Can Bankruptcy Help If Your Offer In Compromise Fails?

Discharge Tax DebtI heard the story all too many times. You filed an Offer in Compromise over 12 months ago and you received a letter simply rejecting your offer. The explanation for the rejection makes no sense to you for this was the best offer you could make to resolve your tax liability. I will tell you that you are not alone in your experience for only about quarter of Offers get approval each year. This means that nearly 75% of the people who have faith In the Federal Government to help them in a bad situation with their taxes are in for a rude awakening.

Offer in Compromises are a nice idea and a great way for the Internal Revenue Service (IRS) to extend the three year statute of limitations to collect against a tax debtor. Once an Offer is submitted the statute of limitations is stayed in order to allow the IRS the 12 to 24 months to process your Offer. Meanwhile, the tax debtor’s life is put on hold and the IRS is able to prevent the tax debtor from pursuing options that will discharge tax debt.

So what can you do if your Offer is rejected and that the odds are not in your favor to get an Offer actually accepted?

We see a lot of people in our office with tax issues and a lot of people completely devastated by rejections of Offers. If we had our chance to meet with anyone considering putting all the work into submitting an Offer in Compromise, we would save the tax debtor the time, energy, and frustration. Offers statistics clearly indicate that this process is not going to be a success for the tax debtor. If the IRS was a sports team, the fans would be complaining to get a new coach with nearly 75% rate of loss.

Nevertheless, there is a successful option for tax debtors and the success rate is in the control of the tax debtor and not some third party IRS agent pushing paper. A Chapter 13 bankruptcy case is your best option for tax debt. Now, I know the word “bankruptcy” scares people off which is unfortunate for it is the only Federal Government law that can with absolutely cure a tax debt issue without question.

Why a Chapter 13 case is the best option is because Title 11 allows a tax debtor to cure tax debt over a payment plan of 60 months without the threat of the IRS collecting against the debtor. That is right you put up a big STOP SIGN to the IRS thanks to the automatic stay pursuant to 11 U.S.C. §362. So no more worries of threatening IRS debt or increasing of your overall tax debt due to the fact that the IRS is stayed from issuing out penalties of interest while you are in a Chapter 13 case.

Additionally, a Chapter 13 case allows you to treat the interest and penalties as unsecured debt. In other words, you will pay a minimum amount like maybe 5% (this amount depends on your disposable income) and the rest of the interest and penalties will be discharged. So all that interest and penalties tact upon your tax debt will not need to be paid in full and will no longer hinder your ability to cure your debt.

Finally in a Chapter 13, you can avoid tax liens. Anyone with a tax lien knows how trapped you feel. Often tax liens lead to levying of your bank accounts as well as your wages. Chapter 13 stops all levies on bank account as well as wages. So you can have your life back as you knew it was before you got into tax debt.

The reasons to file a Chapter 13 bankruptcy case is overwhelming. You the tax debtor are in control and you can have 100% success rate.

Can You Remove A Tax Lien In A Chapter 13 Bankruptcy: YES YOU CAN

Many people think that a tax lien is a permanent matter and can never be removed or even dealt with. So what do people do? They avoid the issue and find a way to work around the lien so that they can continue to live. I am writing this blog so that you avoiders trying to find a way around your tax liens can understand what a tax lien really means and what you can do about it so you need not be an avoider.

Let us start by understanding what a tax lien really means. I am going to use the IRS lien definition because state governments use the IRS a guide to liens and the law to enforce liens. The IRS defines a lien as Sec. 6321. LIEN FOR TAXES:

“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.”

What does this mean? It means that if you fall behind on your taxes and avoid the issue, the IRS will place a lien on everything you own. You might say, “I only have my personal goods and my car and no house.” The problem with that way of thinking is that they still have the liens against your personal property and any future property you buy. What I mean is that everything you own—books, ipad, clothes, computer, food and etc. You get the point.

