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.

Death and Discharge During Bankruptcy

It’s not often that it happens but a debtor can die after their bankruptcy petiton is filed but before their discharge is granted. Unfortunately, this happened to one of our clients recently. I only knew her from working on her case with her but it still made me feel bad. While she passed on to a better place, she hired me to do a job and I intended to see it through.

Bankruptcy rule 1016 controls what happens when a debtor dies during the bankruptcy. It states:

Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.

Death During a Chapter 7

If the debtor is in a Chapter 7 bankruptcy, the case can be finished up and the debts can still be discharged at the conclusion of the case. In every bankruptcy case, the debtor has to appear at a hearing called a Section 341 Meeting of the Creditors. At the hearing, the Trustee asks questions about the debtor’s financial affairs. If the debtor has passed, someone familiar with the debtor’s financial circumstances can testify. For example, a surviving spouse or the Personal Representative of the decedent’s Estate. The mandatory Debtor Education course would have to be waived by the court based on the “disablity” of the debtor.

Death During a Chapter 13

Chapter 13’s are different from a Chapter 7 as a 13 requires a monthly payment plan. If the debtor has passed and cannot make the payments, the Chapter 13 plan will obviously fail. There are a few possible outcomes depending on the case: The court could dismiss the case. No further payments are made and the debts are not discharged; the Estate could continue making payments or make a lump sum payment to satisfy the obligations if the bankruptcy court allows it; and,  there is also the possibility the court would grant the debtor a hardship discharge and allow the immediate discharge of the debt without the need for further payments. None of these options are mandatory and are decided on a case by case basis by the judge.

Why Bother?

The single best reason to continue the case after the debtor dies is to allow the heirs to inherit free of any claims of creditors. While heirs, a spouse, or a personal representative are not personally responsible for any of the debt of the debtor, the Estate may be. A discharge eliminates any possible claims of creditors on any assets.

Time is of the essence in a situation like this. The bankruptcy court will not wait forever for something to happen and may dismiss the case if action isn’t taken right away.

Ready to talk? Ready to talk? Contact us and set up an appointment. Give us a call at  313-291-0240.

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

D also stands for: