November 8, 2013

11 U.S.C. § 523(a) and Debtor’s Prison in the United States of America.

So they taught you in school that there was no debtor’s prison in the great nation of the United States of America, did they? Well, of course, most school children know there’s no debtor’s prison here, but are they correct?

Debtors prisons are as old as humanity. The Bible deals with the idea in Matthew 18:23-35. In this biblical story, servant A is called before his king. Servant A owed a great deal of money to the king. The king ordered that Servant A be sold into slavery, with his wife and children also to be sold, all to pay the debt. Servant A begged and the king showed mercy, cancelling his debt. Later Servant A came across Servant B, who owed a small amount of money to Servant A. A grabbed B by the throat and yelled at him to pay what he owed. B begged A to have mercy and give additional time to pay. A had no compassion and had B thrown into debtor’s prison. As these stories go, A’s fellow servants ratted him out to the king and the king was very, very unhappy with A, calling him wicked and essentially telling him that his soul would burn in the eternal fires.

Debtor’s prison is not a fun place. Essentially, it’s a jail where you are placed until your debt is paid. Since you are in jail, you can’t pay your debt and someone must come to your aid, a benefactor or loved one. None of these in the U.S.A.?

As a bankruptcy attorney, I have been fond of telling people we don’t have debtor’s prison in our country. When I decided to do this article, I did some researched and was appalled to learn that I had been incorrect. Here’s what I learned:

According to the American Civil Liberties Union “Across the country, in the face of mounting budget deficits, states are more aggressively going after poor people who have already served their criminal sentences and jailing them for failing to pay their legal debts. These modern-day debtors' prisons impose devastating human costs, waste taxpayer money and resources, undermine our criminal justice system, are racially skewed, and create a two-tiered system of justice.”

According to the World News Daily,
“The ACLU did a study in 2010 revealing the use of debtors prison practices in five states, Louisiana, Michigan, Ohio, Georgia and Washington. That led to a comprehensive study by the ACLU of Ohio, released just this month, on the widespread practice of jailing people for debt.”

What these articles, and other research, reveal is that the practice of sending people to jail for their past due charge card debt is not happening, but people can be, and are, sent to jail for contempt of court, only to be released upon the payment of certain debts. These include past due child support or alimony (11 U.S.C. § 523(a)(5)); fines, penalties and forfeitures payable to and for the benefit of a governmental unit (11 U.S.C. § 523(a)(7)); and orders of restitution under title 18, United States Code (11 U.S.C. § 523(a)(13)).

These are just some of the things that can wind you up in jail if you fail to pay them, and is not, by any means, an exhaustive list. The trick is usually that you are summoned to appear in court to explain why you have not paid the debt. Upon receipt of the summons you fail to appear, and a bench warrant is put out for your arrest. Typically you are arrested for the failure to appear, but often you are not released until the debt, or a portion of it, is paid. Its fairly common in Arizona, particularly amongst sheriff Joe’s officers, that people are picked up on warrants for failure to appear on child support or alimony issues, now referred to as domestic support obligations.

The rub is that if the debt falls within one of the exceptions to discharge set forth in 11 U.S.C. § 523, you may not be able to prevent a run in with the law by filing for bankruptcy relief. And although the debt might not be dischargeable in a chapter 7 bankruptcy, keep in mind that an excellent bankruptcy attorney may be able to restructure the non-dischargeable debt in a chapter 11, 12 or a chapter 13 plan, and get you protection through the use of the “automatic bankruptcy stay”.

So the next time some smart friend or neighbor tells you that you don’t have anything to worry about “because there is no debtor’s prison in the U.S.A.”, refer them to this blog so they may be educated.

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October 23, 2013

FORECLOSURE SCAM ARTIST GETS 11 YEARS IN FEDERAL PRISON

Here is a good example of why you need a reputable bankruptcy attorney to help when you have financial troubles with your house. A fraud artist who claimed to help distressed homeowners stave off foreclosures has been sentenced to 11 years in Federal prison after he was finally caught in Waterloo, Canada. Here was his scam.

