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Don’t Delay Filing Your Tax Returns

By David J. Kelly, Minnesota Bankruptcy Attorney

I have not been keeping track but it seems to me that somewhere around 20% of the people who call me are behind in filing their tax returns.  I’m not talking about filing for an extension first and then filing the return by the extended deadline.  I’m talking about not filing anything at all. The usual reason for not filing a required return is that the tax return showed that they owed taxes and they lacked the money to pay the taxes.  I do not claim to be a tax expert, but I can tell you that it is almost always better to file your tax returns on time even if you don’t have the money to pay the tax. If you don’t file the return, you still owe the tax.  Not filing doesn’t make the tax debt go away.  It just delays the inevitable and possibly gets you in trouble. There can be late filing penalties as well as late payment penalties.  Filing on time at least avoids the late filing penalties.

I have learned that it is a really bad idea to file any kind of a bankruptcy if my client’s tax filings are not up to date first.  In a bankruptcy petition we are required to provide a summary of income for three calendar years. I usually just take that information off my client’s tax returns.  We are required to list all your debts and all your assets.  If you have a refund coming, that’s an asset.  If you owe taxes, that’s a debt.  It is nearly impossible to properly list your debts and assets without having all required tax returns completed and filed first.  Without the tax returns the basic information required about assets and debts is incomplete.

It is usually fairly easy to set up payment plans for back taxes owed with the IRS and the Minnesota Department of Revenue.  Just pick up the phone and call them.  You will probably find them very easy to work with.  And if we are having trouble showing that you are broke enough to qualify for a Chapter 7 bankruptcy, the payment plans with the IRS and the Department of Revenue make very handy items to add to your monthly budget.  To qualify for Chapter 7 it is best if your money is all gone by the end of the month.  If you have a little left over at the end of the month, you probably  won’t after you set up your payment plans.    

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Medical or Dental Bills in a Minnesota Bankruptcy

List medical bills in bankruptcy

By David J. Kelly, Minnesota Bankruptcy Lawyer

Often my clients have a therapist, doctor, chiropractor or dentist whose bill they don’t want to list in their bankruptcy. This could be a person that they really like and with whom they have a relationship that goes back several years. I hate to have to explain that one cannot pick and choose which debts to list. You are required to list them all. For some this can be a source of embarrassment an sadness. The primary concern is that maybe they won’t be able to return to that particular provider for further care or treatment. I am glad to be able to report to you that at least here in my area, this has not seemed to be a problem.

Thee is nothing in the law which requires health care providers to continue to provide services or treatment for a Debtor after a debt owing to them has been listed in a bankruptcy, but my experience has been that almost all of them will. For one thing, any health insurance coverage the Debtor has remains in effect. The bankruptcy only affects the part of the bill not covered by insurance. With some rare exceptions – such as one dentist in Elk River and a Veterinarian in Wayzata – the policy of most health care providers around here is that they will roll your bill back to zero as of the day the bankruptcy was filed, and the start over from there.

The health care providers are usually very nice about it. If you have been a regular patient, they know you will keep going back and be a continuing source of business for them. Often the bill you are listing is a small portion of what the original charges were, because a large portion was covered by your health insurance. Typically from their point of view your bankruptcy hardly hurts them at all. Often they will say something like “sorry to hear of your troubles – we hope that all works out for you.”

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Just Updated my Blog Theme

Debt Relief, MN Bankruptcy

By David J. Kelly, Minnesota Bankruptcy Lawyer

I have grown weary of getting messages from Google that my site is not mobile friendly. I will admit that up until now I have had to squint a bit to read my blog posts. I was fearful that changing the theme of the blog would be a long and painful process, time consuming and confusing. I have found so far that it is just the opposite. The whole thing took less than an hour.

There are bound to be bugs, however, and if you notice anything that looks strange please let me know.

