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

Credit Card Debt: Can Credit Card Companies Repossess My Items If I Don’t Pay?

Credit Card Debt is 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. Credit card debt 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 Debt Can Spiral

It’s easy to purchase things with credit cards, and almost without you noticing, you find your credit cards maxed. With all of the economic disruptions caused by the pandemic, you may have had to rely more heavily on credit cards, as well. The minimum payment due only pays the interest, and when even that becomes difficult, you need to consider your options. This situation is not unusual. The average American had a credit card balance of $6,200 in 2019, according to Experian. And revolving credit with its high interest means disaster for those who can’t pay the balance in full every month. That means you continue to accrue additional interest charges from month to month. The average annual percentage rate on all credit cards was 20.21% as of August 2020. Department store credit cards averaged 24.22%. A single late payment can boost your interest rate even higher.

Bankruptcy Deals With Credit Card Debt

If your credit card obligations are driving you to the breaking point, then bankruptcy may be your wisest option. In Chapter 7 bankruptcy, credit card debt can be entirely eliminated. You also have the option of filing for Chapter 13 bankruptcy where you enter into an agreement with your creditors to repay a portion of your debt over 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 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, which in 2018 was $62,629.

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 $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.

Credit card debt can be overwhelming, but you don’t have to worry about your personal possessions being repossessed. If you’re interested in getting out from underneath crushing credit card debt, you might be wise to consider bankruptcy. Reach out to the professionals at Burr Law to discuss your financial situation. It may be that bankruptcy can entirely clear your credit card debt, or that it can be made into something manageable. You won’t know how close you are to relief unless you call now.

With COVID-19 Raging, How to Manage Medical Debt

The COVID-19 pandemic has hit the whole world hard. For those who have contracted the disease, the primary concern is treatment and recovery. Once you have surmounted that challenge, another awaits: medical debt. In Wisconsin, almost 20,000 people have been hospitalized with COVID-19 (19,785 as of December 17, 2020 according to the Wisconsin Department of Health Services) and over 4000 have died. That means that more Wisconsinites are facing massive medical debt than ever before. What can you do when you find yourself in a financial crisis because of your medical crisis? In this post, we look at some of your options.

What Not To Do

Before examining what you should do, here’s something you should NOT do: transfer your medical debt to credit card debt. When you pay your medical bills with your credit cards, you are shifting your debt obligations from an interest-free creditor to a high-interest creditor. Most consumer credit cards charge 18 – 24% interest while medical debt is almost always interest-free. So resist the urge to pay your medical bills with your credit cards unless you are absolutely certain that you are able to pay off the credit card before accruing the interest payments.

Medical Bill Itself

Many people never really look at the itemized medical bill that they receive. That’s understandable. It’s often long, complicated, and uses technical vocabulary, both medical terms and insurance jargon. However, carefully examining the medical bill is absolutely essential. Here is information from the American Academy of Family Physicians that can help with that https://familydoctor.org/understanding-your-medical-bills/. If you have questions or concerns about particular items, use the established process to dispute the charge. If you cannot resolve a disputed charge, you can turn to the Wisconsin Department of Agriculture, Trade and consumer Protection for assistance.

Payment Plan

When are you certain the bill is correct, you can set up a payment plan with the hospital or medical provider. As long as the payment is reasonable, medical providers are usually happy to accommodate you. And you won’t be accumulating interest while you pay off your medical debt. The important thing here is to contact the medical provider right away and negotiate an agreement that you can actually maintain.

Medicaid and/or BadgerCare Plus

If you were uninsured when you went into the hospital, you can still manage to get Wisconsin Medicaid or BadgerCare Plus to cover your hospitalization costs. These programs are retroactive up to three months. That means that if you were eligible for Wisconsin Medicaid or BadgerCare Plus when you went into the hospital, you can apply for and receive that insurance and it will cover the time that you were there. However, if you became eligible for these programs subsequent to your hospitalization, your Medicaid or BadgerCare Plus coverage will not be retroactive.

Bankruptcy

Bankruptcy is a viable option when you are facing thousands of dollars of medical debt. The average cost for a Wisconsinite hospitalized with COVID is $14,573, and sustaining that level of debt, along with your usual obligations may not be feasible. Bankruptcy can completely clear medical debt. There are different options in bankruptcy, and if you are thinking about it at all, you should contact the experts at Burr Law. Chapter 7 bankruptcy completely eliminates unsecured debt; that includes medical debt and credit card debt. A professional bankruptcy attorney can make sure that you get the exemptions you’re allowed, so you keep your house and car. The whole thing takes between 3 and 6 months. Chapter 13 bankruptcy can also eliminate medical debt, though it’s a different process that lasts from 3 to 5 years.