Mr. W would solicit homeowners who were facing foreclosure on their home. He told them that for a fee (usually $700) he could legally delay the foreclosure. After he was paid, he would get a list of people who had filed for bankruptcy in the homeowner’s state. He would then prepare a phony deed that would transfer a fractional share of the homeowner’s home to someone who had filed bankruptcy. After recording the deeds, he would mail them to the bank or lender foreclosing on the house informing them that they were stayed from doing the foreclosure because the owner (the person in bankruptcy who never knew about the phony deed) was in a bankruptcy. The bank would then postpone the foreclosure for several months until it finally figured out in the bankruptcy that the bankrupt really had no interest in the home. When the unwitting debtor in bankruptcy would finally disavow that he owned part of the house, Mr. W would then just pluck another name from the bankruptcy database and start this process all over again. In this manner, he filed fraudulent foreclosure documents on 824 homes, using at least 414 bankruptcies filed in 26 judicial districts. He collected about $1,200,000 from clients during the life of the scheme. Needless to say, the homeowner ended up losing his house in the end. Mr. W. pleaded guilty to bankruptcy fraud and identity theft. He received a sentence of 11 years in prison, was ordered to pay nearly $60,000 in restitution and was ordered to forfeit about $100,000 of property previously seized by law enforcement.

What do we learn from this? If it sounds too good to be true, it probably is. If your home is in financial trouble and in danger of foreclosure, a chapter 13 bankruptcy reorganization can often save your home. You do this by going to see an experienced bankruptcy attorney. You do not go see Mr. W.

At Campbell & Coombs we offer a free consultation to people who are in danger of losing their home to see if a Chapter 13 reorganization can help.

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October 4, 2013

To Trust or Not To Trust- Does a Trust have any effect on your bankruptcy?

One item that is often overlooked by persons considering filing bankruptcy is that handy trust that someone said you had to have years ago. Remember, the “My Family” living trust that you created a few years ago? You might have placed a car, a house, or even a bank account in the trust. Then when you look to file bankruptcy, you have forgotten all about it. Often, this is not caught by the bankruptcy attorney until you begin providing things like bank statements and car titles. It is, however, an important matter for discussion before you chose to file bankruptcy, and then before you chose which chapter to file.

Question 10b. of the Statement of Financial Affairs (among the initial bankruptcy documents filed in any bankruptcy case), requires the debtor to respond to the following: “b. List all property transferred by the debtor within 10 years immediately preceding the commencement of this case to a self-settled trust or similar device of which the debtor is a beneficiary.”

Question 14. of the Statement of Financial Affairs requires the debtor to respond to the following: “Property Held for Another Person. List all property owned by another person that the debtor holds or controls.”

On Schedule B, the debtor is required to list the following assets, which may include an interest in a trust:

19. Equitable or future interests, life estates, and rights or powers exercisable for the benefit of the debtor other than those listed in Schedule A - Real Property.

20. Contingent and noncontingent interests in estate of a decedent, death benefit plan, life insurance policy, or trust.

35. Other personal property of any kind not already listed. Itemize.

You get the point. If you have an interest in any type of trust, it has to be reflected in your bankruptcy documents somewhere. A trust may show up as an asset, or you may simply be a beneficiary of a trust that you have no control over whatsoever.

How can you be effected if you have a Trust? There are different types of Trusts. If yours is a self settled Trust, you may have transferred personal assets to the Trust prior to filing your bankruptcy. This could result in your inability to claim those assets as “exempt”, thus losing them to the trustee. It might result in the Trustee suing the Trust to recover the asset if it was transferred without consideration. Many complications are possible. There may be ways to eliminate some of the problems created when you transfer assets into a Trust pre-bankruptcy, but you will need to speak with an attorney to discuss your particular situation.

