Michigan Estate Tax Basics

taxes 300x262 Michigan Estate Tax Basics

The Michigan Estate Tax

There is only one thing you need to know about the Michigan estate tax. As of December 31, 2004, there is no death or estate tax for decedents (people who died), their heirs or their estates. Zero. Nothing. There are no Estate Tax Forms to be filed with the Michigan Department of Treasury.

If the decedent passed away prior to 2005, the estate tax is equal to the federal death tax credit. In 2004 for example, the federal estate value had to exceed $1,500,000. If the estate was greater than that amount, then anything over that credit would be taxed at 40%. But this was ten years ago and, while some probate estates are opened in Michigan years after a person passes away, it is the exception. For most people, there is no concern about Michigan estate or death taxes.

The Federal Death Tax

After much uncertainty, Congress stabilized the Federal Estate Tax, also known as the death tax. In 2013, the first $5,250,000 of the gross value of the estate is tax free. Anything over that amount is taxed at 40%. The exemption is adjusted annually. In 2014, it is $5,340,000.

Married people get to double the exemption and, if one spouse dies and doesn’t use all of his or her available exemption, the surviving spouse can claim the deceased spouse’s unused portion plus their full exemption. This is known as tax portability. There are still forms to file with the IRS and you should contact an experienced CPA or lawyer to help.

I hope you have so much money that this is a concern otherwise, don’t spend a lot of time worrying about paying estate taxes. For the vast majority of clients for whom I draft estate plans or for the estates I probate in Michigan, death taxes are not an issue.

Ready to talk? Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.

Keep Your Car In A Michigan Bankruptcy

Keep or Surrender Your Car – That is The Question.

Most every bankruptcy filer in a Chapter 7 or Chapter 13 bankruptcy in Michigan is able to keep their car when they file for bankruptcy if they want to. Some people don’t want their car anymore. Maybe it is worth less that what is owed or the interest rate and payments are too high. Maybe it is a lemon and needs repair. The first decision is whether to keep or surrender the car. If you decide to give it back to the lender, any deficiency or amounts owed will be discharged in your bankruptcy. If you don’t want the car or can’t afford it, give it back.

Reaffirming the Car Loan

If you want to keep the car, most (but not all) lenders require the debtor sign a reaffirmation agreement. Reaffirming the debt keeps the contract going and, after the bankruptcy is over, the debt remains. If you fail to make payments and the car is repossessed, you are on the hook.

Redeeming the Car

Redemption is when the debtor pays the lender the retail value of the car in a lump sum. If the redemption amount is less than the amount owed, the unpaid balance of the loan is discharged. There are some lenders that offer redemption loans to do this. If the debtor and the lender are unable to reach an agreement on the retail value of the vehicle, a judge will decide it after a hearing.

How Much Equity Can You Have?

If your car is paid off or is worth more than what you owe, you must protect the equity by using a motor vehicle exemption. In Michigan, a bankruptcy filer may protect up to $3,675 in one motor vehicle when using the federal exemptions. If you need more, you can use any unused amounts of your wildcard exemption. A good bankruptcy lawyer will help you maximize your exemptions. A vast majority of our clients discharge all of their debt while keeping all of their things.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area

Bankruptcy Stops Garnishments In Michigan.

Bankruptcy Stops Michigan Garnishments

When you file for Chapter 7 or Chapter 13 bankruptcy in Michigan, the “automatic stay” stops all creditor collections. Creditors must stop all phone calls, letters, collections, harassment, lawsuits, garnishments, repossessions, and foreclosures. Sometimes a client gets a garnishment notice and is surprised because they didn’t even know they had been sued.

Michigan Garnishment Law

If living on a budget wasn’t tough enough, a garnishment makes it impossible. In Michigan, a creditor may garnish up to 25% of your tax home pay. But this is the most that can be taken from your paycheck. If you have three creditors garnishing at the same time, they cannot take 75%. They will have to share the 25% from your pay. Creditor can also garnish bank accounts on which your name appears and also your State tax refund.

Getting Your Garnishment Back

Once you file for bankruptcy, any garnishments taken in the prior 90 days can be recovered from a creditor if the total amount take is more than $600.00. For example, you have a weekly net pay of $400. A creditor garnishes your wages and can take $100 from each check. If you are garnished for four months, you will only be able to get back $1,200 (3 months x 4 weeks x $100.00) and not the whole $1,600.

