Generally, when you borrow money, you may deposit a check in your bank account. If you use a credit card, you receive money, property or services. In both cases, you receive something and own a debt to a creditor. The Internal Revenue Service (IRS) does not consider the value of the money, property or services you receive to be taxable income, because you incurred a debt you have to repay. But, if you no longer have to pay the debt, the IRS considers the canceled debt to be Cancellation of Debt Income. Cancellation of a debt may occur if the creditor cannot collect the debt, or gives up on collecting the debt. It may occur when a creditor forgives a debt that you owe, or accepts a Debt Settlement Agreement that pays off the debt for an amount less than is owed. Cancellation of Debt will also occur due to bankruptcy discharge.
The IRS considers the amount of debt that is canceled to be taxable income. But, there are exceptions to the rule.
The IRS Does Not Consider a Cancellation of Debt by a discharge in Chapter 7, Chapter 11, or Chapter 13 bankruptcy to be taxable. You do not have to report or pay income tax on debts discharged in bankruptcy.
The IRS Does Not Consider Any Of The Following To Be Taxable Cancellation Of Debt Income either:
- Debt canceled in a Title 11 bankruptcy case. (Chapter 7, 11 or 13)
- Debt canceled during insolvency.
- Cancellation of qualified farm indebtedness
- Cancellation of qualified real property business indebtedness
- Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2018.
- Amounts canceled as gifts, bequests, devises, or inheritances.
- Certain qualified student loans canceled under a qualified loan forgiveness program.
- A qualified purchase price reduction given by the seller of property to the buyer.
- Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
If your debt is canceled, your creditor may send you a Form 1099-C.pdf, Cancellation of Debt Form. This form indicates that the amount of debt that the creditor is canceling. If a debt collector attempts to collect a debt after you received a 1099–C form, or after you receive a discharge in bankruptcy, the creditor may not have canceled the debt and you may not have income from a canceled debt. Or, the debt collector may have canceled the debt but the collector attempting to collect a charged off debt. This is unlawful debt collection activity and if this happens, you should contact Bredow Law PLC for a consultation.
Before any debtor files a petition for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, every debtor, including those with primarily business debts, must take a Credit Counseling course from an approved credit counseling agency. Credit Counseling takes about 2 hours and can be done over the phone or on the internet. There is a fee for the credit counseling course that varies by agency. Credit counseling must be completed within 6 months (180 days) before you file for bankruptcy and you must file a Certificate of Counseling within 14 days after filing your petition.
Credit Counseling is intended to give you information about debt relief, debt management, debt repayment options and is intended to help you decide whether you have the ability to pay your debt without filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. As part of the counseling session, a counseling agency helps you to prepare and understand a budget based on your income and expenses. They will discuss your options for repaying the debt. In many cases, they will advise you that bankruptcy is your only realistic option.
It is very important that you DO NOT file for bankruptcy before you take a credit counseling course and receive a Certificate of Counseling. If you do file your petition before you take the course and receive the credit counseling certificate, your case WILL BE DISMISSED (No exemptions). You cannot reinstate your case or reopen it You will have to file a new bankruptcy case and pay another filing fee. Also, you may not lose important protections provided by the automatic stay in your second case. This means that if you file bankruptcy to stop a foreclosure, or to stop a repossession, and have not taken the credit counseling course before you file, you may still lose your home or your vehicle.
To assist individuals in finding a credit counseling agency, the USTP maintains a list of approved agencies on its website: https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
If a debtor is unable to attend a credit counseling course (such as an incarcerated or hospitalized client) a person with the debtor’s lawful power of attorney may complete credit counseling on behalf of that debtor, if the power of attorney is valid under state law and grants the representative the authority under state law to file a bankruptcy petition. The credit counseling certificate must list both the name of the debtor and the name of the representative along with that representative’s legal capacity (e.g. John Doe, as Attorney-In-Fact for Jane Doe). Alternatively, the debtor’s attorney may file a motion with the Court requesting an order excusing the debtor from the Credit Counseling requirement.
