The Mooney opinion – Health Savings Accounts and bankruptcy

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

Here is the opinion as to the availability of a Health Savings Account to a Trustee for liquidation in a Chapter 7.

 

Read a synopsis and review of the subject here

 

In re: DENISE E. MOONEY, Debtor/Plaintiff-Appellant, versus JOY R. WEBSTER, Trustee/ Defendant-Appellee. An appeal from the United States District Court for the Middle District of Georgia dated January 27, 2017. Case: 15-11229

Date Filed: 01/27/2017

Before HULL and JILL PRYOR, Circuit Judges, and CONWAY, District Judge.

When Denise E. Mooney filed a petition for Chapter 7 bankruptcy in 2013, she claimed the assets in her health savings account (“HSA”) as property exempt from the bankruptcy estate.  As we previously recognized, the Bankruptcy Code permits states to adopt their own lists of property that is exempt from a bankruptcy estate.  See In re Mooney (“Mooney I”), 812 F.3d 1276, 1279 (11th Cir. 2016) (citing 11 U.S.C. § 522(b)(2)).  Georgia has set forth its list of exempt property in O.C.G.A. § 44-13-100.  Mooney claims that the contents of her HSA are exempt from her bankruptcy estate pursuant to O.C.G.A. § 44-13-100(a)(2)(C), which exempts, in relevant part, any “disability, illness, or unemployment benefit,” and O.C.G.A. § 44-13-100(a)(2)(E), which exempts any “payment under a pension, annuity, or similar plan or contract on account of illness [or] disability. . . .”

The Chapter 7 trustee, Joy Webster, objected to the HSA’s exemption.  The bankruptcy court sustained Webster’s objection, and the district court affirmed.

On appeal, we certified questions to the Supreme Court of Georgia, including:

(1) Does a debtor’s health savings account constitute a right to receive a “disability, illness, or unemployment benefit” for the purposes of O.C.G.A. § 44–13–100(a)(2)(C)?

(2) Does a debtor’s health savings account constitute a right to receive a “payment under a pension, annuity, or similar plan or contract” for the purposes of O.C.G.A. § 44–13–100(a)(2)(E)? Mooney I, 812 F.3d at 1283.

The Supreme Court of Georgia answered both questions in the negative, holding that under Georgia law, an HSA does not constitute a right to receive a “disability, illness, or unemployment benefit” for the purposes of OCGA § 44-13-100 (a) (2) (C), nor does it constitute a right to receive a “payment under a pension, annuity, or similar plan or contract” for the purposes of OCGA § 44-13-100 (a) (2) (E). Mooney v. Webster, 794 S.E.2d 31, 36 (Ga. 2016).[1]  The Supreme Court of Georgia’s answers to our certified questions foreclose Mooney’s arguments on appeal.  Under Georgia law, Mooney was not entitled to claim the assets in her HSA as property exempt from the bankruptcy estate.  Accordingly, we affirm.

AFFIRMED.

 

 

About the blogger: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

 

 

 

[1] We certified a third question as well:  “Is a debtor’s right to receive a payment from a health savings account ‘on account of illness [or] disability’ for the purposes of O.C.G.A. § 44– 13–100(a)(2)(E)?” Mooney I, 812 F.3d at 1283.  Because the Supreme Court of Georgia answered our first two questions in the negative, it did not address the third question.  Mooney, 794 S.E.2d at 32.

 

Alaska, Georgia and Louisiana Top CFPB’s List for Consumer Complaint Filings

Posted by NCBRC – February 13th, 2017

In its monthly complaint report, the CFPB reported that the top three financial products or services receiving complaints in December, 2016, were, in descending order, debt collection, credit-reporting, and mortgages. Mortgage servicers garnered complaints for such things as misapplication of payments and ineffective resolution of borrowers’ problems with their loans. To account for monthly and seasonal fluctuations, the report compares complaints against companies in three-month segments to the same period the prior year. Equifax, Wells Fargo and TransUnion had the dubious honor of being the top three complained–about companies in the period from August to October, 2016. With respect to complaints relating to types of loans, the three-month average for complaints concerning student loans rose by 109% over the same period last year. The three states with the greatest increase in consumer complaints were Alaska, Georgia and Louisiana.

