Can Tax Debt Help In Bankruptcy?

by Kent Anderson, Oregon Bankruptcy Attorney

http://www.dreamstime.com/royalty-free-stock-photo-mature-businessman-knockout-punch-image21150255Overwhelming consumer debt and unpaid tax debt can feel like a one-two  punch. To recover from the consumer debt hit, some consumer debtors must pass a means test and prove they are poor enough to qualify for bankruptcy relief. This can be a problem if household income is above median for the state. But, the jab of unpaid tax debt is a hit that can really lay a debtor low. Believe it or not, sometimes taking the blow from tax debt can help a debtor to dodge the means test.

How can going a few rounds with the IRS help a debtor file for bankruptcy? To answer this question, we need to step out of the ring for now and examine the fight.

Consumer debtors can face budget problems if their current monthly income exceeds median income for the state in which they live. Higher income debtors must take the “means test“. This insidious device is a somewhat illogical mathematical calculation of just how broke a debtor is. Failure to pass the means test could result in disqualification for abuse of the bankruptcy system.

In 2005, Congress decided to sock it to consumers and made substantial changes to the bankruptcy code. The resulting law made filing for bankruptcy much more difficult for consumers. Fortunately, only consumer debtors are required to take the means test. Bankruptcy is much less complicated for an individual who is not a consumer debtor.

To be a consumer debtor, the debts owed must be primarily consumer debt. Consumer debt is debt that was incurred by an individual primarily for a personal, family or household purposes. It is usually incurred as a voluntary obligation. Tax debt is owed to a government and is an obligation incurred by law. Tax debt is not considered to be consumer debt.

So, if a great big whopping tax debt is more than the total of all consumer debt, the bankrupt debtor can sock it to them and avoid the means test no matter how great the family income. An above median income debtor who has $50,000 in credit card and other consumer debt but $50,001 in tax debt would not be a consumer debtor. The best thing about this is that most common individual tax debt can be discharged in bankruptcy if it meets certain criteria.

No means test and you can get rid of the tax debt with a bankruptcy discharge. That would be a TKO for the debtor wouldn’t it?

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Magistrates May Euthanize Senior Judges in Foreclosure Court

by Chip Parker, Jacksonville Bankruptcy Attorney

flatlineThe Supreme Court of Florida has decided that non-judge magistrates will be hearing foreclosure cases in addition to retired senior judges.  The new Amended Rule 1.490 would expand the use of general magistrates as an alternative to the use of senior judges to assist in processing foreclosure cases.  This could mercifully spell the end of senior judges in Florida, which could help restore some confidence in our judicial system.

Don’t get me wrong.  I doubt the magistrates will provide any greater level due process than the microscopic levels afforded to homeowners in the bizarro world of retired senior judges overseeing Foreclosure Court.  However, if a homeowner does not want his foreclosure case being decided by a non-judge, the homeowner may object, and there need be no legal basis for an objection.

The homeowner must act fast because the objection must be made 10 days after the Order of Referral to Magistrate is entered.  If a timely objection is filed, then the case is referred back to a judge (or retired senior judge).

I bet the vast majority of foreclosures, which are not contested, will rocket through the new magistrate system, while homeowners wanting to fight their foreclosure will continue to do so in “regular” foreclosure court (There is really nothing “regular” about foreclosure court).  This would mean that the number of cases “lingering” in the “regular” system will be down dramatically.  With those numbers down, it will become difficult to justify the continued use of unnecessary senior judges.

This is possibly a dream come true for homeowners, but there’s a catch.  The chief judge of the individual judicial circuits can decide whether to implement the use of magistrates.  Being a judge is like being in a fraternity, and they like to protect their own – even those judges they do not like.  So, there is a strong possibility that Chief Judges of the individual judicial circuits will reject the use of magistrates because they are not “in the frat.”

How lucrative is it to be a senior judge hearing foreclosure cases in Florida’s courts?  So lucrative, that these retired judges will do just about anything to keep the money flowing.

According to the Office of the State Courts Administrator in Tallahassee, $305,724 has been allocated to the retired senior judges running the Foreclosure Division in Jacksonville alone, and they are each paid, in addition to their retirement pay, $355.08 per day (this is comparable with senior judges throughout the state).

In Jacksonville, the senior judges were contacted by the OSCA, who threatened to stop the gravy train on July 1st if Jacksonville did not significantly reduce the number of active foreclosure cases.  So, the Jacksonville senior judges began scheduling 3800 foreclosure cases for trial last month, setting 120 cases per day for trial proceeding simultaneously in two courts.  This allocates 8 minutes per trial, which by anyone’s estimation, is a complete obliteration of a homeowner’s due process rights.  One really needs to see it to believe it.

So, while magistrates could spell the end of senior judges, these retirees will surely not go away without a fight.

“Chapter 20″ Lien Stripping Allowed by Fourth Circuit Appeals Court

by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

The U.S. Court of Appeals, Fourth Circuit, has become the first U.S. Court of Appeals to approve “chapter 20″ lien stripping.  Although virtually all U.S. bankruptcy courts allow the “stripping” (vacating and eliminating) of completely unsecured junior mortgages on homestead real estate, the Fourth Circuit is the first circuit-level appeals court to approve lien stripping [...]

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6 Do’s And Don’ts For Payments In A Chapter 13 Bankruptcy

by Douglas Jacobs, California Bankruptcy Attorney

A chapter 13 bankruptcy requires a Plan to repay some of a debtor’s obligations; afford a debtor the chance to catch up on those debts where he or she is behind, such as a tax obligation or a house payment; and re-classify some debts to pay only the secured amount rather than what is owed. [...]

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Student Loans: Two Appeals Court Cases Question the Brunner Test

by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

The winds of change may be blowing regarding student loan dischargeability in bankruptcy cases, as two recent federal appeals court cases demonstrate. Section 523(a)(8) of the bankruptcy code states that in a chapter 7 or chapter 13 case, the bankruptcy court will not discharge any student loan debt “unless excepting such debt from discharge under [...]

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Why Your Bankruptcy Discharge Doesn’t End Your Case

by Cathy Moran, California Bankruptcy Lawyer

Isn’t my case over? I got my discharge.  Why’s the bankruptcy trustee still  hounding me?, my client asks. People who’ve filed bankruptcy are focused on the discharge as their goal. With their discharge in hand, they think it’s all over. They lose sight of the fact that the administration of a bankruptcy estate by the trustee [...]

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