The sheriff just served me with a lawsuit. What happens next?

Many potential clients schedule initial consultations after receiving a summons delivered by the sheriff’s office.  As an Asheville bankruptcy lawyer, I know that the uncertainty surrounding a formal legal action is unwelcome and stressful.  Although a collection lawsuit can be intimidating, many clients can protect their assets and defeat the action by taking the appropriate action either in bankruptcy court or through the state court proceeding.

Exemptions protect property despite creditor lawsuits.

Exemptions protect property despite creditor lawsuits.

If you get served with a summons, you can figure out your best legal response in a free initial bankruptcy consultation.

If you get served, you still have rights.

In North Carolina, you have 30 days to respond with an “Answer” after being served with a complaint in district or superior court.  If the debt in question is owed, many clients achieve a better outcome by protecting their assets rather than contesting whether the debt exists.  In that case, a person may choose not to answer the complaint, and never appear in court.  The creditor would then be issued a “default judgment,” which is a court order indicating the money is owed.

Wage Garnishment does not exist for credit card debts in North Carolina.

The default judgment can help the creditor collect the money owed.  However, wage garnishment on simple unsecured debts (mainly credit cards, medical debts, personal loans, repossessions, etc.) is not permissible in North Carolina.  Seizing assets is also more difficult because consumers have a right to protect a significant amount of their property by claiming their exemptions.  The creditor is required to serve you with a “Notice of Right To Claim Exemptions,” before trying to execute on any property to satisfy a default judgment.

Rights in Bankruptcy

Frequently, people become weary of avoiding creditors and having to protect their assets.  Things change in life, and although you may be able to avoid collection now, you might not be able to avoid collection in the future.  Moreover, consumers prefer not to be hassled by collection calls, lawsuits, or the simple knowledge that they have a debt lingering out there.  A bankruptcy discharge can relieve a person of the legal responsibility to pay the debt upon which they were sued, permanently.

The collection process is halted immediately with the filing of a bankruptcy case via the “automatic stay.”  Most of the time, a creditor will file a voluntary dismissal when they get notice of a bankruptcy case.  Bankruptcy is a legal proceeding designed to determine how much of a consumer’s property a creditor is entitled to seize.  In roughly 95% of Chapter 7 cases, creditors are not entitled to any property whatsoever.   

Getting served with a collection lawsuit can be intimidating and annoying.  It is an indication of bigger financial issues which could be addressed by the advice of a qualified bankruptcy attorney. For those of you in Western North Carolina, I would be happy to speak with you during a free initial bankruptcy consultation.

Photocredit:  Skippyhaha Vintage Clothing

Bankruptcy and Student Loans

Americans now have more student loan debt outstanding than credit card debt.  It’s a huge issue for consumers, and has been for some time now.  As an Asheville bankruptcy lawyer, I am hopeful that Congress will take action sooner rather than later to address the limited options students have for repayment.

Payment Options Exist in the Direct Loan Program

Payment Options Exist in the Direct Loan Program

In the meantime, I have put together my “Guide to Dealing with Student Loan Debt,” which describes the various repayment options students currently have for federal and private student loans.  If you are struggling with your student loan payments, I encourage you to read through the guide to get started on a relief strategy for your situation.

As described in the text, bankruptcy can be used as a tool to manage student loan debt.  However, bankruptcy is rarely a permanent solution for student loans because they are generally non-dischargeable in Chapter 7 and Chapter 13.  Permanent solutions do exist for federal student loans through Income-Driven Repayment plans, each of which are outlined in the guide.

I charge $150 for a student loan consultation.  If you read through the guide and still need help, don’t hesitate to arrange an appointment by calling 828-232-4949.

Should I sign up for a debt settlement program?

As an Asheville bankruptcy attorney, I’ve never met a potential client who wanted to file a bankruptcy case.  Most people will do just about anything they can to avoid filing.  Many times a consumer’s misguided notion about the bankruptcy process leads them to fall prey to expensive bankruptcy alternatives which make a consumer’s situation worse, not better.

Speak with a bankruptcy attorney before signing up for a debt relief program.

Speak with a bankruptcy attorney before signing up for a debt relief program.

Is debt settlement a good option?

