2014/2015 Bankruptcy Tax Refund – Keep and Spend It Wisely

Bankruptcy Tax Refund – Keep and Spend It Wisely

Many people enjoy receiving a large tax refund during the springtime months of every year.  The average middle class family receives approximately $5000 in tax refunds.  But problems can arise if a member of that family is filing Chapter 7 Bankruptcy before the refund is spent.

To keep your refund and file Chapter 7 Bankruptcy consider this action plan.

File your taxes on or after January 31, 2015 (and later years)

Receive your refund on or after February 28, 2015

Spend your refund on the following categories

  1. Bankruptcy Attorney $1500
  2. Bankruptcy Filing Fee $335
  3. Non-Luxury Goods:
    1. Low to Mid Priced Clothing
    2. Food
    3. Medical Care
    4. Utilities
    5. Car Repairs
    6. Mortgage Payment
    7. Rent
    8. Car Payment

Do Not Spend your refund on:

  1. Luxury Goods:  Jewelry, Over priced unnecessary items
  2. Gifts to Friends, Relatives and Insiders
  3. Do not pay back family or creditors

How much of my refund am I allowed to keep in liquid cash?

As much as your exemptions allow.  In Illinois you can keep $4000 of cash, personal items (including household goods), tax refund, stocks, bonds and other assets.  In practicality – typically less than $1500.

Be careful, seek out the counsel of a bankruptcy attorney to determine if bankruptcy is appropriate debt relief and how and when you should spend your tax refund and in general prepare for your bankruptcy filing.

What happens if I file and then receive a large tax refund – it is part of the bankruptcy estate and you must have exemptions to keep it.

2013 Tax Refund

tax-refund2013 Tax Refund.  W-2 Forms must be sent by your employer by January 31, 2014 which means that nearly everyone can file their taxes on February 1, 2014 or earlier.  If you receive your tax refund electronically, your refund will probably arrive in under two weeks.  If you receive your tax refund through the mail, your refund will usually arrive by the end of February or 30 days after filing your tax return.  To find out the status of your tax refund for 2013, click here:,-Easy,-and-Secure. To learn more about how to file your Federal Tax Return electronically using the IRS free electronic filing click here:   To learn more about how to file your Illinois Income Tax electronically click here:

Many people use their tax refund to file Chapter 7 Bankruptcy.  Oftentimes, a Chapter 7 Bankruptcy will cost anywhere from $1000 to $2500 depending on the complexity of the case.  Your Federal Tax Refund is oftentimes a a great way to fund this filing.  To learn more about whether Debt Relief through Bankruptcy is right for you, click here to set a no cost debt relief consultation

Celebrity Bankruptcy – Fisker Karma Motors – Gone but Not Forgotten – Justin Bieber it’s time for a New Car



Celebrity Bankruptcy – Fisker Karma Motors – Gone but Not Forgotten – Justin Bieber it’s time for a New Car   If you are a fan of Duesenburg or Tucker than you know as well as anyone that just because a car company goes out of business doesn’t mean its cars won’t be popular. Right now Jay Leno is driving both a Duesenburg and a Stanley Steam. Justin Bieber and Al Gore are driving Karma’s. Don’t worry it won’t be more than 30 years before these Karma’s ….and Saab’s start showing up at Pebble Beach.

A Chinese Investor is looking to buy the assets and manufacture some version in the US. Or as Tesla has already learned, probably just to mine the patents and intellectual property from the company. It would be great if they would manufacture Karma’s here because it would provide jobs in Wilmington Delaware where Karma’s shuttered former GM Manufacturing plant hasn’t turned out a car in over a year.

Here’s the biggest kicker of all – and its not in the court filings: Hurricane Sandy really did Karma in by destroying over 400 unsold by completed cars. When you consider that the 48 or so Tuckers manufactured average a million dollars a piece, that’s about 400 million in todays dollars.

The government of course lost money on this deal, but so did a lot of other people when “Cash for Clunkers” came out and destroyed a whole bunch of used car dealers and auctioneers, plus you can’t find any late 1970’s Cutlass Supreme’s anymore.

Case Summary:

Fisker filed two cases on November 22, 2013.  One as Case No. 13-13087 and one as Case No. 13-13086.  Both are case summaries are available below.

