Featured Archives - Northern California Bankruptcy Lawyer

Chapter 13 Fixes Tax Trouble

Chapter 13 bankruptcy offers powerful alternatives to fighting with the IRS.

When you’ve got tax troubles, it’s easy to feel powerless.

After all, you’re confronting a federal agency who wrote the tax rules. And they have hordes of employees with nothing else to do.

Chapter 13 can turn the tables on the IRS (and state tax agencies, too).

Back taxes in Chapter 13

In Chapter 13, you can

impose an interest free repayment plan for recent taxes
discharge all unsecured tax penalties;
eliminate or reduce tax liens;
discharge older taxes completely.

In contrast to IRS installment plans and offers in compromise, Chapter 13 plans need only to meet the statutory requirements of bankruptcy law to be accepted by the court. The IRS has limited say as to the terms of the plan.

Chapter 13 and enforced by a judge in the event of disagreements between debtor and taxing authority.

And the bankruptcy discharge is final as to taxes included in the case.

Chapter 13 puts taxes first

The bankruptcy code gives a priority for payment to certain taxes. While priority taxes can’t be discharged in bankruptcy, in Chapter 13 they are paid ahead of all other unsecured debts.

Giving priority to recent taxes reverses the usual IRS rule that tax payments made outside of bankruptcy are credited to the oldest taxes, which may be dischargeable in bankruptcy.

And unlike out of court arrangements, the automatic stay holds all other existing debts at bay until the non dischargeable taxes are paid.

So, you get protection from credit cards and medical bills while your plan payments pay down the priority portion of your tax debt.

Which taxes have priority

Priority taxes are, broadly,

those taxes for which the return first came due within 3 years of the filing of the bankruptcy;
those assessed within 240 days of filing or assessible at the date of filing bankruptcy; or
trust fund taxes of whatever age for which the debtor is liable.

The priority amount includes the tax and the interest to the date of filing on the tax.

Penalties kicked to the curb

Penalties are often the curse of a tax problem. They swell an already troubling total debt and don’t represent the tax actually unpaid.

How much does a Chapter 13 plan have to pay

In Chapter 13. penalties associated with a priority tax are not priority claims.

Penalties get the same treatment as any other unsecured debt, which means they may get little or nothing through the plan.

Interest on tax debt

Interest on all unsecured claims in bankruptcy stops running upon the filing of the case.

Unsecured priority taxes are paid, then, without interest accruing after the filing of the bankruptcy. You do end up paying the trustee’s commission on all sums paid into the Chapter 13 plan,

So the actual cost of retiring priority taxes includes a mark up for the trustee’s expenses of administering the case.

The bankruptcy court also has jurisdiction to decide tax disputes related to Chapter 13 cases.

Discharge of taxes

You get your discharge at the end of the case, when all plan payments have been made.

Priority taxes will have been paid in full through the plan. Non priority taxes, unpaid interest and tax penalties are discharged.

The exception to the discharge of taxes deals with tax years more than three years old for which a return has not been on file for two years. Under the bankruptcy amendments of 2005, those taxes are neither discharged nor paid as priority, unless they were assessed within 240 days of the filing. Which is one of the reasons I harp on filing the tax return every year, even if you can’t pay the tax due.

Tax liens

Just because the IRS has a lien for a tax year, doesn’t mean that the feds have a secured claim for the entire amount of the tax (and interest and penalties>)

Bankruptcy has advantages

The decision to file bankruptcy has to consider lots of factors about your situation, your debts, and your assets.

But don’t swallow the idea that taxes aren’t dischargeable in bankruptcy, or assume that you have to deal directly with the IRS to resolve tax debt.

Bankruptcy, especially Chapter 13, is a powerful tool for tax troubles. And a bankruptcy filed before the return is due can address your taxes for the previous year.

What The Fool Got Wrong About Filing Bankruptcy

By Cathy Moran

The famous poem begins, “how do I love thee? let me count the ways”.

But what if it’s not love that we are counting, but loathing?

Let me count the ways I loathe the Motley Fool’s article asking should I file for bankruptcy?