These pre-petition garnishments is recoverable. Last year, we recovered over $20,000 in garnished funds and put it back in the pockets of our clients. If the process is done properly, the creditor usually complies without argument. Sometimes they don’t. When they don’t give it back we always take them to court. We just don’t back down on this. The creditor probably thinks it isn’t enough money for us to put the work in to get it back. They are wrong. Without exception we pursue the recovery of recoverable garnishments.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area

 

Tax Refund and Your Chapter 13 Michigan Bankruptcy

What happens to my tax refund in a Michigan Chapter 13 bankruptcy?

A Chapter 13 Bankruptcy involves a repayment plan that helps a debtor pay back some or all of their debt, on terms they can afford.  Any debt that is not paid by the end of the case is wiped out by the Chapter 13 Discharge. Keep in mind, I am talking about your Federal tax refund and not your State of Michigan tax refund. Federal tax refunds are considered disposable income in a Michigan Chapter 13 bankruptcy and are paid into your bankruptcy plan. Michigan tax refunds are not. You get to keep those without specific permission from the court.

Because a Chapter 13 Plan lasts between three and five years, a typical debtor will receive at least a few tax refunds during the case.  Generally, these tax refunds must be paid into the case for distribution to creditors.  However, there are several exceptions to this broad rule. You can modify your Chapter 13 plan to avoid paying your Federal tax refund to the Trustee.

100% payment to creditors avoid turnover.

First, if the debtor is paying back all of their debts, in full, through the Chapter 13 Plan, they will usually be permitted to keep their tax refunds.  The idea is that so long as all of the debts are being paid off, there is no reason to force debtors to give up their tax refunds and thereby pay extra.

Using tax refunds for unexpected needs.

Second, if the debtor has a problem come up that they need their refund money to deal with, the court may let them keep it.  For example, if the debtor’s furnace dies and they need to have it replaced, the court may allow them to keep their tax refund to pay for that expense.  If the debtor’s car needs repair, or they had higher than normal medical bills, or they need a down-payment for a new vehicle, the court may similarly let the debtor use their tax refund.  The court will not, generally, allow debtors to keep their tax refunds for normal expenses such as catching up missed mortgage or car payments, buying food and clothing, or paying property taxes.  Finally, it is important to understand that the court does not automatically let people keep their tax refunds for unusual expenses, the debtor must first file a motion seeking permission.

Bankruptcy and the IRS.

Finally, although the thought of giving up your tax refund probably leaves a bad taste in your mouth, finding out that you owe the IRS money in the middle of a Chapter 13 case is much worse.  Often, people planning to file Chapter 13 will reduce the amount withheld from their paycheck so that their tax refund will be smaller.  However, if they miscalculate and end up owing the IRS, they are often not able to pay, making their situation worse.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area.

 

Keeping Tax Refunds in Michigan Chapter 7 Bankruptcy.

Keeping your Michigan tax refunds in a Chapter 7 bankruptcy is easy.

You can keep your Federal and State of Michigan tax refunds but only if your bankruptcy lawyer knows how to do it. One of the most common questions our clients ask around tax season is whether or not they will be allowed to keep their tax refund when they file a Chapter 7 bankruptcy.  Thousands of people in the greater Detroit area rely on their tax refunds to catch up on past-due mortgage payments, property taxes, and other bills.

Like money in a bank account, a tax refund is an asset which must be disclosed to the bankruptcy court.  In Chapter 7 cases, the Bankruptcy Court appoints a Chapter 7 Trustee to seize the debtor’s non-exempt assets.  However, the vast majority of our clients get to keep their tax refunds as part of their exempt property.  The Bankruptcy Code allows debtors to keep a certain amount of money they are entitled to, and this includes tax refunds.  The amount of tax refund you can keep could exceed $10,000.00.  Debtors who are married and file jointly could potentially double that amount.

Michigan is home to some of the most aggressive Chapter 7 Trustees in the nation, and they have figured out several clever ways of getting their hands on debtors’ tax refunds.  Although the law entitles most people to keep some or all of their tax refund, that protection is not automatic.  In order to keep your tax refunds in Chapter 7, your lawyer needs to file the proper documents with the court.  A good bankruptcy lawyer can help you get rid of your debt AND keep your tax refund.

Fast bankruptcy and tax facts:

  • The average Federal Tax Refund in Michigan in 2011 was almost $2,600.00.
  • The highest personal tax refund I protected in a bankruptcy case was almost $9,000.  It was the case of a single mother with three children.  She got to keep all of it.
  • If your lawyer doesn’t know how to protect it, the Chapter 7 Trustee may be able to take next year’s tax refund, too!
  • The IRS can actually tax you for debts settled for less than the full amount!  But…
  • …Debt discharged in a Chapter 7 bankruptcy CANNOT be treated as discharge of debt income, meaning you won’t have to pay taxes on it!

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area.