We’ve written a series of blog posts answering common questions regarding bankruptcy in Wisconsin, and how it can impact your finances. Call (262) 827-0375

Bankruptcy Myths

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Financial difficulties are a huge burden to thousands of people. Many continue to struggle long past the point that they should. Oftentimes, people resist the obvious option of bankruptcy because they have misconceptions about it, or fear its implications. In this post, we’ll explore some of the most prevalent myths about bankruptcy and how much truth they actually contain.

History of Bankruptcy

Before and shortly after the creation of the United States, businesses and persons owing money could be consigned to debtors’ prison and have all their property confiscated. Bankruptcy was involuntary; it was something done TO you, not a choice you made. In 1841, bankruptcy became voluntary. As the legal system for bankruptcy developed, bankruptcy changed from a quasi-criminal act, to one focused on resolving financial issues in the best way possible. A Congressional Act in 1978 made major changes, and another in 1984 confirmed the function and scope of the free-standing bankruptcy courts. Subsequent amendments to the system have made it easier for family farmers, small businesses, and consumers to pursue bankruptcy. So our legal system has worked consistently over the last 180 years to make bankruptcy a viable option for people in financial straits. Given this history, let’s examine some of the myths still associated with bankruptcy.

Filing Bankruptcy Makes You A Failure

You may believe that bankruptcy comes with the stigma of failure. That could not be further from the truth. It is designed to be a tool that individuals and businesses can employ when necessary. And both individuals and businesses do so on a regular basis without qualms. Think about some of the major companies that have gone through bankruptcy or restructuring; think about some of the famous people that have done so. Many successful people have bankruptcy in their pasts, and in fact, may not have achieved current success without pursuing bankruptcy.

You Will Lose Your Possessions

You may think that declaring bankruptcy will automatically mean that you lose your house, your car, and your most valuable possessions. Bankruptcy is not meant to punish you, but to ameliorate the situation in the most reasonable way. Bankruptcy law includes exemptions, and Wisconsin is one of only 16 states where you can choose whether to take advantage of the federal or state exemptions. Your retirement accounts will not be drained; you will not lose your vehicle. Working with specialist bankruptcy attorneys will ensure that you protect your most important assets.

It Will Ruin Your Family Life

This fear is perhaps the most insidious and the most easily debunked. If you’re constantly worrying about overwhelming debt, you likely feel depressed and act distracted. Ignoring your situation can cause mounting family issues in innumerable ways. When you’re being hounded by debt collectors, it’s impossible to enjoy a happy family life. One you file for bankruptcy, all collection activity has to cease. Working with the experts at Burr Law, you can relax. Your desperate financial situation will be dealt with, and you will feel not only relief, but satisfaction that you are taking action. Once again, you can start to enjoy your family life.

Bankruptcy Will Haunt You Forever

Bankruptcy stays on your credit report for 10 years; that’s true. But if you are behind on all kinds of payments, your credit score is probably already quite low. It’s entirely possible for you to qualify for a mortgage after bankruptcy. There are ways to rebuild your credit and the professionals at Burr Law can guide you through that process as well. There is absolutely no need to believe that bankruptcy will affect the rest of your life.

Many people don’t declare bankruptcy when it makes sense for them to do so because they believe these myths about bankruptcy. Delaying can exacerbate the problem. Don’t allow your decisions to be based on misperceptions. Know the facts about bankruptcy. Contact Burr Law, and we can advise you about the best way forward in your particular circumstances.

Applying for Credit Cards After Bankruptcy

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You may feel awash in debt, but reluctant to declare bankruptcy because you fear losing all your credit cards. It is true that you will lose access to your credit cards, and will likely have them shut down. But does that mean it’s impossible for you to get new credit cards after bankruptcy? No. You can apply (and get) credit cards after bankruptcy, and rebuild your credit. This post lays out what you need to know to apply successfully for credit cards after bankruptcy

Discharged Bankruptcy

First of all, it’s important to know that your bankruptcy must be discharged before you can make an application for a credit card. If you are pursuing Chapter 7 bankruptcy, that discharge usually happens within 4 to 6 months. With Chapter 13 bankruptcy, though, you may think the bankruptcy is done when all the paperwork is complete and been approved, but it is not. You aren’t officially discharged until the 3 to 5 year plan is complete. If you would like to apply for a credit card before that time, you will need the court’s approval to do so.

