Earned Income Tax Credits Now Exempt in Kansas Bankruptcy

Debtors will get to keep one year of earned income tax credits when filing bankruptcy in Kansas. A new law went into effect April 14, 2011, granting the exemption.  This change in the law will prevent bankruptcy trustees from taking the portion of income tax refunds that is EITC, a valuable benefit for low to moderate income, working people, most of whom have minor children at home.

SENATE BILL No. 12

AN ACT concerning civil procedure; relating to bankruptcy;

exempt property; earned income tax credit.

Be it enacted by the Legislature of the State of Kansas:

Section 1. An individual debtor under the federal bankruptcy

reform act of 1978 (11 U.S.C. §101 et seq.), may exempt the debtor’s

right to receive tax credits allowed pursuant to section 32 of the

federal internal revenue code of 1986, as amended, and K.S.A. 2010

Supp. 79-32,205, and amendments thereto. An exemption pursuant

to this section shall not exceed the maximum credit allowed to the

debtor under section 32 of the federal internal revenue code of

1986, as amended, for one tax year. Nothing in this section shall be

construed to limit the right of offset, attachment or other process

with respect to the earned income tax credit for the payment of

child support or spousal maintenance.

Sec. 2. This act shall take effect and be in force from and after

its publication in the Kansas register.

(Published in the Kansas Register April 14, 2011.)

Prior to the enactment of Senate Bill 12, bankruptcy trustees took earned income tax credits and tax refunds for their fees and for creditors’ claims.  Tax refunds are the most commonly seized assets in Kansas consumer bankruptcy cases.  The amount forfeited by individual debtors was substantial, but the amount distributed to creditors is relatively low, often 1 or 2% of their claims.

The law limits the bankruptcy exemption to the right to receive one year of earned income tax credits and does not prevent government offset of the credits for child support collection.  Bankruptcy trustees will still be able to take tax refunds not attributable to earned income tax creditors from debtors.

The Earned Income Tax Credit or the EITC is a refundable federal and Kansas income tax credit for low to moderate income working individuals and families. According to the Internal Revenue Service, Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they do not have a filing requirement.

Our thanks goes to Kansas Senator John Vratil, R-Leawood, for sponsoring SB12.  The bill passed unanimously in the Senate and nearly so (118 to 5) in the House of Representatives.  Testifying in favor of the bill were Marilyn M. Harp, executive director of Kansas Legal Services, and attorneys John Hooge of Lawrence, Paul Post of Topeka and Kansas Bankruptcy Information blogger Jill Michaux of Topeka.

 

Chapter 13 Plan Form Mandated in Kansas Bankruptcy Court

The Kansas Bankruptcy Court judges adopted standing order SO_10_02 mandating the use of a chapter 13 plan form for all cases filed after March 1, 2011.  Differing language may be used but it must be placed in locations on the form for non-standard language.  The rule is designed to make it easier for readers to see chapter 13 plans deviate from “standard” language.

 

 

Will The Bankruptcy Trustee Take My Tax Refund in Kansas?

A common question I get this time of year is whether the trustee will take the debtor’s tax refund if he files for bankruptcy.  The answer depends upon many factors.  Talk to your bankruptcy lawyer.  Don’t spend your tax refund until you know for sure your bankruptcy trustee does not claim it.  Spending a tax refund instead of paying it to the bankruptcy trustee can get you arrested.

The Trustee has a duty to administer non exempt assets if those assets are worthy of administration.  For a tax refund to be worthy of administration the refund must be large enough to justify the time and effort to take and distribute the money to unsecured creditors.

If you can wait to file bankruptcy, then often the simplest solution to the problem is to your return,  then receive and use the refund.  We do need to help you spend the refund in ways that will not jeopardize your bankruptcy case.  One huge no-no is paying back relatives with your refund.  You will get your relatives sued by the bankruptcy trustee, which is worse than not paying them back at all. You may use your refunds to pay for your bankruptcy and will be expected to do so.

However, waiting to file bankruptcy is not always possible.  If you are having your wages garnished or a garnishment is scheduled to begin, it may be necessary to file before a refund can be received.   Timing issues will also occur if a house is in foreclosure, or a car is about to be repossessed.

If you cannot wait for whatever reason, the following factors will determine whether the refund will be taken:

  • As previously discussed, is the amount of the refund worthy of administration?   This is an issue of local practice and will often vary from court to court and trustee to trustee.
  • Is any portion of the refund for Earned Income Credit?  Some states have specifically exempted Earned Income Credit.  It is necessary to check state law on this issue.  In Kansas, there is no exemption for Earned Income Credit so you lose it along with your tax refunds.
  • Does your State have a “Wild Card” or “Cash” exemption?  Some states allow a certain amount of cash to be treated as exempt from creditors, other states have what is refereed to as a wild card exemption that will allow a debtor to exempt an item that is otherwise not exempt.  Kansas has no such exemptions.

As can be seen the timing of a bankruptcy when a tax refund is expected depends on many factors.  Local practice and state law being the major considerations.

Consult us.  As your attorney, we will help you maximize the amount of tax refunds you can lawfully keep and minimize the amount you lose to the bankruptcy trustee.

Hat tip to my blogging colleague, Kevin Gipson of New Orleans, who wrote the original version of this post in Bankruptcy Law Network.

Can I File Bankruptcy Without an Attorney in Kansas?

Since the bankruptcy laws were changed in 2005, it is VERY HARD to file a bankruptcy petition without an attorney. The process is difficult and you may lose property or other rights if you do not know the law. The New York City Bankruptcy Assistance Project says, currently, about 9 out of 10 self-prepared bankruptcy petitions are being dismissed—that is, the debtor does not get relief from their debts.

Several Kansas debtors have ended up with federal criminal charges because they failed to disclose property and financial transactions in the bankruptcy cases they filed for themselves.

If you go ahead and file your case without an attorney (the court calls this pro se) and you make mistakes, you will spend more money to hire an attorney to fix your case than you would have if you had hired an attorney in the first place.  I once had a client with a cabinet business.  He thought he could not afford an attorney so he hired an out-of-state petition preparer over the Internet for $300.  The preparer was not supposed to give legal advice, but worse than no advice, he gave bad advice .  The cabinet maker filed a chapter 7 bankruptcy pro se and the trustee demanded shut down of his business, his way of making a living.

My cabinet maker had to borrow money from his father to pay me and to pay the trustee to settle his case and save his livelihood.  All of this drama could been avoided had he hired me from the get go.  It would have cost my client less and he would not have had to pay the trustee.

You can’t put the genie back in the bottle so your newly hired lawyer may not be able to fix all the damage you caused to yourself by filing a bankruptcy without an attorney.  For example, property rights are fixed on the date of filing of the bankruptcy.  If your chapter 7 trustee demands turnover of property, your attorney will not be able to change the date of filing.  It is too late for any prebankruptcy planning.  Your attorney might win a legal argument you didn’t make, but you’ll have to pay the trustee for your property to keep it, or lose it, if there is no valid argument to make.  You may have to convert to chapter 13 bankruptcy and pay for the property through a payment plan.

Warning: many attorneys will not accept a case after it is filed pro se by the debtor without an attorney so it may be difficult to find an attorney after your case is filed.

You Are Not Alone – Bankruptcy Filed Every 15 Seconds

You are not alone.  An American is filing bankruptcy every 15 seconds, according to my Bankruptcy Law Network colleague, David Leibowitz of Lakelaw in Waukegan, IL.

For the counting period ending in June, 2010, 1.5 million bankruptcies were filed in the United States, up 20%.  Why so many filings?   David says the bad economy, unemployment, foreclosures and increasingly aggressive collection efforts are the culprits.

David reminds us that debtors have rights, too.  The Kansas homestead exemption in the state constitution and bankruptcy in the United States Constitution protect debtors. These ideas were not new to our founding fathers.  Debt forgiveness has roots in the Bible.

Kansas Bankruptcy

We file bankruptcies for people from all cities and counties in Kansas.  The cases are filed in the U.S. Bankruptcy Court for the District of Kansas, which is federal court.  Your case may be filed in Topeka, Kansas City, KS, or Wichita. You choose.

Most people choose an attorney who specializes in bankruptcy in one of the three cities where the Kansas bankruptcy courts are located.  You are not assigned to a division based upon your county as happens in other states.  You and your attorney will choose your division in which to file your bankruptcy case.  Our firm files cases in Topeka and Kansas City, KS.  Due to the distance, we do not file cases in Wichita.  People often want to file out of town to avoid their name appearing in their local newspaper.

Your hearing called the “meeting of creditors” or “341 hearing” will be in the city where your case is filed.  If you have a court hearing before the bankruptcy judge, that hearing will be at the courthouse in the city where your case is filed.

Wichita Office Address167 U.S. Courthouse
401 N. Market
Wichita, KS. 67202
Map
Topeka OfficeAddress240 U.S. Courthouse
444 S.E. Quincy
Topeka, KS. 66683
Map
Kansas City Office Address161 U.S. Courthouse
500 State Ave.
Kansas City, KS. 66101
Map

Chapter 13 Bankruptcy Debt Ceilings to Rise 7%

UPDATE: More people will be able to get help for their debt problems on April 1, 2013, when the chapter 13 debt limits increase about seven per cent.

$383,175 of unsecured debt

$1,149,525 of secured debt

These numbers are the caps on the amount of debt an individual may have and be eligible for chapter 13 bankruptcy. The ceilings apply to liquidated and noncontingent debts. Unliquidated and contingent debts are not counted in these limits. If your debts exceed these figures, you are ineligible to be a chapter 13 debtor. 11 U.S.C. §109(e). [Read more…]

Bankruptcy Dismissed for No Tax Returns

DISMISSAL FOR FAILURE TO FILE RETURNS MANDATORY UPON
MOTION
In re McCluney, Case No. 06-21175
June 2007, Judge Somers

The Court sustained a motion to dismiss by the IRS for failure to file pre petition tax returns as required under the new 1308 provision. This is not an “automatic dismissal” provision, but once the motion was filed, Judge Somers reasoned that he had no other choice.

