When an individual files bankruptcy he or she is frequently behind on mortgage payments and or homeowner association dues. The amount owed on these particular debts are discharged in bankruptcy, which means the homeowner cannot be forced to pay them; however the mortgage company and the homeowners association do maintain a lien on the property for the amount owed. This means these creditors have to be paid out of the sales proceeds when the house is eventually sold before the homeowner receives anything. Or in the case of a mortgage company, they can foreclose on the house and take it away from the owner if the mortgage is not paid.
In the case of homeowner association dues there is the additional restriction, that the dues are only discharged if they were incurred before the bankruptcy was filed. The association can go to court and enforce payment for dues that fall due after the bankruptcy filing. This may sound reasonable for a person who continues to occupy the house, but if an individual finds a job in another state and is forced to move this can be a burden, especially if he cannot sell the house and it ends up being foreclosed on. In the current economic environment foreclosures often require a couple of years to work their way through the courts, and all this time association dues can be mounting up.
Thursday, June 14, 2012
Monday, June 11, 2012
Using Bankruptcy to Stop Foreclosure
Many individuals facing bankruptcy are also behind on their mortgages and looking at a likely foreclosure of their homes. Thus a frequent question that bankruptcy attorneys here is whether the bankruptcy can stop the foreclosure.
The answer is that a Chapter 13 bankruptcy in which a person makes monthly payments to partially repay their debts can include in their plan a provision to pay back any arrearage on their mortgages and thus end the foreclosure. A Chapter 7 bankruptcy in which the debtor makes no payments does not stop the foreclosure; however, it can sometimes serve to slow down the procedure and thus allow the homeowner to stay in his or her home longer.
The filing of the Chapter 7 bankruptcy creates an automatic stay, which forbids a creditor from taking any action to enforce a debt, and this requires a mortgagee to put the foreclosure action on hold until the homeowner receives a discharge. Whether this actually slows down the foreclosure is somewhat a matter of chance. The mortgage company might be waiting for the statutory minimum periods to pass and the bankruptcy will make no difference. Or the creditor could go into bankruptcy court to allow the resumption of the foreclosure.
In the current environment though in which the courts are way behind processing the backlog of foreclosures a minor delay often turns out to allow the homeowner to stay in his house for a number of additional months.
The answer is that a Chapter 13 bankruptcy in which a person makes monthly payments to partially repay their debts can include in their plan a provision to pay back any arrearage on their mortgages and thus end the foreclosure. A Chapter 7 bankruptcy in which the debtor makes no payments does not stop the foreclosure; however, it can sometimes serve to slow down the procedure and thus allow the homeowner to stay in his or her home longer.
The filing of the Chapter 7 bankruptcy creates an automatic stay, which forbids a creditor from taking any action to enforce a debt, and this requires a mortgagee to put the foreclosure action on hold until the homeowner receives a discharge. Whether this actually slows down the foreclosure is somewhat a matter of chance. The mortgage company might be waiting for the statutory minimum periods to pass and the bankruptcy will make no difference. Or the creditor could go into bankruptcy court to allow the resumption of the foreclosure.
In the current environment though in which the courts are way behind processing the backlog of foreclosures a minor delay often turns out to allow the homeowner to stay in his house for a number of additional months.
Thursday, June 7, 2012
Perfecting Mechanics Liens in Bankruptcy
Mechanic’s liens are a secured debt, and therefore while bankruptcy will discharge the obligation to pay the money owed for the services performed, the holder of the mechanics lien can still force a sale of the property to collect what he is entitled to under the contract, or wait and demand his share of the proceeds when other circumstances cause the owner to dispose of the property.
Section 362 of the United States Bankruptcy Code creates an automatic stay when a debtor files bankruptcy, which prevents a creditor from taking any action to enforce the debt, after a bankruptcy is filed. Since a mechanics lien needs to be recorded to be enforceable, a bankruptcy lawyer sometimes hears the question, whether the creditor may record the mechanics liens after his customer files for bankruptcy.
At first glance the answer may appear to be no, since clearly the reason a creditor records a mechanics lien is because he is hopeful that this action will improve his chances of collecting from the creditor. Section 362 however provides an exception for perfecting liens that are in existence prior to the bankruptcy filing. Since by law the mechanics lien arises, when the work is done, this means that the creditor holding the lien will still be able to record it after the debtor files.
