We’ve written a series of blog posts answering questions regarding Chapter 7 bankruptcy in Wisconsin and its financial impact. Call (262) 827-0375

What Is The Income Limit For Chapter 7 In Wisconsin?

When you’re in financial distress, you may begin to consider your bankruptcy options. Maybe you’ve heard that Chapter 7 completely eliminates all unsecured debt and leaves you free to rebuild. That’s true. You may also have heard that it is only available to some people, that there’s an income limit that you cannot cross. Chapter 7 bankruptcy is, indeed, means tested. In this post, we will explore what the income limit is for those who want to file Chapter 7 bankruptcy in the state of Wisconsin, and the factors that go into calculating that figure.

Income Matters

In order to file Chapter 7 bankruptcy, you cannot have an income above the median household income of your state. For Wisconsin, that amount is $61,747, based on 2019 figures. The 2020 figures ought to have been made available by the U.S. Census Bureau in September of 2021, but the release of that data has been delayed.
The size of your household matters as well, and the bankruptcy experts at Burr Law can help you know definitively whether or not you qualify for a Chapter 7 bankruptcy. If your income is greater than $61,747, there still may be a way for you to qualify for Chapter 7 bankruptcy.

Timing Matters

Importantly, “income” excludes any money received during the actual calendar month in which you file. The median household income is determined by the numbers during the six calendar months prior to the filing. So, for instance, if you generally receive a holiday bonus in December, or your parents give you a monetary gift to help with presents for the children in December, it would be a good idea to file for bankruptcy in December. Filing for Chapter 7 bankruptcy in December will mean that your household income will be calculated based on the numbers from June 1 through November 30. So it is important to determine the best time to file for Chapter 7 bankruptcy. The date of filing should be carefully considered; you want it to work in your favor for the means testing.

Categorization Matters

You probably don’t consider yourself a business; but it may be possible to file Chapter 7 bankruptcy as a business and therefore avoid the means test. A business filing Chapter 7 does not have to meet the means test. So how could you, as an individual, qualify as a business? Personal tax debt and student loan obligations are usually considered business debt. People with large balances might qualify as an individual filing for a business bankruptcy and avoid taking the means test. If you’re interested in pursuing this possibility, you should definitely consult with the experts at Burr Law.

Deductions Matter

Deductions can also factor into the determination of your income for the means test.
Here are some of the most common obligations you can deduct from your actual expenses on the means test: Secured debts (like your car or mortgage); Insurance (health, disability or term life insurance); Taxes; Involuntary deductions (like union dues, uniform costs, or mandatory retirement plans); Child care; Court-ordered Payments (alimony or child support); and Familial obligations (like expenses associated with a disabled child; care of an elderly, chronically ill or disabled family member, etc.). Even charitable contributions can be deducted if you can demonstrate that they have been regularly made prior to filing. The professionals at Burr Law can guide you through what expenses can be deducted.

The means test for Chapter 7 bankruptcy may seem straightforward and rigid, but there is more flexibility than first appears. If you are contemplating bankruptcy, it would be wise to consult the experts at Burr Law.

How Long Does Bankruptcy Take in Wisconsin?

When your financial situation is dire, you’re looking for solutions, and you need them quickly. You might think that the bankruptcy process is just too long and cumbersome to provide the kind of relief you need right away. While there are a number of steps that you need to go through, that doesn’t necessarily mean that it will take an extremely long time. In this post, we will examine just how long bankruptcy takes in Wisconsin.

Two Kinds of Bankruptcy

The first thing you should know is that there are generally two different kinds of bankruptcy that individuals can pursue, Chapter 7 and Chapter 13. The actual bankruptcy process through bankruptcy court for both takes approximately four to six months. For Chapter 7 bankruptcy, that’s it finished; your unsecured debt is eliminated. For Chapter 13 bankruptcy, you enter into an agreement that runs over three to five years where a portion of your debts are repaid.

