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Tax Penalties and Bankruptcy

Tax Penalties and BankruptcyMany clients have asked about tax penalties and bankruptcy.  Tax penalties are a difficult burden.  You usually receive tax penalties after an IRS or State Revenue audit or review.  In such as situation, you are usually forced not only to pay the newly assessed tax but also the tax penalty for not following the taxing authority’s rules.  Tax penalties and bankruptcy usually offer no help.  This is because tax penalties are usually not eliminated by filing for bankruptcy.

Tax Penalties are Generally Non-Dischargeable in Bankruptcy

Tax penalties are usually non-dischargeable in bankruptcy.  This means that your “penalty” portion of your tax debt usually cannot be eliminated by filing for bankruptcy.  The penalty portion will remain after your bankruptcy concludes.

Income tax debt itself, however, can sometimes be discharged during a bankruptcy case in very limited situations.  Essentially, the income tax debt must be more than 3 years old (from the filing due date) for it to have a chance of being dischargeable.  This usually means that the tax debt will usually appear to be almost 4 years old or older before it can be discharged.  The tax returns must have also been filed on time.  In addition, you need to file the tax return yourself.  The IRS or other taxing agency cannot have filed the income tax return for you.   Income tax debt can only be discharged in limited situations.  Seek the guidance of an accountant or bankruptcy attorney when attempting to predict when discharging tax debt may be possible.

Tax Penalties Need to be Addressed After Bankruptcy

Tax penalties need to be addressed after filing for bankruptcy.  Complex tax situations frequently require an attorney or accountant to work on the case after a bankruptcy case is filed.  Almost always a substantial amount of tax debt will remain after the bankruptcy case is completed, including tax penalties.  You may be able to negotiate a payment plan, a lump sum offer, or some other reduction of your total tax debt.  This will help you address your tax penalties after the bankruptcy case.

If you have tax problems, you need to work with an accountant.  You must diligently follow the accountant’s instructions or your tax problems will likely persist far into the future.  Ongoing tax problems are usually a systemic problem that must be addressed by bold, life-changing action.   Carefully structuring your life to follow all the rules of the tax authorities will reduce stress.  It will help you to avoid incurring future tax penalties or new burdensome tax debts.

Bankruptcy and DUI, OWI, and DWI’s

An intoxicated driving offense (such as a DUI, OWI, or DWI) can have a devastating effect on both the driver and the people around him.  Sometimes expensive legal fees can be the only result.  Other times something much worse can happen such as somebody being injured or property being damaged.  Bankruptcy will not always eliminate injury or damage caused during a DUI, OWI, or DWI offense.  The bankruptcy court has an exception that will cause these debts to sometimes be non-dischargeable (not eliminated) during bankruptcy.

Bankruptcy and DUI

Death or Personal Injury caused by Intoxicated Driving

If you were under the influence (such as during a DUI, OWI, or DWI case charge), then anybody you injured or any property that you damaged can create a potential lawsuit claim against you.  You will be held legally responsible for these injuries or damages.  You may even be charged with an additional criminal charge for this injury.

Any civil or criminal liability that occurred as a result of your DUI, OWI, or DWI case will not likely be discharged during your bankruptcy case.   Under Section 523 (a) (9) of the bankruptcy code, an exception to discharge exists for injury or damage caused by an intoxicated person.   This section states that an exception to the bankruptcy discharge exists “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”   This essentially means that even the civil liability may still exist for these personal injuries if they were caused in relation to a DUI, OWI, or DWI case.  All criminal requirements must also be satisfied because they also will not be discharged during the bankruptcy case.

Can DUI, OWI, or DWI Related Debts Ever Be Eliminated Through Bankruptcy?

It is possible that a creditor will reduce their civil claim or even stop the pursuing of the claim entirely if you file for bankruptcy.  Bankruptcy proves that the debtor has no assets and usually has little or no ability to repay debts.  The DUI, OWI, or DWI creditor may choose to settle or stop collection of their debt due to the bankruptcy filing.