New Credit Cards

Although your current credit cards will be unavailable to you once you declare bankruptcy, there are credit cards specifically designed for those working to re-establish creditworthiness. These credit cards fall into two categories: secured and unsecured credit cards. Once you demonstrate your ability to make monthly credit card payments, other institutions will begin to offer you credit cards as well.

Secured Credit Card

A secured card is one where you place a certain amount of money on deposit with the credit card company. This kind of credit card is usually successful even with a fresh bankruptcy. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down. You may think that a secured credit card is rather pointless; however, using it wisely re-establishes creditworthiness. Another benefit is that most secured credit cards shift to regular ones after you have demonstrated an ability to pay your monthly charges for a specified period of time.

Unsecured Credit Cards

A small number of unsecured card issuers will not check your credit score or may be willing to extend a line of credit to you after your bankruptcy is discharged. Such cards typically come laden with fees and sky-high interest rates, so be warned. These kinds of credit cards may cause you to end up in financial distress again.

Re-establishing Creditworthiness

Having a credit card gives you the opportunity to re-establish your creditworthiness. Once you do that, you will begin to receive other credit card offers. Here is the best way forward:
*Be sure to pay your credit card bills on time every month. Payment history is the single biggest factor affecting your credit, accounting for approximately 35% of your FICO credit score.
*Make a plan to pay off your credit card charges. The amount of total credit you use as a percentage of your credit limit also weighs in at 30% of your score.
*Sign up for programs that count alternative payment behavior. There are programs that report your payment of regular monthly bills like your cell phone, utilities, or streaming services from your checking account.

Pursuing bankruptcy will almost certainly mean that you lose access to your current credit cards; but it doesn’t mean that you’ll never have credit cards again. The experts at Burr Law can guide you through the whole bankruptcy process, including how to rebuild your credit afterwards.

What Happens in Foreclosure & Bankruptcy?

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When you’re having financial problems, it is likely that all of your household bills are affected, including your mortgage payments. While shelter is a basic survival requirement, you may have prioritized immediate needs like food, etc., and neglected your mortgage payments. When you fall behind on mortgage payments, your home may be foreclosed on, and suddenly, the possibility of losing your home looms large. There are ways to save your home. In this post, we’ll explore the interplay between foreclosure and bankruptcy.

Timing is crucial

Under federal law, your mortgage lender cannot officially begin foreclosure proceedings until you have missed four months of mortgage payments. Within that time period, you can take the initiative by filing for bankruptcy before any foreclosure begins. If you have received notice of your lender’s intent to begin foreclosure, you can still forestall it by filing your bankruptcy petition. Even after the foreclosure has begun, filing bankruptcy will interrupt it.

Automatic Stay

Whenever you file bankruptcy, all collection efforts of all types are automatically halted. That means that even if foreclosure proceedings have been initiated, they must be paused. This gives you valuable time to develop a strategy that may save your home. The experienced attorneys at Burr Law can negotiate on your behalf and work with your specific circumstances to preserve your most valuable assets, including your home.

Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you devise a repayment plan that will clear your secured debts over a three to five year period. This plan will include your past-due mortgage payments, and your continuing mortgage payments. Because your attorneys work with you to create the plan, it ought to be one that you can achieve. Again, the experts at Burr Law can work with your particular circumstances to help you make a realistic plan. As long as you make all of the required payments for the length of the repayment plan, you will avoid foreclosure and be able to stay in your home.