Tax liens are serious business. Do not ignore the reality you are in. The problem with Tax Liens is that they are good for 10 years and the IRS/State can renew them for another 10 years. The IRS/State will renew them if they have not heard from you or if the options to remove the liens are not taken.

The options to remove a Tax Lien are several folds. You can pay the taxes owed in full and the IRS/State will gladly remove the liens. IRS Suggestions On Resolving Tax Liens. Of course, they will. You can look at the link noted and see how the IRS is suggesting that assets be sold and how they can help you do so in order to get the tax debt paid and lien removed.

You see, the IRS/State want paid and will take your assets to do so. How can this be and how can you stop it? The first step is not ignoring the reality you are in. A Tax Lien destroys your credit even if you find a way to work around it and continue to live. You say “I can deal with the way I am living.” The problem is that the IRS/State will catch up with you and will force you to sell property or even worst you will never own property in your lifetime. You have to ask yourself is living a life working around bad credit so to avoid dealing with your reality worth it?

How you can stop a Tax Lien and live a life of Financial Health is simple but you need to seriously consider filing a Chapter 13 bankruptcy case. In a Chapter 13 bankruptcy case, Tax Liens can be stripped from both personal and real property. BANKRUPTCY STRIPPING CODE. Pursuant to section 506 of the Bankruptcy code, Tax Liens can be removed from personal property and real property in a Chapter 13 case. Once the lien is removed from your property, often the taxes owed are fully unsecured and dischargeable without the need to make one payment towards them but for the unsecured portion you agreed to through your plan. What is the unsecured portion? It is a percentage of the total unsecured debt you owe that you can afford. Such as 10% owed on a total debt of $40,000.00. The amount to be paid would be $4000.00 over 60 months for a total monthly payment of $67.00 a month. At the end of 60 months, your entire tax debt would be discharged and you can live a life debt free and Tax Lien free.

Another way of dealing with tax liens is an offer in compromise. An offer in compromise may lead to the removal of a Tax Lien. Why I say “maybe” is because an offer in compromise is not regulated by a court order like in a Chapter 13 case. Offer in compromises are usually resolved within a department and are subject to that departments decision on how to deal with the liens and your payment arrangement in order to get the liens removed. Remember the IRS/State’s goal is to be paid; therefore, the option is a good one to consider but is less absolute for it is not govern by law and court order.

If you have a Tax Lien, it is a permanent thing if you do not take up one of your options to deal with it. A Chapter 13 case is the best way to deal with a Tax Lien for it strips the Tax Lien from your property and allows to save your property and debt with your Tax Lien and debt once and for all. As always, you should seek professional help for your particular circumstances.

The Horror of HAMP Is Upon Us

My father always said, “Uncontrolled pleasure always comes with a price.”  He was talking about drinking too much in college and getting a hangover but this learning lesson is best way of explaining why we are facing the horror of HAMP which is going to hurt like a hangover.  I know many people hearing the title of this blog would disagree because they are in their homes due to a HAMP modification.  However, I would say to those people do you really know what a mortgage modification with HAMP means?

Most people were so happy to actually get a modification that they did not stop and think what actually is this modification that I am getting?  In February 2009, the Home Affordable Modification Program began with the first of the modification being executed in September 2009. These modification were designed to have a five year life span.  The structure designed with a low interest rate for the first year and steady raise in rate over the next five years until full interest rate and terms were resumed.

What does that all mean?  It means that a modification with HAMP is a band aid.  It was great.  If a homeowner simply needed a five year gap of help and can now go back to 2009 and pay the amount of the mortgage payments and interest that were expected by the original terms of the mortgage, including the full amount owed on the mortgage.  However, it means horror for the person who began to live their lives on the new lower payments and now are expected to pay the original terms of the mortgage and still face the reality that their homes are still underwater.

