Personal Bankruptcy

What will it actually cost me to file for bankruptcy?

If you are considering filing for bankruptcy you are likely overwhelmed with debt. So much so that the thought of one more bill is enough to put you over the edge. So, when someone tells you about the fees associated with bankruptcy is causes you to pause. The bad news is yes; it does cost money to file for bankruptcy. The good news is it bankruptcy is a relatively cheap option in comparison to the amount you owe creditors.

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How is it possible for people to blow through millions, or even billions of dollars?

It is counterintuitive that people who win the lottery or inherit tremendous amounts of money will end up bankrupt and yet, according to research studies, that is precisely what frequently occurs. When people win the lottery, their lives are changed forever, and often not for the better. Once the initial exhilaration wears off, typically within a few months, a new reality sets in and it is one that can be difficult to adjust to and manage.

Although the odds of winning the lottery are, as we're all well aware, extremely slim (something around 1 in 292 million), there are lessons to be learned from those who handle sudden wealth badly and suffer the consequences.  Some problems associated with acquiring sudden wealth, whether through winning the lottery or by other means, may be unpreparedness and susceptibility.
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When it comes to debt relief, there are good guys and bad guys. Unfortunately, the number of scammers entrenched in the debt relief industry is growing, and well-meaning Americans are facing disastrous consequences for working with so-called “credit counselors” and “consolidation specialists” -- all of whom are out to make a quick buck.

As practitioners of bankruptcy law, we know the options available to consumers -- and we are here to help. However, as one recent case points out, many debtors -- unaware of their choices -- turn to unscrupulous con artists for help with their fledgling financial situation, only to end up worse off than when they started.

Earlier this month, the federal Consumer Financial Protection Bureau (CFPB) reigned victorious over one such “debt relief” company, referred to in pleadings as “Morgan Drexen.” And, the verdict is hardly one to scoff at: $173 million.

According to the details of the lawsuit, Morgan Drexen offered clients “bankruptcy” services -- promising to help debtors avoid bankruptcy, or to minimize their exposure once the process began. However, Morgan Drexen performed “little to no” work on the clients’ files, and is even alleged to have falsified bankruptcy pleadings on clients’ behalf.

In essence, struggling debtors relied on the services of this “debt relief” company, and were ultimately taken advantage of in the process. If you are facing a difficult financial situation, the best resource is an experienced bankruptcy attorney that can offer realistic advice and reasonable solutions. As always, if it sounds too good to be true, it probably is.

For anyone defrauded by Morgan Drexen, the CFPB promises to forward letters to all former clients explaining their options moving forward. The letters will contain information as to whether certain debts have been repaid (or not) and what debtors need to do to rectify the situation.

When can a tax debt be discharged in personal bankruptcy?

For those struggling with debt, bankruptcy may be the best option for relief. Although the idea of a fresh start is tempting, some will warn that not all debts are dischargeable in personal bankruptcy. Some of these nondischargeable debts are domestic support debts, student loan debts and tax debts. While this is generally the case, it is not completely impossible to discharge tax debts.

Federal Tax Debts

If you are seeking to discharge tax debts, Chapter 7 bankruptcy is the best option because it allows tax debts to be discharged under certain circumstances. The only federal tax debts that can be discharged are income tax debts and specific requirements must be met in order for this to happen. Fraud must not be present for a tax debt to be discharged.The tax debt must also be at least three years old, meaning that the return was due at least three years ago. In addition, the tax return must have been filed at least two years prior to the filing of bankruptcy. Finally, the assessed debt must have been at least 240 days old prior to the bankruptcy filing or have not been assessed at all at the time of filing. If all of these conditions are met, the bankruptcy court will consider eliminating the tax debt.

State Tax Debts

The State of Ohio also discharges tax debts under certain circumstances that are similar to the federal requirements.The requirements include that there be no fraud or tax evasion present, that the debt is at least three years old, that the tax return was filed at least two years prior to the bankruptcy filing and that the assessed debt is at least 240 days old at the time of filing.

While it is difficult to discharge tax debts in a personal bankruptcy proceeding, it not impossible.  You should contact a skilled tax attorney to find out what your options are.

What is the bankruptcy rate for residents of Ohio?

A recent report by a Washington D.C.-based firm found that Ohio residents are in the bottom third of the nation when it comes to financial stability. In particular, Ohioans fared poorly in three categories: income poverty, bankruptcy rates and the liquid asset poverty rate (the percentage of households with less than three months savings at the poverty level).