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September 12, 2013

CHAPTER 13 DEBTORS MAY KEEP SOCIAL SECURITY INCOME

Consumer Bankruptcy News in its November 2012 edition reports that Chapter 13 debtors may keep their social security income. The Bankruptcy Code says Social Security income is not included in a debtor’s “disposable income.” The 10th Circuit Court of Appeals ruled in Anderson, Trustee, v. Cranmer (In re Cramner), that neither recent Supreme Court decisions or the Bankruptcy Code require that Social Security income be committed to Chapter 13 plan payments.

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In In re Cranmer, the Chapter 13 trustee asserted that the debtor would receive more than $87,000.00 in Social Security income over the life of his plan and objected to the debtor’s plan on that basis. The 10th Circuit rejected the trustee’s argument stating that Bankruptcy Code Section 105(10A)(B)’s definition of “Current Monthly Income” specifically excludes benefits received under the Social Security Act. Therefore, Social Security income is not included when calculating disposable income.


The 10th Circuit found additional support for its conclusion in the Social Security Act, which shields payments made pursuant to the Act from “execution, levy, attachment, garnishment, or other legal process,” or from “the operation of any bankruptcy or insolvency law”.

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September 6, 2013

TAXES OWED TO THE IRS: OFFERS IN COMPROMISE VS. BANKRUPTCY

We see many people in our office who owe back taxes to the IRS. If you ignore the IRS, they will levy your wages or bank accounts, leaving you with no money. There are several options you have to deal with this situation.

1. Installment agreement- You can enter into an installment agreement with IRS to pay off the tax. Interest will still accrue so this may take a very long time, but at least you will know that there will be no levies as long as you are current on your payments. This is the least attractive option. Our office can help you in obtaining an installment agreement.

2. Offer in Compromise- This is what all the ads you see on television or hear on the radio are referring to when they talk about the “New IRS Programs” or “The Fresh Start Initiative”. The Offer and Compromise (“OIC”) is not a new program and has been around since the 1990s. An OIC allows you to pay a smaller lump sum in full satisfaction of the tax debt. It is all formula driven: you must pay to the IRS as much as they would get if they sold basically all of your property and you pay them your monthly disposable income multiplied by 12. Disposable income means your monthly gross income less certain stingy expenses the IRS allows you. The key here is to manipulate the formula so IRS has no choice except to accept the OIC, something IRS seems to try and avoid. When doing an OIC it is important that you choose a reputable local attorney or accountant who has OIC experience. Most of the companies advertising on the radio or internet are out of state and I have never had a client give me a positive comment about them. They tend to take a large retainer from you after making big promises without ever reviewing your case, and then are unable to deliver. When you meet face to face with a local attorney, he can tell you what your chances for success are right then. Sometimes the numbers just do not work for an OIC.

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3. A chapter 7 bankruptcy can discharge tax debt if it is for a tax year over 3 years old, it is over 2 years since the return was filed (you must have filed a return) and it is over 240 days since the tax was assessed. This is often a good way to go because you are dealing with a judge rather than a low level IRS employee.

4. If the tax is not old enough for a chapter 7 discharge, or it is 941 civil penalty tax, which can never be discharged in a bankruptcy, a chapter 13 bankruptcy is available. In this bankruptcy you pay off the tax in full over 5 years with equal monthly payments, but without interest.

The important thing to remember here is that just because you owe the IRS, you are not helpless and at their mercy. All of the above options can help you with your IRS debt. Most local attorneys and accountants offer a free consultation (just like we do here at Campbell & Coombs) to go over your case and analyze all your options.

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September 5, 2013

WHAT IS A "LIEN STRIP" AND HOW DOES IT WORK?

When the real estate market crashed, starting in 2007, we had many homeowners stuck in a situation where their homes plummeted in value so much that there was no equity at all. Thousands of homeowners walked from their homes, allowing the properties to be foreclosed upon.

