Judgment Enforcement In Nevada: Things to Know

A judgment entered in the court of the State of Nevada generally is enforceable for a period of six (6) years and may be renewed. (NRS 11.190.) It may become a lien on a judgment debtor’s real property once a transcript or abstract of the original judgment is filed with the recorder of the county in which judgment debtor’s real property is located. The lien will continue for a period of six (6) years and may be renewed. (NRS 17.150.)

A judgment creditor may execute against all goods, chattels, moneys and other property, real and personal, of the judgment debtor, not exempt by law, and all property and rights of property seized and held under attachment in the action. (NRS 21.080.) A judgment debtor’s wages may also be garnished. However, 75% of the disposable earnings of a judgment debtor during any pay period, or 30 times the minimum hourly wage prescribed by section 6(a)(1) of the federal Fair Labor Standards Act of 1938, are exempt from execution of a judgment. (NRS 21.090(g)

What is a confession of judgment?
Nevada laws permits judgment by confession for debt due or contingent liability. A debtor may confess judgment, without action, either for money due or to become due or to secure any person against contingent liability, by filing a written statement with the court. The written statement must be signed and verified under oath by the debtor, and must contain the amount authorized to be entered in the judgment, concise facts out of which the obligation arose and the actual amount due. The clerk’s fee for filing and entering the judgment and affidavit is $24.00 (Check for latest fee raised) (NRS 17.110.)

Does Nevada Adopts and Recognizes Foreign Judgment?

The State of Nevada generally adopts the Uniform Enforcement of Foreign Judgments Act. (NRS 17.330-17.400.) Any judgment, decree or order of a court of the United States or of any other court is entitled to full faith and credit in the State of Nevada. (NRS 17.340.)

A judgment creditor seeking to enforce a foreign judgment may file with the appropriate court, an exemplified copy of the foreign judgment and an affidavit showing the name and last known post office address of the judgment debtor and the judgment creditor. The affidavit must also include a statement that the foreign judgment is valid and enforceable, and the extent to which it has been satisfied. (NRS 17.360.) A judgment so filed has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating, or staying as a judgment of a court in the State of Nevada and may be enforced or satisfied in like manner. (NRS 17.350.)

Upon the filing of the foreign judgment and affidavit, the judgment creditor or someone on his behalf is required to mail a notice of the filing of the judgment and affidavit, attaching a copy of each to the notice, to the judgment debtor and to his attorney of record, if any, each at his last known address, by certified mail, return receipt requested. The notice must include the name and post office address of the judgment creditor and judgment creditor’s attorney, if any, in the State of Nevada. The judgment creditor is also required to file an affidavit with the clerk of the court setting forth the date the notice was mailed. No execution or other process for enforcement of a foreign judgment may issue until 30 days after the date of mailing the notice of filing. (NRS 17.360.)

Interest:

Legal rate: Interest on transactions where there is no written contract may be charged a rate equal to the prime rate at the largest bank in Nevada, as ascertained by the commissioner of financial institutions, on January 1 or July 1, as the
case may be, immediately preceding the date of the transaction, plus 2 percent. (NRS 99.040.)

Written Contract rate: Any rate which the parties to a written contract may agree. (NRS 99.050.)

Judgment rate: Either the rate specified by contract or a rate equal to the prime rate at the largest bank in Nevada as ascertained by the commissioner of financial institutions on January 1 or July 1, as the case may be, immediately preceding the date of judgment, plus 2 percent. The rate must be adjusted accordingly on each January 1 and July 1 thereafter until the judgment is satisfied. (NRS 17.130.)

Exemptions:

In general, a debtor may claim exemption of his homestead and certain personal property from attachment and execution of a judgment, or in a bankruptcy proceeding.

In general, the equity in the homestead of a judgment debtor may be exempt from sale on execution and from process of court to the extent of $550,000.00 in value. (NRS 115.010.) Homestead may include a quantity of land, together with the dwelling house thereon and its appurtenances, a mobile home whether or not the underlying land is owned by the debtor, or a unit or real or personal property, with any appurtenant limited common elements, or its interest in the common elements of the common-interest community, selected by the debtor or his spouse, or either of them, or a single person. (NRS 115.005.)

Under NRS 21.090 some of the personal property of a judgment debtor which may be exempt from execution may include private libraries not to exceed $1,500 in value (check recent increase), and all family pictures and keepsake, necessary household goods and yard equipment not to exceed $3,000 in value, farm trucks, farm stock, farm tools, farm equipment, supplies and seed not to exceed $4,500 in value, professional libraries, office equipment, office supplies and the tools, instruments and materials used to carry on the trade of the judgment debtor for the support of himself and his family not to exceed $4,500 in value, the cabin or dwelling of a miner or prospector, his cars, implements and appliances necessary for carrying on any mining operations and his mining claim actually worked by the debtor, not exceeding $4,500 in total value, one vehicle if the judgment debtor’s equity does not exceed $4,500 (check recent increase), all money, benefits, privileges or immunities accruing or in any manner growing out of any life insurance, if the
annual premium paid does not exceed $1,000, any prosthesis or equipment prescribed by a physician or dentist, money, not to exceed $500,000 in present value held in qualified retirement plans, employee pension plan or profit sharing plans, money or other benefits held pursuant to the order of a competent jurisdiction for child or spousal support, education and maintenance.

