IRS: Offer in Compromise

Offer In Compromise – Doubt as to Collectibility

There are three types of Offer In Compromise (OIC). The most commonly utilized OIC is the “Offer In Compromise, Doubt as to Collectibility,” or OIC-DATC. This OIC is geared towards those individuals who are unable to pay their current tax obligation and wish to settle for a payment that is less than the amount they actually owe.

For OIC-DATC, taxpayers will need to:
— File Offer in Compromise
— Attach financial statements
— Submit supporting documentation to prove the value of their assets, liabilities, and monthly income and living expenses.

Once submitted, the exact time it takes for the entire process varies from case to case, but we see on average it takes somewhere between  4 weeks to 8 months, all depending on who gets assigned as the examiner and the complexity of the situation.

Offer In Compromise – Effective Tax Administration

Offer In Compromise – Effective Tax Administration is reserved for taxpayers who can pay the tax they owe, but it would cause (1) undue economic hardship, or (2) there are other public policy or equity grounds

1) Undue economic hardship

Economic hardship is a consideration for clients who have the ability to pay their tax debt in full, but doing so would place them in severe economic hardship.

2) Public policy or equity grounds

Public policy and equity offers are for situations when “collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner.

Offer In Compromise – Doubt as to Liability

The Pro is that this is more straightforward and less negotiation is needed.  The Con is that this is only available when the taxpayers can provide proof as to why the validity of the tax obligation should be questioned.

Give us a call at (616) 920-0555, or use the email form below, for information on our Offer In Compromise service.

In a Chapter 13 Bankruptcy, if you are unable to exempt all of your assets, you will need to perform a liquidation analysis (LA).  The purpose of a liquidation analysis is to ensure the general unsecured creditors are receiving at least the amount they would be receiving if the unexempted assets were liquidated in a Chapter 7 bankruptcy. As such, cost of sale, trustee’s compensation, and priority debts are to be taken into consideration.

For example, let’s say that a client has $5,000 in unexempted assets and owes $1,500 to the IRS. Under this scenario, the Chapter 7 trustee’s fee would be 25%, reducing the amount to be actually distributed to $3,750. Of that, the first $1,500 will go to the priority class of creditors (IRS), leaving the remaining amount of $2,250 available for the general unsecured creditors. Therefore, $2,250 would be the result from the LA.

If we were dealing with a home where some of the equity is not able to be exempted, you may also deduct the cost of sale, typically 6% of the FMV.

For more questions about Bankruptcy or the Liquidation Analysis, please give us a call at (616) 920-0555.

A “cramdown” essentially reduces the principal balance of a secured debt from the outstanding loan amount down to the Fair Market Value. This is most often used with car loans, mobile home loans, household goods, and other personal property in a Chapter 13 Bankruptcy. This will allow an individual to pay the fair value of the property and the remaining balance would be lumped into other unsecured debt.

The most common example is a vehicle, if the vehicle is work $6,000 but there is a $13,000 loan on the vehicle, the individual would be required to pay the $6,000 as secured debt and the remaining $7,000 would be seen as unsecured debt which would be paid in proportion to all other unsecured debt. Any portion of the unsecured debt that was still due and owing on the loan would be discharged at the end of the bankruptcy.

The huge benefit of cramming down the loan is to be able to reduce interest rates, reduce the amount owed, stretch payments out over a longer term, and lower the monthly obligation. This “cramdown” is allowed in Chapter 13 cases, as opposed to a Chapter 7. In order to utilize this process, the loan must have been acquired at least 910 days prior to the bankruptcy. This way, an individual who goes out and buys a new car and acquires a loan cannot turn around and file for bankruptcy in order to lower the loan.

If you have questions about this process, or if you want to know what Russell can do for you, feel free to give us a call at (616) 920-0555.

Disposable Income in the bankruptcy world will be whatever is left over after taxes, insurance, and any necessary household expenses. This disposable income must then be turned over to the Chapter 13 trustee.

However, there are additional forms of income that can come into when calculating disposable income:

Short answer, yes, as long as the paperwork is handled correctly.

In a Chapter 13 bankruptcy, tax refunds are treated as disposable income, and as stated in other articles, by default all disposable income is to be turned over to the trustee. However, the following are the most common avenues we take to ensure our clients are able to retain some, or all of their tax refunds.

Application to Retain:  If a client has unexpected expenses, not already accounted for in their budget, we often submit an application with the trustee’s office to retain some or all of their refund.  Examples of this is home repairs, vehicle repairs, vehicle replacement, and post-petition medical expenses. We sit down for a meeting which takes approximately 30 minutes, we review the tax returns, and documentation for these unexpected expenses and submit the application that day. Often, we can have the refund request approved within a week.

100% Plan:  Bankruptcy plans where the client is already paying their creditors back at 100% are automatically approved to retain 100%  of their refund. However, clients may turn over some or all of their refund in order to reduce their plan length.

More than 36 months into a 36-month ACP Plan:  A 36-ACP is a case where the client passed the Means Test, but decided to file a Chapter 13 for another reason. In those cases, after the client successfully completed 36 months of their plan, the client is able to keep any future disposable income.

Built into Budget: Clients can list a proration of their tax refund on their Schedule I. For example, the client can list “ProRated Tax Refunds” under miscellaneous income for the amount of $500. By doing so, the client automatically gets to retain $6,000 from each tax refund. If they need to keep more, they may submit an Application to Retain with the trustee.