Credit Counseling

Whether you are filing Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court process is the same. It begins with pre-filing credit counseling. This seminar usually lasts between 60 and 90 minutes and is required before you actually file in the bankruptcy court. There is also a post-filing course that you are required to complete successfully. The word “course” here is a bit misleading. In Wisconsin, there are approximately 85 courses approved by the US Trustee, and they range in price and duration. Some of them are as short as 2 hours.

341 Meeting

A 341 meeting must take place within 3 to 7 weeks after filing. At a 341 Meeting you meet with the Trustee appointed to oversee the case. The Trustee checks your identification and asks you a series of questions about the bankruptcy paperwork. The Trustee’s job is to check your identity, review your paperwork for accuracy, and make sure that your creditors get paid as much as possible. Creditors who attend can ask about financial matters, although it’s rare for creditors to appear. The whole thing usually lasts about 10 minutes; if there are creditors present or the inquiry seems to be taking longer, another date will be set to conclude the meeting.

Differences in 341 Meeting

The Trustee in Chapter 7 and Chapter 13 has different duties. The Chapter 7 Trustee will sell any assets that you can’t protect with a bankruptcy exemption and distribute the proceeds to creditors. The experts at Burr Law can help you preserve your assets. For instance, you’ll almost certainly retain your car and house. The Chapter 13 Trustee will evaluate the workability of your proposed Chapter 13 repayment plan. If the judge approves the plan at the Confirmation Hearing (which follows), the Chapter 13 Trustee will continue to distribute monthly payments to creditors. (Debtors begin making the proposed plan payments about 30 days after filing and receive the funds back if the court doesn’t confirm the plan, with some exceptions.)

Confirmation Hearing for Chapter 13 Bankruptcy

If you are pursuing Chapter 13 bankruptcy, there will be a Confirmation Hearing within 45 days of the 341 Meeting. In Wisconsin, it is not usually necessary for you to appear at this hearing; only your attorney needs to do so. If there are other issues, the Confirmation Hearing can be continued (delayed) either at the request of a creditor or your request. A Continuance can be granted multiple times.

Discharge

For Chapter 7 bankruptcy, the Discharge happens between 60 and 90 days after the 341 Meeting. For Chapter 13 bankruptcy, the Discharge does not occur until the repayment plan (usually three to five years) is completed.

Bankruptcy is complex, but doesn’t have to be lengthy. The experts at Burr Law can guide you through the process so that you meet all deadlines and emerge into a financial future that is much less stressful.

What Happens When You File Bankruptcy?

With the COVID-19 relief ending, you may be discovering that your debt obligations are still there whether or not you are in a better position to deal with them. In fact, they may be looming larger than ever before. If that is the situation you find yourself in, you may be seriously considering filing for bankruptcy. In this blog, we’ll explore what actually happens when you do that. You want to have all the information and understand all the implications before proceeding.

Bankruptcy Stops All Collection Activities

When your debt is crippling, it comes with collection agents working relentlessly to extract money you don’t have. Letters that threaten dire consequences, phone calls that badger you at all times of day or night, these tactics can make you feel hunted, haunted, or both. The moment you file bankruptcy, all collection activities must stop.

Bankruptcy Eliminates or Decreases Debt

With bankruptcy, all your unsecured debt is either eliminated or reduced. Most people file Chapter 7 Bankruptcy, and with that type, you don’t need to worry about any sort of repayment. The entire process takes between 3 to 6 months, and then your debt has disappeared. Some people choose Chapter 13 Bankruptcy, and with that type, you do repay a portion of your debts, determined with the court. This process lasts from 3 to 5 years. In both cases, your debts are cleared, once and for all.

Bankruptcy Avoids Draining Resources

The bill collectors don’t care where you get the money to pay them, and you may be tempted to take it from your retirement funds, social security or other protected assets. When you declare bankruptcy, not all your assets are liable for your debt repayment. Social security and retirement funds are protected. Your house and car are too. Filing bankruptcy allows you to retain those protected assets while getting rid of the debt.