Importantly, if you have a second or third mortgage on your home, Chapter 13 bankruptcy may well serve to eliminate those debts. Typically, Chapter 13 entitles bankruptcy courts to recategorize second and third mortgages as unsecured debt. Unsecured debt receives the lowest priority in Chapter 13 bankruptcy, and usually does not have to be repaid at all.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as liquidation bankruptcy. It eliminates debt completely by selling your assets. So it sounds as though it would mean that you would lose your home. However, that is not usually the case, especially if your home is your only or primary residence. There are exemptions in Chapter 7 bankruptcy, and one of the most important is your home, known as your homestead. The law in Wisconsin allows an individual filer an exemption of up to $75,000 in value in a homestead, and a couple filing together would have an exemption of $150,000. Other exemptions can also be applied to your home. The experts at Burr Law can make sure that you receive all exemptions possible.

Chapter 7 bankruptcy also forgives the homeowner for tax liability for losses the mortgage or home-improvement lender incurs as a result of the homeowner’s default. This may be debt that you have not even considered, but is important in determining which bankruptcy type to pursue. This law initially applied to the years 2007-2010, but has been extended five times and now applies to debts forgiven in the years between 2007 to 2020. Again, this is an aspect of bankruptcy that your attorneys can advise you about.

If you are concerned that your property may be foreclosed upon, or if foreclosure proceedings have already been initiated against you, contact the professionals at Burr Law. We can guide you to the best solution so you and your family can stay in your home.

Can You Declare Bankruptcy and Keep Money?

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The short answer here is: Yes. The longer answer is: It depends on where the money is. Bankruptcy is designed to alleviate an untenable financial situation, not reduce you to abject poverty forever. You don’t have to give up everything when you file for bankruptcy. You can keep any property that qualifies as an exempt asset—including cash. Because bankruptcy is nation-wide, there are certain exemptions that have been established at the federal level. Some states only allow those federal exemptions, others require you to use the state exemptions. Wisconsin is one of only 16 states that allows you to choose. In this blog, we’ll explore ways in which you can keep your money when you declare bankruptcy.

Wisconsin State Exemptions

When using the Wisconsin state exemptions, your personal property is exempt up to $12,000, as are your bank deposits up to $5,000. Those amounts are doubled if you are filing jointly. College savings accounts or tuition trust funds will not be touched. Only some retirement accounts apply, though. It really requires professional analysis to make the best choice.

Federal Nonbankruptcy Exemptions

If you choose to use Wisconsin state exemptions, you cannot use federal bankruptcy exemptions. However, there are federal nonbankruptcy exemptions that you will still have access to. These include retirement benefits, death and disability benefits, survivor’s benefits, and other miscellaneous exemptions. Each has its own qualifications. Here is information about some of them:

Retirement Funds

Federal bankruptcy exemption for retirement funds in pension plans and individual retirement accounts is available to all debtors, even those in “opt-out” states who would not otherwise be permitted to claim the federal exemptions. The maximum dollar amount for this exemption adjusts every three years, and currently the maximum aggregate value of funds in retirement accounts that may be exempted is $1,512,350.

Education Funds

Some education funds are simply not considered part of the bankruptcy estate; they are held to be separate from the debtor’s other property and assets. This applies to funds placed in an education IRA, a section 529 tuition savings program, and a qualified ABLE account. However, the money must have been put there between 365 and 720 days before the bankruptcy petition was filed.

Here are some of the things that can be excluded from your bankruptcy estate: wages, unemployment benefits, public assistance, cash or bank balances, and personal injury proceeds. Also, you are able to keep Social Security proceeds, though there are special conditions that apply. That money needs to be held in a separate bank account as it loses its protection when placed in an account where there is income from other sources as well.

In summary, there are a number of exemptions for bankruptcy, so you can definitely declare bankruptcy and keep money and other assets. The experts at Burr Law can help you to retain absolutely everything you can while still obtaining all the benefits that bankruptcy brings. Your particular situation will be examined carefully and we will find the best solution for you.

Can You File Bankruptcy on IRS Debt?