A lien strip is where the lien of a lienholder, other than the first mortgage, is stripped and ultimately changes the status of the obligation owed to the lienholder from “secured” to “unsecured”.

The legal authority for lien stripping in Chapter 13 is 11 U.S.C. § 1322(b)(2). and 11 U.S.C. § 1328(a). § 1322(b)(2) allows a wholly unsecured lien on a debtor’s principal residence to be modified. § 1328(a) allows any unpaid portion of the claim to be discharged as an unsecured debt.

In order to properly “strip” a lien (be it a second mortgage, third mortgage, or a judgment lien), the value of the debtor’s home must be less than the amount owed on the superior mortgages or liens.

A commonly misunderstood aspect of lien stripping is understanding what is going on. If you owe money to someone, it is an “obligation”, or something that you are supposed to pay. Many companies that you incur an obligation to want to be extra sure they get paid. In order to do so, they make you give them a “lien” against your property. There are, therefore, two parts to each obligation owing on your home. Usually, homeowners sign a note, which is the obligation, and a deed of trust, which is the lien. A chapter 7 bankruptcy can wipe out your obligation to pay a mortgage, but it does not wipe out the lien. If you do not pay, the lienholder can foreclose and take the property back. In other words, the lienholder can use the property that you gave them a lien on to satisfy the obligation, even though you might not technically owe it anymore.

In chapter 13, we have different rules, so we can get rid of the lien. Typically, a lien strip requires a special lawsuit, called an “adversary proceeding”, which is filed against your lienholder. Often there are differences of opinion as to the value of your property, and the issue could wind up going to trial in front of a bankruptcy judge.

Ultimately, if you are approved for a lien strip, it means that your obligation to the creditor is treated as unsecured (you do not necessarily have to pay all of it, and may pay only a small percentage of what is owed). The catch to the lien strip is that, in order to preserve it, you must finish making all of the required payments in your chapter 13 bankruptcy. Once the chapter 13 bankruptcy is completed, by fulfilling all of the requirements of your plan and stipulated order confirming plan, a discharge can be entered in the chapter 13. Additionally, the judge will sign a final order stripping the lien. This order should be recorded with your county recorder in order to preserve it for the real estate records.

If your chapter 13 case is not completed, you will not get the benefit of the final order stripping lien. So, if your chapter 13 case is dismissed, no lien strip. You still owe the lienholder and they may foreclose if you do not pay them. If you convert your chapter 13 case to a chapter 7 case, no lien strip.

The concept of lien stripping in chapter 13 appears to be to give a fresh start to the homeowner debtor who puts his or her best efforts forward to try and pay their debts, but cannot pay all of them. As housing prices increase, lien strips will become less and less popular, eventually disappearing all together.

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August 15, 2013

Student Loan Interest Rate Reduction

A bipartisan bill, expected to be signed by President Barack Obama, would lower the rate on federally subsidized Stafford loans from 6.8 percent to 3.9 percent. It comes a month after lawmakers failed to reach a deal to keep the interest rates from rising from 3.4 percent to 6.8 percent. This is good news for everyone with student loans. Total student loan debt in this country is now higher than total credit card debt. It is fast becoming the number one debt problem in America.

I am the State Chairperson for the National Association Consumer Bankruptcy Attorneys (NACBA). Our lobbying arm worked very hard to get this interest rate reduction. We are continuing to lobby for changes to the bankruptcy law regarding the discharge of student loans. Current bankruptcy law only allow the discharge of student loans if the debtor can prove a hardship. The rules for hardship are so strict that it is virtually impossible to obtain a hardship discharge unless you are totally disabled and have been making payments on the loans.

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Before 2005, we could discharge private (as opposed to government guaranteed) student loans. That is no longer the case. NACBA is lobbying very hard to remove this private student loan restriction because these loans have the highest interest rates and private student loans are not eligible for most of the programs that government student loans have that allow for lower payments or forbearance. Once we have accomplished this, we will be lobbying for a return to the student loan discharge law as it existed before 1995, which did allow for a bankruptcy discharge for student loans that were over 7 years old.