Part of the reason for the low ranking might be the fact that the state has a higher percentage of low-wage jobs than the national average. Moreover, Ohio has a smaller percentage of so-called "micro-enterprises," or businesses with no more than four employees. As far as creating new businesses, the state ranks near the bottom nationally.

What are Ohio's Rankings for Poverty and Bankruptcy?

Ohio ranked at the bottom third of the report in the following areas:

• Income Poverty Rate. In Ohio, 15.1 percent of households live in poverty, compared to 14.5 percent nationwide. This might be the result of a lack of higher education for Ohio residents that stymies wealth creation.

   

•  Liquid Asset Poverty. This statistic is related to a family's ability to stay afloat in the event of a financial emergency.  Ohio's liquid asset poverty rate is 44.7 percent, compared to 43.5 percent for the United States.

   

•  Bankruptcy Rate. Ohio has 3.3 bankruptcies per 1,000 residents compared to the national rate of 2.9 per 1,000. This is partially the result of the foreclosure crisis stemming from the Great Recession of 2008. Homeowners facing foreclosure often will file for bankruptcy to stop a foreclosure proceeding. The foreclosure rate in Ohio is 2.43 percent versus 2.09 percent nationally.

What are the reasons for financial instability in Ohio?

Ohio residents are said to be "asset poor, vulnerable in the housing, and under-banked."

These factors undermine economic growth in the state and this is evidenced by a number of factors including:

• Low-wage Jobs. In Ohio, 28.4 percent of the jobs were low-wage, that is a job that pays less than $23,624 which is the poverty rate for a family of four.

• Micro-enterprise Ownership. The number of small businesses with less than 4 employees is 14.4 percent compared to the national average of 16.6 percent.
• Business Creation Rate. Ohio's business creation rate is 6.6 per 1,000 workers, 48^thof 51.

These are grim statistics, indeed, and many Ohio residents are struggling to stay afloat. But there is hope, and filing for bankruptcy may provide relief. If you have questions about personal bankruptcy, you should speak to a qualified attorney.

How do economic trends impact the rate of consumer bankruptcy filings?

While the the American economy continues to show signs of improvement since the Great Recession, some experts believe there will be an an upsurge in filings over the next several months. This prediction is contrary to data that shows that filings in Ohio are down as a whole. More specifically, in the Southern District of Ohio filings were down four percent in 2015, and a whopping 46 percent since 2009.

Why do bankruptcy filings rise when the economy is improving?

According to bankruptcy analysts, a strengthening economy can entice debtors to take greater risks, including pursuing personal bankruptcy protection under Chapter 7 or Chapter 13 of the Bankruptcy Code. One certified bankruptcy analyst recently recently told the the Dayton Daily News, that when the economy is doing better, there are more bankruptcies.

One possible reason for this is that people in better economies tend to be more optimistic about their earnings, so they leverage future earnings by incurring credit debt.

In other words, when bankruptcies are on the rise, consumers have more credit, take more risk, and more go bankrupt.”

Nationwide, trends are showing a “deceleration” in the number of bankruptcy filings, and national averages reveal a 42 percent decline since 2009. In 2015, there were 860,182 bankruptcy petitions filed nationally, a number which has declined just 20 percent since the year before. However, national data also reveals that nearly 62 percent of Americans have no cash reserves on hand in the event of an emergency, and the majority of households are continuing to live paycheck-to-paycheck.

Overall, analysts believe the number of filings will stabilize in 2015, and begin to rise in 2016 and beyond – especially considering the lending trends allowing for easier access to credit.

If you are considering a personal bankruptcy and would like to discuss your options, should you consult with a qualified bankruptcy attorney. 

I am considering filing for Chapter 7 bankruptcy-- how long will the process take?

For the indebted individual, there are two types of bankruptcy to pursue: Chapter 13 and Chapter 7. Chapter 13 bankruptcy involves a reorganization of debts and assets, as well as a payment plan generally spread out over six years. Chapter 7 on the other hand involves a liquidation of assets in order to absolve and forgive debts.

The Chapter 7 timeline begins with the filing a voluntary petition, at which point the debtor will receive a case number. If there are any mandatory documents missing from the filing, the debtor will have 14 days to amend the petition, a task  with which a bankruptcy attorney can assist.

The next step for the Chapter 7 petitioner is to present tax returns for the most recent tax year. These returns are filed with the trustee assigned to the case, and are not actually filed with the court.

The first major milestone in a Chapter 7 case is the preliminary meeting of the creditors – known as the 341 meeting. This must take place between 21 and 60 days from the date the case is filed. Forty-five days after the 341 meeting, the debtor must file a Financial Management Certification stating that the required financial education course has been completed.

