its official website. Specially the site notes "the Judiciary has continued to operate by using court fee balances and other "no-year" funds. The Administrative Office of the U.S. Courts has revised its original estimate and now is working toward the goal of sustaining paid operations through Jan. 18, 2019." If the shutdown is not resolved by then, the bankruptcy court will not have funds to operate. This applies to the bankruptcy courts in Camden, Trenton and Newark NJ.

Settlements, Bankruptcy and Debt Foregiveness Tax Liability.

When a creditor agrees to settle a claim for a reduced amount, the amount of debt foregiven can result in taxable income. For example, if you owe $20,000 on a credit card and a settlement is reached where they agree to accept $11,000 as payment in full, the creditor is foregiving $9,000.00 of the claim. In that circumstance, the creditor will issue a 1099c to you for the foregiveness of debt. That $9,000.00 will count as income to you. There are some exceptions. If you can show you are insolvent you can avoid liability. Bankruptcy is also an exception. For example, if you filed a chapter 7 to eliminate that $20,000.00 credit card, there would not be any tax liability even though the entire $20,000.00 was eliminated. Depending on circumstances debt negotiations may be an option, but be sure to take into account the tax consequences when deciding between bankruptcy and debt negotiation. And since both the IRS laws and the Bankruptcy laws are Federal Laws, the result would be the same whether you lived in New Jersey or Pennsylvania.

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