The Fool’s underlying assumption is that people in debt flock to bankruptcy as an “easy way out”, and damage their credit score for seven years or more.

This is so wrong, where do I start?

Who files bankruptcy

No one I’ve met in 40 years as a bankruptcy lawyer arrived in my office on a whim, trying to make their financial life easier with a “get-out-of-jail-free” card.

Instead, they’ve agonized about even considering bankruptcy. They feel guilty and ashamed.

Why creditors want them to feel guilty, ashamed and fearful about bankruptcy.

Often, they’ve delayed learning about bankruptcy so long that they’ve made their situation even worse. Not only has their financial situation worsened while they tried to find a way to pay, but their health and their relationships have deteriorated.

The most common triggers for financial distress are job loss; illness; business failure; and divorce. None are exactly choices made frivolously.

Drowning in debt

The premise of the Fool’s article is that you are up to your eyeballs in bills. If that’s your situation, the remedies the author proposes are band-aids on a gut wound.

Get a second job
Cut your living expenses
Negotiate with your creditors

All of these suggestions are sound, standing alone. But they are inadequate remedies for someone truly drowning in debt.

If the rising water is at your knees, fine. These might work. But if the water’s at your chin, this is fantasy.

And all of them are offered without discussion of the age, health and family situation of the person in debt. Neither does the author address the size of the debt and the time required to pay off the debt. Much less, discuss the ongoing interest on the unpaid balance.

Realities of negotiating with creditors

The logic of a creditor settling for less than is owed, rather than get nothing in bankruptcy, is rock solid. Only, little logic is found in the collection departments of most creditors.

They’ve heard the threat to file bankruptcy before. It doesn’t phase them.

And the people you can get on the phone to discuss a reduction in the debt generally don’t have the authority to make the deal, much less the vision to see the benefits of a deal.

Debts get easier to settle the older and stinkier they get. So, stop paying for long enough and some creditors will come to the negotiating table.

But getting all your creditors to reduce their claims is nearly impossible.

And there’s no discussion of where you’re going to get the money to pay off the reduced debt, nor the time to engage creditors in negotiations.

Protecting the credit score

The utter irony of the Fool’s approach is that you should avoid bankruptcy to protect your credit score! Truly foolish.

Your credit score is an arbitrary and unregulated construct, created by businesses working for creditors, to measure the cost to you of incurring more debt.

Study shows credit scores RISE after filing bankruptcy

Granted, it’s now used in other enterprises for which it wasn’t designed, and, I would argue, not particularly predictive of whether you’ll pay your rent, for instance, or commit insurance fraud.

Isn’t the point of discussing bankruptcy alternatives to get you out of debt? Not enable you to get into more debt?

Unaddressed is the current impact of repayment strategies on your credit score. Suppose to get a creditor to negotiate, you have to stop paying altogether, so they see that your situation is dire.

There’s a hit to your credit score, right there.

And the score won’t begin to improve until all that’s behind you. No discussion by the Fool of how long that may take.

Living on a financial knife edge

Personal finance writers all tout saving. Whether it’s an emergency reserve or retirement savings, no ethical financial expert proposes that you spend every penny you have, with nothing in reserve.

Yet the Fool omits any assessment of whether the money spent paying off old debts would be better off creating a financial cushion, which would be possible after a bankruptcy discharge.

My bankruptcy clients too often have neither savings, nor health insurance, nor health care. I suggest that a better future requires those things, not a robust credit score.

Bankruptcy misrepresented

Finally, the Fool repeats myths about bankruptcy.

The author claims that “your major assets are sold off” in Chapter 7.

Nonsense. Nearly 98% of Chapter 7’s result in no loss of the filer’s assets.

Between exemptions and the lack of real equity, most people in bankruptcy don’t have assets that are saleable by a bankruptcy trustee. And those who have assets with non-exempt equity, there’s Chapter 13.

In Chapter 13, you keep your “stuff” and essentially buy it back from your creditors, at a discount, over time.

While Chapter 13 is a repayment plan, but that plan may pay little or nothing to creditors, depending on your income, living expenses, or the equity in your assets after a deduction for exemptions.