Approximately 60 days after the first meeting with the creditors, the Bankruptcy Court will enter an order discharging individual debts if eligible under the federal rules.

Overall, a debtor considering a chapter 7 proceeding should expect a time commitment of no longer than 3-6 months from the initial filing until the conclusion of the process. From there, the former debtor can begin enjoying financial freedom and experience the relief of having his or her financial portfolio free from the constraints of crushing debt.

If you are considering consumer bankruptcy and would like to discuss your options with a reputable, experienced  attorney, please do not hesitate to contact Brian Lusardi, Esq. at Miami Valley Bankruptcy. Serving clients throughout the Miami Valley, Ohio area, he can be reached at 937-262-4789.

If an account is discharged in consumer bankruptcy, how will this be reflected on my credit report? 

Credit repair is one of the hallmark reasons for a consumer to consider the option of bankruptcy. While a Chapter 7 or Chapter 13 bankruptcy will be reported on a consumer credit report for a period of seven years, the consumer stands to gain significant benefits in that overwhelming revolving debts will be forgiven and erased from memory -- right? Well, not always so lawmakers have proposed a potential legislative solution. 

Under current regulations, banks and credit card companies are not necessarily required to report a $0.00 balance on an account discharged in bankruptcy. As a result, consumers’ credit reports continue to show outstanding (unpaid) balances, which unfairly indicate that the consumer has a much more extensive level of debt than is actually the case. 

Fortunately, Ohio’s own United States Senator Sherrod Brown is sponsoring a bill in Congress that would require both banks and debt buyers to report a $0.00 balance on accounts discharged in bankruptcy to the major credit bureaus. Under the proposed Consumer Reporting Fairness Act, debtors could also pursue legal action against a bank or credit card company that fails to report the zero balance in a timely manner. 

The bill has garnered significant support from groups including Americans for Financial Reform, the Center for Responsible Lending and the National Consumer Law Center. A statement by the National Association of Consumer Bankruptcy Attorneys, “estimate[s] that more than a million Americans who have gone through the bankruptcy process and have legally discharged debts find that their debts continue to appear on their credit reports. This practice of flaunting the bankruptcy discharge by some of the largest banks in this country is intolerable.”

Several U.S. banks are under investigation for debt-reporting violations, including JP Morgan Chase, Bank of America and CitiGroup. 

If you are considering consumer bankruptcy, or have questions about the process, please do not hesitate to contact the attorneys at Miami Valley Bankruptcy, serving Beavercreek, Xenia and Jamestown, Ohio, by calling (937)262-4789. 

What is the updated ‘undue hardship’ standard as published by the Department of Education in July, 2015?

With student loan debt crippling the nation, it is understandable that thousands of graduates are considering their options in bankruptcy. Historically, student loans were not considered a dischargeable debt in bankruptcy absent a showing of extreme undue hardship, which was considerably difficult to prove. 

However, the Department of Education has opted to extrapolate on its “undue hardship” concept, incorporating judicial holdings and its own interpretive guidelines to help students and bankruptcy attorneys alike better understand the threshold for obtaining relief. If you are struggling with seemingly insurmountable student loan debt, please do not hesitate to contact Miami Valley Bankruptcy to discuss your rights. 

Department to rely on formula

Essentially, the Department of Education has decided to implement a formula to help determine when not to object to an undue hardship request for student loan forgiveness. The Department’s position reads as follows: 

If [the government] determines that requiring repayment would not impose an undue hardship, the holder must then evaluate the cost of undue hardship litigation. If the costs to pursue the matter in bankruptcy court are estimated to exceed one-third of the total amount owed on the loan (including the current principal balance, any unpaid accrued interest, and current, unpaid accrued collection costs), the [government] may accept and/or not oppose an undue hardship claim by the borrower in an adversary proceeding.

Seems simple enough, right? Under the new guidelines, the government will likely not pursue an objection to loan discharge if the costs to litigate the matter would exceed one-third of the total loan balance. However, the statement does not give much detail on how the government plans to calculate its speculative litigation costs, nor does it provide students with an understanding on whether certain bankruptcy claims will involve more complex (i.e., more costly) litigation than others. Likewise, it does not offer guidance as to whether a loan servicer working on behalf of the Department is permitted to outright deny a request for discharge. 

With so many variables still in the air, we continue to recommend working closely with a Miami Valley bankruptcy attorney in order to maximize your chances of avoiding the burden of explosive student loan debt. 

