When the debtor has committed a willful and malicious injury to another person, the Bankruptcy Code does not allow the discharge of a debt associated with the injury. These injuries are known as “intentional torts,” and include personal injury lawsuits where the debtor acted intentionally as opposed to negligently or recklessly. The 1998 U.S. Supreme Court case of Kawaahuau v. Geiger stated that for bankruptcy purposes, the term “willful” refers to the injury rather than to the act. The debtor must act with the willful intent to cause the injury, rather than willfully acting that results in an injury. If the debtor did not act willfully to cause an injury, the debt is dischargeable.

Willful damage to property is also exempted from a Chapter 7 discharge, but is dischargeable in a Chapter 13 bankruptcy case. Certain injuries caused by operating a vehicle under the influence of alcohol are also non-dischargeable. In order for the debt to be exempted from the bankruptcy discharge, the injured party must file an “adversary proceeding” within 60 days after your first scheduled meeting of creditors under section 341. If the adversary case is not filed within that period, the debt is included in the discharge. The bankruptcy judge will conduct a hearing to determine if the injury was caused willfully.

If you have committed an intentional tort and cannot afford to pay the debt, speak with one of the experienced bankruptcy attorneys at the O’Bryan Law Offices and discuss your options. In some cases bankruptcy can discharge the debt, or can provide you time to pay the debt under court supervision over three to five years. Bankruptcy can also shield your assets and wages for a time while you repay what you can afford. Call us today at 502-339-0222 for a free bankruptcy consultation.

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Occasionally a debtor in the Louisville area will report a credit card with no balance on the day the bankruptcy is filed. The Bankruptcy Code does not require you to report a zero balance credit card. If you don’t owe the credit card company on the date you file the bankruptcy case, it is not a creditor for bankruptcy purposes. If you do not list the credit card company in your bankruptcy schedules, the court will not send it a notice of your filing.

Having an open credit account can be useful to reestablish a positive credit history after your Chapter 7 bankruptcy discharge. However, your bankruptcy is a matter of public record, and most large banks and finance companies routinely compare new bankruptcy filings to their own records. Even though you may not have a balance, the credit card company may cancel the card when they discover your bankruptcy filing.

There are a few dangers that are associated with trying to keep a credit card account after bankruptcy. One danger is that the bankruptcy trustee may be able to demand that the card company turn over any large transfer of money used to pay off the account during a time when you were insolvent. Additionally, Chapter 13 debtors are prohibited from using credit cards during bankruptcy. Finally, intentionally failing to disclose a debt in your bankruptcy could land you in serious trouble with the court. If you have a credit card balance, you must report it as a debt.

If you have a credit card with a zero balance (or a very small balance) and you want to keep the card open, discuss your intention with one of the experienced bankruptcy attorneys at the O’Bryan Law Offices. Your attorney will weigh the pros and cons of keeping the account open, and direct you in the proper way to avoid trouble with the bankruptcy court. Call us today at 502-339-0222 for a free bankruptcy consultation.

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Getting rid of cancellation of debt income is a tricky issue for Kentucky and Southern Indiana taxpayers. If you filed bankruptcy before the debt as cancelled, the debt is discharged by your bankruptcy is not income for tax purposes. Bankruptcy debtors who receive a 1099-C on a discharged debt should inform the IRS that the debt was discharged by filing Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Consult your tax professional for more information.

If the debt is canceled before you file bankruptcy (as in a debt settlement agreement), the cancelled debt is part of your income. While you cannot discharge fresh taxes in bankruptcy, you may still be able to file bankruptcy and avoid incurring the tax debt. The most common way to do this is to convince the IRS that you were insolvent when the debt was cancelled by the creditor.

You qualify for this income exclusion if, on the date that the debt was cancelled, your liabilities exceeded your assets. If you were “partially insolvent,” you must pay some taxes on the debt. For instance, if your total liabilities (including $2,000 of canceled debt) are $7,000, and you have $5,000 in total assets, you must report the $2,000 of the canceled debt as income:

            $2,000             Cancelled debt

            $5,000             All other debts

            $5,000             Total assets

            $2,000             Amount of debt imputed as income for tax purposes

As you can imagine, the IRS is skeptical when a tax payer claims insolvency. However, filing bankruptcy soon after receiving the 1099-C may be good evidence of your insolvency.

