Can I Collect Rent If I’m Surrendering Rental Property in Bankruptcy?
Rental properties can be a great source of income until a renter moves without notice or fails to pay or that rental income starts to be used for your personal household expenses. As situations arise, many people are finding it necessary to file bankruptcy and surrender the extra properties and the mortgages that come along with those properties. When you surrender a rental property in bankruptcy, you are in essence surrendering your interests and rights to the property. Therefore, you are not eligible to collect rent while in bankruptcy.
Additionally, the bankruptcy Trustee sees this as unprotected funds and will request the received funds to go to the creditors. Furthermore, tenants are always informed if a house is being surrendered in bankruptcy. Your tenants may be well aware of their rights and have the responsibility to report a debtor who tries to collect rental income while in bankruptcy.
Once you have been discharged of your debts and have received a final decree that officially closes your case, you may begin to receive rental income. However, approach this scenario with caution. Even though you have completed your bankruptcy the Trustee has the ability to reopen your case and require you to pay him all the funds you had received after your discharge. So, you definitely need to weigh your pros and cons. If this situation sits in your future horizon, you should discuss this with your bankruptcy attorney prior to your discharge. Moreover, if the tenants are aware of the circumstances, they may not even be willing to pay rent while still living in the home. Since the property is still in your name until the bank forecloses, you may engage in the eviction process. Or you could insist on the tenants paying enough to cover homeowners insurance or property taxes. If there is a homeowners’ association linked to the home, whoever lives in the property should stay current with the HOA.
We typically tell our clients to stop collecting rent when they decide to file for bankruptcy. Instead, the tenants should pay rent to the bankruptcy Trustee or stop paying rent all together if they no longer wish to stay in the house. This ensures the bankruptcy client is not doing anything to jeopardize the success of their bankruptcy.
Do Credit Repair Services (After Bankruptcy) Actually Work?
In this age of information it can be tough to discern which tasks we are capable of handling ourselves and which tasks we should leave to the professionals. As bankruptcy lawyers we have clients who contact us on a regular basis and ask if they should hire a credit repair company to rebuild their credit. In short, we don’t think so.
In the case of repairing your credit after bankruptcy, an individual is perfectly capable of resurrecting his or her own credit score. Research is all what it comes down to and having the time to fill out forms and make certain phone calls. Six months after filing, we suggest pulling your credit report from all three credit bureaus: Equifax, Experian and TransUnion (you can pull your credit report for free once a year by going here). You should examine these reports to make sure all debts listed in your petition have been discharged through your bankruptcy. If a credit or collection agency has failed to report correctly, it will be up to you to be your own advocate. First, you should send, in writing, a letter to the creditor stating when you filed bankruptcy, your case number, when you were discharged from all your debt and a request that they correct the entry with all three bureaus. Next, go to the individual credit bureaus websites and determine the process of filing a dispute against the creditor that is not reporting correctly. If the battle continues and you need a legal hand, you should contact your bankruptcy attorney: they should be able to fax over the necessary information to clear up any matter.
If a creditor still fails to accurately report the discharge of your debts to the credit bureaus then they could be sanctioned for violating federal laws. You could also report them to the Federal Trade Commission.
As in everything, it is important to document as you communicate with these companies. Although they are required to document as well, it is nice to have your own personal reference, especially if you are dealing with a difficult or large company. Make sure to stand your ground and know your rights!
How is the Household Size Determined for the Means Test?
The basic purpose of the Means Test is to determine whether a Debtor is eligible to file Chapter 7 bankruptcy. Along with other supporting requirements, the Means Test plays a major role in Chapter 7 bankruptcy. The Means Test also tells us whether a Debtor would need to pay back some of their debts in a Chapter 13 bankruptcy if they do not “pass.” Simply put, the Means Test determines the Debtor’s monthly income by taking the Debtor’s household’s gross income and subtracting qualified deductions. By doing this, we can decide whether the Debtor would need to be looking into filing a Chapter 7 bankruptcy or Chapter 13 bankruptcy.
What Happens If I Owe Taxes While In A Chapter 13 Bankruptcy?
