Is there a point of no return on a Chapter 7

[wonderingrov]

I think as long as you dispute the 74% of the debt in question and have it put in the settlement agreement, you can avoid taxes. I would delve further into it if I got in that situation.

I'd be careful - at least discuss the tax implications over with an accountant or tax attorney before making a final decision. Trust me, you don't want to make a decision because you 'think' you can avoid taxes handling it a certain way. Make sure of the tax implications before going forward. It can save you a big hassle around April 15. Once that 1099 is issued, it is reported income from the perspective of the IRS, unless the company issues a revised 1099 later on.

[Skinsfan]

Let me ask you this...would settling for 26% be $2,500 or less?

I guess I am not sure what myths, misconceptions, and assumptions you have about BK such that you would liquidate a retirement, and WASTE, that money to settle.

Also, it is probably a tad unrealistic to assume "every" creditor would settle in that range.

More than $2,500.

Misconceptions...I've been reading about bankruptcy for about four days, maybe 6-8 hours total.

I have ZERO idea what these banks offer. If you say it's unrealistic and you have 11,000 posts, I will defer to you.

[Skinsfan]

I'd be careful - at least discuss the tax implications over with an accountant or tax attorney before making a final decision. Trust me, you don't want to make a decision because you 'think' you can avoid taxes handling it a certain way. Make sure of the tax implications before going forward. It can save you a big hassle around April 15. Once that 1099 is issued, it is reported income from the perspective of the IRS, unless the company issues a revised 1099 later on.

I would.

[HHM]

The problem with the "disputed" debt defense, is that both sides have to agree it is disputed. The disputed debt defense goes to the underlying validity of the debt, not that you simply dispute the amount owed.

If the collection agency says you owe comcast cable $1,500, and you NEVER had a Comcast account, that is a disputed debt. However, if the collection agency is saying you owe Chase Visa $24,000, and you had a Chase Visa and you are simply disputing the amount, that is NOT a disputed debt for purposes of 1099-C issues. Also, the disputed debt amount is more on the creditors side than the debtor, there is no check box on IRS Form 982 for "disputed debt". The disputed debt issues arises on whether the creditor is required to issue a 1099-C, it is not, strictly speaking, an exception to paying the tax. So, you have to get the collection agency to AGREE that the debt is disputed (or sue them).

So, you cannot really negotiate away the 1099-C requirement, however, you can negotiate the amount.
Penalties and Late Fees are NOT REQUIRED to be reported when forgiven
Accumulated Interest is NOT REQUIRED to be reported when forgive.
However, if the amount of principal forgiven is $600 or more, then the agency is "required" to file a 1099-C.

[keptdigging]

The big exception to paying tax on forgiven debt is that you were insolvent. The IRS calculation on this is simple but includes ALL your assets including things like retirement funds.

The big problem with debt settlement, from what I've read is that there will be a hold out creditor who won't play ball. Also the more of your debts you've settled, the more collectible your remaining debts look. (Also a reminder that debt settlement services are basically all scams.) Debt settlement is basically a route for people constrained from filing bk for some reason (or for whom bk is a really unattractive option.)

[Wrightshawn]

I totally agree with HHM. What's the reason to settle with exempt ("protected") assets like retirement funds. Your 401k is supposed to be for your retirement, not for your creditors. Go through with your Chapter 7, because it's extremely difficult to dismiss it anyway. Moreover, you'll be able to re-establish your credit fairly quickly after bankruptcy in any event. Good luck and don't regret your decision.

[Skinsfan]

The problem with the "disputed" debt defense, is that both sides have to agree it is disputed. The disputed debt defense goes to the underlying validity of the debt, not that you simply dispute the amount owed.

If the collection agency says you owe comcast cable $1,500, and you NEVER had a Comcast account, that is a disputed debt. However, if the collection agency is saying you owe Chase Visa $24,000, and you had a Chase Visa and you are simply disputing the amount, that is NOT a disputed debt for purposes of 1099-C issues. Also, the disputed debt amount is more on the creditors side than the debtor, there is no check box on IRS Form 982 for "disputed debt". The disputed debt issues arises on whether the creditor is required to issue a 1099-C. So, you have to get the collection agency to AGREE that the debt is disputed (or sue them).

So, you cannot really negotiate away the 1099-C requirement, however, you can negotiate the amount.
Penalties and Late Fees are NOT REQUIRED to be reported when forgiven
Accumulated Interest is NOT REQUIRED to be reported when forgive.
However, if the amount of principal forgiven is $600 or more, then the agency is "required" to file a 1099-C.

A TAX TIP ON SETTLING DEBTS:

Tax Code says that cancelled debt is income taxable to the debtor EXCEPT in certain circumstances. One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this:
"Debtor disputes and creditor acknowledges as disputed the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

If you recieve Form 1099C Cancellation of Debt here's how to handle it(from an Enrolled Agent):

1. IF the 1099C was as a result of the debt being cancelled in Bankruptcy attach Page 1 of your petition to your tax return with a note that the cancelled debt income is excludable from income under IRC 108(a).

2. IF after the discharge of indebtedness you are still insolvent (liabilities exceed assets) then attach a simple balance sheet to your tax return and claim the cancelled debt excludable from income under IRC 108(a)(1)(B).

3. IF you followed the advice I posted on these boards many times and included in the settlement documents a statement that you are only paying the undisputed amount and the unpaid amount is disputed and the creditor acknowledges the dispute then attach a copy of the Settlement agreement to your tax return and claim the cancelled debt as excludable from income under Zarin v Commissioner (916 F2d 110 - 3rd Cir 1990).

