Malcolm Ruthven gave a bankruptcy presentation at Legal Aid of Marin on September 30, 2009. There were additional points to be covered at the end of the event and these items will be added here as comments.
- Are you expecting a tax refund?
- Debt Cancellation service?
2 thoughts on “Legal Aid of Marin Bankruptcy Presentation – September 30, 2009”
Back Income Taxes
Presentation notes slide 13, page 5, was incomplete. The following is the complete slide 13 material.
Chapter 7 – Back Income Taxes
Back income taxes (IRS or state) are not dischargeable unless they meet specific requirements which you have to prove to the court.
The 3-Year Rule: The tax return on which the tax debt arises must have been due at least three years before you file for bankruptcy.
The 2-Year Rule: The tax return was filed at least two years before you file for bankruptcy.
The 240-Day Rule: The IRS or state tax authority (in California, The Franchise Tax Board) has not formally assessed your liability for the taxes within the 240 days before you file for bankruptcy.
Debt "amount charged off"
The example was a car loan in default, the car being repossessed and sold at auction for less than the amount owed. The balance remaining was later found to be noted as "amount charged off" on the debtor's credit report. What does that mean and how is that debt balance treated in bankruptcy?
The answer is that the "amount charged off" notation on the credit report really doesn't mean anything to the debtor. That "charge off" might have been just an accounting entry by the creditor that deems the debt uncollectible for accounting purposes. In any event, lacking notice from the creditor to the contrary, that debt balance is alive and well and must be listed as a debt in a filing for bankruptcy.
The debt balance is no longer "protected" by a lien on property, so it is dischargeable in bankruptcy under Chapter 7 like other unsecured debts. In a Chapter 13 plan, it's an unsecured debt and may be only partly repaid (or even not repaid at all) along with the other unsecured debts.