CFPB Monthly-Complaint-Report Feb 2017

 

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About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also get to my website at www.mtvernonbankruptcylawyer.com

 

 

 

Student Loans and Chapter 13: a review of the Engen case

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

Kansas has recently ruled on an issue very important to some debtors: Student loans and their treatment in a Chapter 13 Plan.

Read a synopsis of the case here.

Student loans are considered a non-priority unsecured debt in bankruptcy. However, the debt is non-dischargeable. This means that the debt (principle and interest) survives the bankruptcy and you will have to continue to pay the debt when your bankruptcy is completed.

Chapter 13 bankruptcy is a consolidation of all debt into one payment. Non-priority unsecured debt share a base amount that is paid over time and in proportion to the debt owed. The larger the debt, the more they will be paid from that base. For example – if your Chapter 13 Plan provides for a total sum of $10,000.00 to be paid to the general unsecured base, and your student loans are 65% of your debts, it will receive 65% of the $10,000; or $6,500.00.

When the bankruptcy is over, you will have paid $6,500.00 to your student loan. But interest continues to accrue during the 3-5 years you are in the Chapter 13. Depending on how much you owe, this may only pay some of the interest only. The principal may have remained untouched.

As the court says: “pro rata distribution of the plan funds to all unsecured creditors, and the inability to pay off the student loan debt faster than its nondischargeable interest may be incurred, could result in the debtors owing more at the end of their plan than they owed going into it. Hardly the goal of chapter 13 bankruptcy.”

However, courts in the past have rejected that argument in treating student loans differently than other non-priority unsecured debt.

The only success attorneys have had in treating student loans differently is if there is a co-debtor on the loans. In that case the co-debtor can pay the loan directly (if it was their loan) or if the debt is paid its regular monthly payment inside the plan.

The Kansas Court has found that, despite their categorization by the Bankruptcy Code and Court rulings, student loans ARE a different type of debt than other non-priority unsecured debts.

It helped to have a sympathetic debtor – the OTHER unsecured debts had been paid down 83% before the case was filed. During the life of the bankruptcy the student loans will presumably receive their “fair share” relative to what the other unsecured debts have already received pre-petition.

Quite likely that will be the factor most courts will use to distinguish this case from ones in the future. Also, it is likely the lender did not object to the Plan. Had it objected would the court have ruled differently?

But Debtors with a similar situation may finally be able to find relief from their student loan debt in a Chapter 13 filing.

 

 

 

About the author: As a bankruptcy attorney in Mount Vernon, IL Michael Curry of Curry Law Office has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 to speak directly with a lawyer and be on your way to Finally Be Financially Free!

 

Financial Wise Guides

Have you gotten your Kindle copies of my Financial Wise Guides? It is a first step on your way to being Financially Free!

https://michaelgcurry.com/non-fiction/

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

 

 

“13 Days a Beatle” Celebrity Spotlight: Jimmy Nichol

Bankruptcy affects people of every age, creed, sex or ethnicity from every part of the country. Even celebrities both loved and disliked have their financial problems and depend on the bankruptcy laws to get out from under crippling debt.

Being so near my birthday, I HAD to pick a Beatle, even a temporary one…

ringo-nicol

From Wikipedia:

James George Nicol (born 3 August 1939), better known as Jimmie Nicol or Jimmy Nicol, is a British drummer and business entrepreneur. He is best known for temporarily replacing Ringo Starr in The Beatles for a series of concerts during the height of Beatlemania in 1964, elevating him from relative obscurity to worldwide fame and then back again in the space of a fortnight.

After then working with a number of different bands, including a successful stint with The Spotnicks, he left the music business in 1967 to pursue a variety of entrepreneurial ventures.

