Tax Returns and BankruptcyApril 19, 2012 No Comments
With spring quickly approaching most people will be preparing to file their 2011 tax return. In many cases the taxpayer will receive a significant tax refund. The question becomes, “How do I spend my tax return?” A good answer to this is to use it towards eliminating problem debt. If your tax refund is enough to pay off your problem debt, then do not bother reading the rest of this article. Use your tax refund to eliminate your problem debt, however, if like many people your tax refund will not make a dent in your debt load, you should consider meeting with a bankruptcy attorney.
Most people qualify for one of two chapters of bankruptcy, either a Chapter 7 or Chapter 13. A Chapter 7 is the Chapter of the Bankruptcy Code that deals with liquidation of your debts. In a Chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor’s creditors. In return, the debtor receives a Chapter 7 discharge, if he or she is eligible for the discharge. If a person files for and receives a Chapter 7 liquidation and discharge, the debtor is no longer responsible nor has to pay his or her debt.
A chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 13 of the Bankruptcy Code. Chapter 13 allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
If your debt is significant and/or you are struggling to pay your bills, you should contact a bankruptcy attorney and see if you qualify for either a Chapter 7 or Chapter 13 bankruptcy. As spring approaches and you start doing your spring cleaning, consider cleaning up not only your home but your finances as well.
Written by: Katie M Westerfeld, Attorney at Law; Tierney & Westerfeld, LC
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