Medical Debt Shouldn’t Be Another Crisis

When you’ve survived a medical emergency like COVID, you shouldn’t need to succumb to a financial emergency. Working with the experts at Burr Law can give you the information and options you need to make sure that you are making the right choices. When it comes to dealing with medical debt, contact Burr Law.

As Pandemic Programs Begin to Expire, Personal Bankruptcies Are Expected to Rise

A Debt Tsunami Is Coming

As legislation designed to cushion the effects of the COVID pandemic expires after Christmas, filings for personal bankruptcy will undoubtedly soar. Congress was unable to agree on extending stimulus payments, and nobody has received that money in several months. Main Street has been harder hit than Wall Street so far, and deferments on payments for borrowed money–mortgages, student loans, automobile loans and credit card debt–are all due to expire just after Christmas. Bah! Humbug!

So far, many lenders have been flexible about calling in their debts, but they won’t stay that way for long, and when these debt deferment grace periods end, a lot of them will be competing for a lot less money than the total accumulated debt. It’s only at this point that most of us will get an idea of just how costly the COVID pandemic and our responses to it have been. And at this point, too, the competition among debtors to recover as much of what they are owed as they can will have begun.

What Does This Mean for You?

It means that it pays to be realistic and proactive about your prospects for paying back your debt. One portion of our economy that will certainly not lack for business will be the courts and law firms. In many cases, dockets have become backlogged, because COVID has kept lawyers, court employees, and juries at home out of caution. But although financial proceedings don’t typically require juries, the courts that deal with litigating debt settlements will be absolutely swamped.

If you have debt obligations that you feel have gotten beyond your control, you are not alone. In fact, you are one of a great many who have been swept up in circumstances beyond their control. A lot of people ended up ringing up credit card debt at high rates of interest, just to get by. As lenders crack down, people who’ve put off filing for bankruptcy will also begin filing in large numbers. It’s best to get out in front of events if you can. The folks at Burr Law can help you decide whether to file, and taking into consideration your circumstances and the laws of your state, under what chapter to file.

Chapter 7

Most bankruptcies are filed under Chapter 7. Chapter 7 bankruptcy eliminates all unsecured personal debt, such as credit card debt, personal loans, and medical bills. Auto loan debts, mortgage debts, and tax debts still remain. Personal property may be sold to satisfy obligations, though what gets liquidated depends on the state. On the other hand, many people are surprised at what they may be allowed to keep, and sometimes funds are available to help meet the costs of filing. A Chapter 7 filing will remain on your credit report for 10 years, but programs exist to minimize the effects, and it is possible to rehabilitate credit more rapidly if you are strategic and disciplined about it.

Chapter 13

Under Chapter 13, you reorganize and consolidate your debt payments. In this case, your personal property may be protected so long as you meet your newly renegotiated debt obligations. it is typically significantly more expensive to file for Chapter 13 protection, but depending on your situation, it may be the best approach. Chapter 13 filings will remain part of your credit history for 7 years.

Get Professional Advice

Let the folks at Burr Law help you. They’ve seen everything there is to see in bankruptcy, and they’ve helped thousands of clients move on as painlessly as possible. The one thing they haven’t seen before, though, is the sheer magnitude of cases that are likely soon to hit the courts. They are here to help. Make up your mind to call them now, so that you’re not stuck waiting for an enormous number of cases to make their way through the courts prior to yours.

What Are Your Debt Relief Options?

No matter what, your bills arrive every month, and whether you’ve lost income because of COVID-19, or had a recent health crisis and incurred more debt, your financial obligations remain. If you are beginning to feel crushed by them, it’s time to explore debt relief possibilities. What are your debt relief options? In this post, we’ll explore a number of them.

COVID-Caused Hardship Relief

Although Congress has not passed another stimulus bill yet, the suspension of payments for student loans has been extended until 2021. You don’t need to do anything; direct withdrawals from your account will not occur and you will not accrue interest during this time. Many credit card companies and other lenders have also independently adopted programs to help those struggling due to the pandemic. These include loan extensions, reduced interest rates, and deferred repayments. In order to receive this kind of hardship relief, you may need to prove your hardship with documentation, and there may be other consequences including having your credit card frozen or your account closed. If your difficulties are directly due to COVID-19 and you can see that your situation will improve when the pandemic abates, these may be good options for you to pursue.

