Bankruptcy Dismissed with No Discharge

Case Dismissed without Discharge?

Now what?

You’ve done your whole case and do not have a chapter 7 Discharge because your attorney forgot to tell you that you are required to do a Debtor Education Course. The Debtor Education Course is also called a Financial Management Course. You must file a Financial Management Course Certificate with a coversheet called Official Form B23 prior to the end of your case. If you do not, your case is dismissed, but not discharged. That means that your creditors start coming after you again just like before your case started. They go back to suing you, garnishing your wages, levying your bank account and so on.

Is there anything you can do?

Of course there is, there are at least a couple of options, the first is to file a new bankruptcy case. No this is not the best option, it’s merely an option. Why pay in full over again for a whole case. So, try the second option, if you haven’t waited too long, then reopen your case and file the form. Reopening the case while not overly complicated, can also be done quickly in most cases. A couple came in last Friday, and they had their Discharge Order the following Thursday, today.

To reopen your case I must file a motion with the court, and request a 30 day extension for you to get your Debtor Education or Financial Management Course Certificates filed together with the Official coversheet or Form B23. Most judges will sign the order with their eyes closed unless you’ve waited an extremely long time. However, I’ve seen them routinely granted for cases where the case has been closed less than 4 to 6 months.

Unless you’re my client and you can prove to me that you didn’t know about the requirement to complete the course, then you’ll have to pay me to reopen the case, upload the order and upload the certificates. There is a $260 filing fee (at this writing) and the attorney’s fees for the rest of the work is $500 per case.

If you can prove to your attorney that he or she never told you about the requirement, then he or she should maybe reopen it for you. However, even if your attorney forgot to tell you about it, the Bankruptcy Court itself sent you a notice explaining the requirement. So, you’d have to be able to prove that your attorney didn’t tell you and that you moved and that your attorney knew that you moved and that your attorney knew that the notice was sent from the court and at the same time that he hadn’t sent in a change of address for you and on and on. In addition, many of the Bankruptcy Trustees will explain it to you at the hearings. So, pretty much, you will have to pay the fees to reopen the case. Often the attorney’s fees to reopen cases are high. Some attorneys charge as much as $1000 or $1200 to reopen your case.

Call me Attorney David Nelson 951-200-3613, we’ll get it done fast and affordable and get you your Fresh Start. Creditor phone calls and harassment will stop again, law suits and wage garnishments will go away. I’ve been a bankruptcy lawyer in Murrieta and Temecula area since 1994. I love getting people out of debt. But don’t wait too long, if you’re in this situation, call immediately because procrastination will hurt you if you do not get your discharge completed, creditors get to keep whatever they can collect from you before you get it done.

Bankruptcy and Income Taxes and Tax Liens

The California Board of Equalization and California Franchise Tax Board are a bunch of rats clamoring over a cadaver with very little meat left on it’s bones. If you ever make an offer to compromise a debt, never have the money in an account with your name on it. Your attorney’s trust account might be a good place.

DISCLAIMER: Nothing in this article OR WEBSITE may be mistaken as legal advice. Attorney David Nelson, is licensed only in California, and this article is intended only for readers in California. This article is for entertainment, educational, extra-curricular, and medical purposes only. If you decide to rely on this, heaven help you. Remember also that I’m not a tax attorney, I’m a bankruptcy attorney in Murrieta near Temecula CA.

Chapter 7

Yes, you can discharge taxes in bankruptcy. No, not all of them but some of them. I hate to mention this part, when it comes to credit cards, medical bills and collection agencies, I only want one statement so that I have the addresses, account numbers and balances. But with the IRS, Franchise Tax Board and Board of Equalization, I want you to bring every letter with you that they ever sent you. In those letters are the answers to many of the questions and rules we will go over below. California sales taxes are calculated against gross receipts and therefore discharge in bankruptcy under ALMOST the same rules. For the specifics of the noticing requirements which you must give the California Board of Equalization in an article written Mark Sharf regarding the Ilko case, Ilko v. California Board of Equalization, click HERE.