When you file for a Chapter 13 bankruptcy, there may be a chance you could end up owing taxes over the three to five years that you are in the bankruptcy. If you do happen to owe taxes while in a chapter 13 bankruptcy, the IRS or State that you owe may file a proof of claim. This is a legal document that states how much you owe a creditor. Depending on the amount you owe, the bankruptcy Trustee may need to increase your payments. The amount that the payments would increase depends on how much you owe.
In a Chapter 13 bankruptcy, taxes owed are paid back in full. Depending on what you end up owing, your payments could end up needing to be increased to ensure you pay back everything owed in taxes before your bankruptcy is closed. Your attorney and the Trustee will typically work this out and let you know what the payments will end up being.
To ensure the greatest chance of success in your Chapter 13 bankruptcy you should be sure you try to fix your deductions so you are breaking even each year. Ideally, you don’t want to get a large refund each year (the Trustee could take this if you do) and you don’t want to owe each year because that could cause your monthly payments to increase to an amount more than you can afford within your Chapter 13 bankruptcy.
So what’s the bottom line? Fix your deductions so you don’t continually owe more in taxes over the course of your bankruptcy. If you do owe, contact your attorney and they can work with the Chapter 13 Trustee and the taxing agency to try to ensure you can stay within your Chapter 13 bankruptcy.
Am I Personally Responsible for the Taxes Owed On My Business?
The Internal Revenue Service (IRS) uses a basic logic that if you have any signing authority over the business bank account, then you can be held personally responsible for certain taxes owed by that business. So, yes, if you own a business or part of a business, be prepared to pay certain accrued taxes. This is especially true if you have a sole proprietorship. Additionally, no matter what type of business you own or owned, you also need to be careful when it comes to taxes that you should have paid as an employer – for example, the necessary taxes you pay to the government for your employees (social security, etc.). These can later be assessed as “civil penalties” which you are personally responsible for, even if the business later dissolves.
The general rule when it comes to taxes is that the government – state or federal – almost always gets paid.
What if you have dissolved the company? Unfortunately, dissolving a business will not eliminate any tax debt or liability. Even filing bankruptcy will not take care of all taxes. Generally speaking, the only time taxes may be wiped out in a bankruptcy is if they were filed three years prior to the bankruptcy filing date. The civil penalties mentioned above are also taxes that you can be personally responsible for even if the business has been dissolved.
If you owe a large amount to the government for taxes and are having a hard time coming to terms for a payment plan with the IRS, you may want to look into filing a Chapter 13 bankruptcy, which is a structured repayment plan. This will keep the penalties from accruing and enlarging your original balance owed.
If your business is still operational, you may look into reorganizing your business debt in a Chapter 11 bankruptcy.
The bottom line is that even though you can still be held personally responsible for certain business taxes, you are not limited to repaying your taxes outside of bankruptcy. Certain types of bankruptcy may actually be a better alternative for you when it comes to setting up a repayment plan.
Want To Know What It’s Like To Be Harassed By A Creditor? Real Phone Call
Many of those who are facing financially tough times right now are stressed out even more by creditors who call non-stop. Creditors push the boundaries on what they may and may not do to collect a debt.
For example, here is a voicemail a client of ours emailed us the other day. Our client allowed us to post this voicemail so others could see they are not alone with the constant and harassing phone calls.
After receiving the voicemail we called the number back and spoke with someone with the company. They explained they didn’t know our client had filed bankruptcy. However, we confirmed their mailing address was accurate and explained we had previously sent proper notice of the bankruptcy. We then let them know they were violating the Fair Debt Collection Practices Act and any further attempt to collect on this debt would be met with a motion for sanctions.
They told me they didn’t do anything illegal and, after explaining I had a recording of the voicemail, they hung up on us. Before doing so, they explained they would notate in their system that our client had filed bankruptcy and she would not be contacted again. To date, she hasn’t received another call.
Regardless, this phone call shows some creditors will do whatever it takes to collect on debts. If you believe a debt collector is overstepping the boundaries let them know that they are violating the Fair Debt Collection Practices Act. It is important to keep detailed notes about who you spoke with (including their identification information), what time they called and what they said. Without this information it is difficult to be successful in a motion for sanctions against the creditor.
