Couples and Taxes…What You Should Know

Most everyone knows there is a time limit for filing income tax returns. Classically it is April 15 – or the next business day if the 15th falls on a Saturday, Sunday or holiday – but by the filing of an application for automatic extension it can be postponed to October 15 — or the next business day, etc. Married persons have the option of filing separately or jointly. If they file separately, they will have 3 years from the due date of the return or the filing date, whichever is longer, to amend and file jointly. Contrariwise, if they file jointly, they will have only until the due date for filing that return to amend and file separately. If they do not, they are stuck with the consequences – whether good or bad – and will both be liable for any taxes due on that return, even if only one of them would have been liable if they had filed separately. Separated or divorced taxpayers might be able to escape such joint liability under certain circumstances. Such relief may be found in Section 6015 of the Internal Revenue Code – the innocent spouse provision.

Section 6015(b) provides relief for understatements of tax attributable to certain erroneous items on a return;
Section 6015(c) provides relief for a portion of an understatement of tax to taxpayers who are separated or divorced; and,
Section 6015(f) provides equitable relief to taxpayers who do not qualify under either of the first two provisions.
While the latter two provisions might protect an “innocent spouse” from having to pay a tax otherwise attributable to the other spouse, only Section 6015(b) permits recovery of a refund of an overpayment.

To qualify for Section 6015(b) relief, all of the following must be satisfied:

  • a)
  • A joint return must have been made for the year in question;

  • b)
  • There was an understatement of tax attributable to one or more erroneous items of the non-requesting spouse;

  • c)
  • The requesting spouse established in that signing the return he/she did not know, and had no reason to know, that there was such an understatement;

  • d) Taking into account all the facts and circumstances, it would be inequitable to hold the requesting spouse liable for the deficiency attributable to the understatement; and,
  • e) The requesting spouse elects to invoke Section 6015(b) within two years after the IRS has begun collection action with respect to the requesting spouse.

The requirements are conjunctive: they ALL must be met. The failure of a requesting spouse to satisfy any one element will preclude relief. Also, the burden is on the requesting spouse to prove his/her entitlement to Section 6015(b) relief. Yet, even with such tight restrictions on obtaining innocent spouse relief, it can be done and, under the right facts and circumstances, can relieve one of two joint filers from having to pay a tax liability which rightfully should be paid only by the other.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with tax matters. Contact us by e-mail or call us at 856-795-0800 to schedule an initial consultation.

If you file for bankruptcy, will you lose your car?

Chapter 7 filers

If you file for bankruptcy, will you lose your car? This is a question frequently asked by prospective Chapter 7 filers. The answer, in a word, is no. Assets included as part of the bankruptcy estate are protected by exemptions. There is s special one for motor vehicles, and if more is needed there is a wildcard exemption available. Usually motor vehicles with any significant value are burdened with auto loans secured by the value of the vehicle. These loans, as with other secured debts, reduce the available equity, which is the value that exceeds the secured debt and needs to be exempted. Does the loan not get discharged you may ask? The borrower’s personal liability to pay it back will be, but the underlying loan remains secured by the vehicle and has to be repaid or the vehicle may be repossessed upon default.

How then is a vehicle encumbered by a secured loan protected from being repossessed after filing a Chapter 7 bankruptcy? The Bankruptcy Code requires that all debtors with secured debts file a statement of intention: whether they intend to retain or surrender the collateral which secures the loan. If they choose to retain, they must then choose whether to redeem—that is fully pay that part of the loan secured by the collateral in a lump sum—or reaffirm, which is a process by which the debtor and creditor enter into a new loan agreement approved by the court. Because this new agreement is created after the bankruptcy has been filed, no part of this reaffirmed debt will be discharged. If you can afford the reaffirmation or if the amount being reaffirmed is consistent with the value of the vehicle, there is minimal harm expected by allowing this new debt to avoid being discharged. But what if the debt amount is double the value of the car, or if the monthly payment amount is so much that you might default even though you have every intention to keep current until the balance has been fully paid? If the loan is current, can you not just choose to retain, but not reaffirm, and continue paying? In 2004, our Third Circuit Court of Appeals (Pennsylvania, New Jersey, Delaware and Virgin Islands) ruled that a “ride through” was an available option: debtors were not limited in their choices to redeeming the collateral or reaffirming the whole secured debt. In re: Price, 370 F. 3d 362 (3d. Cir. 2004). They could also choose to remain current on with their loan payments and fully pay their liability according to the original contract terms while, at the same time, having their personal liability discharged so if they later defaulted they would owe nothing more to the secured creditor. Only one year later, however, the 2005 Bankruptcy Code amendments tightened the screws and seemed to eliminate any possibility of “ride through” being a continuing option. Because the Price decision held that Code Section 521 was procedural, and did not alter a debtor’s contract rights, there has now emerged a new procedure for obtaining “ride through” in this circuit: a debtor will select Retain and Reaffirm, as she must to comply with mandated procedure, and will complete and sign a reaffirmation agreement if or when presented by the secured creditor, but the attorney will not sign the agreement if to do so would not be in the best interests of the client. That will satisfy the required process, after which a hearing may be scheduled at which the court can rule that the debtor is permitted to continue payments to the lender and the lender is permitted to send the debtor monthly statements (but not to demand payment) without violating the automatic stay. See, In re: Miller, 443 B.R. 54 (Bankr. D. Del. 2011); In re: Baker, 400 B.R. 136 (Bankr. D. Del. 2009). If the debtor later defaults and has the vehicle repossessed, her personal liability will have been discharged and she will have no obligation to pay any remainder of the balance due.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with bankruptcy matters.  Contact us by e-mail or call us 856-795-0800 to schedule a consultation. There is no cost or obligation for your first visit.