Nicol had hoped that his association with The Beatles would greatly boost his career but instead found that the spotlight moved away from him once Starr returned to the group. His subsequent lack of commercial success led him into bankruptcy in 1965.

jimmy-nichol

Check my blog for more Celebrity Spotlights.

Michael Curry is the author of helpful ebooks on bankruptcy and debt relief, available on Kindle: What Bankruptcy Can Do, What Bankruptcy Can’t Do and Finally Be Financially Free.

At Curry Law Office in Mount Vernon, IL, we are here to help you through your financial difficulties. Our down-to-earth bankruptcy attorney offers common sense advice and solutions for your bankruptcy filing.

Debt problems come in all shapes and sizes. For some of our clients, the issue that drives them to seek a lawyer’s advice is mounting credit card bills. For others, it may be an abusive creditor or a home foreclosure. At Curry Law Office in Mount Vernon, IL, we offer a free debt-relief planning session to discuss your financial problems and identify solutions.

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois; call or text today (618) 246-0993 or email michael.curry.law@gmail.com. Finally Be Financially Free by calling now.

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

Til Debt Do Us Part (2) – Chapter 13s

WHAT BANKRUPTCY CAN’T DO: Divorce Debt? Domestic Support Obligations part 3

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about taxes, traffic fines, speeding tickets, student loans and all the various types of what I call Intentional Debt. Lately my focus has been on Child Support/Alimony/Maintenance/Domestic Support Obligations. Last time we talked about these debts surviving Chapter 7.

But a Chapter 13 is different. If a debt from a divorce decree or settlement is in the form of a property settlement it is NOT a DSO is therefore IS dischargable in a Chapter 13 case.

It may be a DSO in a Chapter 7, but NOT a DSO in a Chapter 13.

Huh?

Case law has developed a thorough test to distinguish a DSO from a property settlement agreement. It is a huge list of factors that the judge needs to review.

  1. Whether the settlement agreement includes payment for the ex‐spouse;
  2. Whether there is any indication that provisions within the agreement were intended to balance the relative income of the parties;
  3. The position of the assumption to pay debts within the agreement;
  4. The character of method of payment of the assumption;
  5. The nature of the obligation;
  6. Whether children resulted which had to be provided for;
  7. The relative future earning power of the spouse;
  8. The adequacy of support absent debt assumption;
  9. The parties’ understanding of the provisions;
  10. The label of the obligations;
  11. The age of the parties;
  12. The health of the parties;
  13. Existence of “hold harmless” or assumption terminology;
  14. Whether the assumption terminated upon death or remarriage;
  15. Whether the parties had counsel;
  16. Whether there was a knowing, voluntary, and intelligent waiver of rights;
  17. Length of the marriage;
  18. Employment of the parties;
  19. The demeanor and credibility of the parties;

***

Some examples:

  • A couple has been married for 30 years, since they were teenagers. He went to college and makes $200,000.00 per year. She never went to college and was a stay-at-home Mom and raised the kids. He was ordered to pay the credit cards but then files bankruptcy. She objects to the discharge of these credit cards. This one is pretty easy and leans in her favor.
  • Both couples make $50,000.00 per year and will likely remain at their jobs for many years to come. She was ordered to take on all the credit card debt in exchange for an agreement to NOT pay any alimony or maintenance to her spouse. She files bankruptcy and the spouse challenges the discharge of the debt. This leans in the spouse’s favor.
  • At the time of the divorce both of the divorced couple made $50,000.00 per year and the joint debts were divided more or less evenly. A year later, she lost her job and after months of searching took a job for $25,000.00 per year. She also incurred a lot of medical bills since the divorce due to her chronic illness and lack of insurance. She filed bankruptcy and he challenges the discharge of their debt. This liens in the Debtor’s favor.
  • One spouse agrees to take on all the credit card debt. He files bankruptcy the next day. It has been proven that he consulted with a bankruptcy attorney months ago and has planned to file all along. This leans in favor of the other spouse, too.