How Chapter 13 payments are figured

The very debts that the author warns may not be wiped out in bankruptcy are the debts that are paid first from any money flowing through the bankruptcy estate. The priorities for payment in bankruptcy see that secured debt, recent taxes, and support are paid before the run of the mill unsecured creditor.

Student loans, the bane of many struggling Americans, are the exception. They aren’t generally dischargeable in bankruptcy, but they don’t have a priority for payment. Bankruptcy for a student loan borrower may only wipe out other debts, making it easier to pay off student loans.

What does it cost to stay in debt

The Fool is quick to point out that filing bankruptcy costs money. That in fact is the first of the downsides of bankruptcy that the author highlights.

There’s no mention of the cost, both monetary and emotionally, of remaining in debt.

While the author notes that bankruptcy appears on your credit report for years and is visible to potential employers and landlords, absent is any evaluation of how a credit report full of delinquent, or even just overwhelming debt, impacts those same parties.

Negative information about a debt can be reported for seven years. Not so different than bankruptcy.

Your balance sheet matters

When assessing your financial health, your credit score is secondary. First of all, look at your balance sheet, not your ability to borrow more money in the short run.

Look at the demands on your income, your age, and your prospects when picking a get-out-of-debt strategy.

Understand that your credit heals with time, and a bankruptcy on your record is not a bar to getting new credit. A recent bankruptcy affects the price you pay for a loan; a bankruptcy years ago fades in significance.

And that’s why, for many people, I love the fresh start provided by bankruptcy.

What Kenny Rogers tells us about getting out of debt

What bankruptcy should cost

Credit heals

Why I love Chapter 13

Life after bankruptcy

SBA Loans Collectible Long Past Business Failure

By Cathy Moran

The SBA has eagle eyes and sharp talons when it comes to collecting from guarantors of business loans.

SBA collection tools are ruthless, efficient and ageless.

So I learned when a client consulted me about a business that had failed 12 years ago.

Yet the SBA had never sued him, nor had it filed a lien on his home.

He reported that every time he changed jobs, however, the SBA just appeared and garnished his wages.

At this rate, his exposure on his SBA loan guarantee will live long beyond the next decade.

Statute of limitations

The United States Code 28 USC 2415 prescribes a six year statute of limitations on lawsuits to collect non tax debts owed to the US.

That six year period is reset with each payment the feds receive on the debt.

Understand the liability of a guarantor

So, the SBA has six years from the last payment made to file a lawsuit against a guarantor for a money judgment. With a judgment comes a slew of collection tools under the law, including liens and levies.

But, it turns out, the feds don’t need a judgment to exercise powerful collection actions that usually require a judgment.

Administrative garnishment

Like the IRS, the SBA has a right to garnish wages without ever going to court.

13 C.F.R. 140.11 lays out both the limits on how much of each paycheck can be garnished and the procedure for challenging a garnishment.

Chillingly, the regulation provides that the feds have the right to garnish until the debt is satisfied, or until there is a settlement. So that’s how the SBA kept surfacing for my client at each new job.

Offset into retirement years

Retirement isn’t a reprieve from SBA debt, either.

The government retains the right to offset any money it may owe you, as in tax refunds or Social Security benefits, to pay the debt. 31 USC 3716.

So, the passage of time will bar the initiation of a law suit that could result in a lien or a right to levy your assets, but the right to garnish wages or offset
mutual debts appears to have no time limit. A guarantor of the debt of a long dead business may be paying on that debt until the guarantor’s death.

SBA debts dischargeable in bankruptcy

If an SBA borrower isn’t able to reach a settlement of the debt with the SBA, any unsecured debt to the SBA is fully dischargeable in bankruptcy.

Secured debt owed to the SBA is only secured in a bankruptcy case to the extent that there is equity in the asset after liens senior to the SBA are paid. Thus in a Chapter 13, an SBA lien can be crammed down to the value of the collateral.

In the usual circumstances, the SBA is not protected by the provisions of Chapter 13 that bar modification or bifurcation of debts secured only by the debtor’s home: SBA debts are almost always secured by the assets of the business for whom the loan was taken out.

No tax consequences when SBA guarantees compromised

Is a corporate bankruptcy safe for shareholders?

