Chapter 13 Discharged ... But It's Still Not Over ...

[$$only4ever]

I am now sitting on the edge of my seat, knowing the climax is near....hang in there FH. Heather is right..The CU is going to wait until the 19th hour...

[HeatherB]

Hang in there FH.

I *think* that most settlements are settled at the last minute. Perhaps it's a scare tactic on some occasions. In this case, I think that if you have agreed to have them write up something, they feel like they have until the day before court to finally finish it. I think it's common, though. They probably feel like it is not an important issue to take care of it right away (like waiting until the actual due date on a bill before paying.... instead of paying as soon as you receive the bill)

[FeelingHopeless]

Hey, everybody ... no news at all. I'm still waiting to sign the settlement papers.

I called our lawyer last Friday because I was getting worried. His assistant said that we're just waiting on the CU's attorney to draw up the paperwork. He said it might take longer this way ... but that by having them draw it up, the CU is ringing up attorney's fees instead of me. It sounds reasonable ... but, once again, the CU (or their attorney) is dragging their feet ... and we've seen no paperwork.

I guess it boils down to this ... our court date is next week. So if we don't sign anything before then, we'll show up for our hearing and let the judge sort this out.

You know what's nice? I have a sense of peace about this ... because even if the CU flakes out and doesn't provide the settlement paperwork, I can now go to court and honestly tell the judge I **tried** to work with them. I can sit in that room under oath and tell that judge that I accepted their offer ... but their attorney failed to draw up the paperwork. After everything else that's happened, we'll see how the judge reacts to that.

Can you tell I'm frustrated? I know ... I know ... the wheels of justice grind slowly and all that. I just want this to be over ... and they're making a point of drawing this out until the last possible moment and I think it's unprofessional and intentionally mean-spirited. But then, what else could I possibly expect from these people?

[kcsmom76]

Any update????

[HeatherB]

FH - something to think about also.

Did your (old) CU put in your credit reports about the reposession? You may want to check to make sure. If they did, have them remove it in your settlement agreement. I just found out a car that I had my trustee pay (wage garnishment) the monthly note on is saying "late, late, late, late"..... well there is 15 lates that state 90plus days!!!

Good luck!

[Boscoe]

Yes, FH, do go see a tax pro. I always did mine myself, but after my FL properties went down the tubes and I faced my bk, my attorney recommended I go see her CPA.

It cost me about $700, as he had to do research and prepare a bunch of extra forms, but he got me back over $15,000 refund! I would not have had the chutzpah to claim some of the items he did, but he was 100% sure it was fine - not even close to borderline.

Money well spent, and if the IRS comes back at me (and I cannot see why they would), I have his signature to back me up.

Good luck and let us know how your case ends up and if you are satisfied with the outcome.

[chpxiii]

Not to sound like a wuss ... but through all this mess, I've tried to do the right thing up till now ... I'm not going to try to weasle my way out of anything at this point. Not to be all Karmic about it ... but what we owe is what we owe.

And I think that's why things are going the way they are. From your posts, FH, I get the feeling that all you've done is do what you were supposed to do and do the right thing.

IMO, that counts for quite a bit.

[FeelingHopeless]

One thing that isn't clear to me after reading everything -- you got the van back, right? So all you directly lost is the use of the van for that short period of time and the damages that resulted like higher payments for lack of a trade-in. You could sell the van now for at least as much as trade-in would have been and then re-finance the new one to get the lower payments you would have had, right? Clearly some time and money were lost but not exactly the full value of either vehicle. Everything you recover above these costs would appear to be taxable.

I suspect you're right, Keebler. I'm sure we could all debate everything down to the last cent ... but I have my doubts. For instance, one part of the IRS documentation says you must pay taxes on "attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income."

Well, even if you discount the part of the settlement that would replace the "trade-in" that I missed because of this fiasco, a portion of the rest would be considered compensation for attorney's fees and costs. Plus, a portion of it might be considered "punative damages" because they're agreeing to pay a settlement to fix this situation.

I don't know ... honestly, I'm not a tax attorney ... and the bottom line is I have no clue. I do expect to pay taxes on whatever comes out of this ... and I'll be going to a tax professional to find out what that amount will be.

Not to sound like a wuss ... but through all this mess, I've tried to do the right thing up till now ... I'm not going to try to weasle my way out of anything at this point. Not to be all Karmic about it ... but what we owe is what we owe.

[chpxiii]

Another strategy is to over pay your taxes! In my case, I have kids and a low-enough income that results in no Federal Income Tax liability whatsoever. I also pay no State Income Tax in my state either. When I sold stuff on eBay a few years ago, I claimed every single dollar I collected as income without deducting any expenses. The result was me paying taxes I didn't need to, but it was safer and less expensive than paying someone to do it professionally. If I get audited I'll be owed a refund that year!

I completely disagree with this. For one, you're giving the government an interest free loan. For another, that money could be put to better use, even if it's under the mattress. (Hopefully in atleast some interest bearing savings account.)

While I agree that one should learn all they can about taxes and doing their own taxes, having just enough deductions so you get a SMALL refund or even pay a SMALL amount at the end of the year is better than paying over taxes.