Fair to say only about 1% of the cases are this easy. Most are very complicated and each factor has to be weighed.

No one factor carries more weight than another. The bankruptcy judge is given a lot of latitude in reviewing all the factors and how much weight to give each one. You can have all 19 factors on your side plus plenty more and the judge could still rule in favor of your ex-spouse for the reason that something doesn’t seem right.

***

 So what happens in your Chapter 13 regardless of how the debts are determined?

If the debts are ruled as a property settlement the bills are paid with other unsecured debts and discharged after the bankruptcy is completed.

If the debts are ruled as DSOs, they have to be paid as priority unsecured debts. This means they have to be paid in full during the life of the Chapter 13 bankruptcy. Unpaid interest survives. This means even if you pay the entire $10,000.00 in credit card debts you may still owe thousands of dollars in interest when the Chapter 13 is complete.

This may make your plan payment difficult to pay. Those $10,000.00 in DSOs could be as much as $300.00 per month in a 36-month plan. Add your car payment, the house payment, back taxes owed and other fees and your Chapter 13 payment may be unaffordable – the legal phrase is infeasible.

Unless there is another reason to remain in a Chapter 13, you should consider converting to a Chapter 7 and pay the debt on your own terms.

***

A good local bankruptcy attorney will have the experience and knowledge of your district to advise you how the bankruptcy judge of that district views and reviews these factors.

Copyright 2016 Michael Curry

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

False Filing: Protect Yourself from Identity Theft and False Tax Returns

You probably know someone who has been the victim of identity theft. Perhaps YOU have been the victim of identity theft as well. Someone has used my credit card or got a credit card in my name; someone has used my social security number on a tax return.

As a bankruptcy attorney, I have seen the latter quite a lot in the last few years. In both the Chapter 7 liquidation and Chapter 13 consolidation bankruptcy, Debtors are required to give some of their tax refund money to the trustee to disburse to their creditors.

But I have had a few Debtors who were unable to file their taxes (and get their refunds) because taxes have already been filed in their name! Fortunately, both the court and the trustee are sympathetic and do not put them on a deadline while the IRS sorts out the problem.

The Debtors in those cases were lucky – the identity theft was discovered. What if I were on social security, disabled, not employed or otherwise were not required to file a tax return? How can I find out if someone is using my social security number to file tax returns?

This type if scam could go on for years. You would have no idea someone was using your social security number to file tax returns and receive refunds – because you do not HAVE to file! The only time you would discover it is if, for some reason, you decided to file taxes OR the scammers goofed up and the IRS or state department of revenue contacted you about an error or other red flag.

You can check to see if anyone has used your social security number by preparing and filing Form 4506-T Request for Transcript of Tax Return.

4506t

Now hold on, you say. How can I request a transcript of a tax return I did not file?

Fill in the top of the form – name, address, social security number, etc. Then check box #7:  Verification of Nonfiling, which is proof from the IRS that you did not file a return for the year. Current year requests are only available after June 15th. There are no availability restrictions on prior year requests. Most requests will be processed within 10 business days.

Line 7

The IRS will verify that you did not file tax returns. At worst, they will verify there HAS been a tax return filed under your social security number in the past. You will then have to take steps to report the identity theft to the IRS and elsewhere. This blog post does not go into those details, but Google it – there are dozens of places you can seek advice on where to go and what to do next.

Note the June 15th date – you cannot check to see if someone filed a return under your social security number for 2015 until June 15, 2016. Information on 2014 and prior years are available before that June date.

Identity theft leaves us feeling sick and angry. But in this high-tech society, it is something we have to watch out for; something we have to ardently guard against. This particular type of theft – tax returns filed for people who do not have to file returns – is particularly heinous because it can be left undiscovered for years. Someone is using you to line their pockets with our tax dollars – and this time we didn’t vote for them!

If you are worried about this issue, request verification. Do it every year.