So you see why the horror is upon us.  HAMP modifications were never intended to be a permanent fix for any homeowner but only a temporary fix.  Unfortunately, I do not believe that homeowners who got modifications really understand this fact.  I think homeowners think that the mortgage companies owed them to reduce their interest rate and the amount owed on the mortgages.

I do not disagree with the idea that mortgage companies should be responsible for the loose mortgage practices that produced a shark like effect and cause some good people to get screwed.  However, the good people ultimately gave into their desires and signed the agreements.  The price to pay for the pleasure of having the home that you cannot quite afford was delayed by HAMP but the price is upon you now.

If you still do to want to believe, let me put the horror into more specific terms.  Hope Now, a non-profit organization recommended by HAMP, has noted that they have helped over 6.5 million homeowners with modifications under HAMP.  Hope Now is one of the more successful organizations with modifications but is one of many that helped homeowners under HAMP.  Think about the potential for a horror movie with just 6.5 million people not prepared to tackle their mortgages as they were before or even if they worked out a better terms than the original mortgage the terms, payments are going up.

Further, think about the fact that even if homeowners were able to get new employment, it is likely that the income was much less than what the homeowners were making when they purchase the home.  Additionally, there are other hurtles to consider.  The Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act was not renewed in December 2013.  Also see our Short Sales Are Dead Blog.  What does this all mean?  It means that a homeowner cannot expect to seek forgiveness of mortgage debt not retrieved by a mortgage company in a foreclosure sale or short sale.  As a result, the homeowner will now be 100% liable to pay for any deficiency from either a short sale or foreclosure sale.

The impact is a horror situation for homeowners who could make it through on the modified terms of the HAMP agreement but now cannot make payments.  The options for these homeowners is either let the home go to foreclosure sale or short sale the home for the home is likely to still be underwater.  These options no longer are just one dimensional decisions rather the factor of deficiency amounts must be considered by the homeowner.  The homeowner will now be liable either by being forced to pay the deficiency amount or by being forced to take the deficiency amount as income for that year and face large tax consequences.

HAMP’s intent was good but like my father said a price must be paid in the end.  Politicians are not realizing the overall effect of not renewing the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act and the first homeowners coming out of their modification agreements.  Also, politicians are not looking at the impact that this could have on independent modification agreements by other mortgage companies.  Remember modifications are optional for mortgage companies and there are no specific laws that outline a process that must be followed.

I think you get the full picture of the horror of HAMP which is upon us.  My advice is that if you have a HAMP modification and were actually able to keep your payments up, but are not sure if you are going to be able to make the payments once your HAMP modification expires, you need to get prepared now. You need to seek professional help and determine your options that are still available to you.

Can you Make A Second Mortgage Go Away In A Chapter 7 Bankruptcy?

There have recently been many consumer debt bloggers discussing the possibility that lien strips in their entirety may start to extend to Chapter 7 case, where previously, only those Debtors in a Chapter 13 or 11 reorganization could eliminate an entire second mortgage or home equity loan in a chapter 7 case if no equity existed for the junior lien holder as of the date of the bankruptcy petition filing.

This hope and optimism was generated in great part by the Eleventh Circuit Court of Appeals in a 2012 ruling on this issue where the Court held in McNeal v. GMAC Mortg., L.L.C. (In re McNeal), 477 F. App’x 562, 563 (11th Cir. 2012) that it is in fact allowed to avoid a junior lien in a Chapter 7 bankruptcy, reasoning that the United States Supreme Court did not fully address the issue of completely eliminating a junior lien in their famous Dewsnup, 502 U.S. 410, 413 (1992) holding that a partial avoidance or “cram down” can not be done in a Chapter 7 case.

This optimism may have just been tempered though due to a Bankruptcy holding in New York, on the issue of lien stripping in chapter 7 as a case of first impression. The Court in Ramiz Saric & Sahiza Saric, 2013 WL 6536752 (Bankr. N.D.N.Y. 2013), denied the Debtors’ motion to avoid the junior lien, even though the Debtors demonstrated there no equity as of the petition date in the real estate. The court reasoned that the creditor would still have an “allowed secured claim” as the term is used in section 502(d) because the claim was generally “secured by a lien with recourse to the underlying collateral.”