Consolidation Loan

A debt consolidation loan combines multiple debt payments into one monthly payment. That monthly payment is often lower than the individual payments combined, and the interest you pay is often lower as well. You will maintain your access to credit, though incurring more debt increases the likelihood of the debt consolidation failing. If the debt consolidation loan is secured, then you risk losing your collateral, usually your car or other significant tangible property. One thing, in particular, to beware of is cross-collateralization. If your loan contains a cross-collateralization clause, you may find yourself losing something you didn’t know you were risking. A cross-collateralization clause 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 (the same time frame as Chapter 13 Bankruptcy), 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 – 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. While it is known as “Liquidation” Bankruptcy, there are exemptions, and most people keep their car and house. Chapter 13 bankruptcy works by having a court approved agreement negotiated between creditors and debtors. There are no income ceilings to qualify for Chapter 13, and the moment you file, there is an automatic stay on all collection action. Chapter 13 bankruptcy agreements generally last from three to five years.

If you need debt relief, contact the experts at Burr Law. We will talk you through all of your options and help you decide what is best for your specific situation.

Medical Debt During a Pandemic

For many Americans, COVID-19 has been a perfect financial storm. Lockdowns have cost income and opportunity, and some who had been climbing out of the hole financially have had to rely on credit to get them through as the federal government has been unable to reach an accord on extending benefits. At the end of the year, a moratorium on foreclosures and evictions concludes, even as political uncertainty clouds the prospects of economic recovery. Other suspensions of debt payment, including student loan payments, are also coming to a close.

For Americans struggling with medical debt, health issues, and often depression, exacerbated by isolation and deferral of scheduled health maintenance during the pandemic, this combination of factors has added up to the perfect storm. If you’re one of those who has had to be hospitalized for treatment for COVID-19, its impact on your financial well-being may have been almost as severe as on your health. According to statistics, the median hospital stay for CoVid patients who have survived has been from 10 to 13 days. Even if you have insurance, high deductibles may have cast you deep into debt.

State departments of insurance have been working closely with medical facilities to provide some relief, but mitigation efforts vary widely depending on the hospitals and the insurers. For the uninsured, the CARES Act is supposed to cover the costs. If your hospital takes money from the CARES Act Providers Relief Fund for your treatment, they are barred by law from seeking any further compensation. But not every hospital will attempt to take what is offered by the Fund. Some will prefer to attempt to recover more money for treatment by billing the patient directly, without regard to whether they have the means to cover the bill or not. If they don’t seek payment from the government, then the patient is liable for the debt.

People who are recovering from serious illness often lack the psychic resources to aggressively defend their financial interests. Often, particularly under present circumstances, they push it off until that future date when they feel more capable of dealing with unpleasant circumstances, and that is perfectly understandable. But a word of advice: When the new year arrives, and a lot of people who have been able to put off the unpleasantness of dealing with their debt suddenly find themselves on the receiving end of legal notices, or suddenly find their bank accounts seized or their wages garnished, there will be an avalanche of filings for bankruptcy. It is best, if that seems your best avenue to get out from under crippling debt obligations, to file as soon as possible.

You can be sure that lenders who have been put off will flood the courts with new filings. In the meanwhile, many of them have been busy trying to get out in front of matters, since most kinds of consumer debt collection have not been affected, though it takes time for filings to move through already burdened courts. You can also be sure that there will be an avalanche of bankruptcy filings at that time. The experts at Burr Law can help you make the decisions that will discharge your obligations with as little pain and loss to you as possible, and get you on your way to economic recovery as quickly as may be, whether that involves filing under Chapter 7 or Chapter 13.

Do yourself a favor, and call the experts at Burr Law. They will lay things out simply for you and help you make the decisions that will put you in position to get the Debt Monster off your back, so you can begin to breathe freely again.

You are not alone. Give Burr Law a call.

Fears of Bankruptcy

Often conscientious people delay getting the help they need, not so much out of pride as out of shame at having to ask for help. But bankruptcy exists for a reason. For every person who abuses the process, there are many who simply need the financial relief that bankruptcy provides. As with depression, or anxiety, or bereavement, there is no shame in seeking the help you need.

It’s not unusual for a bankruptcy attorney to see a client who comes to the office with a big box or bag full of unopened bills, because things have gotten so out of hand they have simply shunted it all aside in order to get on as best they can with getting through each day. It is often a positive feedback loop of avoidance leading to more debt, leading to more avoidance and more debt.