To discharge income taxes, whether Federal or State, or California Sales Taxes, many rules have to be followed. Because this article only discusses income taxes, then it is important to remember that these are taxes that are assessed against gross income or gross receipts. See 11 USC 507 a 8 and 11 USC 523 a 1

There are several rules involved. What’s worse is that the rules all involve the timing of the bankruptcy. Often you’re in my office because of a lawsuit or a wage garnishment, or your bank account has recently been levied and you want to file immediately in order to stop the bank or your employer from sending your money to the Sheriff’s Office.

Problem is this, if you owe a bunch of money to the IRS and have to wait to file your bankruptcy in order to get rid of the tax, you’re going to have to decide whether the amount of tax to be discharged is more or less important than the amount of money the Sheriff is about to take away from you. Notice that I said more important not bigger.

The Rules

  1. The tax year must be over. Kind of a “No Duh” moment.
  2. The tax return (if required) must have been filed. This is also sort of a “No Duh” moment. Prior to 2005 you used to be able to discharge the tax even you hadn’t filed your return if you chose to file a chapter 13 bankruptcy instead of a 7. Many great things about the bankruptcy code were eviscerated in 2005 when republicans and democrats who had taken hundreds of millions of dollars in lobby money over the course a decade finally gave us bankruptcy reform. Conveniently this happened right at the start of the economic downturn. Literally, the housing market went flat one month before the bankruptcy reforms went into effect. Hmm, I wonder how the banks knew it was finally time to get the bankruptcy reforms passed? Bottom line is, if you owe federal or state income taxes in California and you haven’t filed your returns, your bankruptcy is not going to help you get out of paying your taxes. So file your tax returns, make sure you get proof that they received them, and call back in two years. But what if you were audited, and at the end of the audit, you signed the audit, that is not a substitute for your filing of your return? What if you didn’t file a return and the IRS files one for you? When it comes to filing returns, YOU must be the one who files it, not the IRS, or other taxing authority. If you cannot remember if you filed the returns, contact the IRS and get an IRS Transcript for the tax year or years in question. You can download the Transcript request from the IRS website.
  3. If it turns out that you didn’t file your return, then you will have to decide if you want to file your tax return now and then wait for just over two years to file your case, can you handle the other wage garnishments, bank account levies and lawsuits that will take place during that time. You will have to weigh the amount of tax you can get rid of compared to the amount of wages that will be garnished and what will happen to your bank accounts and having to go to court for judgment debtor exams, and if you don’t go to the judgment debtor exam, the court will issue a bench warrant for your arrest and on and on.
  4. DISCLAIMER: Make sure that you speak with an attorney now and get this advice from an attorney as bona fide legal advice before you make your decision. This article is not your legal advice.
  5. The tax return’s due date must have been more than 3 years prior to the filing date of your bankruptcy petition. Notice it says “Return’s Due Date”. Commonly called the 3 year rule, this is where most people stumble and file their bankruptcy petition too early. Tax Returns are due in April! On top of that, if you got an extension to August, then they were due to be filed in August. What if you extended to October? If you cannot remember if you extended, contact the IRS and get an IRS Transcript for the tax year or years in question. You can download the Transcript request from the IRS website. Alternatively if there is nothing else pressuring you to file you could just wait until October 20th to file. I assume you can get a tax transcript from the Franchise Tax Board or Board of Equalization if you need one. A little while ago, the IRS decided that all extensions were automatically extended to October 15th, I don’t remember which year that started, but from now on, if you think you filed your extension to August, then you must file your bankruptcy in November 3 years later.
  6. If you filed your tax returns late, your returns had to have been filed with the IRS or other taxing agency at least 2 years prior to filing your case. This is true whether you owe income taxes to the IRS or the State of California or whatever state you owe taxes too.
  7. Assuming you have beaten the 3 year rule, and the late filing rule, you still have to have beat this one. The tax must be assessed at least 240 days prior to filing your bankruptcy petition. That’s about 9 months. Assessed means that they have decided you owe, how much and told you so. In California, you get a letter that says: Notice of tax due. It won’t say “assessment” and probably won’t say “assessed” either. California’s notice of tax due is a weird animal, it does not become effective until 60 days after they send it. So, in California, it’s a 300 day rule from the first letter. Our Franchise Tax Board will send a 2nd letter stating that the notice is “final” and from there your 240 days starts. At this point people often ask the IRS, Franchise Tax Board or Board of Equalization if they will take less, give them a break. Called an offer to compromise, if you’re going to file a bankruptcy, DON’T DO IT. An offer to compromise delays the 240 day rule. Sort of like the extensions on filing your tax returns under the 3 year rule. You have to add 60 days to the time that your offer is pending plus the time that your offer is pending to the 240 days. That can extend your 240 days automatically by 60 days even if you withdraw the offer to compromise the tax debt on the same day as you make the offer. If you filed a bankruptcy previously during the 240 day period and it was dismissed and now you have to refile, you must add the amount of time your bankruptcy was pending to the 240 days plus another 90 days. So, even if your previous bankruptcy was dismissed after a month you must add 4 months to the 9 months. That’s an overdue baby.