If you are in financial trouble, you have likely seen the television commercials or internet ads for “debt settlement” programs that “get you out of debt.”  Many of those companies ask that you start sending reduced payments to them, rather than your creditors.  This sounds great to a stressed out consumer because the debt relief company promises payments reduced by 50% or more, and seemingly offers a way out of the financial crisis. The problem with this approach is that many of these debt settlement companies spend the majority of their budgets on sales rather than debt relief.  Creditors can still sue for a money judgment, and try to collect from the consumer on that money judgment.  The debt settlement program does nothing to stop the state court collection process.  Here’s an example of the type of program I’m talking about:

Example #1:  A recent client had been paying $670/month for a year to a debt settlement company to deal with his $35,000 credit card debt.  He had two more years to go in order to complete the settlement program.  Outside the program, minimum payments were roughly $1100/month, and it seemed like a good deal.  Then the sheriff served him with a collection lawsuit on the debt he thought he was paying off, so he called my office for a consultation.  The consumer was qualified to file a Chapter 7 bankruptcy case which ended all liability on the $35,000 debt without anymore payments to the creditors.  He saved 2 years and roughly $16,000 by filing for Chapter 7, and he now has a court order demonstrating he was no longer legally responsible for payment.

Lump sum settlements

The second type of settlement relief I see in my office stem from collection attempts.  A debt collector will explain that the original creditor is willing to accept less than the amount owed for a lump sum payment.  Many times, the amount the creditor is willing to accept is only a fraction of the entire amount owed.

Example #2:  A consumer scheduled an initial consultation to discuss the offer she received in the mail on a credit card she had been struggling to keep up with and in fact hadn’t paid on in over a year.  She had been ignoring their daily collection calls.  The offer said that she could pay $3,500 to settle a credit card debt of $12,000.  Instead, she eliminated the entire debt, along with all her other unsecured debt, by filing for bankruptcy relief.

Why would a creditor agree to a lower amount?

Creditors typically are willing to accept a lower amount from a consumer because the creditor believes the debt in question is uncollectible under North Carolina law.  Our exemption laws protect much of a consumer’s property from seizure.  However, the debt collection companies/collectors cannot provide legal advice to consumers.  This fact makes it very important for consumers to seek professional advice about the specifics of their own situation prior to sending money to a third party to settle a debt.

Bankruptcy alternatives usually cost too much

In my view, the negative stigma associated with bankruptcy has been intentionally created and paid for by creditors (largely big banks) who stand to profit if consumers forego their right to file a case.  Many times, I spend time with consumers showing them the real costs of their various debt relief options.  Bankruptcy is frequently the least expensive, most simple, and least time consuming available to fix a failing budget.  It frequently leads to better credit ratings for consumers as compared to the alternatives too.  The best local debt settlement resource we have in Western North Carolina is OnTrack Financial.  OnTrack is a local, non-profit, low cost service provider who has been helpful to many consumers when bankruptcy is not the right answer for their situation.

Bankruptcy is a simple legal process which determines if a creditor has legal authority to pursue a valid debt from a consumer, and frequently ends the collection process through a discharge of debts.  For those of you in Western North Carolina, I’d be pleased to speak with you about both bankruptcy and non-bankruptcy alternatives during a free, initial bankruptcy consultation.

Do you have an emergency savings account? If not, consider bankruptcy.

As an Asheville bankruptcy lawyer, I frequently speak to consumers about financial stress.  Without a safety net, people fear that an unexpected car repair or medical problem will make it difficult to pay for household necessities which provide safety like housing, food, or utility bills.

Plan for the unexpected.

Plan for the unexpected.

This article in the Charlotte Observer explains that 66% of people in the United States would have trouble covering a $1,000 crisis.

Bankruptcy is a financial tool which can be used in order to help establish an emergency savings account.  I frequently recommend that clients stop paying their credit card minimums each month, discharge the same debts in Chapter 7, and then deposit the exact same payments they had been making to the credit card companies into their own emergency savings account post-filing.  With an emergency savings account established, a consumer no longer has to worry about an unexpected expense threatening their family’s safety.

This is only one example of how bankruptcy can be used to help a family’s financial situation.  If you would like to hear about the best strategies for the specifics of your family’s situation, I’d be pleased to speak with you during a free, initial bankruptcy consultation.  Call 828-232-4949 to get on our calendar.

Photocredit:  Skippyhaha Vintage Clothing

Am I required to pay income tax on the debts I discharge in bankruptcy if I receive a 1099-C?