4. IF the debt is a purchase money debt and you were able to negotiate with your creditor a statement that the portion paid represents an Adjustment of the Purchase price of the goods bought then attach that statement to your return and exclude the cancelled debt income under IRC 108(e)(5).

5. IF the cancelled debt is a student loan forgiven or partially forgiven because you worked in certain professions under an acknowledged forgiveness program attach a note saying this and exclude the debt forgiveness income under IRC 108(f).

6. If none of these applies include the cancelled debt as OTHER INCOME (Form 1040 Line 21).

http://www.debtorboards.com/index.php/topic,7217.msg18.html#msg18

[BCA2009]

A TAX TIP ON SETTLING DEBTS:

Tax Code says that cancelled debt is income taxable to the debtor EXCEPT in certain circumstances. One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this:
"Debtor disputes and creditor acknowledges as disputed the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

It the circumstance of settleing debt, there is no dispute. The are forgiving the debt. If there was a valid contract (credit card agreement or prommisary note). The bank can't just agree that the debt was disputed. Well thay can signt the document and you might get away with it, but it is not covered by IRS regulations.

You don't have to attach a stament to the return to take advantage of the other exemptions, just complete form 982.

[JCOX75]

Once it has been filed, then its not possible for you to cancel it.

I was under the impression that a 'motion to dismiss' could be filed. A reason would have to be given, such as a change in circumstances. I am very interested in whether this is correct, as I am considering it myself. Does anyone have any experience with getting a case dismissed after filing?

[justbroke]

I was under the impression that a 'motion to dismiss' could be filed. A reason would have to be given, such as a change in circumstances. I am very interested in whether this is correct, as I am considering it myself. Does anyone have any experience with getting a case dismissed after filing?

You cannot voluntarily dismiss a Chapter 7 case (period). It has a life of its own once it starts. This is especially the case where the Trustee sees or finds assets to administer. You could convert to a Chapter 13 though.

Why would you want to get a Chapter 7 dismissed?

[JCOX75]

You cannot voluntarily dismiss a Chapter 7 case (period). It has a life of its own once it starts. This is especially the case where the Trustee sees or finds assets to administer. You could convert to a Chapter 13 though.

Why would you want to get a Chapter 7 dismissed?

Due to my husband and I dropping the ball (we have a lot going on including another court case and the death of a close family member) we did not give our lawyer the information on a new bank account we opened for a social security back pay check we we were not expecting (we were told we wouldn't get it for a long time). Bottom line, the BK paperwork does not reflect a big chunk of money. We wanted to provide this information and amend (if that is the correct term) the filing but I have since been told some of what we've spent disability money on was not allowed (such as paying back people who helped support us for 3 years). We fear either being in trouble for some kind of fraud, or the trustee going after the people we paid back, or the trustee taking what's left of the money in that account, or all of the above. The best thing we could think of was to try to back out of the BK and try to work things out with the creditors.

I am scared to death over this. I know it was our fault for not giving them the information, but we were not trying to cheat anyone. Now I feel like I'm going to end up in jail

[HHM]

The social security funds are exempt.

Well, you may have no choice but to ride this out...

[JCOX75]

After reading some of the recent comments on the immpossibility of getting your own case dismissed, I was searching for more input on the matter and found this:

http://www.bkforum.com/archive/index.php/t-161.html

Does this no longer apply as it is an old post? These people seem pretty adamant that it can be done, but in *this* thread, mostly everyone states that it is impossible.

Am I missing something?

[HHM]

It is not that it is impossible to get out, it is just that you don't have the right to just stop. You need to have "cause" as to why the case should be dismissed.

However, the other way to get out is to either not show up to the 341 meeting, or not comply with the trustees request (i.e. not give him your tax return). But, doing it that way could affect your ability to refile if you need BK.

I really think you would be making a mistake if you dismissed.

[JCOX75]

It is not that it is impossible to get out, it is just that you don't have the right to just stop. You need to have "cause" as to why the case should be dismissed.

However, the other way to get out is to either not show up to the 341 meeting, or not comply with the trustees request (i.e. not give him your tax return). But, doing it that way could affect your ability to refile if you need BK.

I really think you would be making a mistake if you dismissed.

The basic story is this: My husband was *hoping* to win a social security disability case that had been going on about 3 yrs at the time when we had a free consult with a BK lawyer. We put off the filing the BK then because we had car trouble and had to use what would have been the fee to buy another car (not an expensive one). When we were again able to afford the fee, we told the lawyer we wanted to proceed. We then had some delays getting the lawyer some documentation he needed (we couldn't find some of it, plus other distractions such as another unrelated court case plus a death in my close family). By the time the paperwork was *officially* filed, we had just received the SSD lump sum back pay. We were not expecting to receive it at this time. We just plain overlooked giving the lawyer the information about the money and the new bank account we had to open to deposit it. We have used some of the money for what we thought were acceptable things such as home repairs and household necessities, plus paying people back a lot of money they lent to us over the last 3-4 years for things like groceries and oil for the heater. We want to provide the additional information about the money and the bank account to be added to the case. We are not trying to hide anything; we were just stupid. Now we are really concerned about a trustee potentially trying to force family members to pay back the cash we repaid them, or making us sell some of our possessions. If the family members will definitely have to pay back thousands, then we definitely want to try to stop the BK.

Sorry for the rambling posts. This forum is great and I'm so glad to have found people who understand what I'm going through. Well, some of it anyway :P