Bankruptcy attorneys will attest that around tax time, the following question is very common: Is it possible for me to pay my tax debt with a credit card, and get it discharged later on when I file Chapter 7 bankruptcy?

The answer is tricky, but the general response is that no, it is not allowed to do that. Bankruptcy Code has it written out that discharging tax payments on credit card debt is impossible unless the tax debt itself is dischargeable.

The tricky area comes when bankruptcies follow credit card tax payments by months. Take the following scenario for example: Tax deadline has passed, and you paid $9,500 in tax debt to the government, all of which was put on a credit card. Over 4 months time, you have paid $8,000 in payment to the credit card. Also during that time, the card continued to be used to day-to-day purchases such as gas, electricity, food, water, etc. In August, you determine that you need to file for Chapter 7 bankruptcy, at which time the credit card has a $12,000 balance. How can you calculate what portion of that outstanding debt is still from the taxes back in April? Is any of it? How much does Bankruptcy Code Section 523(a)(14) or (14a) say is dischargeable and non-dischargeable?

Some of these questions have easy answers, but more often than not, they don’t. You will need to ask an attorney about your specific case to determine what the outcome of your bankruptcy filing is likely to be. You also want to make sure that you bring these questions up to an attorney as soon as possible. Many bankruptcies can be predicted a decent way out, so don’t delay: Ask as soon as you see a Chapter 7 filing coming. An attorney will be able to provide you with the legal advice you need.

That is, of course, an extremely long length of time, but for every single month in that time period, it is absolutely crucial to stay completely on top of every single trustee payment. Set yourself multiple alerts each month, on your computer, phone, tablet, work computer, etc. Mark it on your calendar in big red letters, and do everything in your power to not let it slip at all. Sometimes it’s possible (and even required) to have the payments automatically deducted from your paychecks. You have to be careful even with automatic payments, though. Sometimes it takes 2-3 pay cycles for the amount to be deducted, and during the meantime you will be responsible for sending in physical payments.

Confirmation hearings are postponed on a regular basis due to debtors being just one or 2 payments behind, without even realizing it.

You are in a “probation” period leading up to the confirmation hearing. During that time, the entire bankruptcy plan is examined, including the payments. It is fairly common for the payments to be adjusted slightly in the confirmation, and if that happens, you need to again be absolutely on top of your payments, and making sure that the correct amount is going to the trustee each month.

Once your confirmation hearing is complete is when the real work begins. You must continue making your trustee payments for a period of 5 years, and if your employment situation changes at all, your entire plan could be placed at risk. If your pay gets cut or you lose your job, it is critical that you contact your attorney right away, so that they can deal with the change. If you notify no one, and miss a few payments, the trustee can file a trustee Motion to Dismiss, which generally ends up with your monthly payment amount increasing, or even requiring a lump sum payment.

If your situation changes at all after your confirmation hearing, contact your attorney immediately!

What if my chapter 13 was dismissed?

If you ask any bankruptcy attorney about Chapter 13, and the 60-month repayment period, they will undoubtedly tell you how common it is for emergency situations to cause a debtor to miss a payment or two, which inevitably leads to the trustee filing a Chapter 13 Trustee’s Motion to Dismiss with the bankruptcy court. Sometimes that motion can cause repayment plans to extend past 60 months, but just as frequently, the motion can require a lump sum payment of all the amount that is currently past due, and the regular monthly installments continue as normal.

What has been known to happen, however, is that the financial situation that caused the debtor to miss the payments will also drain the debtor of any saved up cash, preventing them from paying off any lump sums. When this unfortunate chain of events unfolds, bankruptcy judges usually grant the trustee’s motion to dismiss.

This leads to your Chapter 13 bankruptcy plan being dismissed. Unfortunately, this restores your creditors’ abilities to pursue the money that you originally owed to them, and they can (and will) start the harassing phone calls, lawsuits, repossessions, and foreclosures.