Generally, no.  Unlike debt settlement, where consumers frequently have to pay income taxes on the forgiven portion of the amount owed prior to the settlement agreement, debts discharged in bankruptcy usually result in no adverse tax consequences for a consumer.

A 1099-C form is sent to taxpayers by a financial institution when it has cancelled or written off a debt exceeding $600.  Unless an exception applies, the Internal Revenue Service counts the written off debt as taxable income.  When a consumer settles a debt with a credit card company, frequently they will be required to pay tax on the forgiven portion of their credit card debt.  Likewise, after a foreclosure or repossession, a consumer may incur tax liability if the creditor “forgives” the deficiency balance on their mortgage or car loan.

Does Form 982 apply to the 1099-C you received?

Does Form 982 apply to the 1099-C you received?

The Bankruptcy Exception

As an Asheville bankruptcy lawyer, I counsel clients on avoiding liability after a 1099-C has been issued by a creditor.  Debts discharged in bankruptcy can generally be excluded from income by filing Form 982 with a consumer’s tax return.  By doing so, a consumer avoids having to pay income tax on their debts discharged in bankruptcy (including mortgage and car loan deficiencies).

Other non-bankruptcy exceptions apply, and are explained in more detail in the instructions to Form 982 and IRS Publication 4681.

Have you received a 1099-C?  If so, I’d be happy to answer your questions during a free, initial bankruptcy consultation.

Photocredit:  Skippyhaha Vintage Clothing

 

Can I discharge income tax debts in bankruptcy?

Yes.  Income tax debts can be discharged in either Chapter 7 or Chapter 13 bankruptcy.  The Bankruptcy Code requires that income taxes:  (1) came due at least three years prior to filing for bankruptcy, (2) had a return filed at least two years prior to filing for bankruptcy, and (3) the tax be assessed at least 240 days prior to filing for bankruptcy.  There is also a limitation that the consumer not be accused of fraud by the IRS, but this is rare, and does not apply to the situation where the taxpayer made an honest mistake.  I rarely see accusations of fraud when helping consumers with tax debt problems as an Asheville bankruptcy lawyer.  Here’s a more common example:

Order an account transcript for tax debts.

Order an account transcript to find information on tax debts.

Joe Smith has an income tax debt owed to the IRS from 2012 for $10,000.  He filed his return on June 15, 2013.  The IRS audited his return and assessed additional taxes for $5,000 on January 1, 2014.

In the example above, Mr. Smith would need to wait until April 16, 2016 to file for bankruptcy for his 2012 taxes to be non-priority, or dischargeable, in a Chapter 7 case.  If Mr. Smith filed for Chapter 7 relief on April 14, 2016, all $15,000 of taxes would still be owed to the IRS since the 2012 income tax filing deadline was April 15, 2013.  If Mr. Smith filed for Chapter 7 relief on April 16, 2016, all $15,000 of tax debt would be discharged.

The Dates Matter

As you can see in the example above, the specific dates matter a great deal when attempting to discharge income tax debts.  Consumers should not rely on their memories for when they filed their return, when a tax was assessed, etc.  Instead, it is important to order an “account transcript” from the IRS which will list the relevant dates from the IRS’ own records.  You can also order state income tax transcripts from the North Carolina Department of Revenue (or whatever state the tax is owed to).

A consumer can order a hard copy account transcript from the IRS by following this link: http://www.irs.gov/Individuals/Order-a-Transcript.  A taxpayer can also order the transcript by phone at 1-800-908-9946, online, or by using IRS Form 4506T.  Usually, the IRS takes about 2 weeks to process a request. Note that you want an “account transcript,” and this is not the same as a “tax return transcript.” A “tax return transcript” will not have all the information you need.

As you can see, the rules surrounding tax debts are complicated and full of nuance.  Its best to seek professional advice about your relief options.  If you are struggling with income tax debt, and live in Western North Carolina, I would be pleased to speak with you during a free, initial bankruptcy consultation.

Photocredit:  SkippyHaHa Vintage Clothing

I had great credit, and never thought I would consider filing for bankruptcy. What happens at an initial consultation?