Original Material Copyright 2016 Michael Curry

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

Form 1099-C: When Forgiving is NOT Divine, part two

1099-C, when forgiving is NOT divine…

Part Two

Read Part one here

If a Creditor forgives some of the debt you owe it, the IRS considers that amount as additional income for you that year. The Creditor can send you a 1099-C for the amount they wrote off and that is added to your total income. It may be enough to jump you into the next tax bracket – especially if it is a mortgage loan of tens of thousands of dollars.

During the few times clients ask me about debt consolidation, I advise them about the possibility of a 1099-C being sent to the IRS. I also tell them to seek the advice of an accountant or a tax attorney as to any forgiven debt and its tax consequences.  This, plus the fact that SOME debt consolidation companies are scams, are enough to convince them not to abandon the idea.  There ARE plenty of good debt consolidation companies out there, and I recommend a few – particularly Clearpoint – but otherwise caveat emptor (Google it)!

In over 5000 bankruptcies filed, I have had perhaps one percent of my Debtors receive a 1099-C on the forgiven debt. But since they filed for bankruptcy and received a discharge, there IS something they can do about it.

If you filed bankruptcy and received a discharge, and you later receive a 1099-C on the debt from the Creditors, you do not have to worry about it. You still have to DO something about it, but you do not need to WORRY about it.

Simply, a debt discharged in bankruptcy is not forgiven, instead the creditor is required to stop collecting the debt! The debt is still owed, but it is un-collectible, so the creditor might as well write it off on their own taxes and submit it to their insurance.

But they send out a 1099-C to you anyway. Why? Good question, do they get any monetary benefit from it? No, unless it helps keep their bankruptcy insurance premiums down, I suppose. They report it to the IRS and now you have to spend extra time and forms.

How can they send the IRS a 1099-C form on a debt that has not, technically, been forgiven? Another good question. I am not a tax attorney and the tax code is second only to the Harry Potter series in page count. Perhaps somewhere in that former rainforest of volumes, the tax code says that debt discharged in bankruptcy still counts as forgiven debt (although it is excepted). Perhaps it says the opposite; perhaps it does not address it at all (most likely).

Perhaps it may mention what happens when a company sends the IRS an intentionally false 1099-C.  An Attorney General (state or federal) looking to make some bonafides with a non-big-business constituency can look into this if they are looking for some political clout should they ever run for office.

I am sure some attorney, SOMEWHERE, has looked into this…

Regardless, the credit company sent you a 1099-C on a debt you discharged in bankruptcy. You HAVE to claim it on your taxes – the IRS has a copy of the 1099-C as well and will be looking for that income on your returns! What do you do?

When you file your taxes, you should also file a Form 982, labelled Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

982

Fill in your name and social security number, check box 1a and fill in Line 2 with the amount on the 1099-C. Then complete the rest of Form 982 and file it with your taxes.

Don’t do this by yourself! I cannot stress this enough! It’s okay to get the forms free online, but take them to an accountant or a good tax preparer. I have nothing against the people who work in the kiosks in discount department stores or the people who volunteer their time at churches and care facilities who help with taxes. If not for the 1099-C I have no problem recommending you go to them to help you with your taxes. But this is worth paying a little extra. Remember – the IRS is waiting for you to account for the amount on that 1099-C.

Same for credit companies. Some loan companies will help you file your taxes. That’s fine … but they may be the same companies that will send you their own 1099-C in the future.

If you discharged the debt in bankruptcy, a 1099-C is nothing to worry about, although it may cost you extra time and costs when you file your taxes (you can deduct the cost of the tax preparer on next year’s taxes if that is any consolation). A 1099-C is the final thrash at you from a discharged creditor.

Mean? Yes. Petty? Yes. Are you stuck with it? Yes. Can you do something about it? Yes – if it was discharged in bankruptcy.

 

Original Material Copyright 2016 Michael Curry

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

Budgeting, avoiding debt and getting out of debt Part 2

Budgeting, avoiding debt and getting out of debt

Part 2

            On January 27, 2015 I was asked to speak to families by the BCMW Head Start program in Centralia about budgeting, avoiding debt and getting out of debt.

            I prepared a thirty-minute speech with handouts and other documents. Most of my speech was cobbled together from notes online, and I thought I would write it up as a blog to share with you.

            Note that these are lecture notes and not originally done to be read. It’s like reading a play – something I always complained about in school when studying Shakespeare, etc. It’s like trying to “listen” to Mozart or the Beatles by only looking at the sheet music. So it is a little disjointed, but I hope you enjoy it.

            I am quite pleased and proud that the tweet of the original blog post was republished by Financial Times Weekly!

            Check the first part of my speech here:

 ***

            Now that you’ve found a small pool of “extra” savings, how can you use that to get out of debt?

            Make a conscious decision to stop borrowing money. Right now. If you want to get out of debt fast, you have to stop using debt to fund your everyday expenses and lifestyle. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.

            DON’T take out a big loan to pay off all the smaller ones; you can’t borrow your way out of debt. Especially if you are still used to using debt to finance your everyday expenses. In a few years, or even months, you’ll be back to several loans and credit cards AND the big loan that paid off your previous debt…

            Ask for a lower interest rate: Frankly I usually have doubts about this working, but I’ve had people tell me they have had some success. Grab a bill from any account charging you more than 15% interest. Dial the toll-free number on the bill and ask to have your rate reduced — say, to 10%. Tell them that you’d really like to stay with them as a customer, but you are facing financial difficulty and have received offers for much-lower-rate cards. Stand firm and remember that, to them, you are both a customer and a means of profit. You have nothing to lose – all they can say is “No.” Thank them and hang up. But if they say yes, you could save some money. And always, always ask a letter from them confirming the new rate.

            Should you switch to a low-interest or no-interest credit card? Well, why not? If you stick to the payment plan it will save you money in the long run. One saying is applying for lots of credit cards at one time hurts your credit. Odds are your credit is already hurting right now … so where’s the real harm? And all the new credit cards can say is no and you can cancel them before charging anything on them – but watch out for the transfer fees. Is it worth paying no interest when they add a thousand dollars to your bill?

            Is there any way to earn extra cash? Books and financial gurus tell us to “go get a second job”. Yeah, right. I earn more money, I lose my aid.  Or “start your own business”. Seriously? How can they say that and keep a straight face?

            But maybe the older children can help with part-time jobs. And they can help with expenses. They can start learning about income and not using debt to fund living expenses. A habit they’ll get into that will benefit them the rest of their lives!

            Can you sell things? Don’t think of ways to make some extra money as a waste of time. You might spend all day on Saturday sitting at your yard sale for $40.00. But it’s $40.00! What else would you be doing? Watching TV? The kids can help count money and make change – my gosh they might learn something!

            Take old toys to consignment shops, sell old clothes on those online or Facebook yard sales.

            Once you have found some extra cash, it’s time to organize your debt and start paying it off.

***

            Financial gurus use two approaches:

  1. List your debts smallest to largest regardless of the interest rate. This helps build momentum. When we paid off our first debt it’s encouraging and exciting! Even though we had higher interest debts, this gave us something that was very powerful: the belief that we could get out of debt quickly if we stuck to the plan. Then when that debt is paid off, roll that monthly payment into the next debt.

            Example: you’ve found a pool of $75.00 extra per month and pay that on a bill until that is paid down. Then you go to the next bill and pay that bill the extra $75.00 plus its minimum payment, let’s say $30.00, too. So you have $105.00 going to pay that bill. Once that is paid off in a few months to a year roll that $105.00 to the next bill and add its minimum payment – let’s say $40.00 per month. So you are making $145.00 per month on that third bill!

  1. List your debts starting with the highest interest rate first and end with the debt with the lowest interest rate. This will save the most money in interest over time.

            Regardless of which process you choose, the key is to stick with it.