A client, and no kidding his real name was Groucho Marx, (the names were changed to protect the innocent) owed $50,000 to the Board of Equalization, and $250,000 to the IRS. And no kidding, his rich uncle, (it wasn’t his uncle) died and left him some money, 15% of the total taxes owing. After calling the IRS and talking them into taking a 15% pay off, the IRS put a condition on the deal, he had to get the State of California’s Board of Equalization to take the same deal. Stupid condition but that’s what they told him. So, he calls the BOE and says hey they’ll take 15% if you do, what do you say? Unfortunately, they said, “we’ll get back to you.” A week later they answered by taking all of his money out of his bank account.

Even if since Bush the IRS is kinder and gentler, the Board of Equalization and Franchise Tax Board in California are a bunch of rats clamoring over a cadaver with very little meat left on it’s bones.

“Maybe you can’t squeeze blood from a turnip, but you can eat the turnip.”
~David L. Nelson and yes, I just quoted myself.
 

If you ever make an offer to compromise a debt, never have the money in an account with your name on it. Never have it in your wife’s account. Never have it in your S Corp’s or your LLC’s name. In fact, you might want to have it in a hole in your back yard before you make the call.

I had another client who back in 2006 owed every year from 1995 to 2000. Turned out he had filed every year except 1996 which the IRS had filed for him. He was dead certain that he had filed it and was totally surprised when it wasn’t he that had done the filing. Fortunately for him there is a 10 year statute of limitations on the collection of federal income taxes. In his case, because he had been sued, the creditor had a big judgment against him and his wife and was about to garnish both their wages he could not file his return himself and wait out that two years. The amount that would have been garnished would have been greater than the amount of tax he would have discharged by waiting. If you cannot remember if you filed or extended, contact the IRS and get an IRS Transcript for the tax year or years in question. You can download the Transcript request from the IRS website.

Chapter 13

The rules are nearly the same but you get to put the taxes you owe into a payment plan. Plan details can be tricky but you no longer get the good benefits such as discharging taxes without filing the returns and so on like you did before the law change.

Tax Liens and Statute of Limitations

Many of you have asked about Tax Liens. Yes, there is a 10 year statute of limitations on the collection of the tax. Tax Liens are only one method of collection. The question of how long is the tax lien enforceable once recorded is a different question which we will get to in a moment. Have a look at Internal Revenue Code IRC 26 USC 2605.

26 USC 2605(a) Length of period

Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun—
(1) within 10 years after the assessment of the tax, or
(2) if—
(A) there is an installment agreement between the taxpayer and the Secretary, prior to the date which is 90 days after the expiration of any period for collection agreed upon in writing by the Secretary and the taxpayer at the time the installment agreement was entered into; or
(B) there is a release of levy under section 6343 after such 10-year period, prior to the expiration of any period for collection agreed upon in writing by the Secretary and the taxpayer before such release.
If a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable.

So, the date the statute of limitation starts the assessment date and it runs for 10 years from the assessment. Is that true in every case? Of course not. There a few notable exceptions, all of which only add to the 10 years, none of them subtract from it.

The one that matters the most on my page is the bankruptcy extension of the 10 year period. Extensions of statutes of limitations are calling “tolling” of the statute of limitations. It just means that you did something that made it impossible for the IRS to collect for a certain amount of time therefore you have that amount of time added to the total amount of time that they get to collect. The Statute of limitations is extended.