Contact Collection Representative

Tax-issue

During the course of my forty-plus years of representing clients before the IRS, I have dealt with various levels of employees. The most common, of late, is the Contact Collection Representative—the person on the other end of the telephone who answers and deals with tax issues and collection problems presented. This person is one of the IRS’ most visible personnel, but one with relatively little accounting training. One of the primary goals of a CCR would be to encourage taxpayers to become or remain compliant—file returns on time and pay taxes when due. Failure to pay could result in enforced collection, perhaps at the hands of a Revenue Officer, whose job it is to collect unpaid taxes. When contacted by an RO, it is purposeless to claim no liability for the unpaid taxes. The job of an RO is solely collection. It would be a Revenue Agent, charged with the duty and expertise to determine the accuracy of tax computations, to whom that claim might be made. There is another IRS employee also charged with determination of the accuracy of tax computations, but one you are not going to want to encounter. That is the Special Agent, a representative of the Criminal Investigation Division, whose job it is to investigate tax crimes and recommend them for prosecution by the U.S. Attorney or the Department of Justice. If you are contacted by any of these IRS representatives, it is best to contact an experienced tax attorney rather than trying to represent yourself.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with bankruptcy law and tax matters. Contact us by e-mail or call us 856-795-0800 to arrange a private meeting. There is no cost or obligation for your first visit.

Which Debts Are Not Discharged in Bankruptcy

Bankruptcy law book and a gavel

Bankruptcy is a powerful tool for financial rehabilitation. It stops creditors from continuing collection efforts immediately upon the filing of a bankruptcy petition. It prevents the later collection of debts by those same creditors after a discharge of those debts has been ordered. It applies exemptions built into the bankruptcy code to protect property of debtors from seizure or loss during or after bankruptcy. But, as with all things, there are limits to what can be obtained from filing bankruptcy. For instance, even though the law requires that all debts owed be included in a filed bankruptcy petition, not all debts can be discharged. Some will survive bankruptcy and will need to be paid or otherwise dealt with afterward. The list of such debts includes most student loans, court orders for restitution for crimes, child and marital support obligations, and some—but not all—tax debts. The kinds of tax debts which typically are non-dischargeable (that is, protected and will survive bankruptcy) are recent income taxes (due within three years before the bankruptcy filing date) and trust-fund type taxes (such as sales taxes or withheld income taxes of employees).

If a bankruptcy includes such non-dischargeable taxes, it is important to make contact with the taxing authorities post-discharge to make payment arrangements. The alternative (not recommended) would be to do nothing and wait for the IRS or Division of Taxation to proceed with enforced collection efforts such as bank levy or wage execution, which might only occur years later when they are least expected or most disruptive. The better course would be to retain competent counsel for representation before the taxing authorities to resolve any remaining unpaid taxes.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with bankruptcy law and tax matters. Contact us by e-mail or call us 856-795-0800 to arrange a private meeting. There is no cost or obligation for your first visit.

Incursions

Fifteen years ago, the US Bankruptcy Court outsourced its clerical function. It did this by converting to electronic filing, which changed the way “papers” were filed and stored. The Clerk’s office remains the repository for all filed documents, but it is no longer a physical repository but a digital one. The result is that the original physical documents are required to be retained and maintained by the attorneys who have prepared and filed them. For at least 7 years. And without the court paying for any storage costs. So in the process of modernizing its operation, the court has also reduced some of its operating costs.

