by Mike Wallace | May 22, 2015 | Bankruptcy
FILING BANKRUPTCY- NEW EAST TEXAS OFFICES
We are pleased to announce that we now have offices in Jacksonville, Texas and Nacogdoches, Texas (Meetings with a lawyer in Nacogdoches are by appointment only) to serve the needs of our bankruptcy clients in the cities andcommunities of Tyler, Longview, Troup, Whitehouse, Bullard, Flint, Gresham, Kilgore, Henderson, New Summerfield, Palestine, Maydelle, Cuney, Athens, Frankston, Neches, Alto, Wells, Lufkin, Douglas, Nacogdoches, Lufkin, Reklaw, Ponta, Cushing, Sacul, Rusk, Center, San Augustine, Crockett, Tennessee Colony, Elkhart, Grapeland, Timpson, Joaquin, Mt. Enterprise, Shelbyville, Poynor, Brownsboro, Chandler, Coffee City, Chapel Hill, Tenaha, Garrison, Overton, Arp, Trinity, Carthage, Groveton, Hemphill, Livingston and Noonday.
WHERE IS MY EAST TEXAS BANKRUPTCY FILED?
Bankruptcies for residents of the counties of Henderson, Anderson, Smith, Gregg, Cherokee, Rusk and Panola are filed in the Tyler Division of the United States Bankruptcy Court for the Eastern District of Texas. Bankruptcies for residents of the counties of Angelina, Houston, Nacogdoches, Polk, Sabine, San Augustine, Shelby and Trinity are filed in the Lufkin Division of the United States Bankruptcy Court for the Eastern District of Texas.
If you are facing the burden of debt that you cannot manage any longer, then please call for a free consultation. I personally meet with all of my clients and I have on numerous occasions met with clients in the comfort and privacy of their own homes.
by Mike Wallace | May 22, 2015 | Bankruptcy
A decision by Judge Parker out of the Tyler Division of the Eastern District of Texas dealt with the issue of whether or not property distributed to a beneficiary of a trust was property of the bankruptcy estate.
DEBTOR PROTECTION
The case involved a Debtor who received distributions from a trust that was established by his father more than twenty years prior to the Debtor seeking bankruptcy protection.
The Settlor’s of the trust established the same during his lifetime, so the trust was an inter vivos trust. The trust consisted primarily of oil and gas interests.
The Debtor’s father passed away approximately fifteen years prior to the Debtor filing a Chapter 7 bankruptcy case.
The Debtor’s father left a Last Wil and Testament that contained a “pourover” provision, and so additional assets were added to the original trust in accordance with the Settlor’s desire and written mandates of his Last Will & Testament.
One additional fact related to the trust that is important to note is that the trust contained a spendthrift provision, which restricted the beneficiaries ability to alienate either voluntarily or involuntarily the right to receive future payments from the trust.
PROPERTY EXCLUSION
This type of spendthrift provision protects the trust assets from creditors. Section 541(c)(2) of the Bankruptcy Code excludes from property of the estate assets that the Debtor is restricted from transferring a beneficial interest to the extent that the restriction in enforceable under nonbankruptcy law.
The Trustee filed a turnover motion with the Bankruptcy Court after the Debtor received approximately $45,000.00 in distributions from the trust in the 180-day period after filing his bankruptcy case. The trustee argued that because the distributions from the trust consisted of assets from a merged inter vivos and testamentary trust, the character of the distributions should be classified as testamentary in nature and thus defined as “bequests” under Section 541(a)(5)(A) of the Bankruptcy Code.
The Debtor in turn argued that any distributions from the trust were from a valid inter vivos spendthrift trust that protected such from creditors and not a result of any testamentary disposition that could be classified as a bequest, devise or inheritance.
The Bankruptcy Court went through a significant analysis of Texas trust law and concluded that the testamentary additions to the original inter vivos assets did not change their original character. Therefore, any distributions to the Debtor from the trust during the 180-day period could not be properly classified as testamentary in nature, but rather remained inter vivos in nature and did not fall under the control of Section 541(a)(5)(A).
The Court followed prior Fifth Circuit precedent that had previously established that inter vivos distributions are not property interests acquired by “bequest, devise or inheritance.”
The Trustee was not entitled to the trust distributions made during the 180-day post-petition period because they did not qualify as property of the estate under Section 541(a).
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | May 22, 2015 | Chapter 13, Existing Clients
INCOME TAX AND BANKRUPTCY EAST TEXAS
If the Debtor in a Chapter 13 case has been required to file federal income tax returns in the years prior to the filing of bankruptcy, then a refund amount for future years is estimated based on these refunds and circumstances of the past.
All Chapter 13 bankruptcy filings are based on a budget that is proposed by the Debtor which reflects all of the Debtor’s income and expenses. The income of the Debtor includes any estimated income tax refund, because any refund represents money that the Debtor did not actually owe to the Internal Revenue Service.