Filing bankruptcy extends that statute of limitations for the amount of time you are in bankruptcy plus six (6) months. If your chapter 7 bankruptcy lasts 4 months and plus 6 more then they get to collect against you for 11 years for any pre-bankruptcy non-discharged taxes.

In the Severo case, Severo v. IRS (9th Cir. 2009) the Severos owed money for 1990 income taxes. They filed an extension on the filing of the tax returns to October 15th 1991. However, they filed their bankruptcy in Sept of 1994. You can see by reading above that they filed about a month too early to discharge the tax. Oops. They also filed a chapter 11, then about a year later converted it to a chapter 7. Just as an aside, the chapter 11 bankruptcy not only extended the 10 years statute of limitations on the collection of the tax, it also extended the “three year rule” listed above. So, if they wanted to discharge the tax in the chapter 7 they would have had to dismiss the chapter 11 and wait a little while then refile as a 7. Sadly they didn’t do that

Also their chapter 7 case lasted until early 1998 when they got the chapter 7 discharge. So, from Sept of 94 to March 1998 they were in a bankruptcy. That gave the IRS an additional 3 1/2 years to collect. In other words the 10 year statute of limitations grew or expanded to a 13 1/2 year statute of limitations. That’s what tolling does.

Notice that during that 10 years, if the IRS sues you and obtains a judgment then they can enforce the judgment for the amount of time that your state allows them to. In California judgments are good for 10 years and may be renewed for an additional 10 years. So, they could conceivably follow after you for 30 years

Length of Time of the Lien

Internal Revenue Code Section 6321 states that the lien is created when the tax is assessed, the IRS has sent you a notice and you don’t pay it. If the lien is created when you don’t pay or it’s inception is at assessment is at present an unresolved issue. In most cases, it’s probably a non-issue because they’re coming to get you either way. Circle the Wagons!

How long does the lien last? Internal Revenue Code Section 6322 states that the lien will continue until the assessed tax is satisfied or becomes unenforceable by reason of lapse of time. So now you can see why I spent so much time on the Statute of Limitations

Here’s an excellent discussion of Tax Liens by Attorney Tony Mankus.

Disclaimer: Nothing in this article may be mistaken as legal advice. Attorney David Nelson, is licensed only in California, and this article is intended only for readers in California. This article is for entertainment, educational, extra-curricular, and medical purposes only. If you decide to rely on this, heaven help you.

Bankruptcy Means Test Basics

Bankruptcy Means Test Basics

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Bankruptcy Means Test is the Chapter 7 Qualification Test. However, if you do not qualify for a 7, it is also used to determine the amount of your chapter 13 plan payment. Additionally, it determines the duration of you chapter 13 plan.

If your income is above the median income your chapter 13 payment plan must last for 5 years.  If below then only 3 years.

You can always file a chapter 13 which is often a much better idea than a debt consolidation. A chapter 13 is a type of debt consolidation however, you as the consumer have the upper hand.  You have the power.

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Reaffirmation Agreements

REAFFIRMATION AGREEMENTS

A Reaffirmation Agreement is a new promissory note to keep paying on an old contract for the purchase of goods where the lender can repossess or foreclose the goods.  Because you have signed a security agreement the lender has the right to repossess or foreclose if you do not pay for it.

Chapter 7 bankruptcy discharges your personal obligation to pay the loan, or in other words, you no longer have to legally pay on the note.  However, the lender still has a lien on the object(s) in question. Jewelry, refrigerators or large appliances, and most notably cars can be repossessed in this way.

What a reaffirmation agreement does: It allows you and the lender to agree that you may keep the goods so long as you continue to pay for them.  When executing a reaffirmation agreement with the lender sometimes the lender will reduce the balance owing, the interest rate or both.  As a result the payment and term can be reduced.

Nowadays most lenders will not reduce the interest rates and balances on cars.  Home mortgages never do.  You can often reduce the balance and interest rates on appliances, jewelry, computers and motorcycles.

If you do sign a reaffirmation agreement, you will have 60 days to change your mind and rescind it.  Rescissions must be in writing, served on the creditor and preferably filed with the court.