I believe I have also recently detected some businesses engaging in the same practice: outsourcing a portion of their operation, and with it a small portion of operating overhead. I am referring to the sending of bills to be paid without also including a return envelope. For credit cards or perhaps utilities, this is not so dire. You can choose to pay your bill online; and perhaps you already do. But what of others, such as medical providers? I recently have noticed that I am receiving medical bills without return envelopes enclosed. How am I to pay the bill unless (a) I wait to pay until the next time I visit that provider’s office or (b) provide my own envelope at my own expense, thus relieving the provider with that rather small, but oft-recurring element of overhead, and in effect becoming an unwilling participant in the provider’s business model? The problem with (a) is that undue delay could have an impact on my credit score. The obvious problem with (b) is that it costs me time and money, admittedly slight but an unsubsidized expense nonetheless. How about if I supply the envelope at my expense, but then charge back that expense by deducting 10¢ from the total due and noting that deduction on the bill form? Too much? Too little? Or just about right? If you have a thought, share it with me at < a href="mailto:bwilliamsesq@comcast.net">bwilliamsesq@comcast.net< /a>.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with bankruptcy law and tax matters. Contact us by e-mail or call us 1-856-795-0800 to arrange a private meeting. There is no cost or obligation for your first visit.

Supreme Court to Hear Bankruptcy Priority Case

Bankruptcy Priority Case

The U.S. Supreme Court has scheduled oral arguments in a case addressing the priority of creditors in a bankruptcy. The decision will clarify the power of the bankruptcy courts to deviate from legislative pronouncements.

In Czyzewski v. Jevic Holding Corporation, former employees of Jevic Transportation Company have asked the court to reject a bankruptcy court approval of a settlement that rewarded creditors over employees. According to court filings, Jevic filed for bankruptcy protection in 2008, two years after the company was acquired in a leveraged buyout. In conjunction with the bankruptcy filing, the company laid off nearly 1,800 drivers and other employees. Those workers filed a lawsuit seeking back pay under a federal statute that requires a 60 day notice for certain layoffs. The employees also joined with other creditors in a bankruptcy filing, alleging fraud. The company settled with the other creditors, but the settlement excluded the employees. The employees then argued that the payment to the creditors violated the priority rules established in the federal bankruptcy code.

According to the federal bankruptcy laws, the priority rights of creditors are as follows:

  • Secured creditors have  first priority
  • Attorneys and other professionals who worked on the bankruptcy case get paid next
  • So-called “junior creditors” are next on line, with employees claiming unpaid wages at the top of the list
  • All other creditors are subordinate to employees seeking back wages

While acknowledging that it has long been the practice of the bankruptcy courts to allow payments that are contrary to the priority rules, advocates for the employees say that allowing such a deviation from the statutory rule favors more powerful creditors, who can team up with others to exclude specific groups, such as employees. Advocates for the practice say it gives the court flexibility and helps bring about settlements that are in everyone’s best interests.

Contact Our Office

At the office of Bruce H. Williams, Esquire, we offer more than 35 years of bankruptcy experience to people throughout the Haddonfield, New Jersey, area. For a free initial consultation to discuss how bankruptcy can help prevent repossession, contact our office by e-mail or call us at 856-795-0800.

How a Bankruptcy Trustee Investigates Allegations of Fraud

Bankruptcy

The federal bankruptcy code was established to help people get a fresh start. But it’s not something to be considered lightly. The trustee has a duty to ensure that debtors don’t perpetrate a fraud on the bankruptcy system. To that end, a trustee has a number of tools to investigate and confirm/deny the existence of fraud.

A Rule 2004 Examination

Typically, the first action a trustee will take to ascertain whether there has been fraud is to call for an examination under Rule 2004. The trustee may examine a debtor, a creditor or any other party under Rule 2004, and may take oral testimony or require that the party produce documents. The scope of the trustee’s authority extends to:

  • Any acts, conduct, liabilities, assets or financial condition of the debtor
  • Any matter related to the administration of a bankruptcy estate
  • Any issue or matter affecting or associated with a debtor’s right or effort to discharge a debt

An Adversary Proceeding

Based on the Rule 2004 examination, or on any other evidence, the trustee may file an adversary proceeding, essentially a lawsuit in the bankruptcy court. The trustee may name a debtor, creditor or any other party as a defendant.

A Temporary Injunction

If the trustee has reason to believe that a fraud is being perpetrated on the bankruptcy court, the trustee can ask that a temporary injunction be issued. An injunction customarily prohibits a party from engaging in certain behaviors, such as transferring or wasting assets.

A Criminal Prosecution

Because fraud is both a crime and a civil offense, the trustee can ask the U.S. Attorney’s Office to pursue criminal charges against anyone involved in the fraud.