The creditors aren’t just allowed to pursue the amount of debt that was agreed upon in the Chapter 13, either. When your case is dismissed, the full amount you owe is restored, which leads pennies-on-the-dollar to become 10-20x its value, putting you in an even worse financial situation.

You can re-file for Chapter 13 with a judge’s approval, assuming that the missed payments were due to something outside of your control, but with only a 30-day automatic stay, and the trustee will be even more suspicious than they were the first time around.

If you are at all in danger of being unable to make your trustee payments, or you foresee something that could make it more difficult to make the payments, contact your attorney right away! Delays could cost dearly.

The main thing that is likely to happen as a result of the trustees raising their payments is that middle class families are likely to be squeezed even more than they already are. These households typically have around $20,000 in credit card (unsecured) debt, but their living expenses are such that they don’t have much expendable income with which to pay the unsecured debts. Furthering the potential harm, these households are the most likely to wait until bankruptcy is a last resort, which can make their financial situation even more precarious.

Another huge issue that too often gets ignored in budget planning is emergency or unexpected expenses that can, and do, arise over the course of 5 years. Basically, these restrictive trustee plans that are forced on individuals are almost set up to fail from the beginning. Bankruptcy was designed to allow the 2 different sides of the borrower/debtor arrangement to come together, and formulate a mutually beneficial plan. That purpose is thrown out the window when individuals have plans placed upon them that they have to suffer for years to meet.

Generally, trustees and bankruptcy courts want to discourage Chapter 7 filings, where assets are liquidated, and would rather put people into Chapter 13 bankruptcy, where a repayment plan is formulated. The result of these restrictive trustee plans, however, is that many more people are trying to file for Chapter 7 than otherwise would. Sometimes individuals even ask if they can leave their job for a few months, until the Means Test qualifies them for Chapter 7 filing, instead of trying to pay back an impossible plan for year after year. Doing that is considered income suppression, however, and is a serious thing in the court’s eyes, but it is likely that some individuals will take the risk anyway.

It remains to be seen if this trend will continue, or if this is merely an isolated case and will go away. One thing is for sure, though: Finding an experienced bankruptcy attorney to represent you is even more important now than it was before.

Take the following situation, for example: You file for Chapter 13 bankruptcy, after spending weeks getting the plan all formulated and perfect, only to have the trustee file an objection one mere week before confirmation, by claiming that your claimed monthly expenses are too high. You and your attorney will ask for the areas that they claim are too high, and they will provide information outlining their problem areas.

When asked about it, you tell your attorney that you are struggling to make even basic food purchasing payments, your attorney provides that information to your trustee, and the trustee agrees. However, they do not back down from their objection, since the payout amount that goes to the unsecured creditors is not even 50 cents on the dollar. When this happens in a bankruptcy filing, your options are fairly limited, but your attorney will probably decide to move the confirmation date to after the date when all creditor claims are due. Some creditors may not file claims at all, so this method can work. When creditors don’t submit claims, the ones who do receive a higher payment amount, which might satisfy them.

What makes this even more confusing is the fact that the trustee is the only one who has raised an objection; not a single creditor objected, and your monthly trustee payments may be well over $1,000 a month.

What is likely causing this trend is that trustees are expecting half of the unsecured debt (at a minimum) to be paid, which has never been the case before. It is not likely the trustees who are the cause of this change, however. They are most likely only doing as they are instructed by the U.S. Attorney’s Office.

Please stay tuned to the next entry for some of the issues that this recent trend can cause in Chapter 13 bankruptcy filings.

Even famous people commonly have to file. The news is often full of reports of actors/actresses, sports icons, and musicians that find themselves in dire financial straits, and are forced to file bankruptcy. The economy has been hard on everyone recently, and there has been a larger number of bankruptcy filings in recent years than ever before.

Famous people often are in the headlines more often, simply because their financial situations tend to be much more extravagant. Everyone who is familiar with MC Hammer, who was famous in the 90s, knows his famous story of how rapidly his fortune ran out. For many famous people, it is that way. They get used to a certain lifestyle, and once they hit financial difficulties, it all crashes around them.