For help with your student loan discharge request, please contact our Jamestown, Beavercreek and Xenia, Ohio bankruptcy attorneys right away: 937-262-4789. 

Can a debtor discharge old tax debts in Chapter 7 or Chapter 13 consumer bankruptcy?

In December, 2014, the U.S. Court of Appeals for the Tenth Circuit weighed in on an unusual tax situation involving a consumer bankruptcy proceeding and outstanding individual income tax debt. In the case, two individual taxpayers – husband and wife – failed to file a tax return in 2000 and 2001, resulting in an undisputed deficiency notice. In 2006, the IRS began collection proceedings on the debtors – who thereafter filed for bankruptcy under Chapter 13 and, later, Chapter 7. 

The U.S. Bankruptcy Code allows for the discharge of a wide array of consumer debts, including – in certain circumstances – outstanding federal tax liability. However, these discharges are only available where the taxpayer has actually filed a tax return for the tax years implicated in the bankruptcy proceedings, and are excepted if a tax return was never filed. 

Here, the debtors failed to file a tax return in 2000 and 2001, and were thereafter barred in their subsequent bankruptcy proceeding from discharging the tax debt accrued in those years. In their argument, the debtors explained that they actually filed post-assessment appeals with the IRS after the deficiency notices were sent. However, the U.S. District Court held that a post-assessment tax return is not the same as a traditional tax return due on April 15 of each year, and the tax debt was not dischargeable.  

On appeal, the debtors pleaded to the Tenth Circuit that they should not be liable for the 2000 and 2001 tax debts, as a tax return was filed (eventually). However, the Tenth Circuit sided with the IRS and U.S. District Court, holding that a timely tax return must be filed in order to benefit from the dischargeability allowances in the Bankruptcy Code. In other words, a post-assessment filing is simply too little, too late. 

The debtors have since filed an appeal with the U.S. Supreme Court, and it is unclear whether the court will grant a writ of certiorari to review this complex issue at the intersection of bankruptcy and tax law. 

If you are struggling to meet your debt obligations, are considering bankruptcy and would like to speak to a reputable attorney about your situation, contact the knowledgeable legal team of Miami Valley Bankruptcy at 937-262-4789 today. 

In the event a bankruptcy matter involves an equitable or legal claim, can the bankruptcy court handle this matter or must the litigant resolve the issue separately? 

In a consumer or business bankruptcy matter, there often exists collateral matters that arise as parties settle with creditors or discharge debts. In 2011, the U.S. Supreme Court considered a bankruptcy action wherein the parties were in dispute over a common law matter, and the Court held that the bankruptcy judge had no actual jurisdiction to make a decision on the issue. While the U.S. Constitution clearly articulates this jurisdiction to the “Article III” Courts (i.e., federal district courts), the requirement to re-litigate collateral claims outside bankruptcy court was proving to be not only inconvenient, but wasteful and time consuming. 

In 2015, the Supreme Court revisited the issue, and arrived at an alternative conclusion in a 6-3 opinion penned by Justice Sonia Sotomayor. The case, described more fully below, stands for the notion that a collateral common law or equitable matter directly related to a bankruptcy filing can be decided by a bankruptcy judge, and U.S. bankruptcy courts should have jurisdiction to hear these issues – provided the issues are incident to the overriding bankruptcy claims. 

Court’s Decision in Wellness International Network, et. al. v. Richard Sharif

The Wellness case involved an individual consumer debtor seeking to have a debt owed to Wellness International discharged. Pursuant to the filing, Wellness International sought a declaratory judgment that Mr. Sharif maintained several trust accounts that should be accessible to creditors and available to help pay off or reduce debts prior to discharge. In the interim, the Supreme Court rendered its decision in the aforementioned 2011 case, and declared that only direct bankruptcy issues are to be decided by bankruptcy courts – and that a declaratory judgment does not fit into that category. 

In a contrasting decision, the Court reconsidered its position and held that parties may mutually agree to litigate non-bankruptcy matters in bankruptcy courts, so long as all parties consent to the decision voluntarily. More specifically, the Court premised its holding on the notion that “[a]djudication based on litigant consent has been a consistent feature of the federal court system since its inception.  Reaffirming that unremarkable fact, we are confident, poses no great threat to anyone’s birthrights, constitutional or otherwise.”

If you are considering consumer bankruptcy and would like to discuss your rights and obligations under current laws, please do not hesitate to contact our Miami Valley bankruptcy attorneys at today by calling (937)262-4789.