Contact Bruce H. Williams, Esquire

We have more than 35 years of experience helping people in New Jersey with bankruptcy law matters. Contact us by e-mail or call us at 856-795-0800 to arrange a private meeting. There is no cost or obligation for your first consultation.

Understanding Fraudulent Transfers in a Bankruptcy Proceeding

Fraudulent Transfers

When you file for protection under the federal bankruptcy laws, you must comply with strict limitations on the disposal of any of your assets. In fact, the bankruptcy court can look at transactions that occurred prior to the filing to determine if property was conveyed to avoid inclusion in the bankruptcy estate. Under certain circumstances, the exchange of property before or after the filing of a petition can be construed as a “fraudulent transfer.” Under such circumstances, the court may deny your bankruptcy petition, seek to recover the property or take other actions against you.

The first thing to understand about a fraudulent transfer or conveyance is that it must be intentional—the court must conclude that you knew or should have known of the transfer and that it was done for some purpose that contradicted the purpose and function of the bankruptcy filing. If you can demonstrate that you had no knowledge of the transfer and could not have known of the transfer, or that you had some legitimate reason for conveying the property, you won’t be found liable for participating in a fraudulent conveyance.

An apparent fraudulent conveyance may also be negated if you can show that the property transferred had no value or would not have produced any value to creditors in the bankruptcy proceeding. For example, if you had an interest in real property, but the property had no equity, a transfer of the property will likely not be considered inappropriate.

Contact Bruce H. Williams, Esquire

We have more than 35 years of experience helping people in New Jersey with bankruptcy law matters. Contact us by e-mail or call us at 856-795-0800 to arrange a private meeting. There is no cost or obligation for your first consultation.

Using a Bankruptcy Filing to Avoid Foreclosure Proceedings

Avoid Foreclosure

Have you fallen behind in your mortgage payments, because you lost your job, have been sick or for any other reason? Are you worried that your lender may initiate foreclosure proceedings, or have you already been served? Are you thinking about filing for bankruptcy to avoid foreclosure? Here are some basic concepts to help you make the right decision.

You Can Use Bankruptcy to Temporarily Suspend Foreclosure Proceedings

Whether you file a Chapter 7 or Chapter 13 petition, you’ll be entitled to the protection of the automatic stay, which prevents creditors from calling, writing or pursuing legal action against you outside of the bankruptcy process. With a Chapter 7, you can protect some of the equity in your home, so that you may not have to sell the property to satisfy creditors, but you won’t be able to discharge your entire mortgage and keep your home. With a Chapter 13, you can work out new terms for your mortgage for a 3-to-5 year period, so that the payments are more affordable.

It May Not Be in Your Best Interests to Keep Your Home

If you have equity in your house, it’s probably a good idea to try to avoid foreclosure. But you need to ask yourself if you can really afford your home. If there’s no realistic expectation that you can negotiate payments that you can afford, you are better off trying to sell your home and downsizing, even if you owe more on the house than its fair market value. With the cooperation of your lender, you may be able to short sell your home (sell for less than the amount owed and have the entire debt discharged), but you may incur tax consequences, though the Foreclosure Tax Relief Act can help.

Contact Our Office

At the office of Bruce H. Williams, Esquire, we offer more than 35 years of bankruptcy experience to people throughout the Haddonfield, New Jersey, area. For a free initial consultation to discuss how bankruptcy can help prevent repossession, contact our office by e-mail or call us at 856-795-0800.

Bankruptcy And Taxes

If a husband and wife hold title jointly to an asset, such as a house, it is presumed that they own it equally, half each, unless it can be shown that one or the other contributed more towards its purchase or acquisition. Such is not always the case, however, with other assets. For instance, the New Jersey Bankruptcy court recently ruled that a tax refund generated by the filing of a joint return nonetheless was solely the property of the husband. In re: Mecka, 547 B.R. 139 (Bankr. D. N.J. 2016). The basis for the decision is that it was solely the husband’s income which had generated the refund; the wife did not work outside the home. Hence the husband was the sole source of the taxes paid which generated the refund, and the refund was wholly his asset. It occurred to me, as I was reading this decision, that this scenario is not unlike an injured spouse claim to the IRS. Injured Spouse Relief is available to protect the refund of one spouse from offset by the IRS to pay the tax liability of the other spouse (such as child support or student loan arrears) when both spouses have filed a joint return. The injured spouse would accomplish this by filing with the IRS Form 8379, either with the return or separately after the return has been filed.

Contact Bruce H. Williams, Esquire

We have more than 40 years of experience helping people in New Jersey with bankruptcy law and tax matters. Contact us by e-mail or call us 856-795-0800 to arrange a private meeting. There is no cost or obligation for your first visit.