There have been many notable cases in the news lately, one of which was of former football star Warren Sapp. The cause of his financial troubles was the same the causes issues for many individuals: Too frequent large purchases. Sapp was famous for being an avid collector of expensive paintings, which as any collector knows, can easily cost hundreds of thousands of dollars for the better known ones. On top of that, Sapp made a series of poor real-estate choices, which ultimately led to his needing to file for bankruptcy.

Financial hardships hit everyone at some point or other. Many people are able to make it through on their own, but just like visiting a doctor, sometimes an individual needs some outside help. If you are experiencing financial hardship, please consult with a bankruptcy attorney to find out your options. Bankruptcy could be the best solution for you and your loved ones.

The businesses that received these honors were Community Tire Pros & Auto Repair, located at 123 E. Durango St. in Phoenix, Drug Valet, located at 1505 E. Weber Drive in Tempe, and Kinetic Muscle Inc., located at 1800 W. Broadway Road in Tempe. The luncheon, which was on the Arizona Capital lawn, saw the 3 businesses awarded with Success Awards.

The Arizona Small Business Development Centers (SBDCs) put the event on every year. They have 11 physical locations spread all over the valley, most of which are on Maricopa County Community College campuses. They are affiliated with the U.S. Small Business Administration, and are known for offering free counseling services, and business expertise to many small businesses.

This event, which has occurred every year for the past several years, affords the SBDC with the opportunity to meet with local businesses and their owners, and allows everyone to celebrate the successes that have arisen out of their relationships together.

Ed Koeneman, the chief executive officer of Kinetic Muscle, has this to say about the SBDC: “We have gotten a lot of networking opportunities and they keep their eyes out for programs and opportunities.” He says that his company has been in partnership with the SBDC for more than 10 years, and when he was asked for specific details about how his relationship with the SBDC had benefitted him, he said that his company (with the SBDCs guidance and input about business operations) was able to make it safely through the worst part of this recession.

The co-owner of Drug Valet, Dominic Dividio, agreed by saying that when his company came under such great financial strain that they could no longer manage it, the SBDC helped his company file for Chapter 11 bankruptcy restructuring. Dividio went on to mention one specific counselor that helped him, saying “our plan went through the first time. John Henry Smith was instrumental in getting our (bankruptcy) plan approved.”

The owner of Community Tire Pros & Auto Repair, Howard Fleischmann, describes how he came into contact with the SBDC by saying that he was introduced to it by the Academy for the Advancement of Small, Minority-and-Women-owned Enterprises, and that the 2 programs have had a large impact in how his business operates. He said that “you have to be open to new ideas. You have to want help.”

There were many state leaders at the event, in addition to small businesses. Arizona Secretary of State Ken Bennett and Governor Jan Brewer were in attendance. Bennett even played guitar and sang a song before addressing the audience. Bennett’s family has been a long-time influence in the small business market, with one of his family businesses celebrating its 75^th anniversary this year.

Gov. Jan Brewer, when addressing the audience, said “Arizona small businesses are the engine of economic development and innovation in our state. Cultivating these small businesses has been a priority of mine as governor, and I’m committed to fighting for the fundamentals they need to succeed: a ready workforce, lean regulations and competitive tax policies.”

What has been happening more often lately, though, is that the people being sued for these debts owe rather small amounts of money, and sometimes don’t even owe the money at all.

Have you ever been in a parking garage, and when it comes time to leave, they only take case and you are out? Sometimes the attendant will merely let you through, but sometimes they will write you out a promissory note for just a few dollars. On that promissory note, it usually states that they can take you to court over the debt, and if they are awarded judgment, you will be responsible for their attorney’s fees and other costs.

Chances are that won’t happen for a $3 debt, but it’s shocking the amounts people are being sued over. For example, in California, a new debt purchasing company has been buying old Hollywood Video accounts, and suing people for past due balances. One person was sued for $24, a debt from back in 2009.

