Tom Scott Law Indy

Bankruptcy Attorneys in Indianapolis Since 1980

liquidation

An Experienced Bankruptcy Attorney Can Help You Keep Your Personal Property

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We recently interviewed Christopher Holmes and Jess M. Smith, III, the senior partners at Tom Scott & Associates, P.C. Below is Part 2 of that interview, which focuses on keeping your property when you file for bankruptcy, as well as the benefits of a bankruptcy attorney who has other types of legal experience.
Q: What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy in regards to keeping your property and assets?
CH: Chapter 13 of the bankruptcy code gives us the clout to do things that you can’t do in a Chapter 7. For example, in a Chapter 7 bankruptcy a debtor can only protect a certain amount of assets from his or her creditors and a trustee has the power to “take” certain property, liquidate it, and use those net proceeds from the sale of those assets to pay back a certain amount of debt.
I have a case right now in which a man has too much equity in his home, so in a Chapter 7 a trustee could conceivable take the house, liquidate the house, pay off the mortgage, and with the money that’s left over pay a certain percentage of all of the different debts. So what we are going to do is put him into a Chapter 13 bankruptcy, so as long as he pays back to his creditors, through this three- to five-year plan, as much money as those creditors would have received in the Chapter 7 had his house been taken and sold, he then gets to protect and keep his house. That requires him to be in that plan for three to five years and to pay a certain amount each and every month, to make sure those creditors once again receive as much money as they might have received had his assets been liquidated.
JS: Keep in mind that this case is very fact-sensitive, There is no one-size-fits-all plan. That’s why you need to have an experienced attorney on your side.
CH: Some lawyers don’t even meet with the clients to have a consultation. They have a paralegal or some other non-lawyer handle the situation. We think that we provide a better service to the clients, because it’s a real live lawyer who does the initial consultation. We get certain facts and certain circumstances from them, and then we diagnose the problem and then we can better prescribe the remedy for them, because we get more information from them. Then, we can filter the information that through the lens of our expertise to figure out whether a Chapter 7 or a Chapter 13 is the more-appropriate remedy for that particular person. Given the number of years we’ve been practicing bankruptcy law, we’ve experienced so many different circumstance that we can reflect back on to say, “This case is like that previous case and the circumstances from that case apply here.”
JS: Also worth mentioning is that while our practice is now largely devoted to bankruptcy, it hasn’t always been exclusively devoted to bankruptcy. You find a lot of these bankruptcy firms have attorneys that don’t know anything other than bankruptcy. They don’t have that broad base of experience that Chris and I have in areas family law, personal injuries, estates, probate, where those area all impact how bankruptcy cases are decided.
CH: Back in the day we were general practitioners and handled just about any type of legal issue that came through the door.
JS: Chris has over 30 years of experience and I have 22 years of experience. Chris had done bankruptcy for about 17 years exclusively and I’ve done it for about 12, so I had about a decade of handling other type of legal work. I think we can offer the benefits of those other experiences, whereas some of the other bankruptcy offices in Indianapolis can’t offer that broad base of experience.
CH: Every once in a while something comes up and I harken back to those days when I did divorce law or criminal law or probate, and something comes up where a previous experience helps me devise a remedy in bankruptcy court that fits the situation. Some of these young whippersnappers out of law school who have done nothing but a little bit of bankruptcy, there’s no way they can handle a case like we can handle it having done thousands and thousands of bankruptcies on top of all of our other legal casework. It easy to think we’ve seen it all in the world of bankruptcy, but every one in a while something comes up where we tap into those previous experiences to device a remedy for that new wrinkle.
Q: Hearing you say that, reminds me that you do other things for your clients beside just handling bankruptcy issues.
JS: Correct. We do some wills, some life planning documents, power of attorney, along with divorces and non-contested child custody cases.
CH: Yes, everybody needs a Last Will and Testament, so do offer that service for a reasonable fee, so if someone is interested should contact us. We also do living wills and durable powers of attorney, documentation of healthcare representatives.
JS: We also co-counsel. We’ve recently had a few cases where people come to us with a personal injury claim where we co-counsel with other firms to obtain settlement for our clients. I’m not an expert in medical malpractice, but I know someone who is, so I can help you find the right attorney for you particular circumstances.

Parts 1 and 3 of This Interview

Part 1: Divorce and Bankruptcy
Part 3: Tax Returns, the Affordable Care Act (Obamacare), and Bankruptcy

Liquidating Tax Debt: Overview of Bankruptcy – Chapter 13 and Why to File, Part 4

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Series: #9 0f 13
In our last article, we took a look at “cramming,” a way to protect an automobile or other personal property in a Chapter 13 bankruptcy. Another primary reason to choose to file Chapter 13 rather than Chapter 7 is to help reduce a debtor’s tax load.

