by Mike Wallace | May 22, 2015 | Credit Report
WHAT DOES MY CREDIT REPORT LOOK LIKE AFTER BANKRUPTCY?
The Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) governs how a creditor can report a debt that has been discharged in bankruptcy.
The creditor can report an account that has been discharged in bankruptcy, but the account must show a zero balance after the discharge.
The Official Staff Commentary of the Federal Trade Commission states that “A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect that the consumer is no longer liable for the discharged debt.”
A bankruptcy filing can be reported for up to ten years by a credit reporting agency on a consumer report, with some minor exceptions.
Delinquencies on an account can be shown even if liability on the account has been discharged, as long as the balance on the account shows zero.
by Mike Wallace | May 22, 2015 | Credit Report
MISREPORTING OF CREDIT INFORMATION
Creditors will report debts or accounts to the credit reporting agencies, where the liability for the debt has been discharged in a bankruptcy. If you discover the misreporting of such an account in your consumer credit report, then you should dispute the information.
Consumers are entitled to one free credit report annually from each of the major credit reporting agencies. A copy of the report can be obtained throughwww.annualcreditreport.com.
The three major credit reporting agencies are Equifax, Experian and Transunion. Each of the websites for the three major credit reporting agencies contain information on how to dispute an entry on a credit report.
Under the Fair Credit Reporting Act (15 U.S.C. §1681 et seq.) the credit reporting agency shall conduct a reasonable reinvestigation of any dispute regarding the accuracy or completeness of information contained in the consumer’s report.
This reasonable reinvestigation shall be free of charge and the agency shall delete the information from the file or record the current status of the disputed information within thirty (30) days of receiving notice of the dispute from the consumer.
With some minor exceptions (Section 1681i(a)(1)(B) & (C)) the thirty day period can be extended for 15 days if the agency receives information from the consumer that is relevant to the reinvestigation.
by Mike Wallace | May 22, 2015 | Debt
Taxation of forgiven debt is generally taxable to the Debtor. However, one of the most beneficial aspects of bankruptcy is that debt discharged in a bankruptcy is not taxable to the Debtor.
All bankruptcy is governed by Title 11 of the United States Code. Section 108 of the Internal Revenue Code (26 U.S.C. §108) provides that gross income does not include any amount of income discharged in a case under Title 11 (Bankruptcy Code).
Creditors quite often send Debtors a Form 1099, which reports miscellaneous income to the Internal Revenue Service (hereinafter “IRS”), even after the Debtors have discharged the indebtedness in a Title 11 bankruptcy case.
The Debtors should use IRS Form 982 to report to the IRS that the debt was discharged in a Title 11 case.
I have attached a copy of the Form 982, which you can access by clicking on Form 982. If you have debt that has been discharged, check box 1a of Part I of the form and write the total amount of the debt discharged in line 2 of Part I.
Form 982 should be completed for the tax year in which the forgiven debt is reported to the IRS.
by Mike Wallace | May 22, 2015 | Debt
WHAT HAPPENS TO YOUR BANK ACCOUNT IN A BANKRUPTCY?
People contemplating a bankruptcy filing often have bank accounts that may have been pledged as collateral to secure a loan with the bank where the deposited funds are located.
If you are in such a situation, then you should consult with a bankruptcy lawyer regarding your legal rights.
Even if the funds are not pledged as collateral you must be aware of the legal concept known as setoff (also known as “offset”).
The right of setoff allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding the absurdity of making A pay B when B owes A.
The landmark decision discussing this right is Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995).
The Bankruptcy Code does not create a specific right of setoff allowing for a creditor to offset what it is owed with funds that are held in a bank account by the creditor.
However, Section 553(a) of the Bankruptcy Code preserves in bankruptcy the rights of setoff which otherwise exist.
Banks are not automatically allowed to offset what they are owed with funds on deposit. A determination has to be made as to whether the depositor has consented to such an offset in a written agreement.
If there is such a written agreement, then the agreement must be analyzed to determine if it complies with the requirements of the law.
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
INCOME TAX AND BANKRUPTCY
There is not a simple answer to whether or not income tax liability is dischargeable in a bankruptcy. Under the right facts and circumstances income taxes can be discharged.
First, if a return was never filed for the taxes prior to filing for bankruptcy, then the taxes are for sure non-dischargeable under Section 523(a)(1)(B)(i) of the Bankruptcy Code.
Also, if the taxes are associated with a return that was filed within two years of a bankruptcy, then the taxes are non-dischargeable under 523(a)(1)(B)(ii) of the Bankruptcy Code.
For illustration, if the Debtor owes income taxes for the tax year ending 2006, but does not file the return until 15 months prior to the filing of the bankruptcy petition on January 1, 2011, then any taxes owed would be non-dischargeable.
If the Internal Revenue Service files a federal tax lien on the income tax liability that is due, then they have a secured clam in any bankruptcy and the lien survives the bankruptcy to the extent there is collateral to secure the lien.
To determine if taxes owed that don’t fall into the above categories are dischargeable, Section 523 must be read in conjunction with Section 507 of the Bankruptcy Code.
Section 507 would make any tax liability non-dischargeable if the taxes are associated with a return that was due, including extensions, less than three years prior to the filing of the bankruptcy petition.
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.