On the other hand, people may just be too optimistic about their financial outlook, thinking that they are going to get a grip on their debt when they get a new job, or when their partner gets a raise, or when their business takes off. Sometimes, avoiding dealing with debt may entail a combination, as strange as it may sound, of shame, guilt, mental paralysis, and unwarranted optimism. Whatever the reasons may be, and however it is experienced, it can be crippling, both emotionally and financially.

Have a Bit of Self-Compassion

In some cases, it may be possible to dig out of debt through a combination of debt forgiveness and structured payments, and by reducing expenditures, and through other measures, but when financial counsellors see people trying to dig out by doing things that are injurious to their long-term financial health–with potential impacts on their emotional and physical well being–they are quick to counsel clients to look at bankruptcy. For example clients may begin to liquidate retirement funds that normally would be protected in bankruptcy in order to meet their debt obligations. A stroke of fortune may make someone rich. A stroke of misfortune may likewise put someone in financial straits. Who knows what people are dealing with? Divorce, bereavement, medical bills, a spell of unemployment, a bad investment . . . lots of things might knock someone off their stride.

If you have been making yourself, and perhaps those around you, miserable because of debt, the time to seek counselling is now. There is no stigma, except what you lay on yourself, in seeking bankruptcy if that is what you need to do. And the settlement may not be as harsh as you think. Most people who file for the most common form of bankruptcy, Chapter 7, are able to keep their personal possessions, some of the equity and their homes, and often several thousand dollars in equity for a vehicle. What is covered varies state to state. If there are other assets that might not be protected under Chapter 7, Chapter 13 might be an option.

It’s possible in short order to get secured lines of credit that will help you begin to re-establish your ratings, though a bankruptcy will stay in your credit reports for up to 10 years. With positive steps, though, improvement can be rapid. Credit-building loans are often available from banks and Credit Unions to help get folks back on their feet. Some people who discharge their debt through bankruptcy are eligible for FHA or VA home loans in as little as 2 years. Need a new vehicle? You will probably pay higher interest, but consider how the interest is compounding on your credit card debt!

In short, there is no reason to remain under this cloud.

The Time Is Now

If not to seek bankruptcy, at least to get advice. Why? It’s more urgent than ever due to current events. Lots of folks have lost their businesses and livelihoods during the pandemic. To this point, foreclosures and other kinds of debt resolution have been held off by debt moratorium legislation, and some people have gotten by on those $600 federal payments. But when those protections and those payments end, credit counsellors, lawyers, and courts are going to be flooded with cases that require resolution. It’s best to get the advice you need, and to file if you should, as soon as possible.

Experience has shown that those who file earlier than later end up with better long-term results, but even if you’ve put off dealing with a financial hole that you just can’t seem to dig out of for a long time, it’s best to bite the bullet. Many people have been down this road before you. The vast majority have gone on to have happy lives and watch that road-bump grow smaller and smaller in the rear-view mirror. They have felt the great relief that getting that burden off their shoulders brings.

The bankruptcy experts at Burr Law stand ready to help you get into the clear as quickly and painlessly as possible. They want to help you put this chapter behind you, and get on with your life. The life you deserve.

Bankruptcy exists for a reason! It exists to help people like you.

Consumer Credit Bankruptcy

What Is Consumer Credit?

Although any type of personal loan could be labeled consumer credit, the term is usually used to describe unsecured 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–are all examples of revolving credit. Installment loans are another kind of consumer credit, and the most common installment credit example is an auto loan. Consumer credit is not usually used to describe the purchase of a house; that’s considered a long-term investment and is usually purchased with a secured mortgage loan.

Consumer Credit Causing Financial Distress

If you find yourself struggling every month to pay each of your credit cards as well as your department store cards, your gas cards, and make your car payments (not to mention continuing to live), your situation is not unusual. The average American had a credit card balance of $6,200 in 2019, according to Experian. And revolving credit with its high interest means disaster for those who can’t pay the balance in full every month. That means you continue to accrue additional interest charges from month to month. The average annual percentage rate on all credit cards was 20.21% as of August 2020. Department store credit cards averaged 24.22%. A single late payment can boost your interest rate even higher.

Bankruptcy Can Offer Relief

If your consumer credit obligations are driving you to the breaking point, then bankruptcy may be your wisest option. In Chapter 7 bankruptcy, consumer credit debt can be entirely eliminated. You also have the option of filing for Chapter 13 bankruptcy where you enter into an agreement with your creditors to repay a portion of your debt over 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 2018 was $62,629.

