Author Archives: Jeena Cho

Will Bankruptcy Get Rid of IRS Debt?

Will Bankruptcy Get Rid of IRS Debt?A common question that my clients ask is “will bankruptcy get rid of tax debt?” Like most legal issues, the answer is “it depends.” The good news is that as long as you meet the rules, taxes are dischargeable in bankruptcy.

Here’s the quick and dirty 5 part rule - Discharging Taxes in Bankruptcy:

  1. The Three Year Rule - the date for filing the return is more than three years old. So, for tax year 2010, you’d have to wait until 3 years from April 15th of 2011 (or October 15, 2011 if you filed an extension).
  2. The Two Year Rule - you must have actually filed your return more than two years ago.
  3. The 240 day Rule - any tax claim must have been assessed at least 240 days before filing.
  4. Non-Fraudulent Return - the tax return was non-fraudulent.
  5. No Willful Tax Evasion - you didn’t engage in activities deemed a “willful attempt to defeat or evade the tax.”

Combining tax law and bankruptcy law makes for a very complicated area. There are volumes of very lengthy books on this subject.

The important thing to remember is that taxes may be dischargeable in bankruptcy. Frequently, I meet with clients and even other professionals, including lawyers who believe that tax debts are never dischargeable in bankruptcy. This simply isn’t true!

Another common question I get is the difference between an offer in compromise and bankruptcy. In bankruptcy, as long as all the rules are met, the taxes are discharged in bankruptcy. In offer in compromise, the IRS has discretion to accept your offer or not.

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Pay it Off - Guide to Repaying Debt

Happy Holidays! It’s difficult to believe but we’re already in December. In looking forward to 2013, many of us are setting new year’s resolutions. If one of those resolutions is to pay down your debt, here are some tips to get you started.

Start today

A common mistake I see clients make is waiting way too long before admitting that there’s a problem. If you dread opening your mail or answering your phone, it’s time to get help. If you’re making monthly minimum payments each month, you’re just prolonging the pain without an exit strategy.

What Not to Do

Let’ suppose you have $40,000 in credit card debt at 18% interest. Your monthly minimum payment will be around $1,000 per month. By paying just the monthly minimum payments, it will take you 480 months or 40 years to repay the debt. You’ll also pay $60,000 in interest! Many people blindly make minimum payments without realizing that it will take forever to repay your debt.

Better strategy

In order to have money to repay your debt, you must increase income or decrease expenses. There’s no magic here. Simple math. The basic formula is:

[Income - Expenses = Disposable Income]

If you’re determined to repay all of your debt, you can obviously increase your monthly payment. In my example above, if you increase your monthly payment to $2,000 per month, you can be debt free in 62 months or just over 5 years. (You’d pay $21,500 in interest.) One important thing to note here - your monthly minimum payment decreases as you pay down the debt. Instead of paying the lower minimum payment, continue to pay a fixed amount each month.

Fighting High Interest Rates

One of the biggest obstacles in repaying your credit card debt is the high interest rate. You may be able to negotiate a lower interest rate simply by calling your credit card and asking for a better rate!

By lowering the interest rate from 18% to 12% in my example, you’d be able to get out of debt in just 41 months or in about 3.5 years at $2,000 per month.

Consumer Credit Counseling

If you’re unsuccessful in negotiating your own interest rate or if you just need some help, consumer credit counseling may be a good alternative. CCCS will bundle all of your debt and give you a fixed monthly payment. When meeting with your CCCS counselor, be realistic in your expenses. You don’t want to end up with a high monthly payment you can’t afford because you underestimated your expenses.

Getting professional help

Finally, if you simply feel overwhelmed by your situation, go meet with a professional. You can meet with an hourly financial advisor, your CPA, or an attorney. We regularly meet with clients to help them sort through their financial situation and offer possible solutions, including repayment, debt settlement and bankruptcy. Call us for a debt consultation (415) 963-4004.

