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Filing for chapter 7 without spouse. Tax refund & asset questions - Michigan

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    Filing for chapter 7 without spouse. Tax refund & asset questions - Michigan

    I incurred a lot of CC debt while I was going through a divorce about 2 years ago. The debt was entirely in my name and I was separated from my ex. Most of it was things like utilities, meals, some clothes, and there was some of it that was spent on some photography gear and wedding rings (please no lectures). During that time I was trying to start up a photography business and it is just now starting to show promise.

    So.

    #1. Should I file my income taxes (jointly with husband under his name) immediately so that we can collect a 9K return (low income, 2 kids) and then spend it utilities, property taxes, personal care items, some clothes for the year, stock up the freezer with meat, etc. I had read somewhere else that income tax refunds are up for grabs. Would only half of that be up for grabs since my husband won't be filing bankruptcy (I'm remarried)? Household goods exemption is $3525.

    #2. Computer exemption is $600. I own a pretty nice computer that is about a year old that I had purchased with part of last year's tax refund, to help grow my budding photography business. It was about $1100 at that time, but of course it is used now. Would the value likely be under that amount by now? Also my husband owns a computer that he uses for his job. It is probably only valued at a couple hundred bucks by now. Is that exempt because it is his?

    #3. We own together about $6000 worth of photography gear. Some of it my husband purchased with his half of the tax refund last year, and some of it was accumulated a couple of years ago. Receipts for everything are gone. My husband uses the majority of the gear right now and my rig is worth about $1000. Does that matter, or do they just consider exactly half of it to be mine?

    #4. Everything in the house is pretty old and/or damaged. Do we actually have to come up with values on a bunch of old stuff? Is that added to the total of the photography gear?


    Obviously you can see this gear is extremely important to us as we are finally starting to get more clients and wedding bookings. It would be very difficult to start over and buy the same gear because buying it all new would cost 10K+. We have a lot of contacts in the photography business and the reputation is already there. So far we haven't made a profit, but that's because the gear costs so much.


    #5. I am a student going to community college with pell grant money. I'm taking a photography class that requires a DSLR camera. Will this exempt the camera from personal property as an educational expense?


    Here is what I was thinking about doing. Tell me if it will get me caught and in trouble.

    File tax return as soon as possible in late January or early February. Get $9K refund. Immediately pay 2K in overdue property tax, as well as 1K in spring property tax. Pay $1K in late house payments and utilities. Pay 1K to bankruptcy lawyer for filing fees. This leaves me with 4K left over.

    Was thinking about spending the remaining 4K on clothing, medical, and dental visits for the family, and stocking the deep freezer with groceries.


    But seriously, do I really need to do all that to make it all kosher to keep the tax refund? We normally rely on that as income so we definitely can't just let the trustee take it. Should I just pay off the taxes, house payment, and utilities and then cash out the remaining 4K and just say I bought groceries, clothes, and car repairs with it? Or would only 2K be considered "mine" since my husband is not filing?

    #2
    In Mi. you may use either state or federal exemptions. Using federal exemptions provides an $11K wildcard.

    You can protect property in a Michigan bankruptcy using either Michigan's bankruptcy exemption laws or the federal exemptions.


    I'd delay filing and get the tax refund and get caught up on things you wish to keep.

    Were I you, I'd think long and hard about supporting myself post bk. It's not a good idea to consider a tax refund as income for financial planning purposes. The fact that you're late on the mortggae and property taxes and utilities makes think you got something you can't afford.
    Have you stopped paying all debt you wish to discharge in Bk? Do you or your husband have jobs other than the photography business? Do you have health insurance coverage for your family?
    Filing bk is the easy part. What comes next is harder. Post bk you still have to support yourself.I'd not file until, I had a basic safety net in place.
    Most bk lawyers give a free or low cost initial consultation. Speak with a few and see what they sugest is the best way to maximize your exemptions.

    Comment


      #3
      You can use the Federal exemption set in Michigan unless you have a lot of home equity to protect. There is a pretty nice WildCard you could choose to use in lieu of home equity (it's more than $10k since you are filing alone - the amount changed this year and I am not 100% sure). We were able to protect $ in the bank and our tax refund.

      Detailed listing of Michigan Bankruptcy exemptions. Includes citations to specific statutes for state exemption laws and federal bankruptcy law. Exemption laws determine what property you can keep when you file for bankruptcy.
      ~~ Filed Over Median Income Chapter 7: 12/17/2010 ~~ 341 Held: 1/12/2011 ~~ Discharged: 03/16/2011 ~~
      Not an attorney - just an opinionated woman.

      Comment


        #4
        I'm not sure how the whole home equity/wildcard thing works. Our mortgage is 85K and the house is worth maybe 100K? Might be worth a little more because we had to do some upgrades to it as part of a re-mortgage deal. I would guess that we have maybe 20K in equity into it? We are not giving up the house in the bankruptcy. We also drive old used vehicles, so no loans or great value there. The debt is entirely CC debt.

        We did come up with a much better budget plan for the new year. We tended to nickel and dime a bit but we decided to immediately remove budget funds from each paycheck as soon as we get paid and only have whats left on hand for spending cash. We should have done that a long time ago, I know, but that's kinda why I'm here lol. I did great with money up until divorce and to be honest I just didn't give a crap during that time.

        I just want to keep the cameras because it is good income and my husband and I are both good at it. I'm getting into birth photography as well, which is a little more lucrative and higher paying. So yah, there are many reasons we are super attached to that gear. Other stuff can go, but that gear is part of our livelihood.

        Comment


          #5
          And as far as being behind right now... we didn't budget well for Christmas and I also got hit with some big lawyer fees from my ex dragging me to court because he's bitter. I took on the extra jobs and photography to try to combat all those fees.

