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11

Oct 2010

Don't file bankruptcy until March if you get a big refund.

Posted by / in Virginia Bankruptcy / 11 comments

This time of year, you need to be very careful about filing bankruptcy in Virginia if you get big tax refunds.  Why?

Virginia law has a lifetime $5000.00 limit on how much cash you can have when you file bankruptcy, and your refund counts against that.  If you file bankruptcy in October, November, or December, the bankruptcy trustee is going to look at last year’s tax return and see how much money you got back.  Hummm.  If it’s any where near $5000.00, he’ll hold your case open and ask to see the 2010 return.

If that refund puts you over the cash limit, he’ll grab it.  Another reason this is a big problem is because Virginia only allows you equity in your car up to $2000.00.  That’s right, the Virginia General Assembly thinks the bankruptcy court should take your paid for car if its worth $2000.00.    (When I graduated from high school a brand new Volkswagen cost $1995.  But that was a LONG time ago.)

You can use your cash limit to protect a car that’s worth a little more, but that leaves the tax refund hanging out.

Darden Hutson and Mitch Goldstein, two excellent bankruptcy lawyers in Richmond, Virginia, are spearheading an effort to raise these limits.   But for now, they are what they are.

Now, there are two reason people get big tax refunds.  Some people get a big refund, because they pay big taxes–they over withhold.  If you are one of those people and you want to go ahead with your bankruptcy now, you should contact your payroll office and increase your exemptions to twelve.   Right, like you have twelve children.  (Both state and federal.)

That will cut to almost nothing the taxes you pay for the rest of the year–and we hope it sopps up enough of the refund that you stay under the cash limits.

Other people get a big refund because of the earned income credit.   The earned income credit is basically a boost that the federal government gives to families with children where the parents are working but not making much.   This was originally put in by Richard Nixon and increased several times over the years, including by Ronald Reagan.

Increasing your depedents to 12 won’t help people who get a big refund because of the earned income credit.  That’s because the refund is based on the number of children and the income–its not really based on what taxes were actually paid.

Unless there’s some real emergency, people who get an earned income credit should not file bankruptcy in Virginia after August.  Otherwise the money the federal government is giving to help your children will end up in the hands of the bankruptcy trustee.

Why am I saying file bankruptcy in March?  File your taxes as soon as you can in February and get that money in and spend it.  Don’t just throw it away–and you can’t bury it in your backyard or give it to your brother–but spend it on things the kids have been needing, probably since last year.

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21

Jul 2010

How "Avoid Bankruptcy" plan avoids Virginia consumer protection law

Posted by / in Virginia Bankruptcy / 4 comments

After talking with a lady yesterday, we’ll call her Jerri, I went to the website of Greenshield Financial Services. Here’s what they say they do: “Greenshield Financial Services is a Financial Health Management Company serving individuals seeking debt relief or debt help by offering debt settlement programs as an alternative to bankruptcy.”

Jeri had a set up fee for Greenshield Financial Services of $3500–paid as $900 over four months. And then a monthly management fee of $425. A total of over $7000.00 had been paid to these people as their fee to help Jerri with debt settlement.

As a result of their work, two small credit cards had been settled. Jerri saved less than $1000 total. Spending $7000 to save $1000 is not exactly a good alternative to bankruptcy. She figured that out when the sheriff brought around court papers from some of her bigger credit cards, that had not settled their debts through Greenshield.

At first, I thought it was a violation of Virginia law. Virginia law says a debt management program can’t charge more than $75 set up and $60 per month.

Now $3500 is a whole lot more than $75–and $425 per month is more than $60. But Greenshield is not covered by the law.

Here’s how they avoid the law. To be a debt management program under Virginia law, the debt negotiator needs to collect the money from the consumer and pass it on to the creditor. Greenshield works out the settlement, but the creditor take the money directly from the consumer’s account. As long as Greenshield never touches the money, they aren’t covered by the law. So they can charge as much as they can talk people into paying. Which, in Jeri’s case, was a lot.

(And no, she is not likely to avoid bankruptcy.)

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06

Jul 2010

Before bankruptcy, can I spend down my money?

Posted by / in Virginia Bankruptcy / 1 comment

Suppose, when you are filing bankruptcy in Virginia, you have too much cash.  You can turn it over to the bankruptcy court to divide among the people you owe money to.  Or you can find legal ways to spend it.

(When you file bankruptcy in Virginia, you are only allowed to have $5,000.00 in cash.  That’s about the lowest in the country.  It’s $10,000 if you are over age 65.  Also, your paid for car valued at more than $2,000.00 counts against that limit. )

A lot of people have too much.

Here are some things you can do:

Need to spend down cash? See the dentist

1.   Postponed dental work.  Many people in a tight spot financially haven’t gone back to the dentist to get necessary things taken care of.  You might need three or four thousand dollars worth of dental work.  And they can’t repossess your teeth.

2.  Laser vision correction.  Same as the dentist if you need it.

3. Roth IRA.  Everyone who is working is allowed to fund a Roth IRA–whatever other retirement you have (or don’t have.)   the limit is $5000 per person–$6000 if you are over age 50.  During the January – April 15 (tax deadline) time frame, you can contribute for both the current and the prior year.  Although I cannot give you investment advice, I can saw that I have IRA’s with Fidelity and Vanguard.

4.  Repairs around the house.  If you are planning to keep the house, maybe the gutters need to be replaced, or the a/c unit needs an upgrade.  The court can’t repossess fixtures–things that are attached to the house.

5.  The Virginia College Savings plan.   The 11 USC 541(b)(5) of bankruptcy code protects college saving plan money if it has been in the plan for more two years.  ($5000 one to two years.) But, Virginia law gives an immediate, unlimited exemption for the Virginia College Savings plan.  (The one set up by the state.)  One of the bankruptcy trustees here is challenging that,  so we need to be cautious until the court rules.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES