I have friends who buy into this myth that people who file bankruptcy go out and run up their credit cards right before filing.  The truth is that almost no one does this and those few that do end up paying it all back.

In a Chapter 7 bankruptcy, you cannot incur debt with the intention of discharging it in your case.  Under section 523(a)(2)(A) of the Bankruptcy Code, a discharge under Chapter 7 “does not discharge an individual debtor from any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by…false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.”  11 U.S.C. 523(a)(2)(A).

A great example of a debtor getting nailed by the Bankruptcy Court for going into debt with the intention of wiping it out in a Chapter 7 is the case of Bucciarelli (Bankruptcy Case No. 07-13114).  In this case, the Bankruptcy Court in the Newnan Division of the Northern District of Georgia ruled that the debtor could not wipe out legal fees she incurred from her divorce proceedings because she incurred the debt with the intention of discharging it in her Chapter 7 case.

The facts of the case are summarized as follows:  In Bucciarelli, the Debtor filed her Chapter 7 case in December 2007.  In January 2008, she entered into a contract for legal representation in her divorce proceedings.  In addition, she signed a promissory note agreeing to pay her divorce attorney $25,000 for representing her.  The promissory note granted her divorce attorney a lien on her interest in her ex-husband’s 401k.  Her divorce case never actually went to trial.  Her divorce attorney billed her for $35, 625.  When the debtor did not pay her divorce attorney, she was sued in Georgia state court.  The Georgia state court proceeding was stopped because of her active Chapter 7 case.  In response, her divorce attorney filed an adversary proceeding against her to declare the debt nondischargeable.

In Bucciarelli, the Court noted, “To establish that a debt is excepted from discharge under section 523(a)(2)(A), the creditor must prove by a preponderance of evidence that:

(1)  the debtor made a false representation, other than an oral statement respecting the debtor’s financial condition with intent to deceive the creditor;

(2)  the creditor actually relied on the misrepresentation;

(3)  the creditor’s reliance was justifiable; and

(4) the misrepresentation caused a loss to the creditor.”

What sank the debtor in Bucciarelli was the testimony from her “friend.”  Her friend testified under oath that Bucciarelli told her that she incurred the legal fees from her divorce with no intention of ever paying it back.  The “friend” also testified that Bucciarelli told her that the purpose of her bankruptcy was to discharge all obligations arising from the the attorney fees in her divorce case.  The Bankruptcy Court took note that this same friend testified in the Debtor’s favor during the Debtor’s divorce proceeding.

Judgment was entered by the Bankruptcy Court in favor of the divorce attorneys against the Debtor.  The debt was ruled to be nondischargeable.

Other Posts:

1.  Personal Injury Lawsuits Must be Listed in Your Bankruptcy

2.  Can I have a checking account after I file bankruptcy?

3.  What is a discharge in a Chapter 7?

A person cannot wipe out payroll taxes in Chapter 13 or Chapter 7   Payroll taxes are not considered property of the business.  The business is considered to have held the payroll taxes in trust for the government.  Failure to pay payroll taxes will be treated as a nondischargeable debt.

Using payroll tax money for any purpose other than paying to the IRS is a considered a crime.  There are people who have actually gone to jail for failure to pay payroll taxes to the Internal Revenue Service.    The Internal Revenue Service has published a great article on this subject.  Click here to read it.

I recently met with a client who worked for a small company that owed over 50,000 to the Internal Revenue Service  in payroll taxes.  Since she allowed herself to be listed with the state as an officer of the corporation, she was held liable for the taxes along with the other officers of the corporation.  If she had been a merely an employee of the corporation, she would not have been held liable.  Her mistake was that she allowed to owner to list her as “secretary” of the corporation.  After spending thousands of dollars in attorney fees trying to fight the IRS, the client finally was able to work out a payment schedule with the Internal Revenue.

Whenever a business ever gets to a point where it becomes difficult to pay payroll taxes, it is time to close the business.  Never miss a payroll tax payment.  No business is worth risking jail.

My practice is strictly limited to Chapter 13 and Chapter 7   I do not specialize in tax law.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4. Stop Garnishment

5. Stop Foreclosure

Yes.  In the Northern District of Georgia, it is possible is some situations to wipe out a second mortgage in a Chapter 13 bankruptcy.  In order to eliminate your second mortgage, the value of your house must be lower than what you owe on your first mortgage.  If the value of your house is one penny more than what you owe on the first mortgage, you cannot wipe out the second mortgage in your Chapter 13 bankruptcy.

If a large number of foreclosures have occurred recently in your neighborhood, this will bring down the fair market value of your house.  As a consequence, this will make it easier to eliminate the second mortgage in a Chapter 13 bankruptcy case.  Dalton, Cartersville, Rome and Dallas, Georgia have suffered a high number of foreclosures during this past year.

When trying to determine the value of your house, a good place to start is your property tax bill from your county.  Somewhere on the bill, you will find a statement that says fair market value.  While this a good place to start, you will need more evidence than your tax bill because most counties tend to understate the fair market value of houses.  In some areas of Northwest Georgia, housing values are so depressed that even the county estimated fair market values are too high.

A much more reliable source of evidence is a written appraisal by a certified expert.  When getting your appraisal, make sure you explain to the expert that you may wish to hire them to testify in court if necessary.  Some appraisers want to stay away from court at all costs.

In Northwest Georgia, I reccommend that any client who needs to appraise property call Michael at 706-537-3845.  He is certified and has a significant amount of court experience.