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Best Way to Pay for a Bankruptcy is a Tax Refund

By David J. Kelly, Minnesota Bankruptcy Attorney

The Minnesota bankruptcy filing statistics are out for the month of March. Year over year, March of 2019 shows 70 fewer bankruptcy filings than there were in March of 2018. In March of 2018 there were 998 bankruptcy cases filed in Minnesota, but this year in March 2019 it was only 928. March has always been the month in which the greatest number of case are filed – in my opinion that’s because people have tax refund money they can use to pay their lawyers. Why is it down this year? My best guess is it”s those lower tax refunds everyone has been talking about. I see my clients having bigger pay checks because their withholding is less, but they are also having lower tax refunds. Since tax refunds are considered to be an asset, a lower refund can be a good thing once the bankruptcy case is filed.

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Minnesota Bankruptcy Court Still Open at least Until January 25th

Minnesota Bankruptcy Court

By David J. Kelly, Minnesota Bankruptcy Lawyer

Yesterday I received an email from the Minnesota Bankruptcy Court stating in part as follows:

If there is a lapse in appropriations after January 25, the U.S. Bankruptcy Court for the District of Minnesota will likely be operating with reduced staff focused on processing filings that directly affect the protection of human life and property, as required by the Anti-Deficiency Act. The court is still in the process of determining which activities can and cannot be performed during a shutdown, and will provide ongoing guidance as these determinations are made.  

We anticipate that, during any shutdown:

CM/ECF will remain operational;

The BNC will continue to process and send notices in the ordinary course; and

PACER will remain operational and the PACER Service Center will provide ongoing support services.

In the coming days, we plan to set up an email box to which you can direct questions, concerns or comments about the shutdown.  We will send out the email address with any additional updates as these become available. 


I take this as meaning that for now I can continue with business as usual but that I better keep a close eye on things.

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Recent Increases for the Minnesota State Exemptions

Protecting your home and your stuff

By David J. Kelly, Minnesota Bankruptcy Attorney

If you’ve been reading any of my musings, you know that when you file a Chapter 7 bankruptcy, ownership of all your stuff is temporarily and theoretically transferred to a trustee appointed by the court.  I say “theoretically” because normally the trustee doesn’t get to keep any of it, or at least gets to keep very little.  The reason why the trustee can’t keep your assets is that – with the help of somebody like me – you are going to claim all or most of your stuff as exempt.  There are two sets of exemptions in Minnesota to choose from:  the federal exemptions and the Minnesota state exemptions.  The federal exemptions tend to be much better than the Minnesota state exemptions, except in one area:  equity in a homestead.  If you own your home and you have more than just a little equity in your home, the Minnesota state exemptions are for you.

Several of the Minnesota exemptions are indexed for inflation.  The resulting increases are only applied every few years.  2018 was one of those years.  The new indexed numbers went into effect on July 1st.  For example:  the household goods exemption increased from $10,300 to $10,800;  for wedding rings the exemption increased from $2,817.50 to $2,940 in value; for life insurance proceeds it increased from $46,000 to $48,000;  and the tools of the trade exemption went from $11,500 to $12,000.  The most significant increase in my opinion was the homestead exemption which went from $390,000 of equity to $420,000 of equity.

For more info about exempting your property so the bankruptcy trustee can’t have it, look at my exemption page.  For a rant about what’s wrong with the Minnesota state exemptions, please take a look at my post Minnesota State Exemptions Still Leaking Like a Sieve.  You might also want to take a look at this video:

 

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Bankruptcy & Social Security Overpayment

By David J. Kelly, Minnesota Bankruptcy Lawyer

I want to say a few words about whether a debt owing to the Social Security Administration for overpayment of benefits can be discharged in a bankruptcy.  Often it can be.

If you have received Social Security you know that several factors, many of them beyond your control, can affect whether you are eligible and for how much.  This is especially true of disability benefits.  A change in status can end your eligibility or reduce the amount. It’s all very complicated and hard to understand – especially if you are ill.