If you have questions about this process, or if you want to know what Russell can do for you, feel free to give us a call at (616) 920-0555.

Chapter 7

Under a Chapter 7 bankruptcy, the trustee looks to the timing of the inheritance. If the inheritance was before filing, any amount on hand at the time of filing will become part of the estate. When it becomes part of the estate, an individual will have to exempt it in order to protect it. Any portion of the inheritance that is nonexempt will allow the trustee to take it and distribute it to creditors. If an individual is entitled to receive an inheritance 180 days after filing the bankruptcy, the inheritance will not become part of the estate and the trustee will have no claim to any of it. However, if an individual is entitled to receive an inheritance within 180 days of filing for bankruptcy, they will need to amend their bankruptcy paperwork regardless of whether the court closed the case or not. Similar to an inheritance prior to filing for bankruptcy, the inheritance will need to be exempted through an amendment, if it cannot be exempted then the trustee will be able to take that portion and distribute it to creditors.

Chapter 13

Under a Chapter 13 bankruptcy the individual may still need to exempt the inheritance, similar to a Chapter 7. If the case is a 36-month ACP, then if the client becomes entitled to receive the funds after successfully making payments for 36 months, then the inheritance becomes the clients. A case becomes a 36-month if they pass the means test and were eligible for a Chapter 7, but regardless, filed a Chapter 13.

In any other scenario, the client will need to exempt as much of the proceeds as possible, then put forth an application outlining what unexpected expenses they have to retain the inheritance for, much like they would for a tax refund.

A common fear among individuals considering bankruptcy, is what the bankruptcy will do to their credit record and how long they will be affected.  It is true that under the Fair Credit Reporting Act, this notation on your credit report will last for ten years, but the effects it may have are not always clear cut.  In many cases, creditors view the bankruptcy as a step up from an individual’s prior credit conditions and some creditors may even view the bankruptcy as favorable, since, after discharge, the debtor will be free of other financial obligations and be more able to make payments on new lines of credit.

To better understand if filing for bankruptcy is the right action for you, it is recommended to set up a consultation with a local bankruptcy attorney.

It is possible for there to be a situation where a parent needs to file for bankruptcy, but has severe dementia, and therefore mentally incapacitated.

Dementia can come on gradually, limiting their ability to make wise financial decisions.  By the time you realize their mental health is affecting their finances, it could be too late. So how do they voluntarily file for bankruptcy?

The first step would be to have someone appointed to represent them. The most common approach is going through Probate Court and having a family member appointed Guardian and Conservator.  Although there is much debate whether having a valid Power of Attorney would be sufficient, having one appointed by the courts is as close to iron-clad as one can get. Then, the individual appointed would work closely with their bankruptcy attorney to draft the requisite paperwork, and would then sign on behalf of the incapacitated individual. Additionally, you will want to attach the Guardianship and Conservatorship paperwork attached to the petition.

Additionally, you can motion to the Court for a waiver for the Credit Counseling Course. You will want to file this concurrently with your Petition to avoid having a MTD filed by the U.S. Trustee’s Office.

If you or a family member are considering filing for a Chapter 7 or Chapter 13 Bankruptcy, you will want an experienced attorney that has already faced virtually any situation that you can throw at them. Give me a call today at (616) 920-0555.

The answer really depends on which Chapter of Bankruptcy you previously filed (Chapter 7 and Chapter 13), and which Chapter you wish to file. Additionally, these restrictions only apply if you received a discharge in your previous filing.

Ch 13 -> Ch 13: You must wait at least 2 years after the filing of your initial case before you may refile and receive another discharge. Fortunately, more than likely you were in the first case for at least the 3 year minimum, so theoretically you could refile the day after you receive your discharge.

Ch 7 -> Ch 13: You must wait at least 4 years after the filing of your initial case before you may refile and receive another discharge.

Ch 13 -> Ch 7: You must wait at least 6 years after the filing of your initial case before you may refile and receive another discharge. There is an exception to this 6 year waiting period in instances where your initial Ch 13 was a 100% plan or where it was at least a 70% plan and proposed in good faith and your best efforts.

Ch 7 -> Ch 7: You must wait at least 8 years after the filing of your initial case before you may refile and receive another discharge.

Chapter 7 bankruptcy cannot permanently stop your foreclosure, but it is helpful in other ways that can help you manage a foreclosure you are facing.

Chapter 7 bankruptcy can delay your foreclosure – When you file for bankruptcy you gain an automatic stay. Fortunately, automatic stays apply to foreclosures. So then, throughout the period of your bankruptcy, a creditor cannot pursue a foreclosure. However, after your bankruptcy is completed, he/she can proceed with a foreclosure. In most cases, the creditor can request for an automatic stay to be lifted before your bankruptcy is over. The creditor would most likely have this granted by the court if he/she is able to prove they are the legal holder of a the mortgage or deed of trust to your house.

If your home is facing issues that cannot be resolved in the 3-4 months that your Chapter 7 is pending, you may want to consider filing Chapter 13 Bankruptcy to Stop the Foreclosure.

Give us a call at (616) 920-0555, for information on our $999.00 Flat-Fee Bankruptcy Service where you can get started with only $500.00 down.