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Paul B. Keller
Attorney at Law
P.O. Box 700087
San Antonio, Texas 78270
Tel. (210) 724-6837
● Consumer & Small Business Bankruptcy Chapters 7 & 13
Paul's tips .......................................
| Posted 4/8/2011 401(k) loans Pre-petition planning tip #1 The social purpose of seeking a bankruptcy discharge is to obtain relief from creditors, known as a “fresh start.” Your bankruptcy attorney provides the expertise to guide you through the bankruptcy maze and should be providing limited coaching on financial planning. In a chapter 7 bankruptcy, the debtor loses non-exempt assets and keeps exempt assets. A 401(k) retirement fund is entirely exempt. A 401(k) retirement fund is a very valuable asset to have upon exiting from bankruptcy. A person diminishes that “fresh start” by borrowing from his/her 401(k). In a chapter 13 bankruptcy the debtor does not lose assets but usually is required to pay unsecured creditors 100% of their allowed claim if the debtor has non-exempt assets. Borrowing against your 401(k) retirement fund. A 401(k) loan is usually an interest free loan if repaid. The 401(k) administrator establishes a repayment schedule. Penalties attach if not strictly followed. It is not wise to borrow from your 401(k) to pay attorney fees. I would never recommend to a client to borrow from a 401(k). Doing so creates double taxation on the repaid loan amount and could forfeit your employer's free contribution to your 401(k) fund. You contribute to the 401(k) with pre-tax dollars. You repay a 401(k) loan with post-tax dollars. So when you eventually are able to draw on that money you will again be taxed on it as you receive it. Being taxed twice on the same money is no small consequence. So while it may be an interest-free loan, the tax consequences are significant. Discussing all the disadvantages of taking out a 401(k) loan are beyond the scope of this blog. The reader is advised to research this for him/herself. Here are some web sites to consult as a starting point: http://www.stocks-simplified.com/401k-Loan-Rules.html http://www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html http://www.money-zine.com/Financial-Planning/Retirement/401k-Loans/ http://www.401k-systems.com/401k-loans.html#1 |
Posted 04/08/2011
Bank freezes accounts
Pre-petition planning tip #2
You have just filed a petition for bankruptcy and the next day you learn that your bank has frozen your accounts. You call your bankruptcy lawyer and . . .
Bank of America
Chase
Wachovia
Wells Fargo
Union Bank
Credit Union
Sun Trust
You can avoid this inconvenience by careful pre-petition planning: Avoid certain banks (those named above) and don't bank where you owe money.
How do the banks know that you have filed a petition in bankruptcy if you did not list the bank as a creditor? AACER and BANKO. These two software programs will identify any account the debtor has with a bank and automatically place a hold order on the account. This happens within minutes of the bankruptcy filing. Go to www.aacer.com to see how it works.
For instance, assume Wells Fargo is an AACER subscriber (which, in fact, it is). As soon as a bankruptcy case hits the PACER (Public Access to Court Electronic Records) system AACER automatically scans the petition and the schedules for all Wells Fargo accounts. If any are identified, AACER then scans the entire data base of Wells Fargo for any and all accounts for the new debtor. If AACER gets 5 hits, it is a definite match and AACER automatically moves the account to the Bankruptcy data base for Wells. AACER then maintains an on-line file for Wells for each and every single document filed in each and every Wells case.
Pre-petition planning . . .
Move your accounts to a different bank well in advance of filing a petition in bankruptcy. Re-direct direct deposits – Social Security, wages, retirement benefits, etc., to another bank where you have no loans, credit cards, etc. For example, set up a checking account at a local bank such as USAA FSB, Broadway Bank, or Jefferson State Bank. Close down automatic utility bill pay and re-establish at the new bank. Drain your accounts, so that the day you file is not the day you have an automatic deposit, or an automatic payment due. Make sure all checks have cleared your bank. That's a lot of work and a lot of planning, but it avoids a lot of grief and a lot of work to persuade the bankruptcy trustee to release the funds.
Posted 4/8/2011
Tax returns must be filed
Pre-petition planning tip #3
Federal (and State) tax returns must be filed prior to filing your bankruptcy petition. If you are getting close to filing a petition, discuss with your attorney and s/he will know how to file the returns for you to obtain an
almost immediate receipt from the IRS (Internal Revenue Service). If you file the return(s) yourself, it might be months before the fact of filing appears in the appropriate IRS database.
NOTE: You must continue to keep current on your taxes even during your bankruptcy proceeding. This is especially important for self-employed people who are required to pay taxes and FICA/Medicare withholding on a quarterly basis. The IRS may move to dismiss your bankruptcy case if you do not maintain payments to the IRS as required.
Posted 8/1/2011
Short-Sale
A short-sale is the sale of a house by a financially distressed homeowner for less than the amount remaining on the mortgage. Each of the lien holders on the property must agree to the short sale for it to go forward.
The lender may post a negative item on borrower's credit report, which will lower the consumer's credit score.
Lenders benefit from a short sale because it is less expensive to allow a short-sale than to foreclose on the property.
Realtors push short-sales because they can make a commission on the sale; whereas they cannot earn a commission on a foreclosure or bankruptcy;
Some disadvantages to the financially distressed homeowner who sells short are:
The sale can be quite complicated and could take a very long time to close;
The deficiency on the short-sale realized by the lender is reported as 1099-C, Cancellation of Debt, income to the IRS as and becomes regular income to the seller on his/her federal income tax return in the year reported;
Short-sale does not cut off seller's liability to purchaser for defects in the house and property, whereas a foreclosure or bankruptcy insulates the seller from such liability.
Making a short-sale to an insider or relative is especially precarious; banks usually do not agree to short sell a property to a relative.
This is only a general dissertation on short-sales. Short-sales are fact intensive and your circumstances may indicate that a short-sale is beneficial. In any event, seek competent professional advice from a multi-disciplined professional (bankruptcy attorney with real estate, federal tax, and fair credit reporting experience). Be wary of obtaining advice from someone who seeks a commission from steering you into a short-sale.
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