Whatever you do, file your tax returns on time. Whether you owe or not, file all your tax returns on time.
Bankruptcy can deal with taxes if they are timely filed. If you get an audit and you lie on your taxes, and you commit fraud, it’s called willful evasion. We can’t get rid of that. If you are hiding income and get busted in a bankruptcy, you can't get rid of that. But if you file your tax returns on time and three years go by, we can discharge those taxes that are due. It’s called the priority rule. When you file bankruptcy, the last three years of taxes due, if any, have to be paid either in the Chapter 13 plan or, if you’ve filed a Chapter 7, paid on your own after your case is complete.
File your tax returns on time. It makes everybody a lot happier when it comes to trying to discharge tax debt.
Is It Possible To Convert A Chapter 7 Bankruptcy Into A Chapter 13?
Generally, we know of any issues that would cause a Chapter 7 to be converted into a Chapter 13. It can happen in some cases, however, like if a client files bankruptcy and inherits something within six months after filing the case. For example, you file in January and somebody passes away and leaves you $50,000 or $100,000, or you play the lottery and win. It is your responsibility to inform the trustee that you have come into what is known as unexempt assets. Then the trustee will step in, assume control of that money and use it to pay your bills.
Of course, there is an option. Sometimes we can voluntarily dismiss it, and let you deal with your bills on your own. But there is a clause that says for six months if you get a windfall and you owe creditors then you have to let the trustee know. That’s one of the reasons for converting a Chapter 7 to a Chapter 13.
Can A Chapter 13 Bankruptcy Help Me Catch Up On My Mortgage Payments?
Yes. That is what is most common now. We take past due payments and put them into a payment plan where you can pay it back over the next five years. Interest stops accruing. This will increase your mortgage payment slightly because you are going to have to make your regular mortgage payment plus extra to catch up with arrears. The extra amount is called a cure amount, and the exact amount will vary depending on the amount of arrears. $5000 in arrears is going to cost less than if you are $25,000 or $30,000 behind.
Can A Bankruptcy Stop A Foreclosure?
Yes. In Georgia, we have just notice bankruptcies. They notify the client by regular mail or certified mail. (Not picking up your certified mail does not mean you didn’t get the notice.)
The foreclosure notice will run in the newspapers once a week for four weeks. The following first Tuesday of the month is foreclosure day. We can file bankruptcy up until 9:59 AM on the first Tuesday of the month to stop a foreclosure, but it's not a good idea to wait that long. There is a lot of work involved. Clients should plan to have everything in our office by lunchtime on the Thursday before foreclosure, or we can’t do it.
Should I File Bankruptcy Before A Foreclosure Happens If I Know It Is Going That Route?
The foreclosure process starts months before foreclosure day. If you know that your house has been sent to foreclosure, call the mortgage company. See if they can do a loan modification and work with you to catch up. If they say that you are not eligible, or you don’t qualify, then see a bankruptcy attorney. A bankruptcy attorney can deal with the arrears and stop the foreclosure up to the day of the foreclosure. It doesn’t matter if you file two weeks before foreclosure day, but one minute after 10:00 AM on the first Tuesday of the month (if that's your foreclosure date) it's too late.