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.

Consumer credit obligations can be crushing, but they don’t have to be. Reach out to the professionals at Burr Law to discuss your financial situation. It may be that bankruptcy can entirely clear your consumer credit debt, or that it can be made into something manageable. You won’t know how close you are to relief unless you call now.

Would Bankruptcy Affect My Partner?

The short and not very helpful answer is maybe. If you file to discharge joint debts, that will likely appear on your spouse’s credit report. Creditors will be notified of your filing, and will likely come after your spouse for payment of debts. Whether and how much one spouse’s filing for bankruptcy will affect the other’s credit also depends on whether you file under Chapter 7 or Chapter 13, and also on what the laws of your particular state of primary residence are.

Property owned outright by your spouse may be protected, particularly if they were acquired prior to marriage, but jointly owned properties and debts are another matter. A bankruptcy trustee may sell any jointly owned property to pay off debts, but how property is treated depends largely on whether you reside in a Common Law Property State or a Community Property State.

If you live in a Common Law Property State and you file for bankruptcy, your assets and those you own jointly with your spouse are liable to be sold to satisfy debt obligations, whereas those held outright by your spouse are to some degree protected. Still, a bankruptcy trustee may sell an entire property jointly owned if it is not clearly divisible under a Chapter 7 bankruptcy. He would then reimburse your spouse for their portion in funds.

If you live in a Community Property State, virtually everything acquired during the time of the marriage is liable to be seized. It is very important, therefore, to declare bankruptcy early if you have significant debts that you think you will be unable to discharge. Because you are jointly liable for all property held in common, a bankruptcy declaration is liable to have a significant impact on your spouse’s property and credit. This liability covers income as well as assets acquired during the course of marriage. Once you have discharged your debts through Chapter 7 bankruptcy, creditors may be able to come after your spouse’s property, but only for debts for which they are personally liable. Because your spouse is jointly responsible for all mutually owned property, which includes all income and assets acquired during the marriage, the spouse also is discharged from debt obligations at the time of settlement, in what is commonly known as a phantom discharge.

A Chapter 13 Bankruptcy filing can sometimes help to protect a spouse, by way of a codebtor stay that prohibits creditors from going after a codebtor (in this case, your spouse), but debtors may request that a court lift a codebtor protection.

As you can see, there are a variety of different scenarios, which can seem quite complicated and daunting. The expert team at Burr Law know all the ropes, and will take the tack that best suits your particular situation, so that you can get back on track as quickly and as painlessly as possible. You’re not just discharging your debts. You’re discharging a great weight off your mind. Reach out to Burr Law. They can help.

How Will the New Stimulus Bill Affect Bankruptcy?

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This follows the Small Business Reorganization Act (SBRA) that took effect in February 2020. Both of these measures have an impact on those contemplating bankruptcy, or already in the bankruptcy process. Across the United States, people have more household debt now than at the height of the recession – $14.15 trillion as of the fourth quarter of 2019 compared to $12.68 trillion during the third quarter of 2008. And now, millions of Americans are losing their jobs because of the COVID-19 pandemic. Since March 15, nearly 10 million people have filed first-time jobless claims; many of them may be looking to bankruptcy for relief.

CARES Direct Payments

Included in the CARES Act are one-time payments to qualifying individuals of $1200 for anyone making under $75,000 annually, and $500 for each dependent child. If you have made more than $75,000, but less than $99,999, you will still receive a payment, though it will be less than $1,200. The amounts of the direct payments for individuals making more than $75,000 and couples making more than $150,000 will decrease $5 based on every $100 an individual makes over $75,000. An individual with an income of $76,000, for example, would receive a $1150 payment.

CARES and Bankruptcy

Chapter 7

The CARES Act makes temporary changes to bankruptcy law. Those filing under Chapter 7 need to meet a means test; they must not make more than their state’s median household income. For Wisconsin, that is $62,629 (as of 2018). The CARES Act excludes the direct payment from that calculation. So for a debtor just on the borderline, this extra income will not count as “current monthly income” when determining eligibility to file Chapter 7 bankruptcy.

Chapter 13 – Disposable Income

For those who have filed Chapter 13 bankruptcy, these direct payments will not count as “disposable income” for purposes of Chapter 13 plan confirmation. Those debtors are also now permitted to seek modifications of their confirmed Chapter 13 plans if “the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic.” The modification can be approved after notice and a hearing.