          Comment


            #6
            Are you still using your credit cards? If so, you need to stop, cut them up if necessary. I would make a few appointments with some BK attorneys. Even if you need to delay filing for awhile, you can get some free (most BK attorneys offer free initial consults) advice on how to move forward. It's a lot more stressful choosing an attorney when in a hurry to file.

            Comment


              #7
              Nope haven't touched those cards in over a year. We've been living without using credit since then. I haven't attempted to pay them for over a year because I figured it would be better to just save up what I would be spending on minimum payments to pay an attorney fee instead. We have some cash set aside from someone who just paid off their wedding photos, and we typically get some gift money from parents for Christmas. So it looks like we will have the filing fee in a week or so, just don't want to file if it means our tax refund is going to get snagged. I want to snag it first. Have already had more than one appointment with attorney, but that was a few months ago. I have one actually that has a lot of my info that I'm going to go with, but since its weekend and the next couple of weeks are filled with holidays, I'm going to assume that he's probably not going to be in his office for a while. Hence... why I'm asking on here.

              Comment


                #8
                I'm no expert on this, but if you plan on keeping your house, I would think you should get caught up on the property taxes with your refund. Taxes are only dischargeable in bankruptcy under very limited circumstances, and I don't know that property taxes can even be discharged, possibly just income taxes. Someone else may be able to clarify.

                I do know that your home could be foreclosed on for very past due property taxes. My mother's house is currently in foreclosure (she decided to stop paying the mortgage, for various reasons), and she also has a second foreclosure in process, for overdue property taxes. The past due property taxes are only about $2,400, so apparently a house can be foreclosed on for having a relatively small amount of past due property taxes.

                Also, since you get such a large tax refund, how much is due to over withholding of payroll taxes, and how much is due to credits/tax breaks, such as the EIC? I'm asking because if much of it is due to over withholding of taxes, you might be better off adjusting your tax withholdings, so you take home more money throughout the year, rather than having to wait all year for a refund. Of course, if you are solely self employed, I guess that wouldn't matter?

                Comment


                  #9
                  Yes the intent all along was to pay the property tax one way or the other. The vast majority of tax return is EIC and child tax credits. Probably no more than $1200 of that is from withholding too much. I'm not concerned about that really although yes you could argue that the amount would put a considerable dent in our property taxes if we allocated it to that instead of letting the government borrow it as a free loan. I used to listen to a ton of Dave Ramsey, have all his books, etc. I was actually very financially smart and handled money very well up until my divorce. It was an abuse situation and I had to just get out even though I had no job. My ex wound up being removed from the house so I kept it but he refused to pay child support for a while and that led to a messy debt situation with CCs (because I had extremely good credit, I actually had a ton of credit available to me). I basically used it as a survival tool to weather a divorce that took a year and a half, and there were several reasons why I couldn't hold down a job during that time. Now I have a part time job, school, and the photography gigs, and my husband has a full time job and photography gigs as well, so yes there is steady income coming in and we do have a budget now. We just don't have it in our budget to pay $800 a month minimum on cards, which is what Greenpath told me it would cost me to pay them off in 5 years. Greenpath suggested that a fresh start would definitely be best for me, which solidified my decision to just quit paying on the cards and go bankrupt. I don't want to spend the next 10+ years of my life fighting credit card debt from a couple of bad years, so I'm filing. I guess I'm just saying this because I'm not looking for advice as to how to make better decisions in the future because I actually already know. I basically just needed the cards as a survival tool to get out of abuse. Now its a matter of increasing income and photography is really starting to take off so I don't want to lose the cameras!

                  So yah like I said I don't really care about other factors I just need to know if there's a way I can keep my tax refund and my cameras, which mainly belong to my husband.

                  Comment


                    #10
                    Michigan has NO wildcard or any other way that I can find for you to exempt cash with.

                    Is the house in your name with your new hubby? If so, you can use Federal Exemptions to claim the ~10k in home equity (your half of the $20k worth of equity in home) and still have an "unused portion" of the homestead exemption (the unused portion is capped at $11,500) plus the additional Federal wild card of $1,225. Wild cards can cover cash in bank (from payroll or tax refund), your cameras value over the Tools of the Trade exemption, etc. The household good exemption is also much larger in the Federal exemption set.

                    Federal Exemptions

                    Real property, including co-op or mobile home, or burial plot to $22,975; unused portion of homestead to $11,500 may be applied to any property
                    11 U.S.C. § 522 (d)(1), (d)(5)
                    You can also exempt child support with Federal exemptions (Yikes! I didn't see one for exempting your child support for Michigan's exemption set).

                    Federal Exemptions

                    Alimony, child support needed for support
                    11 U.S.C. § 522 (d)(10)(D)
                    Read here for more info about child support & bankruptcy in MI: http://hillalaw.com/child-support-michigan-bankruptcy/ Read about the "Bankruptcy of the Recipient".

                    Read here for more info about tax returns & bankruptcy in MI: http://hillalaw.com/tax-refunds-and-bankruptcy/


                    Hope this helps.

                    Triple check with your attorney once you can do so after the holidays!! They will know how the trustees in your area handle all of these issues (how to value and list your household good, how to value your cameras, how to separate the assets of your non-filing spouse with out raising any eyebrows, or if you can use Zillow.com and Kelly Blue Book to get values on your home and cars respectively).
                    ~~ Filed Over Median Income Chapter 7: 12/17/2010 ~~ 341 Held: 1/12/2011 ~~ Discharged: 03/16/2011 ~~
                    Not an attorney - just an opinionated woman.

                    Comment

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