The real issue with these types of decisions is that without a grand sweeping holding, the issue of whether a junior lien can be stripped in any given court will be on a jurisdiction by jurisdiction basis. In the jurisdictions that our firm practices (1st Circuit and the 4th Circuit) these issues have yet to be challenged. However, in at least one Massachusetts case in the last year, the McNeal holding has been recognized by Judge Hoffman in a Chapter 13 challenge to a Mortgage. Is should be interesting to see how the issues play out over the next year or two as more latch on to the hope of NcNeal and test the waters in their states.

SHORT SALES ARE DEAD: Mortgage Forgiveness Debt Relief Act WAS NOT EXTENDED for 2014

A year ago I wrote an article similar to this one about the impact of the former Mortgage Forgiveness Debt Relief Act if it was not extended. However, the Act was extended for one more year. So, my article turned into a foreshadowing of the future for today.

Let us remember what the Mortgage Forgiveness Debt Relief Act did for us as a nation. The purpose of the Act was to provide for a forgiveness of the deficiency balance as a result of the sale of a home worth less than the value of the mortgage owed. Traditionally, a short sale or a foreclosure sale that resulted in a deficiency amount that would eventually be collected by the bank either by payment arrangement, collection or a law suit against the home owner.

The Act changed the traditional way of looking at mortgage deficiencies. The reality is the mortgage crisis changed traditional ways completely. The Act was part of several laws put in place to try and help the economy and the people in trouble with these horrible loans out of the trouble they were in. The Act prevented the mortgage companies from taking the traditional actions against the homeowner of collection of deficiency mortgage balances owed. It allowed the homeowner to break away from this terrible time and move on with their lives irrespective of their poor choice in buying the home in the first place.

As I noted in my article a year ago, it was just a matter of time that the Act would not be renewed. The Act really did not help the economy overall. It simply allowed a few people out of a terrible situation and allowed a few smart real estate agents to figure out how to continue to sell homes in a crappy market. It ultimately hurt the banking industry which trickled down to many people trying to refinance but could not because of the high level of credit required because the bank could not afford to take extra risk with facing sucking up all the bad debt from short sales or foreclosures.

The total effect of the Act not being renewed is that Short Sale will be dead. Banks will still be open to Short Sales but the consumer will no longer be able to use the Act to bargain with in completing the sale. Consumers can be faced with paying either tax liability if the bank provides debt forgiveness through a 1098 or will have to pay the deficiency from the sale.

I know it does not sound a great thing but the lack of extension does indicate that we are finally going back to traditional lending practices. Traditional lending practices does open up the door for those who work hard will be able to afford a home. It is not going to be as easy to get a mortgage as it was in the early 2000s but the mortgages will be available and will be a true investment that will not need a Short Sale to resolve.

With the expiration of the act, it may now trigger more bankruptcy filings as well. Instead of short selling a home or allowing the home to be foreclosed and incurring a taxable event, smarter consumers may opt to file a Chapter 7 bankruptcy and simply discharge their debt, which would then eliminate the tax event of debt forgiveness.

As with any matter regarding debt and its legal consequences, it is always a good idea to speak to an experienced debt relief attorney who understands all the options and can properly analyze each unique situation. Many such law firms offer free consultations and homeowners should take advantage of that.

D2GTJ47RP4E6

The Truth about Small Business and Chapter 11 Cases

Small Businesses when they get into financial trouble often elect to file a Chapter 7 or wind up the business and close it out.  Why?  Small Businesses do not take advantage of the opportunities available to them and their owners in a Chapter 11 to reorganize.  I know most people think that Chapter 11 cases are reserved for big companies like Hostess or US Air.  Reality is that is there are several layers of a Chapter 11 case and they are not just reserved for Hostess or US Air size corporations.

If you have a small business that is struggling to pay all its vendors, utilities, lease agreements and etc., a Chapter 11 case might be the right solution for you.  The gut instinct for small business owners when a company is struggling with getting the right amount of cash flow each month to meet their monthly bills is to get more debt with a bank or business lender.  This gut instinct and the results that stem thereof are simply the wrong way to go.

Life and business is about balance. The business must make enough money to pay for its debt each month.  So if more debt is not the answer, what is?  The answer is getting back to balance in business.  The company must find a way to get back to the balance of income in and debt paid each month without a struggle.

Some factors that cause the imbalance are the following:

1. Expenses are too high for the income of the business.  If this is the case, you cut back on expenses.

2. Outstanding Accounts receivable are impacting your bottom line.  If this is the case, you’ve got to get them paid.

These are the two main reasons businesses fail especially for Small Businesses.  Small Businesses are too busy just trying to get what they can in each month and meet all its customers’ needs that owners do not stop and take the time to ensure that these two factors are not destroying their business.   When owners finally take the time to understand that their business is not in balance, it is often too late.

Chapter 11 cases are designed to help all sizes of business to come back to balance.  The whole process is designed to get a business relief from debts that they simply will not be able to pay and allow the business to run within its income ability.  The truth is that a Chapter 11 case can save a Small Business from complete destruction.

The cost to do a Chapter 11 case can vary but if you seek out a small business Chapter 11 attorney, the fees will be reasonable and will cost you a lot less than that loan for more debt which will ultimately close your doors forever.  So, if you are a small business owner, do not give up the ship or weigh down the ship with more debt. You have options just like a Hostess, General Motors or US Air.   You need to seek advice for a reorganization of your company and bring it back to balance.

Do gambling winnings or losses need to be disclosed in bankruptcy?

When a Debtor files for personal bankruptcy, there are many schedules and statements that they are required to complete.  One such statement is something called the statement of financial affairs.  On this form, there are two questions that relate to gambling activity, one relative to winnings and one relative to losses.  More specifically, question #8 asks the Debtor to list all losses from fire, theft, other casualty or gambling for the period of one year immediately preceding the filing of the Debtor’s bankruptcy case.

Question #2 on the statement of financial affairs requires a debtor to state the amount of income received by the debtor other than from their job during the two years immediately preceding the commencement of the bankruptcy case.  On its face, this question requires the disclosure of all income of the debtor other than from an occupation. Not surprisingly, bankruptcy courts have routinely construed the expansive language of Question #2 as requiring the disclosure of income from gambling and have punished debtors who failed to disclose such income.

Regardless of whether a debtor has generated a significant portion of their income from gambling activity, or their losses in many cases due to serious addictions can result in a line of questioning during a debtor’s Section 341, Meeting of Creditors by the Bankruptcy Trustee.  This is the Trustee’s opportunity to dig a little into the real reason for the bankruptcy filing, or whether there are assets that can be administered for the estate to pay off creditors.

With respect to winnings in a casino, dog or horse track, or other gaming venues, those winnings play a large part in how the bankruptcy case moves forward.  When a debtor either fails or refuses to properly disclose information to the Bankruptcy Court, it can lead to their case being challenged under the good-faith requirement and may even lead to a denial of a discharge order and in the most egregious matters even criminal prosecution for hiding assets from creditors and the bankruptcy Trustee.  For example, if a Debtor were to win $50,000 at a casino, but fail to disclose the cash, most of which can not be exempted then concealing his or her gambling income, would hinder the bankruptcy trustee and buy the debtor time to spend the winnings.  This could lead to the filing a complaint for non-dischargeability or even criminal charges.  If a creditor or Trustee demonstrates by a preponderance of the evidence that the debtor actually intended to hinder, delay, or defraud a creditor, the court can deny the discharge. The intent to defraud must be actual and cannot be constructive; however, because it is unlikely that the debtor will admit actual fraud, the intent may be established by circumstantial evidence, such as failing to list income generated from a casino.  However, the problem that arises for Trustee’s in many situations with frequent gamblers is proving a substantial amount of money won at a casino or several casinos.   Large gains are not a problem when derived from single “hits”: A casino has an obligation to provide a form1099 for that longed-for but seldom realized experience or a large win.  It is the pattern of the ebb and flow of a gambling addiction, and the documents required to record hat tide, that are at issue.  Moreover, if a debtor is playing table games, and they win $1,000 here, $500 there, but over the course of a few months or even a year, generate a large portion of their income from gambling activity, they must tell the Trustee of this.