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Unpaid taxes can add up to a huge financial burden, especially on top of all your other expenses. And with more and more people freelancing and the gig economy in full swing, it’s not uncommon for people to have IRS debt. If you’re feeling overwhelmed by your financial situation, you may be considering bankruptcy. Bankruptcy is a good way to clear unsecured debt, but what about tax debt? This post explores the question of what happens with tax debt when you file for bankruptcy.

Automatic Stay

The moment that you file for bankruptcy, whether it is Chapter 7 (most commonly) or Chapter 13, all your creditors must stop harassing you for payment. That includes the IRS. So no more threatening letters, phone calls, etc. The automatic stay also applies to property. The IRS can’t touch your more valuable assets. So no matter what stage the IRS collection effort is in, the automatic stay stops it completely. However, an automatic stay is just a pause. If you want to eliminate IRS debt as well as other debts, choosing the right time to file for bankruptcy is crucial.

Conditions for Tax Debt to be Discharged

You may be unsurprised to learn that IRS rules and regulations are like an impenetrable maze. There is a regulation for almost everything, including specific rules for bankruptcy discharge. You should expect that the IRS will object to eliminating your tax debt if it can find any reason to do so. That’s why it is especially important to have expert legal counsel if you are trying to eliminate IRS debt.

Income Taxes

Chapter 7 bankruptcy only discharges income tax debt. Your 1040 taxes are obviously income taxes, but other taxes are not. For instance, property taxes and trust fund taxes are definitely not income taxes. So the kind of taxes you owe the IRS makes all the difference. If you do owe unpaid income taxes, then that IRS debt can be discharged. Then there are some rather complicated regulations dependent on timing.

Taxes Filed for Last 2 Years

You have to have filed your taxes for at least the last 2 years (if you were required to file). At the time you file for bankruptcy, the IRS needs to have your tax filings for the previous 2 tax years, and that applies whether or not you filed those taxes on time. If you didn’t file and the IRS prepared substitute returns to determine what you owed, those do not count as taxpayer-filed returns.

Tax Debt Must Be at Least 3 Years Old

Your income tax debt must be at least three years old. And it’s crucial to remember that Tax Day is not always April 15. Some years, it could be the 16th, 17th, or even 18th. In 2020 it was July 15 because of the COVID-19 pandemic. IRS lawyers have been known to object to discharge if the timing is off even by one or two days. So, make sure you file the petition on the correct day, or else you will have to start over.

240 Day Rule

Your tax assessment can’t be more than 8 months old, or must not have been assessed yet. If the IRS has not assessed the debt within the last 240 days, the income tax debt is not dischargeable. It’s almost impossible to tell if the IRS has assessed the debt or not, because this process is an internal accounting tool. But generally, if you’ve not received a bill which breaks down the amount due by tax years, the IRS has probably not assessed the debt yet.

Burr Law Helps with Complexities

At Burr Law, our professionals have years of experience dealing with bankruptcy law. We understand the complicated IRS rules around bankruptcy, and will work with them to make sure your tax debt is included in your bankruptcy. Don’t leave something this important to chance.

Things to Know About Chapter 13 Bankruptcy in Wisconsin

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There are two main types of bankruptcy that individuals can pursue, Chapter 7 and Chapter 13. This post focuses on Chapter 13. Chapter 13 bankruptcy acts more like a reorganization than anything else. It’s often called the “Wage-Earner’s Bankruptcy,” because it is designed for someone who has a regular income, but has become overwhelmed by debt. Unlike Chapter 7 bankruptcy (also called “Liquidation Bankruptcy”), it doesn’t have an income limit and you won’t need to worry about losing your valuable assets. It does have limitations on the amount of debt you have, though. To be eligible to file for Chapter 13 bankruptcy, you must have no more than $419,275 in unsecured debt and you also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans. If your debt falls within these parameters, Chapter 13 bankruptcy may be for you. Here’s what you need to know.