In a bankruptcy action, residents of the State of Nevada are not allowed those exemptions specified in subsection (d) of section 522 of the Bankruptcy Act of 1978 (92 Stat. 2586). (NRS 21.090(3).)

Statutes of Limitation:

Civil actions generally can be commenced only within certain time limitations. The time generally runs from the date from the last transaction or the last item charged or last credit given; and whenever any payment on principal or interest has been or shall be made upon an existing contract, whether it be a bill of exchange, promissory note or other evidence of indebtedness if such payment be made after the same have become due, the limitation generally commences from the time the last payment was made. (NRS 11.200.)

How to file an answer if you are sued?

This is an excellent template provided by Clark County Courts. However, you need to tailor it to your needs.

http://www.clarkcountycourts.us/CivilSHC/civil-actions/forms/JC/Combined%20Answer%20(Payday%20Loan)%20and%20Instructions,%20Justice%20Court.pdf

What is Mortgage Forgiveness Debt Relief Act and Debt Cancellation?

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.

What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.

Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.

Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.

How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.

Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

Cancellation of Debts: Are they forgiven?

We have been asked this question many times, and frankly, we don’t even know the answer until someone pointed us to the right answer. Here, we are posting mainly the excerpts from IRS website. Also, we do not provide any tax law information and neither we are competent in these matters. If you have a question, please contact your tax man for this purpos.

Home Foreclosure and Debt Cancellation
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.

1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.

3. I lost my home through foreclosure. Are there tax consequences?

There are two possible consequences you must consider:

Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:

Step 1 – Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.

The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.

The borrower figures income from the foreclosure as follows:

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 – Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__

The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.

Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.

6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.

7. I received a notice from the IRS on this. What should I do?

The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.

8. Where else can I go to get tax help?

If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.

In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.

Related Items:

Publication 523, Selling Your Home
Publication 544, Sales and Other Dispositions of Assets
Publication 908, Bankruptcy Tax Guide
Form 1040, U.S. Individual Income Tax Return
Form 1040, Schedule D, Capital Gains and Losses
Form 1099-C, Cancellation of Debt
Form 9465, Installment Agreement Request

Are Federal Owed Taxes Dischargeable in Your Bankruptcy?

How to Get Rid of Back Federal Taxes in Bankruptcy?
We have been asked this question many times. As a matter of fact, Congress has already provided this important tool in the Bankruptcy Code but the important thing is that one should carefully use it without any collateral impact on the bankruptcy case. Let us visit them one more time. In order for those taxes to be discharged, the following conditions must be met.

1. First of all, the tax at issue must be of the dischargeable kind (income taxes for instance) and the tax must have been due and owing for a period of more than 3 years from the most recent date the tax return was due.

2. The tax return for the tax delinquent debt must have been filed more than 2 years before the current bankruptcy case was filed.

3. The tax debt relief at issue has been assessed by the taxing authority for more than 240 days prior to the filing of the bankruptcy case (federal taxes are usually assessed within 6 weeks of the filing of the return, the States vary).

4. The debtor, in filing the return must not have attempted to evade the paying of the tax nor can the return filed by the debtor be a willfully “fraudulent” return.

Effect of Offer in Compromise
An extension of the time period and offer in compromise stops any action from the IRS. Tax Return Must be Prepared Properly. Again, the “tax return” filed must actually be an acceptable tax return and not just a mere ruse of filing.

What is the proper venue for a bankruptcy case?

Under section 1408 of the title 28 of the United States Code, a debtor may commence a bankruptcy case in any federal district in which the domicile, residence, principal place of business, or principal assets of the debtor have been located for 180 days than any other district. Here, the language clearly describes “the longest portion of the 180 days than any other district”. However, there can be more than one venue. For example, if the debtor’s residence and principal place of business have been in two different districts for 180 days.

What happened when incorrect venue is selected?
An incorrect selection of venue does not deprive bankruptcy jurisdiction, however, it may be transferred to the correct venue over the case. The court may transfer a case from a proper venue to a different venue in the interest of justice or for the convenience of the parties.

What is the role of a Bankruptcy Trustee?

As we know that in every case of chapter 7 or chapter 13, a trustee is appointed by the US trustee. If there is an estate, there shall be a trustee. The trustee’s basic role is to represent the interests of the unsecured creditors. The trustee’s duties in carrying out this role are provided in the statutes. Invariably, they include collecting property of the estate, invaliding certain transfers made from the estate by the debtors, objection to exemptions, objection to discharge, liquidating any nonexempt property and distributing it to creditors with valid claims. Finally, trustee makes a final accounting of all of the estate and its distribution to the United States trustee. The trustee also sends claims for domestic supports obligations.