If you cannot afford to pay for credit counseling each counseling agency is required to inform clients whether the services are available for free or at a reduced rate, based on a client’s ability to pay, before providing any information to or obtaining any information from a client, and before beginning a counseling session. Fee waiver policies may vary by agency. At a minimum, however, a client whose household income is less than 150 percent of the poverty level is presumptively entitled to a fee waiver or fee reduction. The poverty level is defined by the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. § 9902(2). For the 2018 poverty guidelines see the following link: Search Federal Register for Annual Poverty Guideline Updates
If you are facing difficult financial troubles, if you are unable to pay your debts, are facing foreclosure or the repossession of your car, contact Bredow Law PLC, immediately for a free telephone consultation. We can help you understand your options and get you on the way to your own Fresh Start. Follow this link: Contact Us to contact Bredow Law PLC or if you prefer, call us at (248) 795-5516 or email us at firstname.lastname@example.org
It is well known that Bankruptcy Code generally prohibits the discharge of student loans that are owed to or funded by a government agency or department. The Code provides an exception to the rule of non-dischargability: when the debtor can show that the debt, if not discharged, would cause the debtor, an “Undue Hardship”. Bankruptcy Courts across the country have come up with rules on how to determine what qualifies as an Undue Hardship. These rules make it extraordinarily difficult to discharge student loan debts. If the U.S. Department of Education opposes the discharge, only the most extreme examples of hardship are approved. And, it is widely known, that the U.S. Department of Education vigorously opposes all attempts to discharge student loans, regardless of the hardship and so the costs to litigate these cases can be beyond the means of most consumer debtors. Many consumer bankruptcy attorneys believe that, as a practical matter, it is virtually impossible to discharge a student loan. But, is there change in the wind?
The U.S. Department of Education recently announced that it is considering changing its internal policies regarding the discharge of student loans in bankruptcy. The department wrote that it wishes to enforce Congress’s rules that make student loans non-dischargeable, but it is reconsidering how it defines and determines what an “Undue Hardship” is, but they do not want debtors to be “inadvertently discouraged from filing an adversary proceeding in their bankruptcy case”.
In a surprise move, the Department announced that it is requesting public comment on the factors that is should consider when evaluating undue hardship claims in bankruptcy. See the Announcement in the Federal Register here: Request-for-information-on-undue-hardship-claims-in-bankruptcy-adversary-actions This is a golden opportunity for bankruptcy practitioners to effect needed change in the policies of the Department of Education and to make progress for debtors needing real relief.
If you are having difficulty with your student loan, Bredow Law PLC specializes in debt solutions and bankruptcies for consumers. We can help. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email email@example.com
For most individuals and their families there are two kinds of bankruptcy. They are known as: Chapter 7 – Liquidation and Chapter 13 – Adjustment of Debts of an Individual with Regular Income. But, some individual family farmers or fishermen may file a Chapter 12 – Adjustment of Debts Of Family Farmer or Fisherman With Regular Annual Income.
Chapter 7 (Liquidation)
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up some of you property that is sold at auction to pay some of your creditors. However, the bankruptcy law allows you to protect some of your property and prevent its sale. These are called “exempt” property which the law allows you to keep. The purpose of allowing a debtor to keep some, if not all of their property, is to allow them to have the assets necessary to run their homes and businesses and to carry on daily living. In many cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case may not be right for you. That is because chapter 7 bankruptcy does protect property that was given as collateral for a debt, such as a home mortgage or a car loan. Creditor can foreclose on your home or repossess cars whose debt was eliminated in a Chapter 7 case. There are exceptions to this rule, please talk to a qualified attorney, before you decide to file a Chapter 7 case. If you are having difficulty paying a car or home loan and wish to keep them, and if you are employed or have income, then you may be able to file a chapter 13 case.
You should consider filing a chapter 7 bankruptcy if you:
- Are not employed or do not have enough income to pay for your necessary household expenses and pay your creditors.
- Are being sued or if your paycheck, bank accounts, or income tax refunds are being garnished.
- Are facing foreclosure, do not wish to keep the property, but need time to move.