Bankruptcy And Your Credit Cards

While bankruptcy eliminates your debt, it also eliminates your current credit cards. Not having credit cards makes some things more difficult. For instance, car rental agencies usually require credit cards; hotels often do too. It also means that unexpected large expenses cannot be paid with a credit card. There are credit cards specifically for those with negative credit histories; the terms are not favorable and credit limits are carefully controlled.

Bankruptcy And Your Credit Score

Bankruptcy remains on your credit record for 7 to 10 years, and naturally it lowers your credit score. It can make getting an auto loan or other kind of loan more difficult. It is important to remember, though, that if your repayment history has been poor and your debt to asset ratio is high, your credit score may already be quite low. In that case, bankruptcy may have a smaller impact than you suppose.

Bankruptcy Can Help Your Mental Health

Often unspoken, the negative impact on your mental health when you have significant financial issues is undeniable. Filing for bankruptcy shifts all of that stress and tension. Instead of facing your money problems alone, you will be working with professionals dedicated to helping people in your situation. Over 6000 Wisconsinites have declared bankruptcy already this year (January through August 2021). The experts at Burr Law can guide you through the process step by step, and you can breathe a sigh of relief.

Bankruptcy can give you a clean slate, though it is not without difficulties and dangers. If you are considering bankruptcy, it is vital that you consult with experts. The professionals at Burr Law can evaluate your particular circumstances and advise you on the best way forward..

Rebuilding Credit After Bankruptcy

When you declare bankruptcy, you are able to eliminate or diminish your debt, but it does leave its mark. Any credit cards you have when you file for bankruptcy will be unavailable to you, and the bankruptcy stays on your credit report for 7 to 10 years. That doesn’t mean that you are doomed to live without any credit resources or loans for that entire time. Bankruptcy is often the wisest choice, and there are steps you can take in the short and longer term to rebuild your credit. In this blog, we’ll explore some practical ways to do that.

Adhere to Bankruptcy Agreements

Whether you declare Chapter 7 or Chapter 13 bankruptcy, you have entered into a legally binding agreement. In Chapter 13, that means that a court-appointed trustee takes control of all of your disposable income and pays your creditors with it. This situation usually lasts from three to five years. It is imperative that you inform the court of any changes to your disposable income during this period. If you have filed Chapter 7 bankruptcy, that eliminates all your unsecured debt. However, you may have entered into a Reaffirmation Agreement with your auto lender in order to keep your car. If so, you must prioritize making those monthly payments.

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 often have low credit limits and higher interest rates to begin with; those elements switch as time passes and you use the card wisely. Once you demonstrate your ability to make monthly credit card payments, other institutions will begin to offer you credit cards as well.

Understanding Your Credit Report

Bankruptcy will almost certainly lower your credit score, but it you have had delinquent accounts and history of late payments, you may be surprised to find that your credit score does not plummet. Rebuilding your credit score depends on understanding how your credit score is calculated. Not every action has the same impact. For instance, one of the most important factors is the amount owed. Declaring bankruptcy actually makes your amount owed negligible. The most important factor, though, is payment history. While you cannot change your past, you can certainly control what your payment history becomes.

Credit Report – Time Frame

Your credit report is not a static document. Your credit score changes all the time, and actions that have lowered your credit score do disappear from your credit report. The time frame varies from two to ten years. A Chapter 7 bankruptcy usually remains on your report for 10 years, while a Chapter 13 one stays on for 7. Crucially, the severity of the impact diminishes with time, too. So a bankruptcy five years ago will matter less than when freshly filed, especially if it appears with five years’ worth of on-time payments.

Credit Report – Repair

Declaring bankruptcy does not have to be devastating to your ability to get credit, and it can be mitigated. The experts at Burr Law can guide you in re-establishing your credit in ways that meet your particular situation. Remembering that payment history is crucial, and that many accounts do not typically report on-time payments, you can work to have your timely payments noted. While auto loans, mortgages, credit cards and some others are typically reported, other things like utilities, phone payments, and even streaming services can be reported. If you have a monthly expense that isn’t being reported and you want those timely payments to count, Burr Law can help.

