Kentucky Bankruptcy Law

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Post-Holiday Pitfalls for Bankruptcy part 3

Following Christmas comes the tax filing season. The reason this carries special significance in the post-holiday season because for many people, it creates an asset that needs to be taken into account on your schedules (lists of certain kinds of items like assets). The asset to be considered is the tax refund from state and federal governments that may be expected in January through May. A Chapter 7 filed in December will likely still be open in May and one filed in January or later certainly will remain open that long. Therefore, the refunds need to be listed and, if possible, exempted.

If your state allows the use of Federal exemptions, as Kentucky does, then the exemption used to cover the tax refunds would be the “wild card” exemption covered in 11 USC Sect. 522(d)(5). The amounts listed in that provision are adjusted for inflation and so the wild card exemption can be over $11,975.  For most people, there is sufficient 522(d)(5) exemption to cover a few thousand dollars in tax refund dollars.

The key is for your bankruptcy attorney to know the upper limit of what you might realize for tax refunds and exempt as much of that as possible. They must list it as an asset on the schedule of personal property even if it is uncertain as to the amount and then exempt it. This will allow you, the debtor, to keep those funds so long as the trustee does not object to the exemptions claimed.

The treatment of tax refunds needs to be the same in Chapter 13 cases, but if they are particularly large, the trustee in the Chapter 13 may expect the Debtor to change their withholding and pay more into the bankruptcy plan.

If you forgot to tell your attorney (or they forgot to ask) about a tax refund your expect and you have already filed the petition and schedules, it is not too late. Federal Rules of Bankruptcy Procedure Rule 1009 provides for liberal amending of the petition and schedules, so be sure to tell your attorney as soon as you realize the omission.

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January 7, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Exemptions, Plan, Property (exempt, The estate | , , , , , , , , , , | Leave a comment

Post Holiday Pitfalls in Bankruptcy part 1

Certain provisions of the bankruptcy code bear special scrutiny when someone is filing bankruptcy in the weeks following the Christmas holiday season. This is because people tend to rack up higher debt during this season and tend to purchase higher priced items. Even folks struggling with a debt load find it hard to resist the lure of commercialism. They hope to still give great gifts to their children, family and friends.

The first provision to be aware of in a post-Christmas bankruptcy filing is 11 USC Sect. 522(f)(B). Ordinarily, 522(f) is the code section that allows one to strip off (turn from secured to unsecured) a debt that has household goods as collateral. However, 522(f)(B) clearly applies only to debts that were NOT purchase money security debts.  The reason this matters just after Christmas is that many large price purchases come with a purchase money security interest (PMSI) forcing you to either pay the debt or cough up the goods purchased. This can be embarrassing when you purchased a nice, large screen TV for your retired dad so he can watch the Price is Right in high-definition.

So, how do you know if a PMSI attached to you gift purchase? The only way to know for sure is if you still have the receipt and any other paperwork you signed when you bought the item. Ordinarily, regular credit cards do not involve PMSIs on their purchases, but in-store credit or store specific cards often do attach PMSIs to goods.  Your only clue that you are actually giving the creditor a security interest in the item you are buying may be when you have to sign two different places instead of just one. At some stores, the security agreement prints out on receipt paper just like the ordinary receipt which you sign whenever you make a credit purchase. Or, nowadays, you may be asked to sign an electronic signature device twice to complete the transaction.

PMSI debts do get discharged in a Chapter 7 or Chapter 13 as to your personal obligation to repay, but the security interest remains attached. So, even after the bankruptcy is over and done and you think all is well, the creditor can still show up and demand the property be surrendered to them. They cannot demand you repay them, but they do have a right to the stuff.

January 2, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Discharge, Exemptions, PMSI (purchase money), Property (exempt, Security interests | , , , , , , , , | Leave a comment