Thoughts on winding down failing business

Questions About Bankruptcy Have Few Quick Answers

By Cathy Moran

The caller to my law office kept telling my assistant: I just want to ask Cathy a question.

To which my assistant replied: you need to first fill out our questionnaire and make an appointment.

But I don’t want a meeting, I just want to ask a question.

At which point, both sides of the call are frustrated.

The caller thinks he has a reasonable request. The law office isn’t getting through to the caller that a quick answer isn’t possible.

And that’s because: there are no quick answers to bankruptcy questions.

Or rather, there are no reliable quick answers about bankruptcy.

Bankruptcy answers depend on your facts

To provide an answer that is any good, a bankruptcy lawyer needs to get a bunch of facts about your situation.

Have you filed bankruptcy before?

Did you get a discharge?

How long have you lived in this district? Where did you live before?

What do you own? What’s the form of title?

How much money do you make? How many people do you support?

Do you owe taxes or child support?

The list goes on.

A quick answer is risky

Good lawyering is about applying the law to the client’s facts. Without facts, my advice is likely useless.

Or worse, dangerous.

It’s dangerous to the caller, because the answer, without all the facts, may not be right.

It’s dangerous to the lawyer, who has a legal responsibility to you to provide competent advice. Even if the advice is free and even if you don’t hire the lawyer to represent you.

The undisclosed facts may lead to an entirely different conclusion. And I don’t know the facts until I’ve asked a BUNCH of questions.

If I get it wrong, you may be able to sue me.

Legal advice online

Why you don’t want a bankruptcy lawyer who’ll fight for you

The importance of the facts is why relying on the internet for legal advice hold huge dangers.

Post a question to an online forum, and you select the facts that you think are important. Or as much of the facts as you are willing to disclose in public.

Those facts may not be the ones that are critical to the answer. And even if you provide good facts about some aspect of your situation, other facts may counteract the result.

Use the internet to get some legal education about bankruptcy as a whole. Learn the bankruptcy vocabulary. Figure out what documents a lawyer will need to provide good advice.

But take no action until you’ve laid those facts before a competent bankruptcy lawyer and answered a bunch of questions.

Questions to ask a bankruptcy lawyer

Free bankruptcy advice

Considering bankruptcy

10 Things Tax Professionals Need To Know About Bankruptcy

By Cathy Moran Leave a Comment

Tax season approaches.

Tax preparers stand a good chance of encountering clients who either have filed bankruptcy, or who may benefit from a bankruptcy filing.

Here’s my list of bankruptcy nuggets that a good tax professional should have at hand.

Debts discharged in bankruptcy don’t trigger cancellation of debt income–

One of bankruptcy’s compelling features is that the debts cancelled by reason of the bankruptcy discharge don’t get included in the debtor’s income. Bankruptcy, found in Title 11 of the U.S. Code, is the first exception on Form 982 to inclusion of forgiven debt in gross income.

IRS and state tax entities subject to the automatic stay

A bankruptcy filing enjoins tax authorities from continuing collection action. Thus the stay terminates garnishments and prohibits levies of the debtor’s assets. It doesn’t, however, prohibit tax audits.

Bankruptcy can discharge income tax debt three years after return due

Taxes can be wiped out in bankruptcy if the return was due, including extensions, three years or more before the bankruptcy is filed; any late filed return has been on file for 2 years; and the taxes were assessed more than 240 days before the commencement of the case. More on overview of taxes in bankruptcy.

Chapter 13 is a quick and certain alternative to an OIC–

A Chapter 13 plan is confirmed within weeks and binds the IRS just like any other creditor. The case discharges for all time the scheduled taxes, penalties and interest upon plan completion. The plan must pay the priority taxes (those tied to returns less than three years old) and the interest on the priority tax as of the filing. No new interest or penalties accrue during the pendency of the case.

Tax penalties are dischargeable

Penalties associated with dischargeable taxes are dischargeable; all penalties are dischargeable in Chapter 13, and penalties associated with events more than three years past are dischargeable in Chapter 7 even if the tax isn’t dischargeable.