Case.Summary.Fisker.13-13086 Case.Summary.Fisker.13-13087_Redacted

Here’s the link for the Chicago Tribune Article that support some of the information in this blog.

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Veterans Benefits Are Exempt in Bankruptcy and Illinois

Marines Raising Flag Over Iwo Jima

Marines Raising Flag Over Iwo Jima

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Veterans Benefits Are Exempt in Bankruptcy and Illinois.  These benefits are exempt under the Illinois Statutory Exemptions found at 735 ILCS 5/12 1001(g) (2).  The Federal Exemptions at 11 U.S.C. 522(d) are prohibited in Illinois pursuant to 11 U.S.C. 522(b) which authorizes the state prohibition and Illinois Statute 735 ILCS 5/12-1201 which prohibits the Federal Exemptions in Bankruptcy and provides exemptions under 735 ILCS 5/12 1001.

There are some significant limitations to this exemption:  Only current and future payments are exempt.  Saved benefits are not exempt.  Case law construes this by stating that the benefit is to provide some minimal level of income and not be a windfall to the debtor.  Even saved benefits that segregated and ONLY veterans’ benefits proceeds and are traceable to those Veterans’ Benefits Payments are not exempt under 1001(g).   In other words any accumulation of benefits more than one month of payments is going to become property of the bankruptcy estate and would be subject to seizure by the trustee if not exempt under another exemption.

This is contrasted with the exemption provided under 735 ILCS 5/12 1001(h) which talks about the debtor’s right to receive, or property that is traceable to:  (1-5 – personal injury, wrongful death, life insurance and other claims very different from Veteran’s Benefits)

Statutes:  735 ILCS 5/12 – 1001(g) (2) (Illinois Veteran’s Benefit Bankruptcy Exemption)

Statutes:  735 ILCS 5/12-1201 (11 U.S.C 522(b) authorizes State of Illinois to prohibit use of Federal Bankruptcy Exemptions under 11 U.S.C. 522(f))

Case Law:  Fayette County Hospital v. Reavis, 169 Ill.App.3d 246, 119 Ill. Dec. 937; N.E.2d 693 (Ill.Ap. 5 Dist., 1988); In Re Marriage of Pope-Clifton, 355 Ill.App.3d 478, 291 Ill.Dec. 315, 823 N.E.2d 607 (Ill. App., 2005); In Re Schoonover, 331 F.3d 575 (7th Cir. 2003); In re Russell (Bankr. C.D. Ill., 2013)

Click Here to Download and View the Supporting Statutory and Caselaw Research for this Blog Article

Veterans Benefits Exemption Research

Bankruptcy Court to remain open for 10 business days

Bankruptcy Court to remain open for 10 business days during government shutdown In the event of a government shutdown on October 1, 2013, the Federal Judiciary will remain open for business for approximately 10 business days. On or around October 15, 2013, the Judiciary will reassess its situation and provide further guidance. All proceedings and deadlines remain in effect as scheduled, unless otherwise advised. Case Management/Electronic Case Files (CM/ECF) will remain in operation for the electronic filing of documents with courts. To view this information from our website select the following link:

Unlisted Debts Dischargeable

tropicalUnlisted Debts Dischargeable.   Unlisted Debts are Still Discharged in Bankruptcy.  Another way to describe this is as the Dischargeability of Bills not included in your bankruptcy.

In a Chapter 7 Bankruptcy,  your case is discharged and closed.  This article applies to a “no‐asset” case. That is a Chapter 7 Case in which the assets of the debtor either have no equity or are exempt.  Creditors that were given notice were told not to file claims. This regards bills that you allege were incurred prior the petition filing date. Section 727 of the Bankruptcy Code says “That the Court Shall grant the debtor a discharge, unless….(b) except as provided in § 523 of title , a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter…” § 523
prohibits the discharge of a debt that is “(3) neither listed nor scheduled under § 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit…” Courts have construed this language to mean the following: In a case where there are no assets and there was no intent to defraud, all debts are discharged whether listed or not as long as they were incurred prior to the date of filing. In re Walker, 195 B.R. 187 (Bankr. N.H. 1996); In Re Anderson, 104 B.R. 427 (Bankr. N.D. Fla. 1989); In Re Davie, 302 B.R. 432 (W.D. N. Y., 2003); In Re Sharon Stallworth, Case No. 06‐24187‐A‐7 (Bankr. E.D. Cal 2008); Beezley v. Californa, 994 F.2d 1433 (9th Cir. 1993) and White v. Nielsen (In re Nielsen), 383 F.3d 922,925 (9th Cir. 2004). The last case listed being the strongest and most on point.