Rebuilding credit after bankruptcy is certainly possible. The experts at Burr Law can advise you on that as part of your bankruptcy service.

Bankruptcy After Lockdown?

The last year has been challenging for all of us in many ways. Americans have lost jobs at a rate not seen since the Great Depression. Industries–especially those in retail, tourism, and hospitality–have experienced crushing lockdowns. The government has passed a number of COVID-19 bills to mitigate the worst of these effects, beginning in March of 2020 with the CARES Act and most recently with the American Rescue Plan on March 11, 2021. The direct payments to the majority of Americans and the assistance provided to businesses have been beneficial. But they cannot eliminate all the damage done. And they cannot continue indefinitely.

Now is the Time to Act

Bankruptcy filings are low just now, but experts anticipate that they will rise significantly. That means that the bankruptcy court will be flooded with cases, and delays due to packed court schedules may result. Bankruptcy judges may feel pressured to rush through cases, making snap decisions detrimental to those involved. Now is the time to take a long, hard look at your financial situation and decide what the best way forward will be.

Personal Bankruptcy

More than 22 million people lost their jobs during this pandemic, and Moody’s predicts that those jobs will not be recovered until 2024. If you’re one of those who have suffered this loss, you may well benefit from declaring bankruptcy. While the additional unemployment benefits have been extended, they will not last forever, and unemployment benefits rarely compare positively with actual employment. The moratorium on evictions goes until June 30, 2021, but what happens on July 1? Perhaps you are one of the 7.7 million people who lost their employer-sponsored medical insurance; you don’t need to have had COVID to have incurred significant medical debt. Whatever your situation, you should consider your bankruptcy options now rather than later.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the one most commonly used by individuals (or couples). It is often called ‘Liquidation’ bankruptcy, but the experts at Burr Law can make sure that you get the exemptions you’re entitled to, and you will almost certainly keep your house and vehicle. Chapter 7 completely eliminates your unsecured debt, and it takes between four and six months to complete. It is means tested; your income must be equal to or below the median household income of your state. For Wisconsin, that is $67355 as of 2019 (the last year for which we have figures).

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is often called ‘Wage-Earners’ bankruptcy since it functions more like a partial debt-repayment plan. The bankruptcy court assigns a trustee who examines your entire financial situation, negotiates the elimination or reduction of your debt with your creditors and establishes a realistic monthly payment plan. The whole process lasts between three and five years. While this option is not means tested, there are indebtedness restrictions. To be eligible to file for Chapter 13 bankruptcy, you must have less than $419,275 in unsecured debt, like credit cards or medical bills, and you also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans.

Business Bankruptcy

Chapter 11 Bankruptcy

Most businesses choose to file Chapter 11 bankruptcy; it is a reorganization of the business that allows it to continue to trade in the marketplace while repaying creditors. Generally, the business itself proposes the reorganization plan. It is also possible to file for Chapter 11 bankruptcy more than once, without an onerous waiting period. This is informally called Chapter 22 bankruptcy. When you file for Chapter 11 relief in bankruptcy court, no trustee is appointed. Instead, you become the Debtor in Possession (DIP). You have the exclusive right to propose a reorganization plan for at least 4 months and up to 18 months. Once you do so, your creditors need to agree to the plan, and the court needs to approve it. That is called confirmation and in doing so, the court will decide whether the plan demonstrates 4 factors: feasibility, good faith, best interests of the creditors, and fairness. The whole thing usually takes between 6 months to 2 years.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy is specifically designed for family farmers and family fishermen. It recognizes the greater debt burden that family farmers and fishermen carry but treats them more like individuals than business bankruptcies. The process is more streamlined and less expensive than Chapter 11, for instance. If you’re a farmer, in order to qualify for Chapter 12, your total debts must not exceed $4,153,150, and 50% of them must come from the farming operation. If you’re a fisherman, your total debts must not exceed $1,924,550, and 80% of them must be associated with your fishing enterprise. In both cases, more than 50% of your gross income should come from your farming or fishing. This bankruptcy pays off all or a portion of your debts over 3 years, though that can be extended to 5 years if necessary. You continue operating your farm or fishing business during the bankruptcy process.

Call the professionals at Burr Law to help guide you through the decision-making, and if necessary, the bankruptcy process itself. You’ll be glad you did.

Most Common Types of Bankruptcy

This past year’s double catastrophe (the pandemic and its subsequent economic impacts) have brought many people to the brink of financial disaster. Whether it is unanticipated medical expenses, loss of income, or a combination of other factors, you may be emerging from the COVID-19 disaster to discover just how dire your money situation is. If that’s the case and you are considering bankruptcy as an option, it’s important that you know what kinds of bankruptcy are open to you. This post will explore three of the most common types of bankruptcy open to individuals: Chapter 7, Chapter 13, and Chapter 12.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also 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 derive the benefit of totally eliminating unsecured debt while retaining 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, $67,355 as of 2019 (the latest figures available).

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. 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 less than $419,275 in unsecured debt, like credit cards or medical bills, and you also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans.

Chapter 12

Chapter 12 bankruptcy is specifically designed for family farmers and family fishermen. It recognizes the greater debt burden that family farmers and fishermen carry but treats them more like individuals than business bankruptcies. The process is more streamlined and less expensive than Chapter 11, for instance. If you’re a farmer, in order to qualify for Chapter 12, your total debts must not exceed $4,153,150, and 50% of them must come from the farming operation. If you’re a fisherman, your total debts must not exceed $1,924,550, and 80% of them must be associated with your fishing enterprise. In both cases, more than 50% of your gross income should come from your farming or fishing. This bankruptcy pays off all or a portion of your debts over 3 years, though that can be extended to 5 years if necessary. You continue operating your farm or fishing business during the bankruptcy process.

These are the most common kinds of bankruptcy for individuals in Wisconsin. For businesses, other bankruptcy options apply. If you’re wondering how you’re going to resume your life after the pandemic, bankruptcy may give you a positive way forward. Consult the experts at Burr Law today to find out more.

Overwhelmed with Debt?

The COVID-19 pandemic has had dire economic consequences for many people, and there have been protections put in place to help people survive this difficult time. Those aren’t going to last forever, though, and you may be looking at your financial situation and wondering just how you’re going to manage. If you feel overwhelmed with debt, it’s important to think things through now and have a plan in place while you still have a number of options. There are basically three different approaches you can take: debt consolidation, debt management, and bankruptcy. This post explores each of them.

Debt Consolidation

Debt consolidation is just what it sounds like: you gather all your debts into one place so that you’re making one payment a month. There are several ways to consolidate your debt. If most of your debt is unsecured credit card debt, you can take out another credit card that offers 0% interest for a period of time (often 12 to 18 months) and then transfer your other credit card debt onto that new card. You then have that given time to pay down the principal. This method only works if all or most of your debt is credit card debt. If you have other sources of debt, you may need to take out a consolidation loan. These loans are financed by banks, and the main concern here is that you trade your unsecured debt for secured debt, as most will require collateral. Even if your consolidation loan doesn’t require specific collateral, it may well have a cross-collateralization clause. That means that if you get a consolidation loan from the same bank that financed your auto loan, and you fall behind on your consolidation loan payments, the bank can repossess your car. So debt consolidation can certainly work, though it has some important limitations, and poses some significant risks.

Debt Management

There are a number of debt management companies that will act on your behalf to manage your financial situation. The debt management company negotiates with the credit card companies on your behalf, and establishes a repayment plan for you. It’s important for you to know that agreeing to a debt management plan comes with a number of hidden costs – monetary and otherwise. You will be expected to pay an enrollment fee as well as a monthly fee for each credit card on the plan. Also, most credit card companies will require that an account entering into a debt management plan be closed, so you lose your access to credit. And the fact that you’re engaged in a debt management plan will be noted on your credit report. Most debt management plans run for three to five years, and at least half of clients do not successfully complete the plan.

