Will I lose my next year’s tax refund?

It depends. If you filed chapter 7 bankruptcy, you may or may not have had to surrender your tax refund. Unless your trustee told you during your 341 meeting that he would confiscate your tax refund, then you don’t need to worry about it. And they won’t be able to go after tax refunds in subsequent years.

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Fighting off Depression during Bankruptcy

Here is an ehow article on how to address depression during bankruptcy: Depression During Bankruptcy

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Market Watch Article with 8 Tips to Restore Credit after Bankruptcy

Here is an article to help you restore your credit after filing bankruptcy: 8 Tips to Restore Credit after Bankruptcy

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The Typical No-Asset Chapter 7 Bankruptcy In Utah

Every person that comes to see me is unique, with a unique set of financial circumstances.  However, the majority of those who come seeking my advice fall into one general category of cases which I like to call “The Typical No-Asset Chapter 7.”  If you fall under this category, your bankruptcy experience should be smooth-sailing.  No surprises.  No liquidation of assets.  No delays.  If the following characteristics fit your situation, you just may fall under this category:

  • You have below average income.  Normally, your household income must be below the average income for your household size in order to qualify to file Chapter 7 Bankruptcy.
  • You may have a house and/or car(s), but don’t have much equity.  Just because you own a home or a car doesn’t mean that you have to surrender those assets after filing Chapter 7 Bankruptcy.  Only if you have a lot of equity in those assets will the Bankruptcy Trustee have interest in liquidating those assets for the benefit of your creditors.  If your loan balance is equal to or more than the current value of your house or car, then the Trustee has no interest in those assets and will leave them alone.  This means that if you want to keep the house or car, then you just have to keep paying off the loans.
  • You don’t have any luxury assets.  Most household items are exempt from the Trustee’s reach:  i.e. household appliances, clothing, most furniture, musical instruments, beds/bedding, etc.  If you have fancy and valuable electronics, jewelry, antiques, etc., then you just may trigger the Trustee’s interest.  Normally an item will need to be worth $1,000 or more in order to pique the Trustee’s interest in turning your case into an “asset case.”
  • You don’t have any money in non-retirement accounts.  Having money in a 401k or similar retirement account is fine–the Trustee can’t touch those funds.  Mutual funds, stock shares, and bank accounts, on the other hand, are not exempt and are ripe for the Trustee’s picking.  Trustees like money accounts because they are simple to liquidate and simple to appraise.  You have $5,000 in a bank account on the day your bankruptcy is filed?  A Trustee will salivate.  Soon after filing, your Trustee will tell you to get him/her a cashier’s check for the full amount.
  • You already received your tax refund.  Tax Refunds are the most commonly liquidated assets in a chapter 7 bankruptcy.  Why?  It is normally a large amount of money, is already liquid, and is often received after your bankruptcy is filed.  In order to avoid losing your tax refund to the Bankruptcy Trustee, you should consider waiting to file bankruptcy until after you have already received and disposed of your tax refund.  However, if you wait too long, the next year’s refund could be at risk.  Bankruptcy cases filed between February and August are much more likely to end up as “no-asset” cases.

If you are so fortunate to fall under the “no-asset” category, here is what you can expect during your bankruptcy:

  • A 90 day case.  In Utah, most no-asset chapter 7 cases last about 90 days.  This is because that is how long creditors have to object to your case.  You should receive your discharge after about 90 days and the case should be closed at about the same time.
  • No objectionsThere aren’t very many reasons why creditors would want to object to your case and it is extremely rare.  It is even more rare in no-asset cases.  The creditors know that no money is going to come to them through a liquidation, and even if there were to object (for reasons like fraud), your bankruptcy is a signal to them that you wouldn’t have an ability to pay them even if there were successful in their objection.
  • Quick and painless 341 meeting.  Every chapter 7 debtor has to appear at the 341 meeting of creditors.  It should be called the meeting with the Trustee, however, since creditors are not likely to show up (except RC Willey), and your meeting should last just a few minutes as you answer some basic questions under oath regarding the truthfulness of your paperwork.
  • Lowest cost.  Though it isn’t cheap to have an attorney help you with a bankruptcy, you’ll pay the lowest price possible since your case should be the simplest of all bankruptcies.
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Will I Lose My Tax Refund?