Where this becomes especially interesting is in a Chapter 13 reorganization.  The reason for this is that a Debtor has a duty to propose a plan payment based upon 100% of their disposable income.  The 2005 Amendments to the Bankruptcy Code changed the definition of “disposable income”.  Congress changed the definition of “disposable income” by tying it to a new term, “current monthly income,” and adding the definition of “current monthly income” that in relevant part, as noted above, looks at the debtor’s six-month pre-petition income.  The result is that a Chapter 13 plan payment will no longer be determined on disposable income as of the date of filing the Chapter 13 case but on all income as of the date of filing and any “projected disposable income”.  What does all this mean? The Trustee and the courts in dealing with a Chapter 13 case have awoken up to the fact that they can and will require a Chapter 13 Debtor to provide for and hand over any and all project income that they anticipate receiving in the life of the plan.  If a debtor generates a significant income from the use of post petition income based on winnings, then the bankruptcy estate may be allowed to benefit from this windfall and unsecured creditors can receive a higher dividend.  Carrying this approach forward, a Chapter 13 plan design must include tax returns, bonuses, raises, personal injury settlements, inheritances and etc. A debtor as well as their counsel must consider all of these factors in deciding to file a Chapter 13 case.

Certainly, Congress did not intend for debtors who experience a substantially improved financial condition after confirmation to avoid paying more to their creditors. Rather, unanticipated windfalls should inure to the benefit of the creditors, not the debtor.  It is not the design of the Bankruptcy laws to allow the debtor to lead the life of Riley while his creditors suffer on his behalf.  The Debtors’ use of post-confirmation income to gamble for personal entertainment while claiming that they cannot dedicate an additional funds per month in repayment of their creditors does not comport with the Court’s understanding of the philosophy of Chapter 13 reorganization.

The purpose of bankruptcy is to provide equitable distribution of the debtor’s assets to the creditors and “to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Williams v. United States Fid. & Guar. Co., 236 U.S. 549, 554-55, (1915)  If a debtor does not disclose his or her winnings, a court could find that debtors’ failure to identify the gambling winnings and losses that they incurred in the appropriate periods leading up to their bankruptcy filing was knowing and fraudulent for purposes of § 727(a)(4)(A). Moreover, the fact the gambling winnings are not disclosed can be taken as evidence by a court that the debtor intended to defraud his creditors.

What is a Casino Marker and is Casino Credit dischargeable in Bankruptcy?

Casino Marker to incur debtCertain people who like to gamble go into the casino with a specific amount of money that they believed before-hand would be all they would use to play.  However, for one reason or another, they make the ill-fated decision to request a credit line from the casino called a “Marker”.  Casino markers are lines of credit that allow frequent gambling clientele easy access to substantial sums of money to use at the table games or slots in a casino.  Casino markers are short-term, interest-free loans. However, repayment must be prompt or the patron faces high interest fees and possible criminal charges.

In general, a player will apply for casino credit by completing a standard form setting forth the name of the applicant, his or her address, the name of the applicant’s bank, and the bank account number. Casino personnel approve the applications pending verification of the basic bank information, including the average balance of the applicant’s account.  A marker is a gambling credit instrument that allows a gambler to receive all or part of the credit line the casino has approved for him, based on the gambler’s prior credit application with the casino. Once the gambler and a casino representative sign the marker, the gambler may exchange the marker for gambling tokens, or chips. If the gambler does not pay the marker when he has finished gambling, the marker is outstanding and the casino may later submit the marker, like a check, to the gambler’s bank for payment.