The Social Security Administration is a big and cumbersome organization that makes lots of mistakes.  Lots of times they pay benefits when they are not supposed to.  Often this happens because they can be very slow in processing information they receive from beneficiaries.  The impression I have is that most beneficiaries are very careful about complying with requirements that they report any change in their circumstances.  If you report the change and the benefits keep coming, most people would assume that the change didn’t make a difference.  Later, however, you may be shocked to receive a nasty letter from the Social Security Administration.  The letter claims that you have been overpaid and demands repayment.

Suddenly you have a very large debt to a federal government agency.  Nobody is more powerful. They might start withholding from the benefits you are still eligible for; they might seize your tax refunds; or they might even start garnishing your wages.  Most people assume that like the usual student loans and taxes, there is no way to make this go away.  This is what I assumed too the first time someone came to my office with one of these letters.

I was surprised to learn when I did a little research that many if not most of these Social Security overpayment claims can be discharged in bankruptcy.  When a debt like this is listed in a bankruptcy, it is going to be discharged unless the Social Security Administration successfully objects.  In order to figure out whether to expect an objection, it is helpful to check Social Security policies as published in their on line Program Operations Manual.  The guidelines as to when such an objection should be filed are in GN 02215.196 of  the manual.  They will object if they believe they can prove that the overpayment was a result of fraud or misrepresentation.

They use a three part test to define what they mean by misrepresentation.  There must have been 1) an overpayment caused by false representation, 2) made with the intent to deceive and 3) upon which the Social Security Administration relied to it’s detriment.

The typical person I see in my office who with one of these overpayment letters isn’t anywhere close to satisfying the above test.  This person hasn’t told any lies and certainly wan’t trying to deceive anybody.  There was no intent to cheat the government out of anything.  It was more a matter of just stumbling into the situation.  If this is where you find yourself, you might want to give me a call.  The chances that a bankruptcy can make the whole problem just go away are very good.

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Minnesota State Exemptions Still Leaking Assets Like a Sieve

At least this old radio is exempt

By David J. Kelly, Minnesota Bankruptcy Attorney

When you file a Chapter 7 bankruptcy, ownership of all your assets all the way down to your socks passes to a trustee appointed by the court.  The only way to avoid losing your shirt and most everything else you own is to claim the assets as exempt.  If you qualify to use the federal exemptions, it is very likely that everything you own will be exempt and you will keep all your assets.  That’s the result I always want to see – my client gets rid of his or her debts but keeps all his or her stuff.

The only problem with the federal exemption list is that it has a low number for the amount of homestead equity which can be exempted.  If  someone has more equity than can be protected by the federal exemptions, the only other choice is to use the state exemptions.  The Minnesota state exemptions will protect up to $$390,000 of equity in a homestead, but other than that those exemptions leave a lot to be desired.  They are hopelessly out of date in many respects.

For example, the only electronics clearly allowed as being exempt are a radio, a phonograph and television receivers.  Notoriously, computers are not exempt.  Neither are cell phones, tablets, game machines, printers, monitors or any other device that isn’t a TV, radio or phonograph.

There’s no exemption for jewelry, unless it’s a wedding ring that was actually present at the wedding ceremony.  There’s no exemption for guns, sporting goods such as bicycles or exercise equipment, or collectibles of any kind.  Household furnishings, clothing and appliances are exempt, but a riding lawn mower is not considered to be an appliance.  Money in your checking account or savings account is not exempt unless it can be traced to a pay check from employment which was deposited within the last 20 days.  There’s no exemption for any kind of a tax refund which may be owing or which may have accumulated as of the date of filing the bankruptcy.  Bankruptcy trustees routinely present my clients with a form which signs over their tax refunds.