In addition, it could be possible that the debt may be dischargeable if the DUI, OWI, or DWI creditors do not bring an adversary case to prove that their debt should be classified as “non-dischargeable.”  Essentially, during the bankruptcy case, a system exists where you can sue the bankruptcy filer to have the federal court officially declare that any particular debt is a non-dischargeable debt.  These are called adversary cases.  If the holder of the civil claim does not bring an adversary case, it is possible to argue that the claim was rightfully discharged during the bankruptcy case.  This is especially possible where the nature or classification of the related claim is in doubt.

Conclusion: Never Drive Intoxicated

Generally, debts directly caused by intoxicated driving are non-dischargeable in bankruptcy.  This means that you may be stuck paying them for your lifetime.  This is another compelling reason  – among with many others – why no one should ever drive while intoxicated.  Driving intoxicated always has the potential to alter permanently the course of your financial life.

Sports Memorabilia in Bankruptcy

Can I Keep Sports Collectibles or Sport Memorabilia in Bankruptcy?

Collecting sport memorabilia can be an enjoyable, lifetime hobby.  If the hobby grows, sometimes it can even turn into a business.  Sports memorabilia can reach up to a very high value level for particularly desirable items.   Ball cards, autographs, and historical items can sometimes generate unbelievable sale values.  Unfortunately, even sports memorabilia collectors also find themselves in bankruptcy situations.  Can you keep sports memorabilia in bankruptcy?   The answer to this question usually is based on the aggregate value of the items.

Value is the Key Factor in Bankruptcy to Sports Memorabilia and Collectibles

We all know people who own thousands of well organized baseball cards.     We have seen entire houses decorated with sports memorabilia items.   The key factor to whether you can keep these items in bankruptcy is not the extent of the collection.  They key factor is the aggregate value.

During a bankruptcy case, you are required to total up the value of all of your assets.  This also requires you to total up the aggregate value of your sports memorabilia.  The total value of your memorabilia will most likely be listed under Section 8 of your property listing.  This section is entitled “collectibles.”  You will be required to use a reasonable method for reaching an accurate value of these items.  Rough estimates and personal knowledge may be a good place to start.  A professional estimator or appraiser may also be required to reach an accurate value.

The Bankruptcy Trustee and Your Exemption Protection

You will be automatically assigned a Chapter 7 trustee in your district when you file your bankruptcy case. This trustee will review your assets.  It is also possible that the trustee will require you to present your sports collectibles to the trustee’s personal appraiser.  This is allows the trustee to verify the value of the items that you have submitted on your bankruptcy petition.

Depending on your state, you are only allotted a certain amount of exemption protection.  This amount determines how much of your sports memorabilia you can keep.  In Indiana, you can use the “general tangibles” exemption that can be used to protect all of your basic property.  This exemption currently for $10,250 per person.  It doubles to $20,500 when a married couple files a joint bankruptcy petition.

Within Indiana, keep in mind that you will also need to protect your other property such as automobiles, furniture, and other personal items that you own.  This can deplete your “general tangible” exemption until much less remains to protect your sports items.  In such a case, you may only have $8,000, $6,000, or even much less to claim as an exemption on your sports memorabilia.  Also, keep in mind that every state varies on what exemptions are offered during a bankruptcy case.  In certain states, you may have a very limited exemption towards the specific purpose of retaining sport memorabilia in bankruptcy.  As with all bankruptcy planning, make sure to contact a local bankruptcy attorney.  They will be able to represent you in bankruptcy with a clear explanation as to what is possible in your area when you own expensive sports memorabilia items.

Image of baseball - sports memorabilia and bankruptcy

Service of Process to Bankruptcy Creditors

If I file Bankruptcy, Will I Need to Provide Service of Process to All My Creditors?

If you file for bankruptcy, all of your creditors will receive appropriate service of process automatically through the Federal Court’s noticing system.   Usually, you or your attorney will not need to directly notice your creditors.   Initial “service of process” occurs automatically when the federal court sends out the bankruptcy notice to each of your creditors.