While working as an Asheville bankruptcy lawyer, I have spoken with people who never thought they would need help with their bills each month.  According to a recent study,  over 90% of families suffering from financial stress can trace their problems back to either medical issues, divorce, or a job loss.  I’ve never met anyone who has chosen these unfortunate life circumstances.  Many potential clients have experienced even worse luck, suffering from medical problems which led to a job loss or a divorce which led to a medical problem.

Seek professional advice if stressed about finances.

Seek professional advice if stressed about finances.

At a free initial bankruptcy consultation, which we can conduct at my Asheville office or over the phone, our focus is on your future instead of any past mistakes.  You will be treated with the dignity and respect you deserve.  I never recommend a bankruptcy case unless I believe it is in the best interest of the potential client.  Here is what happens at the consultation:

  1. You start by filling out a short intake form which asks for basic information: address, phone number, employment, and the estimated amount of your debts.  This takes about 10 minutes or so.
  1. Next, I sit down with you personally to discuss your various options both in a bankruptcy case and your best options outside of bankruptcy. Usually, I can give a brief explanation of the various options in about 15 minutes.
  1. Lastly, I answer any questions you have about the various bankruptcy options and non-bankruptcy relief options.

All in all, the appointments last about 30 minutes depending on the number of your questions and the complexity of your case.  The goal is to inform potential clients about their rights.  Sometimes, it becomes obvious that filing a bankruptcy case would provide immediate and sustainable relief to a family.  Other times, it becomes painfully obvious that bankruptcy would not help.  In those situations, we focus our time on asset protection strategies, settlement options and discussing all the creative alternatives which have been running through the client’s mind for weeks and months prior.

Regardless of the best strategy forward for your family, an initial bankruptcy consultation can help reduce financial stress.  Armed with information, consumers become empowered to deal with household financial problems efficiently.  What may seem like an impossible challenge to overcome could have a very simple solution.  In any event, if you are worried about finances and live in Western North Carolina, I would be pleased to sit down to discuss the details of your situation.  Click on the “get started now” button or call 828-232-4949 to set up an appointment.

Bankruptcy or Divorce: Which comes first?

As an Asheville bankruptcy lawyer, I have witnessed firsthand the damage financial stress can do to a marriage. Senator Elizabeth Warren did a study which concluded that divorce is one of the three main factors which force consumers to file for bankruptcy protection. Indeed, according to the study, over 90% of bankruptcy cases are linked to medical problems, divorce, or a job loss. I’ve never consulted with anybody who has chosen these unfortunate life events. Frequently the most efficient way to pick up the pieces and move forward is by filing for bankruptcy.

Bankruptcy can help simplify divorce.

Bankruptcy can help simplify divorce.

A married couple, prior to a divorce being final, can file a joint bankruptcy case together even if they are no longer living together. Using this strategy can save money both on the bankruptcy court’s filing fee and the bankruptcy attorney’s fee. In my office, the savings on the attorney fee is substantial because I quote fees based on the amount of time and effort I put into a case. There is a potential for conflict when representing separated spouses, but if no major disputes between the parties, going with the most economic option might make the most sense.

Furthermore, a bankruptcy case can help make property division easier in the divorce proceedings because the separating spouses do not need to argue about who is responsible for any debts discharged in their bankruptcy case. Instead, they can focus on splitting up their property in a fair manner without worry about their former debts.

There are many nuances to the intersection of bankruptcy and divorce law. It is very important to get competent advice from an experienced bankruptcy lawyer who can advise about which steps to take and when to take them. But when your marriage is breaking up, bankruptcy can be a positive first step to making a fresh start for both you and your ex-spouse.

For those of you in Western North Carolina, I would be please to speak with you during a free initial bankruptcy consultation.

Photocredit:  Skippyhaha Vintage Clothing

Do I need to file a bankruptcy case?

Filing for bankruptcy protection can be a difficult decision. Many clients I’ve spoken with as an Asheville bankruptcy lawyer tell me that they have tried everything to avoid filing. Though well-intentioned, many consumers who file bankruptcy after struggling for a long time would have gotten a better result had they reached out for professional help earlier. The first step when financial trouble hits is to pause to consider all the options available.

Reduce stress by figuring out your options.

Reduce stress by figuring out your options.

What are the alternatives to bankruptcy?

The first step to determining what kind of options your family has is to create a budget. Write down all the monthly household income on one page and then all the monthly expenses on another page. However, imagine that all of your unsecured debts (credit cards, personal loans, medical bills, etc.) have disappeared and no longer exist. If that happened, would your budget work moving forward?