Chapter 7 estate, but not 13 estate, is a separate taxpayer

A bankruptcy estate owes the feds a return, and perhaps tax on capital gains it realizes by reason of sale or foreclosure. Property remains property of the bankruptcy estate until the estate is closed or the property abandoned.

Tax attributes of the debtor pass to the bankruptcy estate

The debtor’s basis, loss carry forwards, and exclusions are available to the Chapter 7 trustee, and unused NOL’s revert to the debtor when the bankruptcy estate closes.

Debtor can elect short tax year for the year bankruptcy is filed

A short year election can make tax attributes available to the debtor when he files the return for the pre bankruptcy portion of the year. It can also quantify any tax due in the year of filing so that it is a priority claim for payment from the assets to be distributed in the bankruptcy case.

Tax liens generally survive the bankruptcy case

While lien survive as a charge on the assets the debtor owned at the filing of the case, the lien does not attach to assets the debtor acquires after the case is filed. In Chapter 13, the lien need be paid only to the extent of the actual value of the assets subject to the lien.

Allowable deductions may be found in payments made on debtor’s behalf by Chapter 13 trustee

Chapter 13 plans often pay over time mortgage interest arrears on the debtor’s home. State taxes paid through the plan or business expenses including taxes may be deductions the Chapter 13 debtor can claim.

The rules covering federal taxes in bankruptcy are found in Pub. 902. State taxes are subject to the same treatment in bankruptcy as federal taxes.

For more

For help with strategic use of bankruptcy to solve tax problems, look for a certified bankruptcy specialist in your community.

Some state bar associations and the American Board of Certification certify lawyers who are specialists in bankruptcy. Find California bankruptcy specialists by county.

Image courtesy of Flickr and CharlywKarl

Reaffirmation: The Fight You Hope To Lose

By Cathy Moran

It isn’t often I go into bankruptcy court, hoping to lose.

But when the issue is reaffirmation of a car loan, that’s the strategy. I desperately want the judge to deny approval of my client’s proposed reaffirmation of his car loan.

And most of my judges will deliver, from the bench, the pitch I’ve made to the client: you are better off if this reaffirmation is denied.

So, how did we get to this state of affairs?

Like many screwups, it started with Congress.

Or rather, it started with the car creditor lobbyists and their boat-load of money earmarked for Congress.

Bankruptcy reform crashes

In a nutshell, before 2005’s bankruptcy amendments, you could keep your car after bankruptcy so long as you kept making the payments. Simply filing bankruptcy was not a default on the loan; default that allowed repossession required a failure to pay.

In bankruptcy lingo, the idea was called “ride-through”; the car loan rides through bankruptcy as if there hadn’t been a default.

Then along come the lobbyists who “convince” Congress that it’s unfair to them to make them keep accepting payments on a car after bankruptcy. Their complaint was that after entry of the bankruptcy discharge, all they would be allowed to do was auction off the car. The discharge would prevent them from suing the borrower for any deficiency.

So, the law was changed to make filing bankruptcy an event of default. The only way to cure that default after filing was to reaffirm the car loan.

Reaffirmation waives the discharge as to the car loan. Reaffirm, and the car creditor can sue you personally if you stop paying. Even if you got a bankruptcy discharge.

Best laid plans

What the lobbyists didn’t plan for was sloppy drafting of the law they wanted.

The “reformed” law on car loans required the debtor to enter into an agreement to reaffirm the loan AND gave the bankruptcy judge the responsibility to approve the agreement as being in the debtor’s best interests.

And that’s where they blew it.

Courts have regularly held that all that is necessary to entitle the borrower’s car loan to ride through bankruptcy was the debtor’s agreement to reaffirm. The law provided no requirement that the judge approve the agreement to give the creditor the right to sue the debtor after bankruptcy. See Moustafi.

The debtor gets the benefits of ride-through by just entering into the agreement, even if the judge refuses to approve it. And without approval by the judge, the car creditor can’t sue the debtor if they stop paying on the car later on.

Rooting for disapproval

You see why I want the court to disapprove my client’s proposed reaffirmation agreement. Without the judge’s blessing, there is no deal with the creditor, but the creditor is limited to repossession if the agreement isn’t approved because the debtor did what the law required: agreed to reaffirm.