If the marker remains outstanding, casino personnel attempt to notify the customer and, after a specified period of time, submit the marker to the applicant’s bank for collection. If the bank account does not have sufficient funds, the casino will again attempt contact the customer and make demand for payment.  If payment is not forthcoming, the casino has the option to refer the customer for possible criminal prosecution, similar to passing a bad check.  However, it should be noted that so long as you file for bankruptcy before any criminal complaint is made, the automatic stay would stop the claim from commencing, as the Bankruptcy code stays any attempt to collect a prepetition debt during the course of a bankruptcy, pursuant to 11 U.S.C. §362(a).

Many pathological gamblers will seek to discharge the over extended marker or credit lines they have obtained in a casino just like a cash advance at the ATM in the casino through a Chapter 7 bankruptcy filing.  However, in some situations, a casino will challenge the ability to discharge the credit line through an adversary proceeding due to false pretenses, or if the debt exceeded $750 with in 90 days of the bankruptcy filing, pursuant to 11 U.S.C. §523(a).  Relative to casino markers, as with a cash advance, the key question is did the gambler have the intent to repay the debt at the time they took out the marker?

Since a casino marker is generally charged against a future check from the Debtor’s bank account, a casino may argue fraudulent misrepresentation to the casino of the Debtor’s ability to repay the loan, if they did not have the money in their bank account at the time they took out the marker.  However, the terms “false pretenses” and “false representation” are equivalent to “actual fraud,” as these terms are used in 11 U.S.C. § 523(a)(2)(A) A debt based solely on an unpaid check is nondischargeable (if at all) only as a debt arising from willful and malicious injury under 11 U.S.C. § 523(a)(6).  Moreover, a creditor casino has the burden to prove that the debtor intended to injure or harm the casino when taking the marker in order to obtain an order for non dischargeability.

Can cash advances from casinos be discharged in Bankruptcy?

Many people who visit a casino’s go in with simple intentions of only gambling a certain amount of money. For example, they say to themselves, “I will take $500 with me and if I loose it, I will stop gambling? Unfortunately, their addiction to gambling takes over when they start loosing and their pathological gambling takes over. What happens next? They go to the ATM machine and put in a credit card to take a cash advance, as their bank account does not have enough money to gamble based upon the desire to “win back” their losses. The great tragedy is that this type of transaction typically occurs numerous times in a given night or even over several days and many credit cards have $600, $1,000 or even more debited from the credit lines, which more likely then not, will be lost to the dealers and pit bosses running the games.

When a Debtor finally makes the decision to file for bankruptcy, and they review their credit reports, the question needs to be asked, can they discharge the debt on the credit cards for those past cash advances just the same as if they had purchased a product or service using the credit card? The second question to ask is if they can discharge the cash advance, do they need to wait a certain period of time to do so.

When cash advances aggregating to more than $925 obtained by debtor within 70 days of filing for bankruptcy, the debt may be deemed non dischargeable, but the creditor has to prove to the court that there was no intent to pay back the debt or that the debt was incurred as a result of false pretenses at the time the cash was withdrawn from the ATM. In light of recent case law, such a demonstration is more difficult then it use to be due to the fact that the creditor has to show subjective intent and not just an inability to pay. An easier way to look at this is to consider that all cash advances are dischargeable unless a creditor objects to them in an adversary proceeding, which can be very expensive for the Creditor. Years ago, casinos and credit card companies often sought to object to discharging extensions of credit given to debtors at the casino. However, in light of recent case law and the extensive cost of protracted litigation this does not happen nearly as often any longer.

