It is now October 31, 2010, and two months from today The Economic Growth and Tax Relief Reconciliation Act of 2001 rides into the sunset. As any estate planning attorney would have told you at the time the law passed, The Economic Growth and Tax Relief Reconciliation Act of 2001 was thelegislation in which Congress abolished the Death Tax. The law provided that the Federal Estate Tax would phase out over the next decade, and the $1,000,000.00 estate tax exemption would gradually grow in size until it reached $3,500,000.00 in 2009 and became unlimited in 2010.
See Is There Any Such Thing As Estate Taxes
The only problem was that technically the change was not permanent. In order to meet the definition of being revenue neutral Congress had to provide that the law would end after a ten year period, and in 2011 the $1,000,000 exemption would return, leaving anyone dying after this year subject to the dreaded Death Tax.
Of course everyone realized nine years ago that the abolition of the Federal Estates Tax would really be permanent. They knew that sometime in the interim Congress would remove this ridiculous little sunset provision, and no one would ever really have to worry about Death Taxes again.
A funny thing happened though after the 2001 law passed. The economy suffered some setbacks, and the budget surplus, which the big supporters of the abolition of estate taxes believed would go on forever, turned into a rapidly growing deficit. Funding a permanent change began to look more difficult, and when all was said and done Congress never followed through.
There are some, who are still predicting a last minute action by Congress, but even most of the optimists only expect a $3,500,000 exemption. What is certain is that a lot more individuals dying after January 1, 2011 are going to be subject to Estate Taxes and Estate Planning has now become urgent.
Sunday, October 31, 2010
Wednesday, October 20, 2010
Giving Away Property Before Bankruptcy
The rational for allowing people to file bankruptcy is that sometimes one’s debts grow so large that it becomes impossible to ever repay what he owes, and when an individual files a Chapter 7 Bankruptcy he expects to receive a discharge of most of his debts. In most cases in a Chapter 7 Bankruptcy no payment is made toward the debt; however, in some situations an individual owns property that is more valuable than the exemptions allowed by the bankruptcy law.
When that happens the bankruptcy trustee will sell the property, pay the debtor the amount of the exemption, and use the balance to make partial payments to the creditors.
Under Illinois law for example an individual is entitled to a $2,400.00 exemption for a car, and a $4,000.00 general personal property exemption, sometimes called the wild card exemption. Thus if an Illinois resident who files a Chapter 7 Bankruptcy owns a $10,000.00 car and listed stock worth $12,000.00 the bankruptcy trustee will sell this property to pay the creditors.
People in this situation sometimes ask their bankruptcy attorney, if they can give away the property to a friend or relative before they file and thus protect it from the trustee.
The answer is no!
The law provides that, if an individual gives away property, while they are unable to pay their debts, it is considered a fraudulent transfer, and the bankruptcy trustee can recover the property from the new owner. The same rule would apply, if the debtor sold the property to a friend or relative for a nominal amount.
The fraudulent transfer rules rule can be applied for transfers made up to four years before the bankruptcy is filed, although they become less likely to come into play when a longer period has passed. This is because a key element of a fraudulent transfer is that the debtor had to be unable to pay his debts at the time that he gave away the property, and when the gift is made two or three years before the bankruptcy filing this is less likely to be the case.
When that happens the bankruptcy trustee will sell the property, pay the debtor the amount of the exemption, and use the balance to make partial payments to the creditors.
Under Illinois law for example an individual is entitled to a $2,400.00 exemption for a car, and a $4,000.00 general personal property exemption, sometimes called the wild card exemption. Thus if an Illinois resident who files a Chapter 7 Bankruptcy owns a $10,000.00 car and listed stock worth $12,000.00 the bankruptcy trustee will sell this property to pay the creditors.
People in this situation sometimes ask their bankruptcy attorney, if they can give away the property to a friend or relative before they file and thus protect it from the trustee.
The answer is no!
The law provides that, if an individual gives away property, while they are unable to pay their debts, it is considered a fraudulent transfer, and the bankruptcy trustee can recover the property from the new owner. The same rule would apply, if the debtor sold the property to a friend or relative for a nominal amount.
The fraudulent transfer rules rule can be applied for transfers made up to four years before the bankruptcy is filed, although they become less likely to come into play when a longer period has passed. This is because a key element of a fraudulent transfer is that the debtor had to be unable to pay his debts at the time that he gave away the property, and when the gift is made two or three years before the bankruptcy filing this is less likely to be the case.
Thursday, October 14, 2010
The Foreclosure Crisis Continues to Fester
From the current news one has to wonder if the foreclosure crisis is going to grow worse before in grows better.
According to RealtyTrac Inc. lenders took over 102,134 properties in foreclosures in September 2010, which makes last month the highest monthly total of foreclosure sales, since RealtyTrac Inc, began tracking the data in 2005. Furthermore, August had also broken the previously standing record for foreclosure sales. Sales of properties in foreclosure now amount to approximately one third of U.S. transactions, and this is despite the fact that mortgage companies have realized that they are creating a glut in the market and slowed down the foreclosure procedure in many cases.