How much should you spend on a car

The reaffirmation process requires the debtor to provide a post-bankruptcy budget that shows that he can afford the car loan going forward. Too many debtors have budgets that really don’t have enough money available for the existing loan. And judges see that.

Judges are further concerned about the gap between what the debtor owes on the car versus what the car is worth today. If the debtor finds that he can’t make the payments, he is exposed to a law suit for the difference between the debt and the value of the car, PLUS the lender’s costs of suing him. Ouch.

I really appreciate the judges before whom I practice who take their responsibility to review reaffirmation agreements carefully and patiently explain to my clients why disapproval of the agreement is in their best interests.

And I grin when I lose this bankruptcy battle. Because my client just won.

Redemption: the cheaper alternative to reaffirmaion

Car loans in Chapter 13

Car loans after bankruptcy

Resolve To Thrive In The New Year

By Cathy Moran

May I suggest a 2020 New Year’s resolution? It doesn’t involve diets or workouts or commitments to huge personal transformation.

Take a hard look at your financial situation.

How much of your available income goes to paying existing credit card balances?

What expenses for health care, repair, or just household maintenance are you putting off?

What big dollar items are ahead?

What have you saved for retirement?

Consider whether a fresh financial start makes sense.

Just getting by

A life of minimum payments, minuscule bank accounts, and no retirement savings is a life fraught with financial danger. One illness or even a short stretch of unemployment can spell disaster.

Too often, my clients try to pretend that all is well if they can make the minimum payments on credit cards. They juggle no-interest offers to move money from card to card.

But debt remains and savings are postponed.

Paying off debt versus paying for old age

Take a look at a little exercise that contrasted paying off a modest credit card debt by making minimum payments with devoting the same about of money to retirement savings.

The results are mind boggling. Paying off $20,000 in credit card debt takes 37.5 years. Put the same money into an IRA for the same period and you have almost $316,000.

You can count on having less income in your old age than while you’re working. Take a look at your annual statement from Social Security and calculate how you are going to live on that amount.

The bankruptcy alternative

The secret bankruptcy alternative

Clients walk into my office hoping that I have a magic wand, The Alternative to Bankruptcy, that I can wave and allow them to solve the debt problem without bankruptcy. For most, there is no such secret, unknown cure to debt.

A university study done about 20 years ago found that one in 7 American families would be better off if they filed bankruptcy. At the time, about one in 17 families actually filed. My experiences over 40 years of practicing bankruptcy law suggest that the finding remains true today.

Fear or pride keeps far too many from the rational solution for a difficult situation.

Resolve to take a hard look at your long term financial health. It may be time to swallow your pride, file bankruptcy, and devote the energy now spent on managing debt to saving for the future and enjoying the present.

Is bankruptcy the right choice for you?

Pick the right bankruptcy chapter

How to interview a bankruptcy lawyer

Best New Bankruptcy Insights Of 2019

By Cathy Moran

As we wave goodbye to 2019, we asked what issues grabbed you in 2019? Or, at least, what bankruptcy issues caught your attention?

So, we tallied the traffic numbers from this calendar year and assembled this list of the top 10 new posts here on Bankruptcy Soapbox in 2019.

Take a look, and see if any of the subjects surprise you.

Guest posts shine

I had more than a little help from my professional friends this year. No less than four of the top 10 new posts were guest posts from the guys I regularly brainstorm with.

They killed it.

2. Wayne Silver spoke to creditors of PGE, whose Northern California Chapter 11 touched us all.

6. Avoiding the tax on debt that you guaranteed when it tanks occupied tax lawyer Bill Purdy.

7. Bankruptcy lawyers are heroes according to mortgage broker Bob Schuman, a veteran of loans to bankruptcy debtors.

10. Bill Purdy returned with some ugly news about new taxes on consumer litigation recoveries.

Two changes in bankruptcy law

The number 1 new post in 2019 reported on new California exemptions available in bankruptcy. Dollar amounts of most exemptions are adjusted for the cost of living every three years. We got our California upgrade in April, 2019.