Chapter 13 Plan Lasts from 3 to 5 Years

The typical Chapter 13 reorganization plan lasts from three to five years. That’s a long time. Many debtors find it impossible to maintain, though they are contractually and legally obligated to do so. Again, seeking professional advice from attorneys dedicated to bankruptcy law makes a tremendous difference here. Crafting a reorganization plan that anticipates periodic extra expenses and realistically assesses your earning potential over the next five years makes the length of the reorganization workable.

Chapter 13 Protects Your Assets

Filing Chapter 13 causes all collection actions to stop, including home foreclosure. Chapter 13 bankruptcy preserves your secured assets, so you don’t have to worry about losing your home or car. The objective is reorganization of debt rather than liquidation of assets.

Chapter 13 Eliminates or Diminishes Unsecured Debt

Unsecured debt includes credit card debt, medical bills, and other debts that don’t depend on collateral. Chapter 13 bankruptcy results in unsecured debt being discharged entirely or diminished significantly. If the debt is not completely eliminated, you will be paying off a small portion of what you owe over the course of three to five years.

Second Mortgage Can Become Unsecured Debt

If your home’s second mortgage is worth less than what you owe on your first mortgage, then you can petition the court to have your second mortgage classified as unsecured debt. Upon completion of your debt repayment plan, your second mortgage may be reduced greatly or discharged. This is a situation where the guidance of the experts at Burr Law can make the difference.

Other Debt Included in Chapter 13

One of the professional bankruptcy attorneys at Burr Law may be able to help you incorporate debts not usually available for reorganization. For instance, while domestic support obligations (DSO) like child support remain due and payable, past-due amounts can be worked into the reorganization plan and paid over three to five years. Likewise, if you owe back taxes, there are some situations where some amounts of tax debt can be incorporated into the reorganization plan too.

Necessary Forms

A typical Chapter 13 bankruptcy package could be 100 or more pages. When you file Chapter 13, you must complete the approved bankruptcy forms and any local bankruptcy forms required by the bankruptcy court. The forms for a Wisconsin Chapter 13 case include information about your eal estate, personal property, bankruptcy exemptions, debts, income, expenses, co-debtors (your spouse or life partner), leases and executory contracts. This is not an exhaustive list. The Statement of Financial Affairs is a form with almost two dozen questions about your received financial transactions. It includes income for the past two years, recent payments to certain creditors and insiders, a list of lawsuits, gifts, contributions, leases, transfers, and other information. The experts at Burr Law can assist you in gathering all the necessary information and completing the forms correctly and comprehensively.

Is It Better To Have A Foreclosure Or Bankruptcy?

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When you’re feeling extreme financial pressure, especially when it involves being behind on your mortgage, you probably feel assaulted on all sides. It might be easiest to avoid dealing with the situation, but we all know that ignoring it won’t work for long. In this post, we’ll explore what foreclosure and bankruptcy actually mean; in order to decide which is better for your particular situation, though, you should seek the advice of one of the experts at Burr Law.

Who Is The Actor?

Foreclosure happens TO you. Your mortgage company or bank initiates foreclosure on your property when you are behind on your mortgage payments. You do not have control over the timing, or any other part of the process. On the other hand, you CAUSE bankruptcy. You make the decision to pursue bankruptcy, and which chapter to file. You decide when it is best to begin the process and which exemptions to go with (Wisconsin is one of only 16 states where you can choose the state or federal exemptions).

Will You Definitely Lose Your Home?