Cancelled debt income adds insult to injury. If you have debts you cannot pay, call the experienced attorneys at the O’Bryan Law Offices at 502-339-0222. We will discuss strategies for discharging the debt at a free consultation. If you have received a 1099-C and you are facing a large tax bill, bankruptcy may still be able to help.

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Many debtors don’t use wage deduction because they want to avoid informing their employer about the bankruptcy case. But does this make sense?

Bad credit can get you fired. Failure to manage your personal finances could lead to your termination, especially if you work for a bank and other financial institution, a retail store, or a business where you handle cash on a routine basis. Collection calls at work can get you fired. Mistakes and time off work can get you fired.

On the other hand, the federal bankruptcy laws prohibit government and private employers from firing you on the basis of your bankruptcy filing. By informing your employer that you have filed bankruptcy, you have put the employer on notice that you are dealing with your financial problems in a responsible and legal manner. In order to terminate you during your bankruptcy case, your employer must find a reason unrelated to your bankruptcy and personal finances. Consequently, most employers do not want to risk violating the federal law.

Finally, which is worse: to inform your employer of your bankruptcy through a wage deduction order, or for your employer to discover your financial problems through some other channel? Most employers (and people) respect honestly and forthrightness. Some employers conduct periodic credit checks on their employees, so your bankruptcy will be eventually discovered. This is especially the case with government work involving national security or the Federal Deposit Insurance Corporation.

Of course, every situation is different and you should discuss your situation with an experienced bankruptcy attorney. The bankruptcy attorneys at the O’Bryan Law Offices can help you decide if a wage deduction order is right for you. Call us today at 502-339-0222 for a free bankruptcy consultation.

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What the Bank Can Do

If you have a debt at a bank where you have money deposited, the bank has a right of setoff. That means it can take money from your checking or savings account to pay a debt, like an overdraft or a defaulted loan. When you file bankruptcy, the bank’s right to setoff survives, but is temporarily prevented by the automatic stay. Before the bank can perform the setoff it must ask permission from the bankruptcy court.

You would think that the bankruptcy automatic stay would stop the bank from taking collection action against you, but that is wrong. The 1995 US Supreme Court case of Citizens Bank of Maryland v. Strumpf, 516 US 16 (1995) says that a bank can freeze your account and withhold your funds so that it has time to make a request for setoff from the bankruptcy court. Once your account is frozen for setoff purposes, the money is likely gone for good.

How Long Do You Have?

When you file bankruptcy the clerk of the court sends a notice to the bank regarding your bankruptcy case. It usually takes a few days for the bank to receive notice. However, some larger banks compare the list of recent bankruptcy filings against their accounts. If an account holder has filed bankruptcy, some banks will freeze the account immediately, whether you owe it money or not (Wells Fargo Bank often does this).

What You Can Do

The answer is simple. If you owe money to your bank, switch banks. Keep the old bank account open, but only keep a small balance. Remember to change any direct deposit to the new bank account and cancel any monthly direct debits. Your old bank cannot setoff money that is deposited in another bank, and cannot freeze that account.

Filing bankruptcy in Kentucky or Southern Indiana is complicated. Thankfully the experienced attorneys at the O’Bryan Law Offices can identify your debt issues and are able to use the federal and state laws to protect your interests. If you need help with your finances, call the O’Bryan Law Offices at 502-339-0222 and discuss your situation. The federal bankruptcy code can help you discharge debt, restructure your finances, and get a fresh start.

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The answer to this question depends on a number of things. First, have you hired an attorney?  Once you retain bankruptcy counsel, you can inform your creditors, “Don’t talk to me; call my attorney!” The Fair Debt Collections Practices Act (FDCPA) prohibits third party collectors (collection agencies, attorneys, etc.) from speaking with you once they know you are represented by an attorney concerning the debt. Hiring a bankruptcy attorney can provide immediate relief and peace of mind to many who have been harassed by creditors. Ignoring the FDCPA and continuing to harass you can cause serious trouble for the collector.