The feds adjust their dollar figures every three years, too. The number 3 most popular new post dealt with increases to the debt limits for Chapter 13.

Four from atop the Soapbox

The four remaining powerhouse posts dealt with the nuts and bolts of bankruptcy.

Two posts looked at issues tied to the decision to file bankruptcy.

The number 5 post addressed the dangers in do-it-yourself bankruptcy software. Although it was developed by Harvard Law grads and had a noble purpose, it flunked out when it made a fundamental error about the means test.

Number 9 on the list recalled crunching the numbers for a client in deep financial trouble who questioned why a 100% Chapter 13 plan was worth it. By my calculations, it was worth it $20,000 worth.

The final two posts in this group came in at 4 and 8 and looked at life after bankruptcy.

Number 4 revisited the duel between IRS form 1099, issued by creditors for cancelled debt, and the Bankruptcy Code. Spoiler: the Bankruptcy Code wins, and there is no income tax on debt discharged in bankruptcy.

Our final heavyweight looked at bouncing back from bankruptcy. I constructed a to-do list for those who’ve gotten their discharge and face life after bankruptcy.

Winners in order

Slicing our best-of-the-year new posts another way, here they are in order:

Happy New Year!

2019 Reader Favorites From Bankruptcy Soapbox

By Cathy Moran

It’s always fun to see which posts spoke to readers of Bankruptcy Soapbox during the year.

There’s lots to choose from. After all, we touch on law, personal finance, small business issues, and some just basic matters of operating in this economy.

Here, starting with number 10, and working up to your favorite post, are the most-read posts this year.

10. Five Ways To Make Your Divorce Bankruptcy-Proof

Chapter 13 allows the discharge of debts to a former spouse not available in Chapter 7. Five tactics to consider during the divorce that reduce the chance that bankruptcy changes everything.

9. When Chapter 13 Endangers Both Your House and Your Discharge

An alarming trend in bankruptcy cases has judges blocking the discharge of debtors who’ve fallen behind on their mortgage payments after they filed their Chapter 13 case.

8. Realtor’s Guide To Home Sales In Bankruptcy

Probably the longest post on Soapbox walks real estate professionals through the maze of concepts and rules that apply when a homeowner in bankruptcy needs to sell real estate.

7. Are You Really Liable For Your Spouse’s Debts In California?

California law is tricky about the liability of one spouse for the other’s debts. The short answer is “no”, but it’s complicated.

6. What Does Bankruptcy’s 90 Day Rule Really Say?

Everyone knows about the 90 day rule in bankruptcy, only there are at least 90 different, and wrong, versions of what the preference rule really requires.

5. Cheat Sheet For Passing Bankruptcy Means Test

Perfectly legal ways to think about your future reasonably necessary expenses that get you a “pass” on the means test.

4. How To Spot Post Bankruptcy Errors On Your Credit Report And Fix Them

Guest author Mike Cardoza walks you through what can and can’t appear on your credit report after you’ve discharged your debts in bankruptcy and coaches you on correcting mistakes.

3. 7 Principles of California Community Property

A perennial favorite unravels the actual operation of California’s community property system, in bankruptcy and out in the rest of the economy. A must-read for married folk.

2. How To Spend Money Before Your Bankruptcy Case Is Filed

It pays to plan. Because bankruptcy has rules, written and unwritten, about debtor behavior before the case is begun, we’ve set out both the what to spend money on and how to spend it to stay out of trouble.

1. California Homestead, Portrait of a Super Hero

Again this year, our explanation of how exemptions work to protect big value in a family home was the most read post of the year, more than three times the traffic of the second place post.

Pay Down Debt Or Save? Which Should Come First

By Cathy Moran

Pay off debt first or start saving now?

It’s a debate almost as convoluted as which came first, the chicken or the egg?

Experts heatedly take opposite sides.

You get rid of debt faster if you put all available cash into paying off balances.

BUT

You have no reserves for the unexpected if you spend everything that comes in.

After much thought, and triggered by new research, I’ve got my answer.

Start saving now.

I am convinced habits are more powerful than arithmetic.