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August 9, 2013

Select Arizona Exemptions — Guns, Motorcycles and Professionally Prescribed Prostheses

When it comes to guns, motorcycles and prescribed health aides, folks get downright indignant if someone tries to take them away.

It seems people think the second amendment to the U.S. Constitution has something to do with guns. This amendment has been around for a long time. It was enacted by congress on December 15, 1791. It reads as follows: “A well regulated Militia, being necessary to the security of a free state, the
right of the people to keep and bear arms, shall not be infringed.”

Although the words are simple, the meaning has been debated by many people in the last several decades. Gun enthusiasts are pretty clear on the meaning, however, “stay away from my firearms”.

Motorcycles have been part of the American culture for a long time too. Bicycle racing was at its height in the United States in the 1890s and shortly after that, motor driven cycles were invented. The Harley-Davidson Motor Company made its appearance in the manufacture of motorcycles in 1903. By 1913 there were thirty-seven different makes of motorcycles being manufactured in the United States, including Indian, Thor, Black Hawk, Breed, and Corson Special. Motorcycle slogans such as “Live Fast, Die Young” and “Live to Ride, Ride to Live” express how many motorcyclists feel about the experience of owning a motorcycle.

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And of course, you are wondering, why are we interested in Prescribed Health Aides and what do they have to do with guns and motorcycles? Well, read on and you’ll learn something. Folks with wheelchairs, crutches, cains, and scooters can get just as indignant as bikers if you try and take their crutches away.

What is a Prescribed Health Aide or a Professionally Prescribed Prostheses in the bankruptcy context, anyway? There is virtually no case law on this. Research of the issues indicates that they are designed to allow an injured person to approximate normal body function or to compensate for the effect that the injury had on normal body functions
So, if you want to file bankruptcy, its normally a “Voluntary” thing. This means that, due to your circumstances, you are choosing to file for bankruptcy. You do not have to do so. As a result, how bankruptcy affects your rights in relation to motorcycles, guns, and prescribed health aides is not an infringement of your constitutional or god given rights.

In Arizona, effective September 15, 2013, if you file a bankruptcy, you can exempt certain interests in motorcycles, guns, or professionally prescribed prostheses in new amounts. The relevant Arizona Revised Statutes, or portions thereof, are as follows:

“33-1125. Personal items
The following property of a debtor used primarily for personal, family or household purposes shall be exempt from process:
... 7. One typewriter, one bicycle, one sewing machine, a family bible, a lot in any burial ground, one shotgun or one rifle or one pistol, not in excess of an aggregate fair market value of one thousand dollars.
8. One motor vehicle not in excess of a fair market value of six thousand dollars. If the debtor or debtor's dependent is physically disabled, the equity in the motor vehicle shall not exceed twelve thousand dollars

9. Professionally prescribed prostheses for the debtor or a dependent of the debtor, including a wheelchair. “

So, there are certain facts you have to face, in relation to guns, motorcycles, and medically prescribed prosthesis, should you choose to file bankruptcy.

A. You can keep ONE shotgun or ONE rifle or ONE pistol, not valued over $ 1,000.00. (This doubles if you are married).

B. You can keep ONE motor vehicle (this includes a motor-cycle) with a fair market value of $ 6,000.00. (This doubles if married.) The statute indicates that you may have a motor vehicle with equity of $ 12,000.00 if the debtor or debtor’s dependent is physically disability.

C. You can keep professionally prescribed prostheses for the debtor or a dependent of the debtor, including a wheelchair.


Its important to note that you may have issues successfully claiming a motor-cycle exempt under the physical disability aspect of the statute, unless you can show how the particular motorcycle meets the statutory requirement. Since the statute does not really say much about it, you may want to consider how a reasonable person might view your claim of exemption.

The gun exemption is going to $ 1,000.00 per gun, that’s a $ 2,000.00 gun if married (stacking exemptions) or two one-thousand guns if married.

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Professionally prescribed prostheses are wide open. There are no upward dollar limits on these items. There is virtually no case law on what the definition of “professionally prescribed prostheses” is. Its apparent, however, that you need a professional to prescribe the item for you, presumably for a medical reason - mental or physical. So now we leave you with some questions for your consideration. Take a look at the pictures accompanying this post. If a debtor could obtain a prescription for these items, could they be successfully claimed as exempt, and therefore retained, when doing a bankruptcy? Remember, there is no dollar limit on professionally prescribed prostheses.

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July 19, 2013

CHAPTER 13 BANKRUPTCY CAN HELP WITH TAX DEBT

If tax debt is a substantial portion of your liability and you can qualify, you may want to consider filing a Chapter 13 bankruptcy. Even if the taxes are secured, the majority of courts have held that tax penalties are not secured and are never a priority. The reasoning is that the courts are not willing to penalize the unsecured creditors by giving priority to the penalties. This also applies to interest that has accrued on the penalties. Therefore, the superdischarge remains in effect for tax penalties and the interest that accrues thereon no matter when assessed or when the triggering event happened. (Section 523 (a)(7)(A) and (B); and Section 1328(a). Contrast this with chapter 7 where penalties are dischargeable only if the triggering event causing the penalty is over 3 years old.

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July 5, 2013

A CREDITOR MUST TIMELY RETURN A VEHICLE IT REPOSSESSED OR BE IN VIOLATION OF THE BANKRUPTCY CODE’S AUTOMATIC STAY

In In re Nathan B. Makowski, the 9th Circuit ruled that a creditor willfully violated the automatic stay by failing to return a debtor’s vehicle immediately following his filing for Chapter 13 relief.
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A credit union in Nevada, that financed the purchase of debtor’s truck, repossessed the vehicle one week before the debtor filed for relief under Chapter 13 of the bankruptcy code. After the debtor’s attorney informed the credit union of the bankruptcy filing he demanded the truck’s return. The credit union refused and instead said it was going to request stay relief from the Court. Debtor’s attorney was forced to file a motion to compel the credit union to return the vehicle and requested sanctions be imposed against the credit union.

Debtor’s attorney contacted the credit union on a Friday and demanded its return no later than noon the following Monday. The credit union refused although after being advised by debtor’s attorney of the Motion to Compel, the credit union returned the vehicle later Monday afternoon. The 9th Circuit ruled that the time frame given by debtor’s attorney was reasonable and the credit union’s delay willfully violated the stay by retaining the vehicle past the deadline. The Court further stated that the credit union’s initial refusal to return the vehicle required the debtor to take legal action that should not have been necessary. As a result, the credit union was ordered to pay the debtor’s attorney fees and costs.

Cited Sources:

In re Makowski, Slip Copy, 2013 WL 2154788, Bkrtcy.D.Alaska,2013

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June 28, 2013

ARIZONA LEGISLATURE AMENDS EXEMPTIONS FOR BANKRUPTCY

For the first time since 2001, Arizona has increased the exemptions that a Debtor may claim when he files a bankruptcy. When debtors file a Chapter 7 bankruptcy, they receive a discharge of their debts (with some limited exceptions). In exchange for this discharge, a trustee is appointed who takes and sells some of the debtor’s property to be used to pay his creditors. However, pursuant to the Arizona exemptions, there are some items the trustee cannot take. The debtor gets to keep these items to help with her fresh start. Beginning September 15, 2013, the new exemption law allows exemptions in more items of property and for increased values. Some of the highlight are as follows: [NOTE: Regarding a debtor’s home-This was unchanged. A debtor can still exempt equity of $150,000].

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1. All wearing apparel not in excess of a fair market value of five hundred dollars ($500).