If the answer to that question is “Yes,” determine whether your budget would still work while paying off those debts in less than 4 years by using this online calculator.

Perhaps you can sell an asset which would generate the money needed to pay off the debt? Is there a way you can reduce expenses enough to make your current budget work while paying off the unsecured debts in less than 4 years? Good possibility of increased income in the foreseeable future? If yes, there may be non-bankruptcy alternatives which would work well for your family.

Do not sell or mortgage exempt assets

In North Carolina, retirement accounts are exempt meaning that an unsecured creditor cannot seize those funds in order to satisfy a debt even if they have a judgment against a consumer. However, once retirement funds are cashed out, they become fair game to those same creditors. Likewise, home equity is exempt up to $70,000 per married couple in North Carolina. Before taking out a mortgage or cashing out retirement accounts, consumers should seek professional advice first.

OnTrack Financial

If your budget doesn’t work, and you don’t like the idea of speaking with a lawyer about it, OnTrack Financial is a wonderful community resource here in Western North Carolina.  They can help you make a budget and negotiate a repayment plan that may include a reduced interest rate on your existing debt. Creditors generally cease collection actions against those participating in OnTrack. Do not send your money to for-profit debt relief companies who advertise online or on television. These companies spend large amounts of their budgets on advertising, and their plans seldom work well for consumers. Generally, their plans cost more than a bankruptcy case would anyway without the benefit of a court ordered discharge.

Negotiate a settlement with a creditor

In my experience, after several months have passed without payment from a consumer, many credit card companies or debt collectors will accept a lump sum payment of 30%-50% of the principal balance to satisfy a debt when that creditor believes that debt cannot be collected under state law. There are three major disadvantages with this debt relief strategy: (1) a consumer’s credit score is still damaged when this type of “short-pay” agreement is reached, (2) a consumer may incur 1099 liability from the IRS for the amount of debt which is forgiven, and (3) this approach is generally more expensive and time consuming than a bankruptcy case.

Consider Bankruptcy

If OnTrack Financial can’t help, consider bankruptcy. Many attorneys in Western North Carolina offer free, initial consultations. Sign up for one with me here. Bankruptcy, many times, offers the fresh start consumers need in the least expensive and most efficient way available. Further, when consumers reluctantly seek to eliminate debt through a bankruptcy discharge, their families frequently reap the benefits: better housing, better food, and better medical care.

For this reason, I believe consumers who make the difficult decision to file for bankruptcy relief often do so because they are choosing to protect and support their family rather than continuing to send money to old creditors month after month.

Photocredit:  Skippyhaha Vintage Clothing

I got sued for a credit card. Can the creditor seize money from my bank account?

No, you must first be served with a Notice of Right to Claim Exemptions in North Carolina before any property is taken from you to satisfy a money judgment on a general, unsecured debt. Further, supplemental proceedings (court hearings) are required under NCGS 1-352 before a consumer’s bank account can be drained by a judgment creditor.  Creditors may have a right to seize funds from a consumer’s bank account for tax debts, student loan debts, loans secured by a consumer’s bank account, and other type of special debts.

Pause and regroup before making matters worse.

Pause and regroup before making the situation messier.

As an Asheville bankruptcy lawyer, I know that a collection lawsuit is a warning sign that help is needed. If served with a lawsuit, the first step is to pause and regroup so that uninformed action doesn’t result in making the problem worse. I highly recommend getting professional advice immediately as soon as you learn of a pending lawsuit. There are several free community resources available to get the needed advice, so money should not keep you from learning about your legal rights.

First, many bankruptcy attorneys offer free consultations in the Asheville area – sign up for a free, initial bankruptcy consultation with me here.

OnTrack Financial is a wonderful organization committed to getting community members the information and help they need about debt problems.

Pisgah Legal Services offers free legal advice to consumers who qualify for their programs.

The point is that advice is available locally to those who seek it in Western North Carolina, and costs should not limit a consumer’s ability to become informed about their rights or their best course of action in the face of a lawsuit.

If you are concerned about your rights, and live in Western North Carolina, I’d be pleased to sit down with you to discuss the specifics of your situation.

Photocredit:  SkippyHaHa Vintage Clothing