Bankruptcy

Individuals usually file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is known as “liquidation” bankruptcy, and in order to qualify for it, you must not make more than your state’s median household income. In Wisconsin, that amount is $67,355 (as of 2019, the latest available figures). Although the word liquidation sounds threatening, the truth is that there are exemptions and you will almost certainly keep your home (if you have a mortgage) and your car. If you have a second home or other luxury item, those may be sold to pay your debt. Chapter 7 bankruptcy is quick, usually taking three to four months, and it eliminates all your unsecured debt. Chapter 13 bankruptcy is also known as “wage-earner’s” bankruptcy. It functions a lot like the debt management plan; a trustee appointed by the court drafts a plan, you and your creditors agree to it, and then the trustee administers the plan. It lasts between 3 and 5 years. There is no means test like Chapter 7 bankruptcy, but there is a cap on how much you owe. To be eligible to file for Chapter 13 bankruptcy, you must have less than $419,275 in unsecured debt, like credit cards or medical bills, and you also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans.

If you’re overwhelmed by debt and considering your financial future, you have options. Contact the experts at Burr Law to talk through your specific situation, and have them help you chart the best course forward.

What Happens If You Become Bankrupt?

“Bankrupt” can have lots of scary connotations. You might imagine that you will be forced out of your home, have your car repossessed, and lose all your valuables. You might believe that you will never again be able to acquire a credit card or any type of loan after bankruptcy. Those fears arise from a lack of information. In this post, we will look at what bankruptcy is and its effects.

Two Types of Bankruptcy

The two primary forms of bankruptcy that individuals (and couples) file are Chapter 7 and Chapter 13. They each have advantages and disadvantages, and it’s important to consult with an expert to determine which one is the best for you. Chapter 7 bankruptcy takes about 3 to 6 months from time of filing; Chapter 13 has a plan that lasts between 3 to 5 years.

Chapter 7

Chapter 7 bankruptcy is also 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 derive the benefit of eliminating consumer credit debt while retaining 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, which in 2019 (the last official figure) was $67,355.

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. 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 $394,725 in consumer credit debt and you also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans.

Bankruptcy And Your Credit Report

Generally speaking, bankruptcy stays on your credit report in Wisconsin for about 10 years. Remember, though, that even if you don’t file bankruptcy, your creditors can obtain a judgment against you for your debt, and that judgment would appear on your credit report. A judgment can remain on your credit report for seven years or until the statute of limitations expires, whichever is longer. In Wisconsin, the statute of limitations on a judgment can be up to 20 years! So a bankruptcy may well fall off of your credit report before a particular judgment.

Bankruptcy And Your Credit Score

Bankruptcy will mean a drop in your credit score immediately after filing. However, you may already have a poor credit score due to your debt-to-asset ratio (your debt is high compared to your available credit) and delinquent accounts; in that case, the decrease in your credit score may be less than you suppose. If your credit score was good before filing bankruptcy, the drop may be more pronounced.

Bankruptcy And Obtaining Credit Cards

When you file for bankruptcy, whether it is Chapter 7 or Chapter 13, you usually lose access to your credit cards. That doesn’t mean that you will never again have a credit card. There are credit cards specifically designed for those with poor credit and the experts at Burr Law can advise you on how best to reclaim your creditworthiness through measured use of particular credit cards.

The professionals at Burr Law can answer all of your bankruptcy questions. With all of the information, you can make an informed decision about bankruptcy.

Debt Consolidation vs Debt Settlement

When you’re in debt, it can seem like there’s no way out. Credit card payments, rent or mortgage payments, car payments, student loan payments . . . you may feel like you’re being bled dry. If it’s just impossible to keep juggling all your financial obligations, it’s time to think seriously about your debt management problems. In this blogpost, we will explore the options of debt consolidation, debt settlement, and bankruptcy.