What is Service of Process?

Service of Process is simply giving correct legal notice to another party that you have initiated a lawsuit or other legal proceeding.   The party in which you “serve” notice is usually a defendant or somebody else who has a stake in the case at hand.   Essentially, all appropriate parties must receive service of process in some legally-appointed fashion.

Proper legal service can occur in many ways.   It all depends on the type of law case being initiated.   Most forms of legal service do not occur “automatically” such as in Federal Bankruptcy Court’s noticing of the creditors.   In many non-bankruptcy cases, notice is frequently required either through signed certified mail or delivery by the county sheriff’s office.  Because of varying service requirements, refer to your attorney and your court’s local rules to see how service is appropriately made in any specific filing.

Service of process can also occur through a process server.   Process server companies will track down a defendant and personally deliver appropriate service.  This type of service has huge advantages for at least two important reasons.  First, the process server will many times be able to track down hard-to-find defendants on a case.   Second, the process server will have proof that the party received actual, personal notice.  It creates a situation where undeniable service took place with the opposing party.   The other party will be forced to attend hearings or other matters on the case.   If they do not attend, they will be held in contempt of court. The party will not be able to argue that there was no appropriate legal notice.

For more information on Service of Process, visit Hoosier Process Servers.

Bankruptcy Service of Process

How does Initial Service of Process (Notice) Occur on a Bankruptcy Case?

In a bankruptcy, a creditor list is required to be provided to the court in the bankruptcy petition.  In addition, at text file of all the creditor’s addresses (and other relevant parties) must also be provided.   By using this text file, the court’s noticing system will generate and mail out the bankruptcy notice to each creditor in the case.  This is part of the reason why the $335 and $310 filing fees are required on Chapter 7 and Chapter 13 cases respectively.   Part of these fees go to the cost of providing mailed notice to the creditors in each case.

Second Mortgage & Bankruptcy

What Happens to My Second Mortgage If I File for Bankruptcy?

What happens to my second mortgage if I file bankruptcy?

A second mortgage can be a huge burden to a homeowner. Second mortgages and home equity loans are usually sought to pay for unexpected bills that life may bring. What happens to a second mortgage when you file for bankruptcy? A second mortgage usually remains on your property unchanged. But, there are a few exceptions.

Second Mortgages Stay Attached to Your House After Bankruptcy

When you file for bankruptcy, the second mortgage remains attached to your house. This means that the second mortgage holder can still come after your house if you begin to default on payments. Therefore, in most situations, you will need to continue making payments on your second mortgage if you want to keep your house.

Chapter 7 Bankruptcy does, however, usually remove your personal liability for your second mortgage. If you do not sign a reaffirmation agreement during your bankruptcy case, you will no longer likely be personally liable for the repayment of the second mortgage. This means that your mortgage company can only come after your house through a foreclosure. They will not likely be able to come after you personally for collection.

Bankruptcy Can Sometimes Help You Reach a Settlement on Your Second Mortgage

This can sometimes give the bankruptcy filers an advantage in negotiating a settlement for the second mortgage. If your second mortgage is excessive and not secured by actual equity in the house, you may be able to settle for much less of the total amount. You may need to seek an additional attorney for this purpose. Such an endeavor would not be covered during a standard bankruptcy case.

Chapter 13 Can Sometimes Avoid a Second Mortgage Lien

In certain rare circumstances, a second or third mortgage can be avoided during a chapter 13 bankruptcy case. Any such mortgage would need to be not secured by actual equity. Essentially, the total value of your home would have to equal less than just your first mortgage. If your second mortgage is not secured by any actual equity in the house, you may be able to file a lien avoidance lawsuit during the chapter 13 case.
It is important to note that it is also required in most circumstances for the chapter 13 plan to be successfully completed. If you do not complete the chapter 13 plan, your second mortgage holder may challenge the validity of the avoidance order.

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