Chapter 13 can Help Reduce Taxes

Liquidating tax debts.
A chapter 13 is a very effective tool for liquidating large tax and other priority obligations, as it sometimes provides the debtor with more time than a non-bankruptcy setting would allow. If the debtor is self-employed, part of the confirmation order may include the requirement that the debtor make regular ongoing monthly estimated tax payments to the IRS. If this becomes part of a confirmation order and is later breached, the IRS can move for dismissal for breach of the order.

  1. Secured tax claims
    A tax liability is secured to the extent that the debtor has equity in property if the taxing agency has filed a lien in the debtor’s county of residence. One should always verify that the lien was recorded in the correct county. In determining the amount of the secured claim, the equity that the debtor lists in schedules A and B is totaled.
    Special note: the IRS asserts that their claims are also secured to the extent that the debtor has any interest in a retirement fund or a 401k, even though this is an asset that is generally excluded from, or exempted out of the bankruptcy estate. See In re Wesche, 193 B.R. 76 (Bankr. M.D. Fla. 1996) stating that federal tax lien attaches to all interests in pension, not just current benefits. This is very important because if the debtor has a retirement fund, the IRS secured claim that may have appeared to be minimal based on the equity in personal property can become unmanageable, even in a Chapter 13.
    To the extent that the secured claim extends beyond the equity available to support it, the balance will fall to priority or general unsecured under 11 USC § 507 – Priorities*(a)(8) analysis.
    Also remember, that the equity is applied to oldest liabilities first. This means that if the debtor has priority tax liability and general unsecured tax liability (and the tax authority has a lien) the lien will attach to the general unsecured portion first thus increasing the overall amount that must be repaid.
    Secured real estate taxes are also paid through the plan. Generally only the pre-petition amount due is paid, but if the next semi-annual installment is due shortly, and the taxing agency agrees, that post-petition obligation may also be included. Real estate taxes are paid with interest of 8%.
  2. Priority tax claims
    Again, taxes are prioritized in §507(a)(8), but briefly they include income taxes, trust fund taxes and some property taxes.One thing to be aware of in determining the priority afforded personal income tax liabilities is the term of art “tolling”, which has now been codified at the end of §507(a)(8).
    Tolling is a rule that provides that any time previously spent in a bankruptcy (any chapter) or when the government unit was prohibited from collecting a tax under applicable non-bankruptcy law will extend the reach back period for pulling tax years into priority status; an additional 90 days is added to time period. Tolling applies only to pre-petition debt, but you need to be aware of any previous bankruptcies, as it can be a rude surprise to find that taxes due in 2002 retain their priority status in a 2008 filing.
    For example, the debtor previously filed a chapter 13 bankruptcy in March, 2004. In this bankruptcy, 2002 taxes are priority under §507(a)(8)(A)(i) due three years before the date of the filing of the petition. The 2004 bankruptcy was dismissed in December, 2006. Thus the debtor was in the bankruptcy for 34 months. Taxes originally due April 15, 2003 plus three years is April 15, 2006 plus an additional 37 months is May 15, 2009!!
    So, a bankruptcy filed anytime before May 16, 2009 will pull the 2001 debt into priority status.Other priority taxes that must be fully paid inside the plan include trust fund taxes (that portion that the employer withheld but did not remit to the taxing agency), and personal property taxes due within one year prior to the current bankruptcy filing. A word about trust fund taxes — they are attributable to the responsible party of the employer. This determination is made by the IRS.
  3. General unsecured taxes
    ”Stale taxes”, those that are older than three years, and the penalty portion of priority taxes are general unsecured liabilities and are paid with the pro rata distribution afforded to other general creditors.

Next: Avoiding Liquidation of Non-exempt Assets

* Source: Cornell University Law School Legal Information Institute

Chapter 7 Overview: Deciding on Which Bankruptcy to File

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Series: #5 of 13
As briefly mentioned in our previous article, “Initial Interview: Chapters 7 and 13 Bankruptcies – Deciding Which Chapter to File,” the goal of bankruptcy (regardless of the chapter) is to attempt to get some money for the general unsecured creditors in exchange for certain debts being discharged. The difference between a Chapter 7 and Chapter 13 bankruptcy, then, is how the court finds money.