Section 362 of the United States Bankruptcy Code creates an automatic stay when a debtor files bankruptcy, which prevents a creditor from taking any action to enforce the debt, after a bankruptcy is filed. Since a mechanics lien needs to be recorded to be enforceable, a bankruptcy lawyer sometimes hears the question, whether the creditor may record the mechanics liens after his customer files for bankruptcy.
At first glance the answer may appear to be no, since clearly the reason a creditor records a mechanics lien is because he is hopeful that this action will improve his chances of collecting from the creditor. Section 362 however provides an exception for perfecting liens that are in existence prior to the bankruptcy filing. Since by law the mechanics lien arises, when the work is done, this means that the creditor holding the lien will still be able to record it after the debtor files.
Thursday, March 22, 2012
Contribution for College Education of Children of Divorce
Under Illinois law a court may order a divorced parent to contribute to the higher education expense of his or her child, 750 ILCS 5/513. In making this decision the court will consider the financial situation of each parent and of the child, as well as the aptitude of the child for obtaining a higher education. In considering the child’s aptitude though keep in mind that the statute allows the court to order contributions for other forms of post secondary education besides college. Thus if a child wants to attend trade school the court may order the parent to help pay the cost of trade school.
There is no exact formula for determining how much a parent must contribute. Typically the court will look at the comparative income and expenses of both parents to see who can afford to pay more and will also expect the child to make some contribution to his or her education. The way the law is worded the courts should consider the property of the parents as well as their income, although as a divorce lawyer
I have been in front of judges who refuse to look at anything but income in these cases.
In many divorces of course the children have not yet reached the age to attend college and the court will reserve the issue until the child is ready to acquire a higher education. This has the advantage of letting the court consider the financial positions of the parties at the time the education is needed. However, if the parties do not agree it also places the burden on one of them to return to the divorce court years later to resolve this outstanding issue.
There is no exact formula for determining how much a parent must contribute. Typically the court will look at the comparative income and expenses of both parents to see who can afford to pay more and will also expect the child to make some contribution to his or her education. The way the law is worded the courts should consider the property of the parents as well as their income, although as a divorce lawyer
I have been in front of judges who refuse to look at anything but income in these cases.
In many divorces of course the children have not yet reached the age to attend college and the court will reserve the issue until the child is ready to acquire a higher education. This has the advantage of letting the court consider the financial positions of the parties at the time the education is needed. However, if the parties do not agree it also places the burden on one of them to return to the divorce court years later to resolve this outstanding issue.
Wednesday, January 4, 2012
Modification of Alimony
Under Illinois divorce law, a court granting a divorce decree can order one of the parties to pay maintenance, which is also known as "alimony" or "spousal support" to the other party. Whereas alimony was the norm in divorce 50 years ago, these days only a minority of divorce judgments include a provision for maintenance, and it is far more common for the judge to order maintenance to end after 3 to 5 years, than for the payments to continue for the rest of the recipient’s life time.
Furthermore, in most cases either party can bring a motion before the court to modify the amount of maintenance or the duration of the payment based on a change of financial circumstances. A wife paying alimony for example may ask for a decrease in the amount of maintenance, because she is forced into early retirement and can no longer afford to pay. Or she may ask for a decrease, because her husband finds a good job and no longer needs financial help to maintain his standard of living.
One thing the party asking for a modification should keep in mind, is that the change can only be effective as of the date he or she sends notice of the motion to the other party.
The mistake that a divorce lawyer often sees is that a husband loses his job and merely quits paying his former wife, because he no longer has the funds. In this case the amount due continues to mount up, and when he finally petitions the court for a reduction of maintenance, he will already owe a substantial arrearage, which the judge might have reduced, if the husband had asked for the reduction, when he first became unemployed. Unfortunately, it will then be too late for the court to reduce any of his liability, which became due prior to the date he sent out a notice of his motion.
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Furthermore, in most cases either party can bring a motion before the court to modify the amount of maintenance or the duration of the payment based on a change of financial circumstances. A wife paying alimony for example may ask for a decrease in the amount of maintenance, because she is forced into early retirement and can no longer afford to pay. Or she may ask for a decrease, because her husband finds a good job and no longer needs financial help to maintain his standard of living.
One thing the party asking for a modification should keep in mind, is that the change can only be effective as of the date he or she sends notice of the motion to the other party.