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How to Manage Your Law Office

The year is quickly coming to an end and I’m so happy to have this one crossed off of my to-do list. I finished this book, How to Manage Your Law Office and it’s now in print! The book was first published in 1973 and even though it has been updated since, the technology section of the book was lacking. Let’s face it, when it comes to technology, it gets outdated pretty quickly. I wrote about using technology in law practice, having a (almost) paperless office, case management social media, and other topics.

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Is Chapter 7 or Chapter 13 better?

Is Chapter 7 or Chapter 13 better?

If you’ve been reading this blog for awhile, you can probably guess the answer to this question - “it depends.”

To say that either chapter is better than the other would be like saying oranges are better than apples. Like apples and oranges, Chapter 7 and Chapter 13 are different. One chapter may be better for your situation but there is no “better” bankruptcy. Let’s explore the differences and see what each chapter can or can’t do.

 

Pros & cons of Chapter 7

Chapter 7 pros:

  • You can be in and out of Chapter 7 in about 3-4 months.
  • Most debts can be discharged (forgiven). See the list of non-dischargable debts.
  • There’s no debt limit.

Chapter 7 cons:

  • You can’t file for Chapter 7 if your income is too high (unless your debts are non-consumer debts).
  • If you have too many assets, you may lose some.
  • There’s no opportunity to make-up missed payments on property you want to retain, such as your home or car.
  • Once you file the Chapter 7, there’s no right to dismiss the case. It’s like walking through a door and locking it behind you.

Pros & cons of Chapter 13

Chapter 13 pros:

  • Offers the possibility of lien stripping second mortgages from underwater homes.
  • Can make-up missed mortgage payments and tax payments during Chapter 13 repayment period.
  • Can make-up missed car payments and avoid repossession.
  • Can get up to 5 years to repay non-dischargeable tax debt.
  • Can keep student loans from taking collection efforts against you for 5 years.
  • Can keep unexempt assets, meaning you can keep all of your assets.

Chapter 13 cons:

  • Requires a 3 or 5 year commitment (though it can be a pro to live within a financially structured environment).
  • You must get permission from the Trustee and/or the Court to get new loans for car, home, etc.
  • You must earn enough income to be able to pay your living expenses and make your Chapter 13 payments.
  • Debt limit may disqualify some people from filing Chapter 13.


As you can see, there are many differences between Chapter 7 and Chapter 13 bankruptcy. And this list is just a short example as there are many other pros and cons to each Chapter. It’s important to meet with a competent bankruptcy to discuss your situation and determine which chapter is right for you.

If you’re wondering if Chapter 7 or Chapter 13 is better for your situation, call us at (415) 963-4004 or schedule online.

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Christmas in July?

Avoiding Debt Over Holidays - Plan Ahead

It’s only July so why am I talking about the holidays? Because lack of planning is one major contributor to why people go into debt. As many as 31% will go into some form of debt during the festive period. Yikes! If you fall into this category of folks who subsidize holiday spending on credit cards, make it your goal not to do this in 2012.

In the July issue of the Money Magazine, there was an interesting statistic that caught my attention. It said people who label their savings account with specific goals saved 31% more than those who didn’t. This makes perfect sense. When you put money into savings randomly, there’s no specific goal. But when you set a goal such as “Christmas gift fund for 2012” it makes it more tangible.

We are just past the halfway mark for 2012, so if you have been falling short on your savings goals for the year (like so many countless New Year’s resolution), why not set a new goal for December now?

The Math for Holiday Savings

For those of you that are counting, there’s 154 days left until December 1, 2012. So, if you want to save $1,000 by 12/1, you can save:

  • $6.50 per day
  • $45.45 per week or
  • $200 per month

Can’t afford so much? How about half? Whatever the amount, the key is to set a realistic goal and stick to it.

Where to Park your Money

I personally like accounts that aren’t linked to primary checking account because you won’t see the balance each time you log into your account. This will make it less tempting to transfer the money back into your checking and spend it. Two online banks I like for savings accounts are ING Direct and Ally (both accounts are paying about 0.80%).

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