Meanwhile on Wednesday October 14, 2010 the attorneys general of all 50 states announced plans to investigate whether banks and mortgage companies have properly handled foreclosures sales on thousands of homes. This investigation has more potential consequences though than merely causing further headaches to the mortgage industry. If these foreclosures sales were done improperly the next question to arise will be can the sales be set aside? And if the answer is yes thousands of buyers of foreclosed homes may not have valid title to the property. Title companies are starting to show reluctance to issue title policies on foreclosed properties, and the uncertainly in this huge portion of the real estate market is thought to be responsible for a large midday dip in the stock market on Wednesday.
Unfortunately, this uncertainty in the foreclosure process can only serve to weaken the housing recovery, as many home buyers and investors will no doubt become leery about purchasing properties that have been through the foreclosure process, and with new potential losses for the mortgage industry the lenders might grow even more reluctant to issue new mortgages.
See Stopping Home Foreclosures
According to RealtyTrac Inc. lenders took over 102,134 properties in foreclosures in September 2010, which makes last month the highest monthly total of foreclosure sales, since RealtyTrac Inc, began tracking the data in 2005. Furthermore, August had also broken the previously standing record for foreclosure sales. Sales of properties in foreclosure now amount to approximately one third of U.S. transactions, and this is despite the fact that mortgage companies have realized that they are creating a glut in the market and slowed down the foreclosure procedure in many cases.
Meanwhile on Wednesday October 14, 2010 the attorneys general of all 50 states announced plans to investigate whether banks and mortgage companies have properly handled foreclosures sales on thousands of homes. This investigation has more potential consequences though than merely causing further headaches to the mortgage industry. If these foreclosures sales were done improperly the next question to arise will be can the sales be set aside? And if the answer is yes thousands of buyers of foreclosed homes may not have valid title to the property. Title companies are starting to show reluctance to issue title policies on foreclosed properties, and the uncertainly in this huge portion of the real estate market is thought to be responsible for a large midday dip in the stock market on Wednesday.
Unfortunately, this uncertainty in the foreclosure process can only serve to weaken the housing recovery, as many home buyers and investors will no doubt become leery about purchasing properties that have been through the foreclosure process, and with new potential losses for the mortgage industry the lenders might grow even more reluctant to issue new mortgages.
See Stopping Home Foreclosures
Wednesday, October 6, 2010
Supreme Court Reviews Allowance for Car Ownership Expense in Bankruptcy
The United States Supreme Court heard Oral Arguments yesterday in the case of Ransom v. FIA Card Services N.A. The case concerns the expense allowance a debtor receives in the means test for ownership of a vehicle. The means test is a calculation that was added to the bankruptcy law in 2005. It looks at a household’s income and expense and determines if an individual has enough disposable income to pay back part of his or her unsecured debt.
The results of the means test can require an individual to file a Chapter 13 Bankruptcy in which he or she will make monthly payments for five years that will pay off part of the debts, rather than being allowed to file a Chapter 7 bankruptcy which would bring a discharge in about three months. Also if the individual files a Chapter 13 the means test will determine how much the Chapter 13 plan must pay toward his or her unsecured debts.
The means test includes a vehicle ownership expense for up to two vehicles owned by a household. Currently for Debtors living in Northern Illinois the allowance is $496 a month for each car. In the last five years since the means test was added to the law, courts have disagreed on an important question. Some courts have held that in order to take an ownership allowance the debtor has to be making payments on the car. Other courts have held that the debtor may take the allowance even if the vehicle is paid for. The question is significant because at $496 a month, it can make a difference of $29,760 in the amount the debtor will have to pay over the life of his Chapter 13 plan.
The Supreme Court has now accepted a case with this issue, Ransom v. FIA Card Services N.A, and on October 5, 2010 the court heard arguments on the issue. Once the court issues its opinion it will become the law in all jurisdictions. Needless to say we are anxiously awaiting the results..
The results of the means test can require an individual to file a Chapter 13 Bankruptcy in which he or she will make monthly payments for five years that will pay off part of the debts, rather than being allowed to file a Chapter 7 bankruptcy which would bring a discharge in about three months. Also if the individual files a Chapter 13 the means test will determine how much the Chapter 13 plan must pay toward his or her unsecured debts.
The means test includes a vehicle ownership expense for up to two vehicles owned by a household. Currently for Debtors living in Northern Illinois the allowance is $496 a month for each car. In the last five years since the means test was added to the law, courts have disagreed on an important question. Some courts have held that in order to take an ownership allowance the debtor has to be making payments on the car. Other courts have held that the debtor may take the allowance even if the vehicle is paid for. The question is significant because at $496 a month, it can make a difference of $29,760 in the amount the debtor will have to pay over the life of his Chapter 13 plan.
The Supreme Court has now accepted a case with this issue, Ransom v. FIA Card Services N.A, and on October 5, 2010 the court heard arguments on the issue. Once the court issues its opinion it will become the law in all jurisdictions. Needless to say we are anxiously awaiting the results..
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