Chapter 13 (Reorganization)
In a chapter 13 case you can save your home or your car by making payments over time to bring those accounts current. In a chapter 13, a debtor prepares a repayment “Plan”. This Plan tells the court and your creditors how you will re-pay your creditors with payments from your income. The Plan math must “add up”. Your monthly budget must show that your bankruptcy plan payments will bring your secured debts accounts current, pay the expenses of bankruptcy and pay some of your other debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep your home and car and other valuable property. Property that was not “exempt” and would have been auctioned off in a Chapter 7 case, to pay your creditors is protected. It is not required to be sold. You may propose a plan where you sell property and pay that money into the Plan, but that is up to you. A chapter 13 Plan must pay the same amount to your creditors that they would have been paid if you had filed a chapter 7 case. But, so long as you can pay your secured and other debts from your income, chapter 13 is probably right for you.
You should consider filing a chapter 13 plan if you:
- Are employed or have other regular income;
- Own your home and are in danger of foreclosure;
- Are behind on car debt payments, but can catch up if given some time;
- Have valuable property which you cannot exempt or protect from creditors, and
- You will need to have enough income during your chapter 13 case to pay for your necessary household expenses and to keep up with the required payments as they come due.
Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, the bankruptcy process is complex, no matter which chapter you use. A successful bankruptcy case starts with the selection and consultation with a qualified Bankruptcy attorney who specializes in Bankruptcy. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in bankruptcies for consumers. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email firstname.lastname@example.org
Bankruptcy is a legal proceeding in the United States Bankruptcy Court system that helps people who are having difficulty paying their debts get a “fresh start”. The purpose of Bankruptcy is to give to the honest, but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Chapter 7 Liquidation.
A Chapter 7 case is what most people think of when they think of bankruptcy; the debtor files a Chapter 7 case and in 3 or 4 months their debt is eliminated. This is referred to as a “discharge”. In exchange for this quick discharge, a bankruptcy Trustee will sell the debtor’s ”non-exempt” assets and distribute those funds (less the Trustee’s fee) to creditors. The Trustee doesn’t take and sell everything a debtor owns, Bankruptcy law recognizes that a debtor will need certain important assets to get a fresh start in life, including their home, car, furniture, clothing, personal items and retirement savings and other assets. The law permits the debtor to protect or to “exempt” the debtor’s most important assets. In most cases, these allowed “exemptions” permit the debtor to keep everything they own and nothing is sold. It’s important to remember, in a Chapter 7 case, the debtor keeps his income, but there is always the possibility that he or she may have to turn over property to the Trustee for the benefit of their creditors. An attorney helps the debtor determine when this is a risk.
Chapter 13 – Adjustment Of Debts Of An Individual With Regular Income
A Chapter 13 case is a repayment plan. It is usually used by people who are employed, but who have fallen behind in their mortgage or car payments and want a chance to become current on those debts and prevent foreclosure or repossession and it is used by people whose wages are being garnished to pay a debt and they don’t have enough to live on. Debtors with a regular income may propose a plan to repay some or all of their debt under the protection of the Court. This plan, is usually a five year plan, but can be shorter in some cases.
Chapter 13 is also for debtors who wanted to file a Chapter 7 liquidation, but have learned that if they file a Chapter y case, a Trustee will sell some of their assets. Sometimes the debtor does not want to lose those assets. These debtors may choose to file a Chapter 13 case, the debtor keeps all of his or her assets, even those “non-exempt” assets that they cannot protect, but they must pay through their plan, the value of the assets that would have been sold by the Trustee, if they had filed a Chapter 7 case.
Chapter 13 also allows the debtor to modify the terms of some of their loan obligation, to reduce the amount of the debt, lowering the interest rate, shorten or lengthen the repayment term or reduce a monthly payment.
At the end of both cases, debtor will receive an Order of Discharge. This order prevents any creditor from attempting to collect any debts that arose before the bankruptcy case was filed. Any creditor that violates this discharge and attempts to collect a debt provided for in his or her plan may be brought before the bankruptcy Court, who may order the creditor to return payments and or pay a substantial penalty. It is this Discharge Order that gives the debtor the fresh start they deserve.
If you are facing difficult financial troubles, if you are unable to pay your debts, are facing foreclosure or the repossession of your car, or if you are an unfortunate debtor seeking a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt as they come due, then I encourage you to contact us at Bredow Law PLC for a free consultation. We can help you understand your options and get you on the way to your own Fresh Start. Call Bredow Law PLC at (248) 795-5516 or email us at email@example.com
Bankruptcy is a debt relief program authorized by the United States Constitution, governed by the United States Bankruptcy Code and a specialized Bankruptcy Court Rules, and operated through the federal court system. The primary goal of the bankruptcy laws is to give debtors a financial “fresh start” from burdensome debts. The United States Supreme Court put it best:
[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Bankruptcy cases have their own court. It’s called the United States Bankruptcy Court. A bankruptcy debt relief program helps debtors who are having difficulty paying their debts. A person, a corporation or other legal entity that is having difficulty paying its debts may declare bankruptcy by filing a Petition with the United States Bankruptcy. At that moment, the debtor receives the Court’s immediate protection from creditors.
Article I, Section 8, of the United States Constitution authorizes Bankruptcy. Congress enacts the bankruptcy laws and rules. Congress enacted the “Bankruptcy Code” in 1978 and the Code has been amended several times since then. It is the law that governs all bankruptcy cases. Bankruptcy Courts have their own rules; the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules” regulate how the debtor’s case is managed in the court. There are 90 bankruptcy Courts in the United States. Each state has at least one bankruptcy Court, but most states have several courts. Michigan has two Bankruptcy Courts, and those Courts operate in eight locations; Detroit, Flint, Bay City, Grand Rapids, Lansing, Kalamazoo, Traverse City and Marquette.
A bankruptcy case starts with the filing of a Petition. The moment that that Petition is filed, the Bankruptcy law automatically and immediately imposes an order directing all creditors from taking any further collection actions against the debtor’s property and against the debtor and all co-debtors, individually. If a creditor demands payment, garnishes accounts or paychecks or repossesses property after the case is filed, may be sanctioned by the Court. The “Automatic Stay” goes into effect immediately, even when the creditor has no idea that a bankruptcy was even filed. The Automatic Stay is the Court’s powerful protection from creditors.
After the case is filed, the Court will appoint a Trustee to help the Court administer the case. The Trustee’s job is to determine whether the debtor has any income or assets that can be used to pay creditors all or part of the debt. Depending upon the Chapter of the case that is filed, the Trustee has the power to sell property, lease property or receive a portion of the debtor’s paycheck or other income to pay debts. Under the Bankruptcy Code, some of the debtor’s assets and income is “exempt”, meaning the Trustee may not take it or use it to pay creditors. In some cases, all the debtor’s assets are exempt, and in other cases, the Trustee is able to sell some property. It is the debtor’s Bankruptcy Attorney to evaluate the debtor’s income and assets and to advise the debtor whether the debtor’s assets can be sold or how much of the debtor’s income from employment will belong to the Trustee.
A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.
After the 341 hearing, if there are no complications, the debtor may not have to return to Court at all. In a chapter 7 case, in the absence of any objections of creditor’s or the Trustee, the debtor can expect a discharge of his or her debts within about 3 months from filing. In a Chapter 13 case, the debtor will propose a repayment plan to the Court. A Chapter 13 repayment plan may pay debts over three to five years. A plan can be shorter than three years if it pays all creditors 100% of their debts.
There are several types of bankruptcy petitions that can be filed; they are called “Chapters”. Each chapter is designed to a specific type of debtor. Depending upon the chapter filed, a debtor may completely eliminate their debt (called a “discharge”), they may modify the terms of the debt to make it easier to pay, (including reducing the amount owed, change the length of the loan term and the interest rate of debt), or they can pay the debt as it is over time but under the Court’s protection. The Chapters are:
Chapter 7, called a “Liquidation”. In this chapter, a trustee takes over the debtor’s assets. Some of these assets are protected (“exempt”), but if they are not exempt, the Trustee reduces them to cash, and pays the money to creditors. In many cases, all the debtor’s assets are exempt and the Trustee sells nothing at all. The debtor normally receives a discharge just a few months after the petition is filed. The debtor must pass a “means test” to determine whether they qualify to file a chapter 7. If a debtor makes too much income from employment, or has the ability to pay a portion of the debts from their wages, a debtor may not be eligible for chapter 7 relief.