Some bankruptcy courts have adopted an “implied representation” theory, under which the use of a credit card is an implied representation to the issuer of the holder’s intent and/or ability to pay.  GM Card v. Cox, 182 B.R. 626, 633 (Bankr. D. Mass. 1995). Other courts have adopted an “assumption of the risk” theory, which provides for the discharge of credit card debt incurred before the issuer communicates to the holder that it is revoking the card . Still other courts have adopted a “totality of the circumstances” test, sometimes in conjunction with an implied representation theory. &

It should be noted, that many bankruptcy attorneys will ask the question, when was the last time you took a cash advance? If the answer is with in 70 days, many attorneys will advise their clients to simply wait out the look back period before filing. This does become problematic when the Debtor is facing a foreclosure, wage garnishment or other serious legal consequence that requires the automatic stay to prevent a judicial proceeding from moving forward.

Debt Free in 2014? How to get there

Debt is a stress in life that will never go away until you decide that it will.  The power is all in your hands and not in the power of outside sources.  You must decide what steps you need to take to get debt free and start living a financial healthy life style.

It is hard to take the plunge into dealing with debt due to the crazy life style this economy has put us all in.  Most people live in fear of not knowing that they will have a job tomorrow or if they will find a job tomorrow that will afford them of paying off their debt.  These fears only paralyze a person from ultimately dealing with the debt issue immediately which means that the stress of debt will linger for years and not months or days.

The tragic outcome for most people who are paralyze with debt and do nothing is a lifetime of debt issues that a person may not be able to shake.  These are tax liens, tax levies, judgments, judgment liens, garnishments or student loan defaults.  Many people deal with debt when it is a little too late and as a result the fore mention become reality which limits your ability to have a full recovery of debt and have financial health.

So what should you do if you plan to be debt free in 2014?  The first step is planning how to deal with your debt. A lot of people say to me that they do not what to file bankruptcy because their life will be over.  I am not sure why anyone would think that is the case because that statement is totally untrue.  However, bankruptcy is not the only way to deal with your debt.  It is the best solution for a quick and clean way of getting the financial health you seek.

If not bankruptcy, you can consider working out your debt by debt settlement.  If you have credit card debt only, you might be able to resolve your debt by settling the outstanding balance with your credit card company for less than you owe.  Another option is if you owe tax debt, you might consider an offer in compromise, like debt settlement, the IRS or state may settle your tax debt for less than you owe.

Irrespective of any of these choices, the key to success is making a plan to accomplish your goals in 2014.  You should start today and not wait until January 2014 to make a plan for you want to be debt free in 2014 and not 2015.  Any of these choices you chose to deal with your debt will take time to prepare and to save to pay for.  Each one of these steps will cost you some money to execute but the amount for the service will be minimiumal compare to the amount of debt you need to resolve.

I know this all sounds great but those fears are creeping in and you like to put off planning.  I will give you one demonstration why you need make a plan to deal with debt.  If you owe $15,000.00 on credit card debt and your interest is 10%, each month you are losing $125.00 a month of your income.  We all know that 10% is a low interest rate for credit cards with a balance of $15,000.00 but you get the point.  The longer you wait to deal with debt the more money you will lose over time.

So do not let your fear paralyze you and stop you from making a plan.  Remember plans do not have to be completed in a day or two but can be completed over months.  I would suggest that you meet with an attorney to discuss your options and develop a plan to deal with your debt.  Attorneys who have the proper experience will be able to help you with any type of debt issue or options.  I do not recommend an attorney or a nonprofit debt settlement company that only can provide you with one of the options to consider.  Your time is limited and you want a professional that can see your entire debt stress and give you all the options in one location.  Besides, attorneys with one ability or a debt settlement company with one option will push you into the direction of their limited ability because that is all they know.  Understandable but your financial health needs the proper attention.

So, start getting your plan for 2014 and begin living a financially healthy life style for your future.

Search
Firm News
Follow us on Twitter
Reduce Student Loans
View Posts by Author
Blog Post by Topic