The trustee duties are limited in a typical chapter 7 case as there may not be many assets. However, trustee evaluates schedules, statements, and exemption claims.

The trustee also participates and presides over meetings of creditors and determines whether to file objections or discharge.

Both chapter 13 and chapter 7 trustees are accountable for the performance of their statutory duties and may generally be held liable for failure to perform them. Bankruptcy trustees are not judicial officers and they cannot resolve disputed issues. The trustee cannot be your friend or a foe, as he is impartial and should decide according to the merits of each case.

What is Automatic Stay and What Happened on Its Violations?

One of the most important features of bankruptcy law is the stay of creditors action that comes into effect immediately and automatically (no separate action required) upon filing of the bankruptcy petition. The filing of a petition under any chapter of the Code by or against a debtor stays almost all efforts by creditors to enforce their claims. The automatic stay only applies to actions and acts against a debtor or its property and the estate or its property. It does not apply to actions or acts by a debtor or estate. As our readers may notice, this stay is automatic. It arises from the operation of law on the filing of a voluntary or involuntary petition. This freezes all actions by creditors until and unless a motion to lift stay is granted. by the Bankruptcy Court.

Is Notice of Stay Required?The stay does not depend on notice to all those who are affected by this action. It is binding even on those creditors who has no knowledge about it.
A creditor who takes action against the debtor with the knowledge of the bankruptcy can place him/herself in deep trouble and can be held liable for contempt of court. A willful violation of the stay does not require specific intent to violate the stay. Not even a good faith mistake of law or a legitimate dispute as to legal rights relieve a willful violation.
The Bankruptcy Code makes it clear that any individual debtor injured by a willful violation of the stay may be awarded actual damages resulting from the violation, including cost and attorneys fees. In re Price, 42 F.3d (7th cir. 1994). If the violation is egregious, the debtor may be awarded punitive damages. (11U.S.C. Section 362(k)
Although the stay is effective without notice, it is important to the debtor that creditors learn of the stay.

What is Bankruptcy Rule 2004 Exam?

This is a common question yet not fully addressed by us previously. In this session, we will make an attempt to define the scope and extent of Rule 2004 Examination. This is a very broad pre-litigation discovery device which allows examination of any person, under oath, on any matters which relate to the “acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to discharge. A 2004 exam is a useful device for persons seeking more information than was obtained at the first meeting of creditors. It can also be used if someone needs to file adversary proceedings.

Rule 2004(a) provides that “any person” may be examined. This includes debtors and non-debtors alike. Bankruptcy Code is Section 101(12) define “debtor” as a “person” or municipality concerning which a case under this title has been commenced. The subject matter of the examination must be relevant to the conduct and affairs of the debtor. The following non-debtor parties have been examined under Rule 2004 or its predecessors:
1. Accountants
2. Attorneys
3. Experts
4. Creditors
5. Debtor’s relatives
6. Government agencies.
7. Business association and partners
8. Witnesses to wills.
9. Corporation in which debtor is a shareholder
10. Buyer of assets from debtor under a confirmed plan of reorganization.

The scope of a Rule 2004 exam has been likened to a fishing expedition and an inquisition. A wide latitude is allowed in this exam.

What Documents Can be Discovered Under Rule 2004. This rule includes requests for the production of documents as well as the examination of witnesses. Bankruptcy courts have ordered the following types of document production.
1. Non-debtor records
2. Bank records
3. Accountans work papers
4. Government documents
5. List of persons to enable solicitation to join creditor group.

Which Reaffirmation Are Binding?

We had discussed the definition of ‘surrender’ and ‘reaffirmation’. In this post, we would only discuss reaffirmation. Some time creditors lure the debtors to sign reaffirmation with various tactics like lowering the interest rate, shortening time period etc. The Code does not completely bar reaffirmation, it however, restricts them significantly. Section 524(c) and (k) sets forth a number of requirements that must be followed before a reaffirmation is binding. First, there must be an agreement between the debtor and the creditor which is enforceable under applicable nonbankruptcy law. that agreement in most cases is essentially a contract to reaffirm. Simply speaking,without any agreement there can be no reaffirmation. As you know, the reaffirmation agreement alters the original agreement. Any reaffirmation has to pass through a series of filtration process and must be approved by the judge and the parties.

1. The reaffirmation agreement must be made prior to the discharge.
2. The attorney has informed his parties not to enter into any reaffirmation.
3. Once the discharge is entered, no reaffirmation is possible
4. The reaffirmation agreement must contain the disclosures described in section 524(k).
5. The disclosure must be clear and conspicuous.

Part B of the of the agreement must include a brief description of the credit agreement, a task that may not be easy in light of the complicated agreements utilized by consumer creditors. The agreement must be filed by the court. If an attorney ahs negotiated the reaffirmation, the agreement filed with the court must be accompanied by the attorney’s affidavit.