2. All musical instruments provided for the debtor's individual or family use not in excess of an aggregate fair market value of four hundred dollars ($400).

3. Domestic pets, horses, milk cows and poultry not in excess of an aggregate fair market value of eight hundred dollars ($800).

4. All engagement and wedding rings not in excess of an aggregate fair market value of two thousand dollars ($2,000).

5. The library of a debtor, including books, manuals, published materials and personal documents not in excess of an aggregate fair market value of two hundred fifty dollars ($250).

6. One watch not in excess of a fair market value of one hundred fifty dollars ($150).

7. One typewriter, one computer, one bicycle, one sewing machine, a family bible, a lot in any burial ground, one shotgun or one rifle or one pistol, not in excess of an aggregate fair market value of one thousand dollars ($1,000).

8. Equity in one motor vehicle not in excess of a fair market value of six thousand dollars ($6,000). If the debtor or debtor's dependent is physically disabled, the equity in the motor vehicle shall not exceed twelve thousand dollars ($12,000).

9. Professionally prescribed prostheses for the debtor or a dependent of the debtor, including a wheelchair.

10. A total of three hundred dollars ($300) held in a single account in any one financial institution.

Perhaps the most important change concerns self employed business debtors who can now exempt the tools, equipment, instruments and books, including telephone numbers, client or customer contact information, or marketing tools, such as websites, domain names or any other intangible work product, in the possession of a debtor or the spouse of a debtor primarily used in, and necessary to carry on or develop, the commercial activity, trade, business or profession of the debtor or the debtor's spouse, not in excess of an aggregate fair market value of five thousand dollars ($5,000). For the purpose of this paragraph, “tools” do not include a motor vehicle primarily used by a debtor for personal, family or household purposes such as transportation to and from the debtor's place of employment.


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April 12, 2013

IRS’s Fresh Start Initiative Still Poses High Hurdles for The Offer In Compromise Program

In 2011 The IRS created what they call a “Fresh Start Initiative” which is a series of new steps to help struggling taxpayers with their tax liabilities. In May 2012, the IRS expanded their Fresh Start Initiative by offering more flexible terms to its Offer in Compromise (OIC) program. These are the “New Programs” that you are constantly hearing about on the radio and late night ads from out of state companies that claim to know the “Secrets” of resolving your tax debt. The OIC program is designed to help the most financially distressed taxpayers to significantly reduce their tax liability. Some of the new terms announced in May 2012, include the following:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to deduct payments to student loans.
• Allowing taxpayers to deduct payments for state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

One of the biggest changes made to the OIC program changed how the IRS calculates a taxpayer’s reasonable collection potential. Before May 2012, the IRS would multiply a taxpayer’s disposable income by 4 or 5 years depending on the length of time it would take the taxpayer to pay off the offer. After May 2012, the IRS announced that if the offer could be paid in 5 or fewer months, then the taxpayer would only have to multiply their disposable income by 12 months, and if the offer would be paid in 6-24 months then the disposable income would be multiplied by 24 months. This change drastically decreased what a taxpayer would have to pay in an Offer in Compromise. Now if this sounds to good to be true, it just might be. One of the OIC requirements the IRS did not change when expanding their Fresh Start Initiative is that if the taxpayer can pay their tax liability in full through an Installment Agreement or within the statutory period, then the offer will be rejected. This essentially means that the IRS will initially multiply a taxpayer’s disposable income by at least 72 months, and if it shows that the total tax liability can be paid within that time then the offer will be rejected.

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While the IRS’s Fresh Start Initiative programs are beneficial to taxpayers, they are not as “streamlined” as the IRS would like you to think. In any event, these programs do offer relief to tax payers from aggressive collection methods by the IRS and those who ultimately qualify for an OIC will be able to drastically reduce their tax debt. At Campbell & Coombs we offer a free initial consultation to see if these Fresh Start Initiatives can help. We will give you straight answers and go over all the options you have for dealing with your tax debt.

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