Debt Consolidation: What Is It?

In its most basic form, debt consolidation works by combining multiple debt payments into one monthly payment through obtaining either a secured or unsecured loan. That monthly payment is sometimes lower than the individual payments combined, and the interest you pay is sometimes lower as well. You will maintain your access to credit, though incurring more debt increases the likelihood of the debt consolidation failing. One of the easiest ways to consolidate your debt is to obtain a new credit card that offers 0% interest for a period of time (usually 6 to 12 months). Once you get the card, you can transfer the balance from other credit cards where you are paying high interest to the new card and use the 6 to 12 months to pay down the principal. Of course, that only consolidates your credit card debt. Alternatively, you can take out a debt consolidation loan; most are secured loans though, and you risk losing your collateral, usually your car or other significant tangible property.

Cross-Collateralization

Sometimes you may risk losing collateral that you aren’t aware you have placed in jeopardy. That can happen when your debt consolidation loan has a cross-collateralization clause that lets the lender take other property it has financed if you default on the debt consolidation loan. For example, if you get your debt consolidation loan through the same bank that financed your car, under the cross-collateralization clause, if you default on the debt consolidation loan, the bank could repossess your car—even if the car payments are current.

Debt Management Plans

Some people go to an agency that creates a debt management plan for them and negotiates with the credit card companies on your behalf. It’s important for you to know that agreeing to a debt management plan comes with a number of hidden costs – monetary and otherwise. You will be expected to pay an enrollment fee as well as a monthly fee for each credit card on the plan. Also, most credit card companies will require that an account entering into a debt management plan be closed, so you lose your access to credit. And the fact that you’re engaged in a debt management plan will be noted on your credit report. Most debt management plans run for three to five years, and at least half of clients do not successfully complete the plan.

Negative Tax Consequences

Depending on your financial condition, any money you save from debt relief services such as debt consolidation may be considered income by the IRS, which means you pay taxes on it. Credit card companies and other creditors may report settled debt to the IRS, which the IRS considers income.

Bankruptcy

There are two types of bankruptcy you can pursue: Chapter 13 and Chapter 7. Chapter 7 is means tested, so you need to make no more than your state’s median household income ($67,355 for Wisconsin in 2019). If you qualify for Chapter 7 bankruptcy, your unsecured debt can be completely eliminated. The whole process takes about four months, and then you can start over with a clean slate. Chapter 13 bankruptcy lasts between three to five years, similar to debt consolidation. With Chapter 13 bankruptcy, the moment you file, there is an automatic stay on all collection actions, and you will almost certainly retain possession of your home and vehicle.

If you’re experiencing significant debt management problems, it would be a good idea to talk to one of the experts at Burr Law.

Tax Debt – Filing for Bankruptcy in 2021

With more and more people free-lancing and the gig economy in full swing, it’s becoming more common for people to owe the IRS for back taxes. And unpaid taxes can add up to a huge financial burden, especially on top of all your other expenses. 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. But remember, this is just a pause. And as you’ll see, knowing when to file for bankruptcy is especially important if you’re trying to eliminate unpaid taxes as well as other debts.

Conditions for Tax Debt to be Discharged

As you probably already know, IRS rules and regulations can be like an impenetrable maze. There is a regulation for pretty much everything. So, it should be no surprise that there are specific rules for bankruptcy discharge. And you should expect that the IRS will object to eliminating your tax debt if it can find any reason to do so. The main bankruptcy discharge rules have to do with time.

Income Taxes

Chapter 7 bankruptcy only discharges income tax debt. Your 1040 taxes are definitely income taxes, but other taxes aren’t. 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 you’ve cleared the first hurdle.

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 even if 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. Last year (2020) it was July 15 because of the pandemic. IRS lawyers have been known to object to discharge over 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, it’s 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.