MORTGAGES

You would never reaffirm a mortgage.  Never.  Seldom but sometimes a mortgage lender will tell a client that the client’s post bankruptcy mortgage account would show up as good credit on their credit report if the client had just done a reaffirmation agreement.  It’s all the bankruptcy attorney’s fault that the client’s credit is not better than it is right now because he didn’t tell the poor client to reaffirm the mortgage.

Most mortgage companies will not do this to you, just a few.  Ones that do are unscrupulous and are aiming to get you to sign your life away.  They want you tied to that mortgage through the reaffirmation agreement come hell or high water.  If they can just do that, then if you foreclose, maybe they can sue you.  If you are in a worse position later, maybe you have to short sell, and when you do, they will ask you to pay them back sometimes, $10,000 to $50,000 in order for them to approve the short sale.

No, we don’t know what will happen, but I have a client right now who is being sued by a lender, his former first mortgage, who asked him to sign just such a promissory note in order to approve his short sale.  Fortunately for him, he did not do a reaffirmation on his mortgage during his bankruptcy.  Therefore, his mortgage company cannot in fact stick him with the debt, but for some reason they think that they can.  Wrong, they cannot.  We will be suing them soon for violating the Bankruptcy Discharge Order.

Because we do not have a crystal ball, and because the length of the term of a mortgage is so long, we NEVER sign a reaffirmation agreement on a mortgage.  This is the industry standard.

CARS AND VEHICLES

Legally, WITHOUT a reaffirmation agreement the lender can repossess your car, even if the car payments are current.  However, at this writing, the only companies who do are Ford Motor Credit & Jaguar Credit & California Coast Credit Union.   I cannot promise that other companies will not change their policies and begin behaving like Ford.

WITH a reaffirmation agreement, as long as the payments are current, then they cannot take the car just as before the bankruptcy.  However, just as before the bankruptcy, if you get behind in payments they will take the car AND sue you for a deficiency balance.

If you get behind, WITH or WITHOUT a reaffirmation agreement, they will definitely repossess the car.  So, the thing to do is to ask yourself, is the economy getting better or worse?  Answer:  Worse, my business is constantly picking up.  Everyone who comes in tells me that the business they work for is dropping off.  Fewer orders, fewer sales, employees are being let go.

So, if you just keep making the payments and don’t worry about it, you have a great probability of nothing changing, and eventually once the vehicle is paid off, they will still have to give you the pink slip.

If you sign and file a reaffirmation agreement, and then change your mind, you have 60 days to do so in writing and it must be in writing, signed and filed with the court.

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Bankruptcy Attorney David Nelson

Temecula Bankruptcy Attorney David NelsonTEMECULA BANKRUPTCY ATTORNEY DAVID NELSON

I have been a Bankruptcy Attorney since the very beginning. Having graduated in the top 15% of my class I passed bar the first time and in June of 1994 I opened my law office.  Back then there was a recession and it was just natural to open a bankruptcy practice.  I saw a need and was able to fill it.

I’m an expert in the field of bankruptcy.  Since 1994, I have been passionate about getting my clients out of the troubles they find themselves in.  Certainly many of us might think that if we’d just planned better, we would have been able to avoid the challenges facing the country right now.  While it might be true, it’s probably more accurate to say that there was no way to plan our way out of the whole economy crashing down on us.

I’ve seen first hand the blessing that Bankruptcy can bring to individuals and families.  Think about this for a moment:  What is it that you fight about the most?  Is it too much money, “Dang what are we going to do with all these 20s honey?”  No, it’s the lack of money.

But what if we could cut the arguments in half?  What if we could at least take the arguments from: which debts do we pay this month with the little bit of money we have? and transform those to: how do we set up a savings for the little that we have?  That’s what Bankruptcy can do for you.

If you could start the day knowing that your credit cards, medical bills, repossessed cars, 2nd mortgages, and so on were all going to just disappear, how would you feel the rest of the day?

Wouldn’t you treat your spouse better?  Wouldn’t you be kinder to your children and co-workers?  Wouldn’t you have a better marriage, family, career?

I’ve probably saved more marriages than most marriage counselors over the same time period. You don’t need to know how to talk to each other about money, you must do something about it.

What if you could go back to paying your tithing or your favorite charity again?

Do something about it.  Make the Call Right now to set the Appointment that will change your lives.  Call 800 FILE AWAY or 800 345 3292, call right now.

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