An example of a typical scenario in a Chapter 13 case might help to understand income tax refunds in a Chapter 13 case. Assume that the Debtor received a refund of approximately $3,000.00 in the year prior to the filing of bankruptcy.
Again, because that money was not owed to the Internal Revenue Service it is added to the Debtor’s income in the proposed Chapter 13 budget.
Since that income is available to fund the Debtor’s Chapter 13 Plan the estimated refund amount will be given to the Debtor.
If the refund amount from the Internal Revenue Service exceeds the estimated amount put in the budget (i.e. The amount estimated in our sample case, $3,000.00), then the Debtor is required to turn the excess refund amount over to the Chapter 13 Trustee.
So, if the Debtor receives a refund of $4,000.00, then $1,000 must be turned over to the Chapter 13 Trustee. This $1,000.00 will go to pay unsecured creditors in the Debtor’s case.
Income tax refunds are of course monitored by the Chapter 13 Trustee through a review of the annual income tax returns of the Debtor during the pendency of the case.
Debtors are required to furnish a copy of their return to the Chapter 13 Trustee within ten (10) days of filing the same with the Internal Revenue Service.
One important thing for a Debtor to keep in mind when calculating refund amounts is that the Trustee will not allow the Debtor to deduct amounts paid for a rapid refund.
So, if the Debtor is paying $200.00 to the tax preparer for a rapid refund and is required to turn over $1,000.00 to the Trustee, the $1,000.00 cannot be reduced by the rapid refund amount.
The Trustee will however allow for the deduction of the normal fee paid for the preparation of the income tax return.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | May 22, 2015 | Debt
DEBT SETTLEMENT AND DEBT NEGOTIATION
It is virtually impossible to turn on the television or radio without hearing or seeing an advertisement for debt settlement.
The companies that advertise their services for debt settlement offer a myriad of different approaches to “settling” the debts of their clients.
Debt settlement in its simplest form is offering a creditor a lower payoff of the debt than what is owed.
I would not say there is never a time for entering into negotiations with a creditor regarding the settlement of debt, because the individual circumstances of each Debtor varies on a case by case basis.
I have seen multiple clients in the last several months who had hired companies to settle their debts and ended up in my office frustrated that they could not afford the payments on their settled debts or were facing the continued collection activities from a particular creditor.
If you choose to enter into negotiations with a creditor regarding the settlement of a debt, I recommend that you handle the negotiations yourself rather than paying a third-party to do what you could do independently.
In my bankruptcy practice I have discovered time and time again that clients would have been much better suited to have filed a bankruptcy than to have hired a third-party to settle or negotiate their debt. Some of the reasons for this are:
- The debt settlement company generally sends nothing to the creditor until they have accumulated payments from you over an extended period of time, and they take a portion of whatever you pay them as their fee for their services. If you drop out of the debt settlement program don’t expect to receive a return of any of your money. Most debt settlement companies have drafted their contractual agreements to keep whatever you have paid them.
- f you don’t have a written agreement from the creditor that the amount they have agreed to accept is payment in full, then they may sell the remainder of the debt to a junk debt buyer or to a collection agency to collect.
- Forgiven debt through a settlement is taxable income and you will receive a Form 1099-C from the creditor for any debt above $600 that is forgiven. Forgiven debt in a bankruptcy is not income as to the Debtor.
- When you factor in the interest for the period of time that a creditor is not receiving payments and the income tax consequences of forgiven debt it is likely that you are really not saving any money.
- Your credit rating is still going to be ruined with any debt settlement. This is probably the greatest benefit of bankruptcy over debt settlement. If you are in a debt settlement program that will take years to complete, then the credit rebuilding process will not begin until the creditors are paid according to the negotiated settlement. In a bankruptcy the Debtor begins the rebuilding process immediately after the bankruptcy discharge is entered.
From my experience as a bankruptcy attorney I have repeatedly heard clients tell me that they wished they would have filed for bankruptcy protection rather than to have wasted their time and money with a debt settlement company.
Remember that if you do chose to enter into negotiations with your creditors regarding the settlement of your debt, then do it yourself, don’t pay someone to do something that you can handle on your own.
Please give us a call for a free consultation if you are in financial difficulty and are weighing the choice of a bankruptcy or debt settlement.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
by Mike Wallace | May 22, 2015 | Existing Clients
KEEP TRACK OF YOUR CHAPTER 13 PAYMENTS FROM YOUR HOME
If you are a Debtor in a Chapter 13 case there is an easy way for you to keep track of the payments you have made toward your plan of reorganization by going to the Chapter 13 Trustee’s website.
This website will also give you information on all of the distributions that the Chapter 13 Trustee has made to the creditors in your case.
LOG INTO THE WEBSITE
To log into your case click on LOGIN to view case information at the top of the page.
You will then enter your case number as the User ID (do not put the hypen in the User ID (e.g. If the case number is 11-12345, enter 1112345 as the User ID).
The password is the last four digits of your social security number.
