Sunday, January 20, 2013

What is a Chapter 20 Bankruptcy?

       A Chapter 20 Bankruptcy is the situation where a debtor files for Chapter 7, and then immediately refiles another case under Chapter 13.  The purpose are a few reasons why a debtor would want to take this strategy.  The first purpose is to reduce the monthly payments that will be required in a Chapter 13 plan.  If a person has $50,000 of general unsecured consumer debt (such as medical bills and credit cards) and also has $50,000 of student loans, which is not dischargeable, then chapter 13 payments to pay everyone in full would be $1,666.67 per month for 60 months.  However, if the debtor first files Chapter 7 bankruptcy, then $50,000 of the consumer debt would be discharged. After the case is closed the debtor can immediately refile under Chapter 13 in order to pay the nondischarged student loans.  That monthly payment would be $833.33 for 60 months. 

       Another reason to file a chapter 20 is because the debtor exceeds the Chapter 13 debt limits.  Currently, a debtor cannot file a Chapter 13 bankruptcy if the unsecured debt exceeds $360,475.  Chapter 7 has no debt limits.  Thus, a debtor may have $400,000 in unsecured debt, which is mixed with dischargeable and nondischargeable debt, as well as secured debt of a house and car.  The debtor (if he qualifies for a chapter 7) file the chapter 7 first reduce the overall debt to be under the debt limit.  Then the debtor could file a Chapter 13 bankruptcy in order to cram-down the car loan or strip off a second mortgage on a house.

       Now, one thing to remember is that by filing a Chapter 7 first, the debtor will not be eligible for a second discharge in the Chapter 13 bankruptcy.  All of the consumer debt would've already been discharged in the Chapter 7, but the debtor would be liable for any deficiency if he later choose to surrender the house or car in the chapter 13 bankruptcy.  

Wednesday, January 2, 2013

What are the current Tennessee Estate Taxes?

      Now that is it 2013 the Tennessee inheritance tax exemptions have changed for the better of Tennessee residents. From 2006 through 2012 the estate tax exemption was One-million dollars( $1,000,000.00). In 2013, Tennessee estate tax emption moves up to One-million, two hundred fifty thousand dollars ($1,250,000.00).  That means if a resident of Tennessee dies, $1,250,000 of the person's estate will be transferred to the designees or heirs, without an estate tax.  In 2014, the exemption grows to Two million dollars ($2,000,000.00); in 2015 to five-million dollars ($5,000,000.00); and in 2016 the exemption will be unlimited. 
       Now, estate planners must still be wary despite the laxation of taxation for Tennessee residents because federal estate tax will still have to be paid.  Congress was able to act intime to avoid the fiscal cliff consequences for estate planning.  Instead of the $5.12 million exemption being reduced to $1 million the amount remained the same at $5.12 million, but the maximum rate increased from 35% to 40%.  Very importantly, portablility remained intact, so that if one spouse transfers all of his estate to his surviving wife, then the wife may use his and her exemptions when she finally dies, thus being able to have a maximum $10.24 million federal exemption.
      Given these changes if you think that your will needs to be redone call your attorney to setup an appointment to specifically talk about your situation.  If you do not have a will, then you should contact an attorney to discuss the legal consequences.