The second issue is, “Can telling the creditor that you are filing harm you?” Hiring an attorney and intending to file bankruptcy are not the same as actually filing your bankruptcy case. Until you file you are not under federal bankruptcy protection, and a secured creditor may try to repossess property. For instance, if you are several payments behind on your car loan, the lender may decide to quickly repossess your vehicle to avoid complication and delay by the bankruptcy. You may get your vehicle back after you file a Chapter 13 case, but it may take a few days or longer. You will not get your vehicle returned if you file Chapter 7. Once you file your bankruptcy case, the creditor may not repossess property without the bankruptcy court’s permission.

Finally, creditors hear “I’m filing bankruptcy” every day. Are you able to file your case quickly, or will it take awhile? An original creditor (i.e. the one who loaned you money or extended credit) is not subject to the FDCPA. If you do not follow through quickly with your threat to file bankruptcy, the creditor may soon renew and increase its efforts.

Your attorney at the O’Bryan Law Offices is in the best position to instruct you whether to tell your creditors that you intend to file bankruptcy. For many, the answer is “Yes,” but there are special circumstances when it is best to avoid disclosing a pending bankruptcy action. Consult with our experienced Kentucky and Southern Indiana bankruptcy attorneys and get the advice you need. Call the O’Bryan Law Offices at 502-339-0222 for a free consultation.

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An adversary proceeding is a separate court case, but is heard by the bankruptcy court when it has jurisdiction over the matter. The jurisdiction of bankruptcy court judges is limited to core proceedings or matters “related to” the bankruptcy. Matters that are not directly related to the bankruptcy case are outside the court’s jurisdiction. For instance, many family law matters, like modifying child support or granting a divorce, cannot be heard as adversary proceedings. Common disputes that are adversary proceedings are:

• Cases involving the return of money or property;
• A case to determine the validity, priority or extent of a lien;
• An objection to discharge or an action to revoke discharge;
• The attempt to revoke an order of confirmation of a Chapter 13 bankruptcy plan;
• A case to decide whether a debt is eligible for discharge; or
• A request for an injunction.

Not all disputed matters related to the bankruptcy case are filed as adversary proceedings. The bankruptcy rules distinguish adversary proceedings from “contested matters.” A note to the Federal Rules of Bankruptcy Procedure states, “Whenever there is an actual dispute, other than an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter.” An objection to a proof of claim is an example of a contested matter that is not an adversary proceeding.

To commence an adversary proceeding, a party must file an adversary complaint with the Southern Indiana or Kentucky bankruptcy court. In cases alleging fraud or debts caused by willful and malicious injury, the bankruptcy law requires that the complaint must be filed within 60 days after the first Meeting of Creditors. The court will issue a summons and schedule a trial date. The trial is held with testimony and exhibits offered as evidence.

An adversary proceeding does not postpone the debtor’s discharge. However, discharge of the debt at issue is delayed until the adversary proceeding is resolved.

If you need to restructure your debts in bankruptcy, but also need a court to decide a matter concerning one of your debts, an adversary proceeding in bankruptcy may be beneficial. Adversary proceedings are conducted quickly and efficiently, so the matter will be fairly tried by a federal judge without a lengthy delay. Call the O’Bryan Law Offices at 502-339-0222 for a free bankruptcy consultation. Our experienced Kentucky and Southern Indiana bankruptcy attorneys will discuss your financial situation and explain how an adversary proceeding can help.

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An expected income tax refund is property of the bankruptcy estate. Many debtors are able to protect all or a portion of their income tax refunds by applying legal exemptions to the expected refund. After applying all of your available exemptions, the remaining unprotected amount is often little or nothing.

If you cannot protect your tax refund with exemptions, you are required to pay the non-exempt amount in your monthly plan payments. This is because your unsecured creditors would get this money if you filed a Chapter 7 bankruptcy.

Even if you have a non-exempt tax refund, your bankruptcy attorney may be able to save your refund under certain circumstances. One trick to apply the non-exempt portion of your expected income tax refund to next year’s taxes. The IRS will keep your tax overpayment and use it for taxes you may owe in the future. The Tenth Circuit case of 609 F.3d 1153 (10th Cir. 2010) holds that the bankruptcy trustee cannot force the IRS to turnover a tax refund that is held to pay future taxes. The election to apply the refund to your future tax liability is irrevocable under section 6513(d) of the Internal Revenue Code. Consequently, your interest in the refund when you file bankruptcy in Indiana or Kentucky is limited to what is left after the IRS applies the money to next year’s tax liability.

This trick is common in Chapter 7 cases, but can be used in Chapter 13 cases as well to avoid increasing your monthly plan payment. Working closely with your bankruptcy attorney at the O’Bryan Law Offices will maximize the amount of money you get to keep. If you are expecting a large income tax refund, but need to file Chapter 13, Call the O’Bryan Law Offices at 502-339-0222 for a free bankruptcy consultation. Our experienced Kentucky and Indiana bankruptcy attorneys can explain how the federal laws can protect your assets and discharge your debts.

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First, the Department of Education is required to send you notice of the offset. You are entitled to a hearing and an opportunity to present evidence when challenging the debt. If you make a timely request for a hearing, the collection process must stop. So it is in your best interest to review the loan documentation and request a hearing if there are mistakes. During that time you should also contact the Department of Education, negotiate a repayment schedule, and request that all garnishments and seizures cease.

Second, you should check with the Internal Revenue Service and see whether your tax refund will be offset. The number to the IRS Offset Hotline is 800-304-3107.

Third, if you filed a joint income tax return, your spouse may be eligible to reclaim his or her portion of your joint refund. Your spouse must file an “injured spouse” claim form (IRS Form 8379) with the Internal Revenue Service. Questions regarding the amount your spouse will receive can be answered by the IRS by calling 800-829-1040.

Fourth, you may be able to stop the collection process if you can show evidence of financial hardship. You must contact the Department of Education and submit documentation to support your claim. The Department of Education will consider your claim and may agree to modify the withholding action.

Finally, bankruptcy may stop an offset of your income tax refund. The bankruptcy laws on this matter are complex and require the attention of an experienced attorney. In general, the bankruptcy code allows a creditor to offset money owed to the debtor against a pre-bankruptcy debt. The offset must involve the same parties to the credit and the debt. If the creditor wants to perform an offset during the bankruptcy (for instance, during a Chapter 13 bankruptcy), it must first ask the bankruptcy court for relief from the automatic stay.

If you have defaulted on your student loans, you may be able to stop an IRS offset of your income tax refund. It is important to discuss the specifics of your situation with an experienced bankruptcy attorney. Call the O’Bryan Law Offices at 502-339-0222 for a free bankruptcy consultation. Our experienced Kentucky and Indiana bankruptcy attorneys can recommend the best course of action to protect your assets and income.

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The basic rules of a cram-down are pretty straightforward:

1. A vehicle cram-down is only available in a Chapter 13 case (different options exist in other bankruptcy chapters);
2. The vehicle must be for personal use;
3. The debt must have been incurred more than 910 days (about 2 ½ years) before filing the bankruptcy petition ; and
4. The loan must be more than the fair market value of the vehicle. 

A cram-down is accomplished through a court order and confirmed Chapter 13 bankruptcy plan. The bankruptcy court will receive evidence of the amount owed and the value of the vehicle. Once the court approves the cram-down, the amount of the secured claim will be the same as the value of the vehicle. The remaining balance will be ordered as unsecured, and will likely be discharged at the end of your bankruptcy case. 

The new secured balance is paid to the Chapter 13 trustee who pays the creditor. The balance also includes a new court ordered interest rate. The approved rate of interest is directed by the United States Supreme Court in Till v. SCS Credit Corp, and commonly called the Till rate.  The Till rate is often less than the debtor’s original interest rate, and lowers the monthly payment. 

While the federal bankruptcy laws are meant to be uniform across the country, the sweeping changes to the Bankruptcy Code in 2005 left many questions that are still being resolved by different circuits. For instance, recently the Ninth Circuit in the case of In re Penrod broke from the rest of the country and decided that the amount of negative equity in a trade-in that was rolled into a new vehicle loan could be stripped off, even when the loan is less than 910 days old. This case highlights the different interpretations of the new bankruptcy laws and why it is critical to retain experienced counsel for your case. 

If you are considering bankruptcy and own a vehicle that is underwater, speak with an experienced bankruptcy attorney and discuss your options. Your attorney can explain the several options for keeping or surrendering a vehicle during bankruptcy, and help you decide the best course of action for your family.

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