The purpose of foreclosure is for the bank or mortgage company to reclaim your home, so you would no longer be able to live there. Once the foreclosure process has been begun, you have few options to prevent that from happening. And all of them need to be approved by the mortgage company. You can try to negotiate a loan modification or a forbearance, though usually the time to do that would be before the foreclosure has started. The only real way to guarantee that you will not lose your home is to pursue reinstatement of the loan. Wisconsin redemption law allows you to have the mortgage reinstated any time before or after judgment, but before sale. However, Wisconsin’s redemption law is complicated, and it also changed significantly on April 27, 2016. Even if foreclosure has begun, when you file for bankruptcy, all collection activities must cease. So that automatic stay pauses the foreclosure. In bankruptcy, whether you file Chapter 7 or Chapter 13, there is a very good possibility that you will keep your home. If you have a second or third mortgage on your home, that can be declared unsecured debt and entirely eliminated by Chapter 7. The past due mortgage amounts can be considered along with all other secured debt and a reasonable repayment plan devised.

Will You Still Be In Debt?

There is the danger that you might face a deficiency judgment after the foreclosure process ends. What this means is that your bank or mortgage company is not able to recover the entire amount owed to them and therefore they are legally allowed to go after you to recover that excess amount. For example, if you owe $350,000 on your mortgage and the bank sells your property through foreclosure for $250,000, it can then file a claim against you for $100,000. So it is possible for you to end up homeless, and still significantly in debt. With Chapter 7 bankruptcy, all unsecured debt is completely eliminated and you should emerge from the process completely free of debt. In Chapter 13 bankruptcy, your debt may be much less than it was, and you will have a 3 to 5 year plan to repay your creditors that the court approves.

What Happens to Your Credit?

Whether you go through foreclosure or through bankruptcy, your credit score will be affected. Foreclosure stays on your credit record for 7 years; bankruptcy for 10. That doesn’t necessarily mean that bankruptcy is worse for your credit than foreclosure though. If you’ve been paying all your credit card bills, but not your monthly mortgage, your current credit score may be high; foreclosure will cause a significant drop, and you will lose your home. Once you have gone through foreclosure, it will be extremely difficult for you to get another mortgage. In bankruptcy, there is a good chance that you can keep your home, and while the bankruptcy remains on your credit report, it does eliminate all unsecured debt. Another factor to consider is the state of your credit score currently. If you are in significant financial distress, it is likely that your credit score is already low. Bankruptcy may decrease it further, but the actual effect will probably be small. There are credit cards designed to help people re-establish creditworthiness after bankruptcy.

The choice between foreclosure or bankruptcy is complicated, and it is best to speak with the professionals at Burr Law. We can analyze your specific situation and advise you on the best course of action for you.

Preparing to File for Bankruptcy in Wisconsin

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You might think that making the decision to file for bankruptcy is the only real preparation necessary. However, whether it is Chapter 7 or Chapter 13 bankruptcy you plan to pursue, careful preparations need to be made in order for the bankruptcy code to work to your advantage. It is vital to work with bankruptcy experts (like those at Burr Law) who will guide you through the whole bankruptcy process, and that process starts well before the petition is filed in court.

Time of Filing

Chapter 7 bankruptcy is the best choice for actually getting rid of your unsecured debt. It requires a means test, though; you can’t make more than the median household income for your state. For Wisconsin, that amount is $64,168. The calculation of your household income is made from all of your income for the six months prior to the month in which you file for bankruptcy. So if there are particular times of the year when you receive money (for example, a bonus from your work or a payout from an investment) it would be wise to file for bankruptcy so that any extra income isn’t included. For instance, if you get a work bonus around the 20th of December every year, filing in December means that your household income is figured from June 1 through November 30. It is especially important to consider timing if your household income is close to the limit allowed for Chapter 7.

Credit Card Spending

When you are contemplating bankruptcy, it may be tempting to make a number of purchases on your credit cards. You may think that it is a good idea to use them while you still have them, and that it’s your final chance to buy something major. There is some truth to this thinking. No matter whether you declare bankruptcy using Chapter 7 or Chapter 13, you will no longer have access to your credit cards. However, it is important for you to know that some credit card debt can be determined nondischargeable. If you go on a spending spree just before filing bankruptcy, your credit card company can claim those were fraudulent purchases, that you never intended to repay them, and request that they be declared nondischargeable. You would need to be able to prove that you intended to repay them or that you didn’t plan to declare bankruptcy.