It is common to dispute these charges, and if the debt purchaser doesn’t fight too hard, it’s easy to have the case dismissed. However, if push comes to shove and they are demanding proof that you do not owe the debt, how many people will be able to provide rental receipts or account information from that far back?

If you have been sued by a debt collection agency, contact an experienced lawyer today, and ask about your legal options. Fighting the lawsuit may be easier than you expect.

The legislation outlines requirements that the debt purchaser must meet before they can bring a lawsuit against an individual, and obtain a judgment. They must be able to prove with documentation that the individual they are suing owns the debt, as well as the balance of the debt, the date that it went into default or the last payment, and the name and address that were associated with the original record. The debt purchaser must also have a copy of the contract that was originally signed when the account was active.

While this may seem like a large step forward, these laws have actually been in place for a long time now. This just allows a way for the laws to be enforced. When lawsuits like there are brought up, what happens entirely too often is that the person will not respond to the lawsuit because they have no idea what it’s about, and the court will award judgment to the accuser due to lack of response, and the accuser will get everything they asked for. Usually this includes reaching in and cleaning out bank accounts, as well as wage garnishment.

This law is not present in all states, however. Arizona does not provide these protections, and people are left to defend themselves more often than not. Don’t fret, though, there are still plenty of good defenses that can successfully defend you.  If you have been served with a lawsuit, or judgment has recently been passed on you, then contact a bankruptcy attorney as soon as possible, and ask them how you can defend yourself against debt purchasers.

Since the debts are so old, the vast majority of individuals don’t respond, and the court ends up awarding a default judgment, which gives Midland everything they asked for. Not only does this allow Midland to garnish up to 25% of your wages, but it also allows them to reach in and clean out your bank account of all but $150. Such measures have led numerous individuals towards bankruptcy.

A few states have filed lawsuits against Midland Funding, though, alleging that they are filing these lawsuits with false and mass-produced affidavits. West Virginia and Minnesota have both filed such suits.

Arizona has done the exact opposite, unfortunately. Rather than fight against these companies, recently proposed legislation will grant debt purchasing companies far greater power, and much easier access to judgments. The laws will effectively transfer the burden of proofing responsibility for the debt to the accused, rather than with the accuser.

In a normal lawsuit, the accuser is required to prove that their case is valid. This proposed legislation will completely transfer that “burden of proof,” so that if you are accused of owing a debt, it is up to you to prove that you do not. If you do not have proof that you do not owe the debt, you will be forced to pay it, whether it’s yours or not.

Fortunately, consumer lawyers are actively fighting the legislation, so there’s a chance it will not survive.

If you are filing for Chapter 7 bankruptcy, the truth is that you are applying for liquidation of all your assets. The harsh reality is that unless Arizona’s exemption laws cover your specific assets, you will most likely lose them.

During the bankruptcy process, your attorney will definitely cover the exemption laws, and which of your assets will be protected by them. This is when individuals will hear that they will lose a specific asset, and try to get around it, asking “How will they know?” It is common for people to feel that they could get away with it, and the truth is that trustees hardly ever make house-visits to determine assets, since they usually handle between 50-90 bankruptcy cases every 2 weeks.

The law clearly outlines that due to the lack of a house-visit, a bankruptcy applicant is required to voluntarily disclose every single one of their assets. Attorneys must do this as well. If you knowingly hide an asset from your bankruptcy paperwork and it is discovered, you will be facing felony charges, and your attorney could have their practice shut down, whether they knew about the asset or not. The potential benefit is not worth the potential cost.

Disclose everything to your attorney, and disclose it early. That gives you the best chance of having your valuable property protected. If you wait until the paperwork is almost complete to disclose an asset, it may be too late to squeeze it into the plan, and you stand a much greater chance of having to forfeit that asset.

Be completely honest with your attorney, and let them do their job: Helping you.