Conclusion:   Debts incurred prior to the date of filing are discharged and the debtor is not liable for these debts. If you have creditors informing you that you still owe these debts incurred prior the filing of the bankruptcy, you should contact these creditors and inform them the debts are discharged. Your bankruptcy attorney can often send a letter to these creditors informing them that the debts are discharged. You must be certain that the date of incurring the debt was prior to the date of filing the bankruptcy. The date of incursion is primarily when the service rendered is completed or the product is delivered to you – not necessarily the date a service or product was invoiced. If the debt was incurred after that date, the debt is not discharged.  It is always a good idea to review your credit report to ensure that none of these debts appears on your report. If you need to remove the debt from your report, simply notify the credit reporting agency via Certified
Mail that the debt is discharged by saying the date it was incurred and the date your bankruptcy petition was filed along with a copy of your discharge order.

Chapter 13 Debt Limits (Revised April 1, 2013)



Chapter 13 Debt Limits (Revised April 1, 2013)

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Effective April 1, 2013 the Secured Debt Limit is $1,149,525 Effective April 1, 2013 the Unsecured Debt Limit is $383,175  To See a Complete List of the Revised Debt Limit Amounts, please click: Revisedamounts Debt limits are revised every three years, the next revision date is April 1, 2016. Wholly unsecured junior mortgages count toward the unsecured debt limit.

This information provided as a courtesy from Chapter 13 Bankruptcy Trustee Glenn B. Stearns

Top Five Reasons to File a Chapter 13 Bankruptcy:

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1. STOP THE GARNISHMENT: All garnishments stop at the moment of filing a Chapter 13 Bankruptcy. Typically a chapter 13 plan payment is less than a garnishment and takes care of all of your debts comprehensively. Chapter 13 Bankruptcy usually requires as little as only the filing fee (currently $281) to file. All attorneys fees are usually within the Chapter 13 plan – most attorneys offer this with a entry of a payroll order to pay for the bankruptcy.

2. SAVE THE HOME: Any home can be saved in Chapter 13. Your arrearage can be paid back over sixty months without interest.

3. REFINANCE YOUR CAR: Practically any call loan can be refinanced to prime rate plus 3% which today is 6.25% or less. This is a remarkable way to save your car and make it more affordable.

4. STRIP THE SECOND MORTGAGE: this magic trick is called a lot of different things but simply put it is getting rid of mortgages that are underwater except the first mortgage on your primary home. For example if your house is worth $200,000 and you have a first mortgage of $240,000 and a second mortgage of $70,000, using this technique in chapter 13 bankruptcy you can pay your first mortgage as usual and treat the second mortgage like a credit card paid at 10 cents on the dollar. At the end of the bankruptcy the second mortgage is released as though paid off completely.

Because salaried workers can pay their chapter 13 legal fees through the chapter 13 plan, most chapter 13’s cost only $281 to file but with the same immediate protection from creditors that you find in a chapter 7.

Social Security Overpayment is Discharged in Bankruptcy

IMG_0978rSocial Security Overpayment is Discharged in Bankruptcy.  This general rule is subject to a limitation:  Recoupment.  Post bankruptcy filing the Social Security  Administration is allowed to “recoup” at 100% out of future benefits paid.  This is not a set off but is instead recoupment.

Application:  Debtor has overpayment of $25,000 on date of bankruptcy filing.  Debtor does not presently receive social security benefits.  Debtor filed a Chapter 13 Bankruptcy.  At the conclusion of the bankruptcy debtor will have paid 10% of the $25,000 claim through his Chapter 13 Plan with the rest of the claim being discharged in bankruptcy.  Since debtor is no longer receiving any social benefits out of the transaction that involved overpayment, no recoupment of future benefits from this transaction can occur.  Also, if the debtor applies for new social security benefits, he will not have recoupment out of these because these are not the same transaction as the prior overpaid benefits

Application:  Debtor has overpayment of $25,000 on date of Chapter 7 Bankruptcy filing.  At the time of filing debt is still receiving benefits under the original social security transaction that is overpaid.  At the present time his benefits are being withheld through recoupment.  Upon discharge of the Chapter 7 Case, the debt is discharged, but the recoupment can continue on the discharged debt because the future benefits are being recouped and not subject to the discharge.  New and different benefits that are not a part of the original transaction are not affected the present recoupment have not witholding.