Cost for appraisals can vary based on the size and nature of the real estate.  Another factor to consider when hiring an appraiser is the cost for them testify for you in court if the second mortgage company decides to challenge your appraisal in bankruptcy court with their own appraisal.

If you live in a mobile home and have a second mortgage, the chances of you eliminating the second mortgage are much higher than someone who owns a house because mobile homes depreciate so rapidly.

Call me today at 706-295-0030 for your free consultation.  Nothing in this post should be interpreted as legal advice.  No attorney client relationship exists until we have a written contract.

The purpose of this blog is to give you a rough idea about why you must know the value of your house before you even think about filing bankruptcy in Georgia.  Under Georgia Law, a single person can exempt a maximum of $10,600 of equity in their house when they are filing either Chapter 13 or Chapter 7 (see GA Code 44-13-100).  For married couples filing bankruptcy in Georgia, the maximum exemption is $21,200.

Lets say a married couple has a home in Rome, GA worth $100,000.  They owe $70,000.  Their equity in the house is $30,000.  If we subtract the the exemption amount of $21,200, we are left with $8,800.  If this person were filing bankruptcy, I would recommend they file a Chapter 13 to protect their home.  In a Chapter 13, the person will have to pay back $8,800 to the unsecured creditors to protect their home in Rome.  In this situation, if the couple owes $100,000 in credit card debt, they will have to pay back only $8,800 assuming they pass the means test and their income and budget justify a composition chapter 13 plan.

In contrast, if they filed a Chapter 7, the trustee may sell the house and use the proceeds that are not exempt to pay creditors.  Could a person in this type of situation roll the dice and file Chapter 7 ?  Some Georgia bankruptcy lawyers roll the dice…….I don’t.  Some Georgia bankruptcy attorneys will argue that the cost to the Chapter 7 trustee in marketing the property and closing the deal will exceed $8,800 in transaction costs.  It might.  Why take a chance with your house when filing bankruptcy?

A good place to start when determining the value of your home is your tax bill.  Somewhere on your property tax bill, it will state “estimated fair market value.”  You can check your county tax assessment online at www.gaassessors.com.  Another way to determine the value is to call a Georgia realtor and ask them to give you an estimate on how much you should ask for your house if you were going to sell it.  The best way to determine the value is to get a certified professional appraisal.

Remember, there are exceptions to exceptions.  Don’t read this blog as legal advice.  If you want legal advice, you should call me at 888-832-8249 for your free consultation so we can see how the law applies to your situation.

Click here for Top Ten Myths About Bankruptcy

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  Stop Garnishment

5.  Stop Foreclosure

Taking a second mortgage out on your house to pay off credit card debt is a bad idea in most cases.  In the event you need to file bankruptcy, credit card debt can be wiped out if necessary.  Even in a Chapter 13 /a> plan where you are paying back all of your debt, the interest rate paid on credit card debt is zero.  In contrast, the most common way to get rid of your second mortgage in a Chapter 13 /a> or a Chapter 7 is to surrrender the house to your creditor.  To keep the house, all payments must be made on the second mortgage.  Why would you ever want to exchange a type of debt that can be wiped out or paid back at zero percent interest for a new type of debt that must be paid back with interest and could result in the loss of your house if you ever get into a position where you can’t make the payment?

The answer to this question depends on your situation.  We can file a motion to avoid the judicial lien shortly after we file your case.  The main issue is how much property do you own?  I want to go over every single asset you own and make sure that they are protected by Georgia exemptions.  If the value of your equity in your assets exceeds the Georgia exemptions, you may need to file Chapter 13 to protect yourself from the default judgment.  Whatever you do, don’t ignore the judgment.  Default judgments can lead to garnishment of your wages and/or the placement of liens on your house.  Call me today for your free consultation.

No.  Traffic tickets are technically criminal fines.  No criminal fine can be wiped out in bankruptcy.  However, in a Chapter 13, we can set up a special provision in the plan to pay the traffic tickets at 100 cents on the dollar.   Paying traffic tickets is a much easier after we come up with a plan that deals with your entire economic picture.

It depends.  If the tax debt is less than three years old, it cannot be wiped out.  If the tax debt is more than three years old, we may be able to wipe out the tax debt.  An important question that I will ask you is,  “Has any tax lien been filed against you and in which Georgia county was the tax lien filed?”   Tax liens can make your tax debt secured.

The age of the tax debt is determined by the date of the filing of tax return.  As a result, if you have not filed any tax returns for the past five years, none of your tax debt can be wiped out.   Sales taxes owed by self employed businesses can never be wiped out. Also, payroll taxes cannot be eliminated in bankruptcy.

No.  Bankruptcy does not protect you from criminal prosecution for writing bad checks.  In fact, bankruptcy does not protect you from any criminal prosecution. I spoke with a client in my Rome office a few weeks ago who wrote some bad checks to a local grocery store. She told me that she was buying food for her kids. I felt terrible explaining the cold hard truth to her. The grocery store has the right to criminally prosecute her even if she filed a Chapter 13 bankruptcy. Even in cases where all the debt is being paid at 100 cents on the dollar will not stop a criminal prosecution. However, it is possible the at 100 percent Chapter 13 plan might persuade a judge that the person is making the best possible effort to rectify the situation.

You should never write a check to anyone unless you have the funds in the bank to back it up. You can’t be prosecuted for owing money to someone. However, you can be prosecuted for writing a bad check.