Sunday, November 20, 2011

Tax Debt Relief: Offer in Compromise

      The Bankruptcy Code specifically states that tax debts are nondischargeable in a Bankruptcy. Therefore, filing a Chapter 7 bankruptcy will not help you with your taxes. The only way to get rid of your tax debt in a Bankruptcy is through a Chapter 13 plan. I do not know the policy of the IRS attorneys throughout the rest of the country, however, here in the Middle District of Tennessee, the IRS attorneys will object to the confirmation of a Debtor's plan unless the IRS claim is paid in full. Other unsecured creditors have no choice. If the debtor wants to pay 100% or 0% to the other unsecured creditors, they are forced to accept pennies on the dollar. The IRS, instead of accepting a percentage of the claim and going after the deficiency post-bankruptcy, will object and the case will be dismissed.

       There is, however, one way to reduce your tax debt. That is through an Offer in Compromise.  An Offer in Compromise is basically a debt negotiation with the IRS, where the taxpayer offers the IRS a settlement. There are 3 options: 1) a lump sum payment; 2) a reduced balance to be paid off in 5 months or less; or 3) a reduced balance to be paid off in over 5 months. When completing an Offer in Compromise you must also submit a budget and explanation of your circumstances.

       Additionally, once an Offer in Compromise has been accepted by the IRS, the taxpayer can then file for Chapter 13 bankruptcy and incorporate the Offer in Compromise into their plan. So long as the debt treatment remains the same, the IRS will not object.

       Forms necessary to complete an Offer in Compromise: F656F433a (Individual); F433b (Business)

Sunday, November 13, 2011

Credit Cards in Bankruptcy

      When discussing bankruptcy, many clients often ask about credit cards. Typically, when a debtor is ready to file bankruptcy, they are in such a financial bind that they are living off their credit cards. Credit card debt is dischargeable, but it may be subject to the 90 day rule. The 90 day rule is that it is best to wait 90 days from the last purchase made with a credit card in order to discharge that credit card debt. However, it is not always necessary to wait the 90 days. The Bankruptcy Code states in pertinent part:

Consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable (§523(a)(2)(C)(i)(I))

       What this means is that your credit card debt is not discharged in a Bankruptcy if (1) it is totaling more than $500, (2) to the same creditor, (3) for non necessary purchases (such as food, clothing, bills, etc.), and (4) made within 90 days prior to filing Bankruptcy.

       This protects creditors from debtors who run up credit card debt just before filing bankruptcy, unless that debt was used for food and other necessary essentials.

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Tuesday, November 8, 2011

The "Required" Real Estate Disclosure Statement Isn't Required

        If you are selling your home in Tennessee, you must comply with The Residential Property Disclosure Act (66-5-201 et seq), which applies to residential real property consisting of not less than one (1) nor more than four (4) dwelling units. This act specifies what types of disclosures a seller must make to a buyer as well as the rights, duties, and obligations of the real estate agents to the buyers. Moreover, this act delineates in what circumstances may a buyer bring a cause of action against either the seller or the agent. And those scenarios are extremely limited. This act gives sellers and agents a lot of protection. In fact, this act seems to give too much protection. Without going through all the causes of action, I want to point out a glaring loop-hole that can render the entire act superfluous and may allow a prudent seller, coupled with a dubious buyer, to make zero disclosures, though required by law.

       Section 202 of the act states in pertinent part, “the owner of the residential property shall furnish to a purchaser one of the following:” (1) A residential property disclosure statement regarding the condition of the property, including any material defects known to the owner; or (2) a residential property disclaimer statement stating that the purchaser will be receiving the property “as is.”

       By the language of the act, one would think that this Disclosure Statement is mandatory. Well, technically yes the Disclosure Statement is mandatory, just as the terms state the seller “shall furnish” a statement. However, this provision is unenforceable. Section 208(b) states, in pertinent part, “No cause of action may be instituted against an owner of residential real property subject to this part for the owner's failure to provide the disclosure or disclaimer statement required by this part.”

        Thus, a clever owner will not furnish a disclosure statement of his property to a buyer until compelled to by a buyer who actually knows his rights. Now, failure to provide such a statement upon request would allow the buyer not to go through with the sale; however, if after the purchase, the buyer finds defects in the property and wants to sue the seller, he would not be able to because of 208(b). Moreover, many Purchase Agreements contain a provision requiring the seller, under contract, to furnish the Disclosure Statement. But because of the doctrine of “merger” (article forthcoming discussing merger), after the real estate closing the buyer would not be able to sue the seller under a breach of contract theory. Accordingly, under the current Tennessee law, a buyer is without a post-purchase remedy if a seller never furnished a Disclosure Statement as required by law. Therefore, Caveat Emptor (“Buyer Beware”).

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Sunday, November 6, 2011

Differing Standards of Proof

       One interesting issue that can be found in the Tennessee Probate Court is the fact that two very similar cases have different standards of proof. The primary difference between these cases is that in one case the State of Tennessee is the Plaintiff, whereas in the other, a private party is the plaintiff. The areas of law involved here are Conservatorships (T.C.A. 34-3-101 et seq) and Adult Protection (T.C.A. 71-6-101 et seq). To summarize, a conservator is a person put in charge of another's (the conservatee) finances and even medical decisions if the conservatee is unable to take care of himself. This is different than a Power of Attorney, which is voluntary, where in a Conservatorship, the plaintiff brings an action nominating a Conservator to take care of the Respondent because the Plaintiff believes that the Respondent is unable to take care of himself.

       Now when a private party brings an action to appoint a Conservator for the Respondent the standard of proof for the Plaintiff is by “clear and convincing” evidence (see T.C.A. 34-1-126).  However, when the State of Tennessee, through the Department of Human Services, brings the similar action of Adult Protection, the standard to be used is by a “preponderance of the evidence” (see T.C.A. 71-6-124(5)(A),(B)).  An Adult Protection is where the Department of Human Services brings the action as the plaintiff believing that the Respondent is being abused, neglected (including self-neglect) or exploited because of any mental or physical disabilities.  

       Therefore, if you find yourself involved in either of these cases be sure that you recognize the difference because depending on which standard of proof is being used in your case can make the difference to whether an individual's right to make decisions on his own behalf is taken away or not.

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