Many bankruptcy filers are concerned about forfeiting their tax refund. What happens to your tax refund depends on when you file and which chapter. In chapter 13, the debtor makes monthly bankruptcy plan payments for a period of 3-5 years. Unless debtor’s plan proposes to pay off 100% of unsecured debt through these payments, the trustee is entitled to confiscate a portion of debtor’s refund each year the debtor is in bankruptcy. Currently, in Utah, a debtor is entitled to keep $1,000 each year, plus an additional $1,000 each year if the refund includes the EITC or ACTC (earned income or additional child tax credits). The rest must be paid to the trustee for distribution to creditors. For chapter 7 filers, it works differently. A chapter 7 case in Utah often only lasts for a number of months. A typical no-asset chapter 7 case filed in March may be closed in June, and this fortunate debtor will not be asked to surrender any tax refund because the previous year’s refund was already received and spent (assuming the taxes were filed and the refund was received prior to filing the bankruptcy), and the following year’s refund will be received long after the closure of the bankruptcy case. Typically, in Utah, chapter 7 trustees begin asking for debtors to surrender the tax refunds for cases filed in September or later. This is because the case will likely still be open at the time tax returns should be filed. However, the trustee must allow you to keep a portion of your refund pertaining to the prorated portion of the taxable year that you were in bankruptcy. For example, if you filed your bankruptcy on December 1st of 2010, the chapter 7 trustee will likely require that you surrender your 2010 tax refund once you receive it. However, the trustee must allow you to keep 1/12th (one month out of twelve) of the refund since you will have been in bankruptcy for the month of December. This of course means that if you file your bankruptcy at the beginning of the year, but still haven’t received your tax refund, you will lose all of it. The only way to avoid having a chapter 7 trustee confiscate your tax refund is to receive the refund and spend it appropriately prior to filing for bankruptcy.

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What Questions Are Asked At The 341 Meeting Of Creditors?

Every trustee has their own way of conducting a 341 meeting of creditors. Here is the current list of questions asked by Kevin Anderson, the current and only chapter 13 trustee in Utah:

1. Please state your name and address for the record.
2. Is the information in your bankruptcy papers true, complete and accurate to the best of your knowledge?
3. Did you review your bankruptcy papers before signing them?
4. Did you personally sign your bankruptcy papers?
5. Have you purchased a vehicle in the last 6 months?
6. Have you sold, transferred or disposed of your interest in any property within 1 year of your bankruptcy filing?
7. Do you have any pending lawsuits, causes of action, or claims that you have asserted against another person?
8. Are you required to pay child support or alimony?
9. Have you lived in Utah more than 2 years?

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What is Chapter 7?

Chapter 7 bankruptcy is often called liquidation bankruptcy. As opposed to chapter 13 where the debtor must make a monthly payment for up to 5 years, chapter 7 bankruptcy allows the debtor a “fresh start” without the burden of making any payments to the court for distribution to unsecured creditors. The risk in filing for chapter 7 relief is the possibility of liquidation. The trustee that is assigned to oversee your chapter 7 case is in charge of determining whether you own any “non-exempt assets” which he can sell for money to distribute to your creditors. Many chapter 7 cases are “no asset cases” in which the trustee determines that there are little or no non-exempt assets worth selling. If you do have non-exempt assets that are reasonably valuable, you could be at risk in chapter 7 of losing these assets. It is therefore important to know which assets are exempt and which are not. It may also be the case that one or more of your assets is partially exempt. This can happen because Utah’s Bankruptcy exemptions are set at certain amounts, so if the value or equity in your car or house is above the exemption amount, the trustee could sell the property, pay you back the exemption amount, and use the rest to pay creditors. Here is a list of Important Exemptions:
• Up to $2,500 of equity (value minus debt) in a vehicle ($5,000 for joint filers).
• Up to $20,000 of equity in your home ($40,000 for joint filers).
• Unlimited amount of equity in washer, dryer, microwave, stove, refrigerator, freezer, sewing machine, carpets in use, beds and bedding, family clothing, and 12 months of provisions.
• $500 for sofas and related furnishings ($1,000 for joint filers).
• Your 401(k) plan, IRA, KEOUGH or other ERISA qualified plan.
A chapter 7 case may be the better alternative for you if you think that you have few if any non-exempt assets, or if you have below the exemption amount of equity in your home or cars. It is also important to remember that the value of your assets is not what you originally paid for them, but what they could be sold for at auction. Thus, your electronics, which are most often non-exempt, depreciate a lot with the passage of time. Barring any complications or fraud, you will receive your discharge in a chapter 7 case about 3-4 months after filing. A discharge means that your unsecured debts are eliminated. It is important, however, to remember that some of your debts are secured debts, meaning that those particular creditors have a secured interest in your property, like your home or your car or your furniture from RC Willey. These debts can be eliminated, but if you choose not to continue payments to these creditors, they have the right to repossess, confiscate, or foreclose. If you do decide to abandon the collateral, any deficiencies (the difference that may still be owing after your repossessed or foreclosed property is sold at auction for less than what you owed) will also be eliminated when you receive your discharge. However, if you elect to “reaffirm” such debts, meaning you wish to keep the house or car and continue to make regular payments, only to later default, any remaining debts will still be owed because reaffirming, in essence, means to take that debt out of the bankruptcy.
Advantages of Filing Chapter 7
• Provides a fast fresh start. You are not stuck for five years making monthly payments.
• Once you file, any income you receive after filing is yours.
• No repayment plan.
• No debt limits.
• Lower attorney fees.
Disadvantages of Filing Chapter 7
• You must be current on your payments to secured creditors (house, cars, etc.) if you want to keep them.
• The Chapter 7 trustee may sell your assets (including any lease or the debtor’s business) having more than nominal value over and above any liens and exemptions.

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