            Throw that excess cash at your debt

            I mentioned this before … if extra money comes to you, take this cash and use it to tackle your debt. Some good examples would be a tax refund, selling a car, selling toys at consignment shops or online. The more cash you can put towards your debt, the faster it will disappear.

            Be aggressive in paying down debt, but don’t get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

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            Then there is bankruptcy, this is what I do. I am a bankruptcy attorney. In this debt pay-off plan I consider this the nuclear option. Boom!  I’ll explain why in a bit.

            There are two kinds of bankruptcy you can file – the Chapter 7 and the Chapter 13. Why they are called that is because the bankruptcy code is like any book – it’s divided into chapters and the chapters that apply to people at 7 and 13. Chapter 13 is a consolidation of all your debt – kind of like what we are talking about right now. The Chapter 7 eliminates or liquidates all debt.

            There’s a lot more to it than that, such as car loans and house loans, but that would take up another half hour.

            The trouble with filing bankruptcy is the same as getting a big loan to pay off your debt. You need to get in the habit of not financing your everyday expenses with credit. Bankruptcy will eliminate your credit cards and loans, but if you don’t learn to live and spend without them – you’ll be back to owing more credit cards and loans in a few years, or months!

            Remember that originally credit cards were a safe substitute for cash – usually in bigger cities or stores. I charge on my account and pay it off at the end of the week. In rural areas people charged until they had the cash available. It’s too wet to cultivate the beans, but after ten days of sunshine I can harvest the crop and pay store or bank debt.

            Debit cards are now the substitute for cash. I use a debit card instead of cash. It’s safer and most places take them now. Don’t use credit cards for food or clothes. When Wal-Mart announced in the mid-1990s they would start accepting credit cards, I knew the impact it would have on people dependent on credit cards.

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            OK, so I’ve paid off all my debt, now what? Establish a starter Emergency Fund of $1000.

            You might be wondering, ‘Why is having an emergency fund important’? Well, if you don’t have any money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for those emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does.

            A fun way to save money is to add money into a jar or piggy bank at the rate of the same amount of dollars as the week of the year beginning January 1st (we’re nearly in February so you will have to catch up quick). $1.00 the first week, $2.00 the second week, etc. This might get tight by the time you get to week 30 or so… (this will be mid-July), but by then you’ve collected $465.00 – in ten weeks that will be $820.00 (mid September): there’s your Christmas spending money. If you can make it to Week 48 (just after Thanksgiving), that’s $1,176.00. That’s a nice way to save up for your emergency fund. By the way, if you want to catch up, the end of January totals $15.00.

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            When you have a huge debt load you feel isolated and bummed out. But if there is one thing to remember is that you are not alone. And there are people you can turn to for help. There are lots of books and financial gurus out there. You can check out books and DVDs from the library or buy them cheaply on ebay.

            And by the way, check your local libraries or museums or conservatories for free activities for kids and families – game days, reading nights, movie nights, etc. Substitute that instead of paying for the family to see a movie.

            When it comes to getting out of debt one of my favorites is John Cummuta. His earlier tapes and DVDs talk about this system of paying off your debt slowly and I like what he says and his down-to-earth style. Nowadays he also talks about what to do with all that extra money: invest in this, invest in that, start your own business, etc.; but his method to climb out of debt is still good advise.

            But there are also so many scam artists and charlatans out there, so be careful. You know, “I can help you make a millions dollars. Just send one dollar to “How to Make a Millions Dollars”…” and their secret is to get one million people to send them a dollar…

            And don’t put up with smarmy condescending jerks. The type that says it’s not your fault and then spend twenty minutes telling you why it’s your fault.

            Debt doesn’t have to be forever. Develop your financial game plan and start your journey toward being debt-free.

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            (The suggestions and ideas of this blog are cobbled together from various internet sites and blogs. Some ideas and suggestions are original; some taken from various “un-cited” sources. Copyrights, if any, are held by the proper holders.) 

Michael Curry

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

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