FAILURE TO FILE RETURNS CAN BE FIXED WITH 105
In re Novello, Case No. 06-21029
August 2007, Judge Berger

IRS motion to dismiss for failure to file tax returns under 1308 was denied because the tax returns are now filed. Alternative relief sought was to reopen the 341 meeting, which the Court granted. Debtors Motion to Ratify under 1325(a)(9) was granted. Although dismissal is mandatory, the debtor can ask for extensions under 1308(b) which is included by reference in 1307(e). The 341 was reopened under 105.

How Much are Chapter 13 Bankruptcy Fees in Topeka?

13 ATTORNEY FEES IN TOPEKA
In re Beck, Case No. 06-40774
February 2007, Judge Karlin

This case should be read in conjunction with the later rendered Professional Fee and Expense Guidelines in Bankruptcy Cases of Judge Karlin. Based upon 330, the evidence and the Johnson factors, the presumptive fee for below the line debtors is $2800 and $3300 for an above the line debtor with $400.00 allowed as additional fees for 363(c) motions, without prejudice to obtaining additional fees by way of a formal application or narrative explanation. Further, presumptive fees for motions ($150.00 plus postage) and responses ($200.00 plus postage) are also established.

How Much Are Chapter 13 Bankruptcy Fees in Wichita?

13 ATTORNEY FEES IN WICHITA
In re Mayer, Case No. 06-10013
October 2006, Judge Nugent

This is Judge Nugent’s fee decision. The “presumptive” fee in Wichita is $2500, without prejudice to fee applications, based upon the language of 330, testimony and the various factors recited.

Digest by:  Jan Hamilton, Trustee

No Counseling for Involuntary Bankruptcy

INVOLUNTARY DEBTOR NOT REQUIRED TO OBTAIN PRE PETITION
COUNSELING
In re Sims, Case No. 08-41668
January 2009, Judge Karlin

109(h) pre petition counseling requirements do not apply to an involuntary debtor.

Digest by:  Jan Hamilton, Trustee

Do I Have to Pay My Creditor’s Attorneys Fees?

2016 APPLICATIONS BY CREDITORS
In re Loy, Case No. 07-41333
December 2007, Judge Karlin

This case contains a discussion of the various issues that are to be considered by court and counsel in the context of a 2016 application by a creditor. This same issues present themselves in proofs of claim issues pertaining to attorney fees.

Digest by:  Jan Hamilton, Trustee

No Credit Counseling Certificate, No Bankruptcy

109(h) CREDIT COUNSELING NOT OBTAINED WITHIN 180 DAYS IS FATAL
In re Gaddis, Case No. 07-40476
June 2007, Judge Karlin
Chapter 7 case dismissed for failure to comply with 109(h), in that the credit counseling was not obtained within 180 days of the date of filing. No statutory exception was alleged. Debtor is simply not eligible to obtain title 11 relief if 109(h) is not complied with.

Digest by:  Jan Hamilton, Trustee

Foreclosure No Excuse for No Credit Counseling Before Bankruptcy

FAILURE TO OBTAIN CREDIT COUNSELING—EXIGENT
CIRCUMSTANCES
In re Thomas, Case No. 06-10242
March 2006, Judge Nugent
Pro se case dismissed for failure to obtain credit counseling. Certificate of exigent circumstances which recites pending foreclosure insufficient, case dismissed. 109(h)(1).

Should My LLC or Small Corp File Bankruptcy?

Should my LCC or small corporation file bankruptcy?  Usually not.  The general rule of thumb is that single owner corporations or limited liability companies should not file bankruptcy.

Occasionally, there is a benefit to filing bankruptcy for a small corporation, such as recovering a preference to pay priority trust fund taxes the owner owes personally. The down side to corporate bankruptcy filing is the bankruptcy trustee asking questions, making demands and suing the owner on various theories of mismanagement or insider transactions–the owner losts control of the corporation.

An LLC or corporation does not get a discharge of debts in bankruptcy.  It can stop business and liquidate in bankruptcy, but that is better done under state corporation dissolution laws.  Generally, a small business owner has incurred personal debt for the business or has guaranteed corporate debt and may need to file a personal bankruptcy.  The contingent liability for the corporate debts can be listed in the personal case to stop collection against the owner.

An LLC or corporation is not eligible to file a chapter 13 debt adjustment bankruptcy.  Corporations can reorganize in bankruptcy under chapter 11, which is very expensive and has many requirements small businesses are not equipped to comply with.

See a bankruptcy attorney with experience representing small business owners to determine if your single-owner LLC or corporation should file bankruptcy?  A business dissolution coupled with a personal bankruptcy for you may be a better solution for you.

Should I File Bankruptcy Now?

Should I File Bankruptcy?