Presumed Fraudulence

There are some instances where the law presumes that your intent was fraudulent. If you use your credit cards in the three months before filing bankruptcy for luxury goods and services totaling more than $725, fraud is presumed (11 U.S.C. § 523(a)(2)(C)(i)(l). Likewise, If you use your credit cards for cash advances totaling more than $1,000 within 70 days before filing bankruptcy, fraud is presumed (11 U.S.C. § 523(a)(2)(C)(i)(l).

Necessary Spending

The designation of luxury goods is significant. The court will not penalize you for using your credit card for necessary expenses. So, while buying an in-home sauna would not be allowed, paying for your heating for the winter would. If you are considering taking a cash advance on your credit card in order to pay for necessary living expenses, it would be better to use your card to pay for the gas you need to get to work and the groceries to feed your family. Those expenses are easy to describe as necessary.

Bankruptcy Exemptions

Finally, Wisconsin is one of only 16 states that allows you to choose whether to use federal bankruptcy exemptions or Wisconsin state exemptions. This is an either/or choice though, you can’t choose a few Wisconsin exemptions, and mix them in with federal exemptions. The professionals at Burr Law will be able to give you the best advice for your particular situation.

When you decide to pursue bankruptcy, you need the help of experts right from the start. At Burr Law, we will be with you from the beginning—preparing to file, choosing which Chapter to use, deciding on the exemptions, and pursuing the bankruptcy through to completion.

What Happens to Your Credit Cards When You File for Bankruptcy?

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When your financial situation is overwhelming, you may consider filing for bankruptcy. One of your worries might be what would happen to your credit cards should you pursue bankruptcy. That’s a legitimate concern; you may well lose access to your credit cards. Then the question becomes whether filing bankruptcy would bring more benefits than the detriment of losing your current credit cards. In this post, we’ll explore what happens with credit cards when you pursue bankruptcy.

What Kind of Debt Is it?

Credit cards are unsecured debt. Unsecured debt refers to any kind of debt that is taken on to buy everyday goods and services. Credit cards issued by banks or other financial institutions, department store cards, gas cards–all are examples of revolving credit. It is unsecured because you haven’t had to offer any kind of collateral in order to get it. Unlike your auto loan, where the vehicle itself functions as the collateral, credit card companies offer you short-term loans that you agree to repay with the stated interest. You can pay for your groceries with your credit card just like you can buy a computer with your credit card. In either case, the credit card company cannot come and take the food out of your refrigerator, or the computer off your desk. Since there is no collateral with credit cards, there can be no repossession.

Credit Card Interest

Because credit cards are actually short term loans, they charge a high rate of interest. In the first 3 months of 2022, Americans’ credit card balances reached $841 billion, and the average credit card interest rate is 21.33%. Department store interest rates are even higher. So there is a lot of money in play. If you pay your minimum amount due every month, you’re paying only the interest and are locking yourself into perpetual, costly debt. Wisconsinites have an average of $4587 on their credit cards. That means that if you want to pay off the entire amount in 6 months, you have to make monthly payments of over $800. If all of this sounds discouraging, you’re not alone.

Credit Card Debt and Chapter 7

Chapter 7 bankruptcy is called Liquidation Bankruptcy, but don’t let that name scare you off. While it is designed to repay a portion of your debts through the sale of your assets, there are exemptions, and the experts at Burr Law can make sure your car and your home remain yours. The truth is that using exemptions to their fullest, you can completely eliminate your credit card debt while keeping your most valuable possessions. There is no minimum or maximum amount of debt needed to file a Chapter 7 bankruptcy. There is an income status requirement, though. Your income needs to be equal to or below Wisconsin’s median income, $64,168. If you are close to or slightly over that number, the professionals at Burr Law can help with timing or calculation to make Chapter 7 work for you.

