Chapter 13 Bankruptcies Following Chapter 7

By law an individual who receives a discharge in a Chapter 7 Bankruptcy
must wait 8 years before filing another Chapter 7 Bankruptcy that will lead to a discharge.

 Financial problems however do not always wait until an individual meets the requirements of the Bankruptcy Code, and sometimes an individual accumulates new debts too quickly to wait for 8 years. One option that offers some relief in this situation is a Chapter 13 Bankruptcy.

 A Chapter 13 of course requires the Debtor to make monthly payments to pay off part of the debt, and thus this alternative may not be feasible for individuals in deep financial distress. It is also true that the Debtor must wait 4 years to file the Chapter 13, if he or she is going to receive a discharge.

This is an important distinction. A Debtor in fact may file a Chapter 13 Bankruptcy right after the Chapter 7 is discharged, but in this case he will not receive another discharge. There are some limited circumstances, where it makes sense to file the bankruptcy without receiving a discharge, such as to stop a mortgage foreclosure. However, in most cases the individual seeking bankruptcy relief has other debts which need a discharge, and in this case she will need to wait 4 years after the Chapter 7 before filing a Chapter 13.
　

Taxability of Gambling Income

As a bankruptcy lawyer I sometimes encounter individuals, who have suffered gambling losses, which have contributed to their financial difficulty. Gambling can also lead to adverse tax consequences however; which many taxpayers do not realize are coming.

Under the Internal Revenue Code gambling winnings are taxable income and gambling losses are deductible but only to the amount of gambling winnings, so such losses cannot be offset against other income. Furthermore, the losses are taken on an individual’s tax return as an itemized deduction which further limits their value.

For one thing the gambling losses can only be deducted, if they occur in the same tax year as the winnings. Whether it falls into the category of urban legend or whether it really happened, every accounting major has probably had heard the story of the high roller who went to Las Vegas over the Christmas holidays, and won a million dollars playing Blackjack on New Years Eve, but lost it all back the next day, when he returned to the casino for one more try. Not only does this fellow return home broke, but since the big events were in two different years, he owes the IRS tax on one million dollars of income.

Another problem with only receiving an itemized deduction is that the taxpayer frequently loses this benefit when he or she files state returns. The gambling income is taxed by the state, because it is part of adjusted gross income, and since many states do not employ the concept of itemized deductions, the income will remain taxable by the stated, even if the individual’s losses from other ventures to the casino surpass his gains.