[Keebler]

Well ... I don't know ...

Let's say the settlement replaces the amount of trade-in I would've had ... had they not repo'ed the van. That wouldn't be taxable. But if the settlement is more than that amount?

I don't know ... taxes give me the willies ... better safe the sorry, I supose. I better talk with a tax professional. So, does the court send the IRS a 1099 form or something? It doesn't matter ... after all this drama, the last thing I'd want to do is be audited! haha

One thing that isn't clear to me after reading everything -- you got the van back, right? So all you directly lost is the use of the van for that short period of time and the damages that resulted like higher payments for lack of a trade-in. You could sell the van now for at least as much as trade-in would have been and then re-finance the new one to get the lower payments you would have had, right? Clearly some time and money were lost but not exactly the full value of either vehicle. Everything you recover above these costs would appear to be taxable.

Please do see a Tax Professional! But...

The IRS is a wonderful organization with tons of information for anyone that cares to read it. Years ago I set out to do my own taxes and I wasn't very sure of myself at first. I made an agreement with my wife that I would study everything and we'd pay to have our taxes done if everything wasn't crystal clear before April. I've been doing ours ever since through thick and thin. I used to have Publication 17 mailed to me every year because it was a complete guide to almost everything I needed to know. Now with the Internet it's even easier!

The best part is how I've helped correct mistakes for family members who have used "Tax Professionals" on at least two ocassions. Each time the mistake was done year after year and we went back and filed amended returns. These weren't clerical errors or even misunderstandings because each was repeated at least two different times in following years. The last one resulted in a letter from the IRS pointing out the error and billing for the taxes owed. The accountant told my relatives that it was the IRS who was wrong and wouldn't fix the problem -- so I did.

Another strategy is to over pay your taxes! In my case, I have kids and a low-enough income that results in no Federal Income Tax liability whatsoever. I also pay no State Income Tax in my state either. When I sold stuff on eBay a few years ago, I claimed every single dollar I collected as income without deducting any expenses. The result was me paying taxes I didn't need to, but it was safer and less expensive than paying someone to do it professionally. If I get audited I'll be owed a refund that year!

Read and understand all that you can and you will help be sure the Tax Professional is giving you a good answer. Few of them will say "I don't know" as they should, and many will concoct an answer based on what they think they know. Unless they've dealt with your situation dozens of times before, you can't be sure you'll get the correct answer. Remember, it's YOUR signature that goes in the returns!

I'm wishing you luck and I hope your biggest problem is figuring out how to pay all of the taxes! This is a GOOD kind of problem to have! (For each dollar, you still keep more than the IRS does, right?)

[FeelingHopeless]

Opinion:
It seems to me that a settlement is taxable if the thing it replaces would have been taxable. So, a settlement that pays to replace something you lost wouldn't be taxable. A settlement that gives you something you didn't already have is taxable. I can't decide which applies in this case ...

Well ... I don't know ...

Let's say the settlement replaces the amount of trade-in I would've had ... had they not repo'ed the van. That wouldn't be taxable. But if the settlement is more than that amount?

I don't know ... taxes give me the willies ... better safe the sorry, I supose. I better talk with a tax professional. So, does the court send the IRS a 1099 form or something? It doesn't matter ... after all this drama, the last thing I'd want to do is be audited! haha

[Keebler]

Source:
Publication 17 Your Federal Income Tax For Individuals
Part Two: Income
Chapter 12 Other Income

Court awards and damages.

To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Include the following as ordinary income.

1. Interest on any award.
2. Compensation for lost wages or lost profits in most cases.
3. Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.
4. Amounts received in settlement of pension rights (if you did not contribute to the plan).
5. Damages for:
a. Patent or copyright infringement,
b. Breach of contract, or
c. Interference with business operations.
6. Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.
7. Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Opinion:
It seems to me that a settlement is taxable if the thing it replaces would have been taxable. So, a settlement that pays to replace something you lost wouldn't be taxable. A settlement that gives you something you didn't already have is taxable. I can't decide which applies in this case...

[coma]

Oh, and I almost forgot ... Happy Birthday, Coma!!!

Thanks...

Keep us posted!

[FeelingHopeless]

Oh, and I almost forgot ... Happy Birthday, Coma!!!

[FeelingHopeless]

Any money received from a lawsuit that is not for injury or illness is taxable,and the expenses for recovery of taxable income is deductable. Please consult your tax preparer for futher info.

Thanks so much for the info! I heard from a close friend here at work that whatever we got as a settlement or judgement would be taxable ... didn't know about the recovery deduction. We usually do our own taxes using TaxCut or TaxAct or whatever happens to be on sale ... but I think this year we'll have to use my Mom's accountant ... just to be on the safe side.

I think there might be a settlement agreement in the works ... waiting on a call from our attorney to go sign paperwork sometime this week to make it official. As soon as my name is on the dotted line, I'll tell you guys all ...

Thanks for hanging in there with us ... it's been a bumpy ride ... but it looks like we're going to have a happy ending.