Pay debts first is cheaper

In a world where your savings earn 1 or 2% annual interest, while credit cards cost 15-25%, it’s clear your net worth benefits from paying debt first.

The biggest bang for your buck, dollars and sense wise, comes from paying off debt.

Unless, of course, you have an unexpected expense and find yourself without funds to pay. Then, short term borrowing is usually on even worse terms than credit cards.

But, hang arithmetic, I say.

Your balance sheet isn’t everything.

Habits drive the bus

Get the savings habit. Even when you’re in debt.

Put a bit of your income aside every paycheck.

Dictionary.com says a habit is an acquired behavior pattern regularly followed until it has become almost involuntary:

Habits control as much as 40% of our daily activities.

Most of us have a bad habit on the subject of savings: we label saving as something we can put off til later.

Later

When there are fewer demands on our money.
When our income has increased.
When the kids are grown
When the house paid off.

Whatever it it, we’ve created a habit of thinking that savings can wait til later. That saving will be easy at some future time, whereas it’s hard now.

Only for most of us, no matter what life benchmark we’ve passed, savings never looks easy. Or immediately rewarding.

So, it’s not easy. It’s just essential.

Essential for a stable financial life.

Start small building savings habit

You don’t have to jump head first into the gold standard “set-aside of 10-20% of your income.”

If you’ve got debts from your past, it’s probably not really feasible.

Start small. Save $30 bucks a month this month.

Save $35 next month. And so on.

Pay down your debts, but cultivate that saving habit.

Don’t allow yourself to think that saving is discretionary. That’s a nasty habit.

Yes, saving while you’re paying interest on old debts slows your climb out of debt.

But the savings habit gets stronger.

As your debt shrinks, your rate of savings can increase.

Along with your peace of mind.

That’s where I come down on which comes first: paying off debt or savings.

It’s not one or the other.

Smoke, mirrors, and budgets

Update your money software

The most powerful debt management tool: not what you think

Back taxes in Chapter 13

Chapter 13 puts taxes first

Which taxes have priority

Penalties kicked to the curb

Interest on tax debt

Discharge of taxes

Tax liens

Bankruptcy has advantages

Who files bankruptcy

Drowning in debt

Realities of negotiating with creditors

Protecting the credit score

Living on a financial knife edge

Bankruptcy misrepresented

What does it cost to stay in debt

Your balance sheet matters

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Statute of limitations

Administrative garnishment

Offset into retirement years

SBA debts dischargeable in bankruptcy

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Bankruptcy answers depend on your facts

A quick answer is risky

Legal advice online

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Debts discharged in bankruptcy don’t trigger cancellation of debt income–

IRS and state tax entities subject to the automatic stay

Bankruptcy can discharge income tax debt three years after return due

Chapter 13 is a quick and certain alternative to an OIC–

Tax penalties are dischargeable

Chapter 7 estate, but not 13 estate, is a separate taxpayer

Tax attributes of the debtor pass to the bankruptcy estate

Debtor can elect short tax year for the year bankruptcy is filed

Tax liens generally survive the bankruptcy case

Allowable deductions may be found in payments made on debtor’s behalf by Chapter 13 trustee

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Bankruptcy reform crashes

Best laid plans

Rooting for disapproval

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Just getting by

Paying off debt versus paying for old age

The bankruptcy alternative

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Guest posts shine

Two changes in bankruptcy law

Four from atop the Soapbox

Winners in order

10. Five Ways To Make Your Divorce Bankruptcy-Proof

9. When Chapter 13 Endangers Both Your House and Your Discharge

8. Realtor’s Guide To Home Sales In Bankruptcy

7. Are You Really Liable For Your Spouse’s Debts In California?

6. What Does Bankruptcy’s 90 Day Rule Really Say?

5. Cheat Sheet For Passing Bankruptcy Means Test

4. How To Spot Post Bankruptcy Errors On Your Credit Report And Fix Them

3. 7 Principles of California Community Property

2. How To Spend Money Before Your Bankruptcy Case Is Filed

1. California Homestead, Portrait of a Super Hero

Pay debts first is cheaper

Habits drive the bus

Start small building savings habit

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