Several weeks ago two bills were introduced at the state legislature in St. Paul to try and correct some of this.  One of them added exemptions for the following, all of which currently are absent from the exemption list:

  • Computers, tablets, printers and cell phones as part of the household goods exemption
  • Jewelry up to a value of $2,817.50 – replacing the existing wedding ring exemption
  • A new section exempting $3,000 of tools, snow removal equipment and lawnmowers
  • A wild card exemption which could be used for up to a $1,250 value of property not fitting into any other exemption; and
  • Health savings accounts (HSA) and medial savings accounts up to a value of $6,500.

When I heard last week that the legislature had passed an amendment to the exemption statute, I got quite excited.  I thought it must be the bill I just described above.  I was quite disappointed to learn that it was another bill which only added one provision: an exemption for health savings accounts and medical savings accounts up to a value of $25,000.  It’s nice that the amount of the exemption is so high, but I almost never see anyone with an HSA which has any more than a few hundred dollars in it.

So except for the new exemption for the HSAs, we are still stuck with all the same old problems with the Minnesota state exemptions.  Oh well, at least the antique radio in my office is exempt.

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Hard to Pay Those Troubling Holiday Shopping Bills?

Are holiday debts catching up wit you?

By David J. Kelly, Minnesota Bankruptcy Attorney

Around this past Thanksgiving CNBC published a report about how an alarming number of shoppers are still paying off debt from Christmas of 2016.  A lot of the data in the report came from a source called NerdWallet. It seems that holiday-induced  spending and debt is a growing problem.   24% admitted to overspending for the holidays of 2016.  Among baby boomers, 64% went in debt to pay for Christmas.  For Gen-X it was 58% and for millennials it was 40%.

When it comes to not yet having paid off the 2016 debt, the millennials led with 24%. Gen-X came in at 16% and the boomers were at 8%.

The advice offered by CNBC to help avoid going into debt over the holidays again is threefold:

  1. Make a good budget and stick to it.
  2. Keep an eye out for sales; and
  3. Pay debt back.

My reaction to this advice is to say to myself “well that’s easy for them to say.”  Credit card debt has a way of sneaking up on a person. Not everyone is capable of paying their debt back.  Many are overwhelmed and the bills that come in after Christmas can be the straw that breaks the camel’s back.

If you are looking at your holiday bills and other debts in shock, perhaps it is time to consider another alternative.  Once unsecured debt totals more than half of your annual income, it is usually impossible to get it paid back.  For you a Chapter 7 or Chapter 13 bankruptcy might be a good idea.

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Minneapolis Minnesota Bankruptcy Filings are Up 2.65%

Minneapolis Federal Courthouse, where Hennpin County Bankruptcy cases are filed

Minneapolis Minnesota bankruptcy filings are on the increase, both for Chapter 7 bankruptcies and Chapter 13 bankruptcies.

The monthly filing statistics from the Minnesota bankruptcy court show a year over year increase.  As of the end of October there was a 2.65 percent for the cases handled in Minneapolis.  The increase for the entire state is 2.18 percent.  St. Paul shows only a 1.62 percent increase, but Duluth has a 3.66 percent increase.  This is the first increase for the state of Minnesota since 2010, when there was an increase of 7.15% for the state.  The years 2011 through 2016 showed decreased numbers of filings.  An exception to this six year decline was Fergus Falls and Duluth.  Both of them had increased bankruptcy filings starting in 2016.  Bankruptcy filings of all types in Minnesota totaled 8,148 at the end of October this year.  The total a year ago at the end of October was 7,974.

I will admit that is not a very large increase, but I still believe this is news.  It is news because each of the prior six years showed a decline in bankruptcy filings in excess of 10 percent per year for this state.  After years of decline the number of people in Minnesota bankruptcies hit bottom and is now on the upswing.  I am finding that phone calls and emails to my office are on the upswing too.

Many people who really need to file bankruptcy have been just too poor to do it until now.  There’s a point where as the economy improves, bankruptcies will increase because of this pent up demand.  I believe that’s what we are seeing.  If you are feeling a need to call me, you are definitely not alone.  There’s no reason to feel embarrassed about it.

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