What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a “liquidation” in which the debtor truly and honestly lists all assets and allows the court to determine if any assets are valuable enough to sell and help pay down the debt. The Code allows individual states to claim the Federal exemptions enumerated at 11 U.S.C. § 5221 or opt out of the Federal exemptions and take state exemptions. Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
Indiana is an “opt out” state and Indiana residents take exemptions found under state law. The majority of exemptions may be found in the Indiana Code at IC 34-55-10-2(c)2 and are generally broken down into four categories (which increased on March 1, 2010):

  1. Real estate or personal property constituting the personal or family residence of the debtor or a dependent of the debtor, or estates or rights in that real estate or personal property, of not more than $17,600.00. The exemption under this subdivision is individually available to joint debtors concerning property held by them as tenants by the entireties
  2. Other real estate or tangible personal property of $9,350.00
  3. Intangible personal property, including chooses in action, deposit accounts, and cash (but excluding debts owing and income owing), of $350.00
  4. An interest, whether vested or not, that the debtor has in a retirement plan or fund to the extent of contributions, or portions of contributions, that were made to the retirement plan or fund by or on behalf of the debtor or the debtor’s spouse which were not subject to federal income taxation to the debtor at the time of the contribution, or which are made to an individual retirement account in the manner prescribed by Section 408A of the Internal Revenue Code1 of 1986.

Any attorney acting as debtor’s counsel should be fully cognizant of all available exemptions available for debtors.
Further, debtors should be aware whether their case will likely be an asset case or not as soon as it is known, but certainly prior to the filing of the case.
Finally, debtors should be advised that filing of the bankruptcy creates a bankruptcy estate (see 11 U.S.C. § 541 – Property of the Estate1) which includes almost everything, and that they must not dispose of estate property until abandoned by the Chapter 7 trustee. Attorneys should also become familiar with 11 U.S.C. § 523 – Exceptions to discharge1 which details those debts which will not be dischargeable in a Chapter 7 case and advise debtors accordingly.
Not all debtors are eligible for a Chapter 7 bankruptcy and must file a Chapter 13 to receive the Section 362 automatic stay and subsequent discharge.
Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
In addition to not being qualified for Chapter 7 (or other chapters,) there are numerous reasons for a debtor to choose to file Chapter 13. In our next installment, we will begin a closer look at the primary reasons why to file a Chapter 13 rather than a Chapter 7 bankruptcy.
Next: Chapter 13 and Why to File, Part 1 – Disqualification

Sources: (links open in new windows)
1. Cornell University Law School Legal Information Institute
2. State of Indiana Constitution on IN.gov

Basics of Bankruptcy: Introduction to Chapter 7 and Chapter 13

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This series of posts discusses the basics of Chapter 7 and Chapter 13 bankruptcies and why one should be selected over the other.

Why Choose Bankruptcy?

The goal under any chapter of bankruptcy (at least as far as Congress is concerned) is to try and generate funds to distribute to the unsecured creditors and, in exchange for that attempt, the debtor’s debts will be discharged, other than for for several exceptions including, but not limited to:

  • Certain taxes
  • Student loans
  • Domestic support obligations
  • Criminal fines and restitution
  • Personal injury automobile accidents involving drugs or alcohol

The biggest difference between a Chapter 7 and a Chapter 13 is how the funds are collected.

Basics of Chapter 7 Bankruptcy

A Chapter 7 can be thought of as a “liquidation” bankruptcy. The Chapter 7 trustee appointed to the case will value the debtor’s property and determine whether property may be liquidated and funds distributed on a pro rata basis to the unsecured creditors.
Each state allows debtors to keep property necessary for the “fresh start.” The property that may be kept (which is exempt from liquidation) is called an exemption.
The major exemptions in the State of Indiana are as follows:

  1. Retirement (in a qualified retirement account) is fully exempt
  2. Real or personal property constituting the debtor’s primary residence is exempt up to $17,600.00 in equity ($35,200.00 for a married couple)
  3. Personal property valued up to $9,350.00 is exempt ($18,700.00 for a married couple)
  4. Intangible assets up $350.00 are exempt ($700.00 for a married couple).

While the majority of cases are “no asset” cases, the debtors must honestly and fairly list all assets and cooperate with the trustee in liquidation of assets in order to receive a Chapter 7 bankruptcy discharge.
The entire Chapter 7 bankruptcy takes approximately 120 days from start to finish and is a fairly simply way to obtain a fresh start. This article will focus on the Chapter 13 bankruptcy due to its time and complexity.
Our next post will discuss why to file for Chapter 13 bankruptcy vs. Chapter 7, including income levels and personal assets:
Income & Assets: Basics of Bankruptcy – Chapter 13 vs. Chapter 7 – Part 1