Chapter 9, entitled Adjustment of Debts of a Municipality. Only cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts may file a Chapter 9 case.
Chapter 11, entitled Reorganization, ordinarily is used by large businesses or individuals with unusually large amounts of debt.
Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income..
Chapter 13, entitled Adjustment of Debts of an Individual with Regular Income. An individual debtor who has a regular source of income proposes a “plan” to repay creditors over time – usually three to five years. . Chapter 13 is often better for a debtor than a chapter 7 because it enables the debtor to keep a valuable asset, such as a house, which would have been sold if the debtor filed a Chapter 7 case. The debtor must complete all payments required under the plan before the discharge is received.
Chapter 15, entitled Ancillary and Other Cross-Border Cases. It is used to manage a bankruptcy of a debtor with income, assets or business in several countries.
The bankruptcy process is complex, no matter which chapter you uses. A successful bankruptcy case starts with the selection and consultation with a qualified Bankruptcy attorney who specializes in Bankruptcy. It is very important to select an attorney that specializes in bankruptcies because the law and rules of bankruptcy are complicated and different from other areas of law. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in bankruptcies for consumers. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email firstname.lastname@example.org
Filing a Bankruptcy is an important decision. Bankruptcy will help you to overcome unmanageable debt and intrusive creditor collection activity, but it is a complicated legal proceeding in the federal courts. The process is fairly straightforward for someone with experience, such as your lawyer, but it requires significant preparation, planning and consultation. A mistake in filing your bankruptcy can lead to unpleasant long term consequences. Your legal fees reflect the complexity and risks associated with your case.
The cost of your bankruptcy is made up of three things:
- Your lawyer’s fee;
- The cost of pre-bankruptcy filing education courses;
- The Bankruptcy Court’s filing fees;
Your fee depends upon the type of bankruptcy you file, whether it is an individual bankruptcy or filed jointly by husband and wife or partners.
Chapter 7: Fees range from $700.00 (single) to $1,400.00 (joint) and include filing your case and include an appearance at initial bankruptcy meetings with your creditors. A small deposit is needed to get started. All fees must be paid before the case is filed. Payment plans are available.
Chapter 13: Legal fees average $3,500.00 but are not paid in advance. Legal fees are paid through your Bankruptcy Plan in monthly installments. Lawyer’s Fees are charged on an hourly rate at $200.00 per hour and costs, such as document retrieval, faxes, copies, postage and handling are the client’s responsibility.
Bankruptcy Filing Fees
The Bankruptcy Court is part of the federal courts, the United States District Courts. The Bankruptcy Court charges a filing fee and administrative fees for each case that is filed. The amount of the fees depends upon which chapter your bankruptcy is filed.
The filing fee for a Chapter 7 bankruptcy is $335.00*
The filing fee for a Chapter 12 bankruptcy is $275.00*
The filing fee for a Chapter 13 bankruptcy is $310.00*
The filing fee for a Chapter 9 bankruptcy is $1,717.00**
The filing fee for a Chapter 11 bankruptcy is $1,717.00**
The filing fee for a Chapter 157 bankruptcy is $1,717.00**
* Includes a $75.00 Administrative fee for Chapter 7, 12, and 13
** Includes a $550.00 Administrative fee for Chapter 9, 11 and 15
Bankruptcy Education Course Fees
In addition to the Bankruptcy Court’s filing fees, before filing their case, each debtor is required to attend a pre-filing Credit Counselling Course, in person, by telephone or over the internet. These are not offered by the Court but are available from private credit counselling agencies.
The fees for Pre-filing Credit Counselling courses average between $20.00 – $30.00
The fees for Post-Filing Debtor Education Courses average between $15.00 – $30.00
If you are facing difficulty paying your debts, are facing foreclosure or the repossession of your car, or if you are seeking a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt, then I encourage you to contact us at Bredow Law PLC for a free consultation. We can help you understand your options and get you on the way to your own Fresh Start. Call Bredow Law PLC at (248) 795-5516 or email us at email@example.com