Legal Discussion:  See Supporting Cases  case.binder.ssaop.web.2.13.2013

Supporting this analysis are the following cases:

In re Caldwell, 350 B.R. 182

(Affirming Caldwell) Terry v. Standard Ins. Co.

(Affirming Caldwell) In re Irby 359 B.R. 859

Neavear, Matter of   674 F. 2d 120

Forteney v. Liberty LIfe Assurance Co.

In re Adamic 291 B.R. 175

And More Cases



Peregrine’s Wasendorf Sentenced to 50 Years in Prison

The Wall Street Journal is reporting today that :
Peregrine’s Wasendorf Sentenced to 50 Years in Prison. Russell Wasendorf Sr. was sentenced to the maximum 50 years in jail after admitting to orchestrating a fraud at the futures brokerage he founded and misleading regulators for almost 20 years. Mr. Wasendorf pleaded guilty last September to the fraud at Peregrine Financial Group that federal prosecutors said cost his investors around $215 million and masked a business that was never profitable.

Here are some pictures from the auction of his personal and corporate owned assets:


Peregrine Charities still has their website up.  The phone number does not work.  I assume that it has been dissolved.   I captured it in adobe as I can’t tell how long it will still be up.

(not posted – it is copyrights and permission cannot be obtained)

It is unfortunate that another financial brokerage that appeared to do much for the community is now gone and investors are out lots of money.  Certainly this is a loss for the Town of Cedar Falls, Iowa which no longer has the My Verona  Restaurant 419 Main Street; Cedar Falls, Iowa or for the beneficiaries of the Peregrine Charities.

For more information about the bankruptcy, please see bankruptcy schedules summary provided below.



Chicago Area Foreclosures are Up 30% in 2013

IMG_0988rChicago Area Foreclosures are Up 30% in 2013.  In a recent article by the Chicago Tribune (Chicago Tribune, January 31, 2013), foreclosures were listed as being up 30% in 2012.  This is consistent with prediction for foreclosure activity way back 2009 when I attended and October, 2009 ABI Seminar at the Standard Club.  Clearly, we were shocked in 2009 that foreclosures were predicted to get worse, but it makes sense.  A large portion of our mortgaged housing stock was underwater in 2009 and more of it was underwater in 2012 as housing pricing had not really rebounded but instead fallen.  One of the reasons for the “real” housing price decline is that our housing stock as become “illiquid” as a home may be appraised for $400,000 but no one who would purchase the home can get a loan to purchase it.  Therefore causing a “gap” between the demand and supply curves.

Why is foreclosure so attractive to lenders – quite simply recovering of money NOW.  On average a bank recovers more than 1/3 of the loan principal in a foreclosure.  Then the bank applies to either the private mortgage insurer or the Federal Government to cover the rests – have you ever heard of Fannie Mae – that’s what they do – pay out on losses.

Chicago Area Foreclosures are Up 30% in 2013.  Home Loan Modifications are Pure Profit for Lenders and Foreclosures are a nearly 70% recovery for lenders.   When a bank offers you a home loan modification they are not doing so to “help” you.  Instead it is a nifty way to make more money off of you.  Keep in mind that a bank that offers you a home loan mortgage at 6% is currently paying only 0.5% or less for the money they borrow from Federal Funds to cover this loan.  Therefore, if a bank offers a 5 years interest rate break to 2% – they still make 1.5% off of you and they increase their chances for full repayment by giving you five years to have the value of your home rise and also have you either keep your employment, get better employment or get a job (if you are unemployed).

In conclusion, Congress and the Senate should get together and allow borrowers to restructure their loans through Chapter 13 Bankruptcy which is a comprehensive reorganization where everyone is paid fairly, comprehensively and people are not uprooted out of their homes and communities.

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