Chapter 13 – Extended Payment Plan

Debtors experiencing such hardships because of the COVID-19 pandemic are also allowed to extend their plan payments for up to seven years after the time that the first payment under their original confirmed plan was due. So if you had a repayment plan of three years, it can be extended another four years. This means that the payments you are currently responsible for would decrease, perhaps substantially..

SBRA and Bankruptcy

The SBRA amends Chapter 11 and creates Subchapter V which applies both to small businesses and to individuals. It significantly increases the amount to qualify for the bankruptcy process. Debtors can have up to $7,500,000 in secured and unsecured debt and still qualify to proceed under this streamlined bankruptcy process. Previously, the debt limit was $2,725,625. With 38 states in complete lockdown and all “nonessential” businesses closed to the public, small business owners can be feeling desperate. For many small business owners who are facing a sudden and dramatic drop in income, this may bring some hope. Small businesses filing under Subchapter V may have a clearer way to obtain relief and maintain their ownership of the business.

The measures that the federal government has put in place to protect the economy during this COVID-19 pandemic can provide some substantial relief to those considering or in the process of bankruptcy proceedings. It’s important to remember, though, that the provisions are temporary. These changes expire precisely one year after their introduction. So as of March 27, 2021, they end. If you are experiencing financial hardship, the CARES Act and SBRA may mean that it is the best time for you to file for bankruptcy. Consult one of the experts at Burr Law for guidance.

Tax Returns and Bankruptcy: Do I Get to Keep My Refund in Bankruptcy?

Before exploring the status of any tax refunds, let’s be clear about taxes owed. If you owe taxes, that debt will not be discharged during bankruptcy, whether you file Chapter 7 or Chapter 13 unless 1) that tax debt more than 3 years old; 2)there was nothing fraudulent about the tax returns; 3) and the tax was not assessed within 240 days of filing the bankruptcy petition. Business tax debts cannot be discharged. That said, the status of any tax refunds is not so clear-cut. So the answer to the all important question “Do I get to keep my refund in bankruptcy?” is “It depends.” The issue of tax refunds during bankruptcy is one of a number of complex questions that can arise during bankruptcy. That’s why it is essential to consult with professionals, like the experts at Burr Law, who deal with the intricacies of bankruptcy law every day.

 

Exemptions

Whether you file Chapter 7 or Chapter 13 bankruptcy, you are entitled to exemptions. There are both federal and state exemptions, and Wisconsin is one of only 19 states that allows you to choose which set of exemptions you use. It’s important to note that you must choose one or the other; you cannot mix-and-match the exemption rules. The experts at Burr Law can help you determine which is better for your particular situation. While Wisconsin does not have a specific federal or state tax refund exemption, you can protect it with a wildcard exemption if you are able to use the federal bankruptcy exemptions. Should you choose, your tax refund can become an asset protected through your exemptions, and you would then retain it.

 

Necessary Expenses

Your tax refund may be automatically deposited into your bank account. Can you spend those funds? If you spend your tax refund on necessary expenses like mortgage or rent payments, that is allowable. Other necessary expenses include food, medical expenses, and clothing. While your tax refund counts as an asset, you are allowed to spend money on necessary expenses, and that applies equally to money gained from a tax refund. Basically, as long as you are not spending it on luxury items, it’s all right for you to spend the tax refund you receive. You can also use your tax refund to pay your bankruptcy attorney and associated court costs.

 

Timing – Not Yet Filed

If you have not yet filed bankruptcy, but plan to do so within the year, it is a good idea to adjust your withholding to minimize any refund you may receive. This must be done carefully; if you miscalculate and end up owing taxes, those become non-dischargeable debts. Another way to plan ahead for bankruptcy is to designate more of your income to your employer IRA or 401k. Those retirement contributions will not become assets liable to exploitation during bankruptcy. Pre-planning for bankruptcy will help you avoid the question altogether.

 

Timing – Refund From Income After Filing

Any refund that results from income you earned after filing for bankruptcy is yours free and clear. Also, if any portion of the refund results from income you earned after the filing date, that portion is available to you without restriction. Again, this is a delicate calculation and it is vital that you have an experienced bankruptcy attorney from Burr Law to guide you through the process. You want to adhere to the law in all instances.

 

The issue of tax returns during bankruptcy is complex. With the experts at Burr Law, you can feel confident that all of your individual circumstances will be carefully considered. We will find the best possible solutions for your financial situation.