Credit Card Debt and Chapter 13

Chapter 13 bankruptcy functions more like a reorganization. A trustee assigned by the bankruptcy court draws up a plan whereby you repay a portion of your debts over the course of 3 to 5 years. Your creditors then need to agree to the plan, and the bankruptcy court approves it. Credit card debt is often, but not always, eliminated. Even when it is not entirely written off, you will end up having to repay only a small portion of your credit card debt. With this type of bankruptcy, you will retain your car and your house as well. There is no income status requirement, though there is a maximum debt level. To be eligible to file for Chapter 13 bankruptcy, you must have no more than $419,275 in unsecured debt and no more than $1,257,850 in secured debt, which includes mortgages and car loans.

Basically, if most (or all) of your crippling debt is credit card debt, you might find that it’s worth it to lose access to your current credit cards and get rid of that debt. The best course of action is to contact the experts at Burr Law. They can listen to your specific situation and guide you to the best decision.

Does Bankruptcy Clear Tax Debt?

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If you have any tax debt and you are considering bankruptcy, it is absolutely essential that you work closely with experts in bankruptcy law and IRS regulation. It is indeed possible to eliminate tax debt when filing Chapter 7 bankruptcy, but it is not easy to do so. In this post, we will explore how bankruptcy can clear tax debt.

Criteria

You won’t be surprised to find out that IRS rules and regulations are complex, and even more so around tax debt and bankruptcy. You should expect that the IRS will object to eliminating your tax debt if it can find any reason to do so. There are a number of conditions that must be met before tax debt is eligible to be discharged through bankruptcy. Briefly they are:

  • You did not deliberately evade paying your taxes or file a fraudulent return
  • Your tax debt is at least 3 years old
  • You have filed a tax return for the 2 years prior to your bankruptcy filing
  • Your tax debt assessment can’t be over 8 months old, or not yet done

Automatic Stay

The moment that you file for bankruptcy, whether it is Chapter 7 (most commonly) or Chapter 13, all your creditors must stop harassing you for payment. That includes the IRS. The automatic stay also applies to property. So no matter what stage the IRS collection effort is in, the automatic stay stops it completely. However, an automatic stay is just a pause. If you want to eliminate IRS debt as well as other debts, choosing the right time to file for bankruptcy is crucial.

Income Taxes

Chapter 7 bankruptcy only discharges income tax debt. Your 1040 taxes are obviously income taxes, but other taxes are not. For instance, property taxes and trust fund taxes are definitely not income taxes. So the kind of taxes you owe makes all the difference. If you do owe unpaid state or federal income taxes, then debt can be discharged. Then there are some rather complicated regulations dependent on timing.

Taxes Filed for Last 2 Years

You have to have filed your taxes for at least the last 2 years (if you were required to file). At the time you file for bankruptcy, your tax returns need to be with the appropriate state tax department and with the IRS. This applies whether or not you filed those taxes on time. If you didn’t file and the IRS prepared substitute returns to determine what you owed, those do not count as taxpayer-filed returns.

Tax Debt Must Be at Least 3 Years Old

Your income tax debt must be at least three years old. And it’s crucial to remember that Tax Day is not always April 15. Some years, it could be the 16th, 17th, or even 18th. In 2020 it was July 15 because of the COVID-19 pandemic. IRS lawyers have been known to object to discharge if the timing is off even by one or two days. So, make sure you file the petition on the correct day, or else you will have to start over.

240 Day Rule

Your tax assessment can’t be more than 8 months old, or must not have been assessed yet. If the IRS has not assessed the debt within the last 240 days, the income tax debt is not dischargeable. It’s almost impossible to tell if the IRS has assessed the debt or not, because this process is an internal accounting tool. But generally, if you’ve not received a bill which breaks down the amount due by tax years, the IRS has probably not assessed the debt yet.

Burr Law Helps with Complexities

At Burr Law, our professionals have years of experience dealing with bankruptcy law. We understand the complicated IRS rules around bankruptcy, and will work with them to make sure your tax debt is included in your bankruptcy. Don’t leave something this important to chance.