The mistake that a divorce lawyer often sees is that a husband loses his job and merely quits paying his former wife, because he no longer has the funds. In this case the amount due continues to mount up, and when he finally petitions the court for a reduction of maintenance, he will already owe a substantial arrearage, which the judge might have reduced, if the husband had asked for the reduction, when he first became unemployed. Unfortunately, it will then be too late for the court to reduce any of his liability, which became due prior to the date he sent out a notice of his motion.
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Friday, December 16, 2011
Qualified Transportation Fringe Benefits
Generally when an employer pays the personal expenses of an employee, the recipient must include the amount paid in his or her taxable income. However, a number of exceptions exist under the Internal Revenue Code.
Commuting costs are considered a personal expense, and are not deductible on an individual’s tax return. The tax law though allows the employer to aid the employee with his or her commuting costs by providing certain tax free benefits.
The following employee payments known as qualified transportation fringe benefits will thus be tax free to the employee:
1) Payments toward the cost of van pools for employees in a commuter highway vehicle, which has a seating capacity of at least six adults and on which at least 80% of the mileage is due to commuting trips in which the van is at least half full.
2) Qualified parking at the employer’s place of business or at a spot from which the employee takes public transportation for the balance of his commute.
3) Transit passes for use on a mass transit facility.
4) Qualified bicycle commuting reimbursements for up to $20 a month for the purchase, improvement, repair or storage of a bicycle regularly used by the employee in his or her commute.
One might note that while these reimbursements are excluded for taxes, they are included as income in the means test under the bankruptcy law to determine if an individual qualifies for a Chapter 7 Bankruptcy.
Commuting costs are considered a personal expense, and are not deductible on an individual’s tax return. The tax law though allows the employer to aid the employee with his or her commuting costs by providing certain tax free benefits.
The following employee payments known as qualified transportation fringe benefits will thus be tax free to the employee:
1) Payments toward the cost of van pools for employees in a commuter highway vehicle, which has a seating capacity of at least six adults and on which at least 80% of the mileage is due to commuting trips in which the van is at least half full.
2) Qualified parking at the employer’s place of business or at a spot from which the employee takes public transportation for the balance of his commute.
3) Transit passes for use on a mass transit facility.
4) Qualified bicycle commuting reimbursements for up to $20 a month for the purchase, improvement, repair or storage of a bicycle regularly used by the employee in his or her commute.
One might note that while these reimbursements are excluded for taxes, they are included as income in the means test under the bankruptcy law to determine if an individual qualifies for a Chapter 7 Bankruptcy.
Wednesday, December 7, 2011
Simplified Retirement Plans For Small Businesses
The Internal Revenue Code encourages people to plan for their retirement by providing tax incentives for both employers and employees to establish and participate in qualified pension and profit sharing plans. The rules are rather complex however and can be quite challenging for a small business such as a divorce lawyer
with only a few employees and no human resource professionals on staff.
Congress recognized the reality of this obstacle though, and the law allows small businesses to drop some of the formal requirements for a plan by setting up either a Simple Employee Pension also known as a "SEP" or a Simple Retirement Plan.
In a Simple Retirement Plan the employees, who elect to participate, can contribute toward the pension plan with the employer making additional contributions for the employees’ benefit. The employers contribution can be either a matching contribution of up to 3% of the employee’s compensation, or 2% of the compensation of every employee eligible to participate in the plan whether he or she elects to make contributions or not.
Under a SEP on the other hand the contributions are made by the employer.
Either a Simple Retirement Plan or a SEP may be funded by the purchase of an IRA.
with only a few employees and no human resource professionals on staff.
Congress recognized the reality of this obstacle though, and the law allows small businesses to drop some of the formal requirements for a plan by setting up either a Simple Employee Pension also known as a "SEP" or a Simple Retirement Plan.
In a Simple Retirement Plan the employees, who elect to participate, can contribute toward the pension plan with the employer making additional contributions for the employees’ benefit. The employers contribution can be either a matching contribution of up to 3% of the employee’s compensation, or 2% of the compensation of every employee eligible to participate in the plan whether he or she elects to make contributions or not.
Under a SEP on the other hand the contributions are made by the employer.
Either a Simple Retirement Plan or a SEP may be funded by the purchase of an IRA.
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