Can chapter 7 be used as leverage to negotiate with the creditor?

[justbroke]

What difference does the lien make during BK other then a little more paperwork to remove it after the BK?

You can only remove a lien, through Bankrupty, if the lien impairs some underlying exemption (11 USC 522(f)). That means, that if the lien attaches to some real or personal property that you own, and the lien doesn't impair an exemption or some "part" of the exemption... the lien sticks!

[squeeze]

So if I understand it correctly, the idea here is that you can negotiate a settlement with a creditor, and NOT file, or you can file and not negotiate.

But if you settle with one creditor, and then file against a group of other creditors, you'll have a preference issue.

Makes sense!

[MSbklawyer]

So if I understand it correctly, the idea here is that you can negotiate a settlement with a creditor, and NOT file, or you can file and not negotiate.

But if you settle with one creditor, and then file against a group of other creditors, you'll have a preference issue.

Makes sense!

That pretty much sums it up. And if you are found to have given a preference payment, then the preferred creditor has to pay that money back to the trustee and get in line with everyone else.

[ready2puke]

Don't forget the tax consequences you'll have to pay the tax on all the unpaid forgiven balances. Can you afford that?

[squeeze]

Can you please elaborate? What kinds of tax consequences occur, and when do they occur?

[justbroke]

Can you please elaborate? What kinds of tax consequences occur, and when do they occur?

If a creditor "settles" with you, agreeing not to pursue collection, then the creditor must file an IRS Form 1099-C with the IRS. This creates a tax liability for the taxpayer on the amount that is the difference between what they settled for and what they owed! The IRS treats it as regular income received in the year in which the debt was forgiven.

If you can prove insolvency, you should be able to shed any tax liability. If you end up with 1099-Cs or are expecting to receive them, you should talk with a tax professional on the tax consequences.

[squeeze]

wtf?

You mean that a negotiated settlement creates negative tax consequences? You use the example of a bank. In my case, it's with advertising agencies.

Let me see if I have this right. The default judgment is for hundreds of thousands. If I negotiate a 10% settlement, then the remaining 90% is taxable? And if so, at what tax rate?

Is this what you're saying, or do I have this wrong?

[music12]

yup, that's the way it is. i think the tax rate is the regular income tax rate.

if all you can afford is 10%, then you can't afford a settlement, because income tax is, well, more than that. so even if they said they are wiling to forget the whole thing (yeah, right) you'd owe uncle sam around 30% of that. then you'd have to wait at least 3 years before filing bk in order to discharge those 30%.

sounds like bk is your only option.

[squeeze]

well, i guess that settles it.

bk here we come

[Clouddancer]

You can only remove a lien, through Bankrupty, if the lien impairs some underlying exemption (11 USC 522(f)). That means, that if the lien attaches to some real or personal property that you own, and the lien doesn't impair an exemption or some "part" of the exemption... the lien sticks!

So a lien shouldn't in most cases affect a homestead.

[justbroke]

So a lien shouldn't in most cases affect a homestead.

This depends on several factors. If you are in a State like Florida, that enjoys an unlimited homestead exemption, the homestead is protected. If you're in a State with limited homestead exemptions then you may not be able to protect the homestead.

The key is that you would still need to "avoid" the lien by filing the appropriate motion (11 USC 522(f)) in the Bankruptcy court and then domesticate that order with the local courts, once granted. This is so that you can quash/void that lien that's impairing the homestead protection.

Also, be wary that a recorded judgment lien attaches to all personal property, so cars, boats, and other things of value may be attached. Some things, like "household goods" enjoy protection under the BK code, but a motion to avoid lien (11 USC 522(f)) still must be done.

[CCsAreEvil]

Yeah, it's amazing how extremely powerful doing a BK really is. I wonder how this country would be without having businesses and individuals given the opp to file.

People have been threatened with all kinds of lawsuits, garnishments, judgements, etc. But filing BK can rid of all that... pretty amazing if you ask me.

The only thing better I can think of is a "President's Pardon"... but being able to file BK is a close 2nd!

[billf]

wtf?

You mean that a negotiated settlement creates negative tax consequences? You use the example of a bank. In my case, it's with advertising agencies.

Let me see if I have this right. The default judgment is for hundreds of thousands. If I negotiate a 10% settlement, then the remaining 90% is taxable? And if so, at what tax rate?

Is this what you're saying, or do I have this wrong?

If you are insolvent when the debt is forgiven on a 1099c you can avoid taxes on all or part of the amount forgiven - see IRS form 982

[HHM]

If you are insolvent when the debt is forgiven on a 1099c you can avoid taxes on all or part of the amount forgiven - see IRS form 982

Yes, we all know that. The point is, you have to address it on your taxes, also, IRS insolvency is a bit more complex than most people think. Many who "think" they are insolvent, really aren't.

[squeeze]

Yes, we all know that.

Actually, we don't all know that.

Forgive my ignorance, but I've only been thinking about bankruptcy for a few weeks and have more questions than answers. So, any clarification about the tax issues associated with life post chapter 7 would be greatly appreciated.