Can I Keep My Tax Refund if I File for Chapter 13 Bankruptcy?

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Tax day is once again approaching, and, if you have filed for bankruptcy, you undoubtedly have some new questions this year about filing your taxes and whether or not you can receive federal tax refunds.

Here, we will focus on Chapter 13 bankruptcy and the effect it will have on your federal taxes and refund(s). Firstly, let’s go over the definition of this type of bankruptcy. In order to be able to file for a Chapter 13 bankruptcy, you must be either: gainfully employed, self-employed or a sole proprietor. The reason for this requirement is that a Chapter 13 is actually a reorganization of your debts rather than a forgiveness of your debts. In addition, all of your tax returns within the past four years must have been filed correctly and on time.

A Chapter 13 bankruptcy filing will allow you to keep possession of all of your assets/property. The purpose of a chapter 13 proceeding is to create a plan that will allow you to pay back all or most of your debts over the next 3 to 5 years. Other types of bankruptcies can result in you losing assets that you cannot pay for.

In order to file for a Chapter 13, your total debt burden must not be so high so that creating a reasonable repayment plan would be impossible. Your repayment plan will be based on your income, your reasonable living expenses, and the specific debts that you have incurred. As you will be required to pay a specific amount of money each month to a number of different creditors, you will be living on a very strict budget until these debts are sufficiently paid down or paid off completely, depending on what is specifically set out in your repayment agreement.

Around tax time, the appeal of receiving a substantial lump some of money in the form of a tax refund can be very tempting when you are living on such a strict budget every month as you repay your debts.

That being said, it is important to know that, for many people involved in a bankruptcy case, tax refunds are often delayed or are required to be used as payment toward your Chapter 13 debts. This is especially true if any or all of the reason you filed for bankruptcy is overdue federal tax debts.

When you file for a Chapter 13 bankruptcy, you will be required to put all of your disposable income toward repayment of your debts. Disposable income is defined as any income that is not used to pay for your reasonable monthly living expenses. Under this definition, your tax refund will be considered disposable income because you will not have listed any potential tax refund money when you filed for Chapter 13 bankruptcy.

However, it is possible for you to excuse your tax refund from being considered part of your disposable income on a year-by-year basis. This is only possible if you have encountered a necessary living expense that can legitimately be considered unexpected.

In order to be able to keep your tax refund during a Chapter 13 bankruptcy, a separate plan modification will need to be filed each year. In your Chapter 13 plan modification, you’ll need to specify exactly how much money you will be receiving as a tax refund.  You will also need to provide details that will prove your need to keep the money.

Anything that is considered part of your regular monthly living expenses will not be reason enough for the court to allow you to keep your tax refund during a Chapter 13 reorganization. The reason for this is that you agreed to certain expenditures when you originally filed your bankruptcy petition, and you will be held responsible for making ends meet with the income that you are currently generating.

To learn more about specific situations that may allow you to keep your tax refund if you have filed for a Chapter 13 bankruptcy, contact our office today. Feel free to use this contact form, and please use the information provided on our law blog to learn more about the ins and outs of bankruptcy.

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Raising Money Conscious Children is Easier Than You Think

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Some parents find it uncomfortable or unnecessary to speak frankly with their children about money; however, quite the opposite is true. The younger children are when they learn the importance of money and how it’s made, the better.

Think back on your experiences with money as a child and how they helped form your current “money mentality.” Are there things that you wish your parents had done differently with you? Perhaps your parents led by a great example and gave you a head start on the successful way you handle money today. Either way, it’s important to note that, as parents (or other significant adults in a child’s life) you can teach your children some very important financial lessons.

It’s easy to see by simply taking quick stock of the number of foreclosures and bankruptcies in recent years, that many adults don’t have a good handle on managing their money. That fact makes it all the more important to ensure that the next generation of children don’t make the same mistakes their parents did.

Although it may be tempting to want to give your child everything that you didn’t have, it’s crucial to tamp down that urge. Your influence over your child’s financial choices is powerful, and children will learn by the example that you lead and by the lessons that you teach.

How Can I Teach a Child the Value of Money?

As early as age 4-5, children have the ability to learn to wait. At this age range, the money lessons taught should be simple, and focused on the importance of waiting for things in life. Children this young won’t have a secure grasp on how money works yet, but they can and do learn quickly that they can’t always get what they want. In order to teach your child this lesson, reinforce the skills of patience and understanding that “good things come to those who wait.”

Around age 6-7, children gain the ability to manage their own money. It is at this age that you can begin giving your child an age-appropriate weekly allowance (in the amount of your choice) in exchange for work done around the house. At the same time, discuss the concept of saving and include your child in some of the financial choices you make for your household. School age children can learn a lot from a routine shopping trip with you. Lead by example as you shop for your family’s necessities. Practice thinking out loud as you make purchases so that your child can hear your inner dialogue and can begin to learn how you make wise purchasing decisions.

Once children reach the age of 9-10 and older, they will have the cognitive ability to grasp the concept of how banking works, including simple and compounded interest. While up to now they may have had difficulty with the idea of “off-site” savings (i.e. not in the piggy bank on the kitchen table) – early adolescence is an ideal time to introduce children to their own bank account.

Leading your children toward good financial futures will benefit you, as well. By attempting to set a good example, you’ll be more inclined to make better money decisions. Naturally, we all make poor purchasing choices from time to time, but your mistakes can also be teachable moments about warranties, saving receipts, and returning defective items.

 

 

Image credit: Carissa Rogers

Are Money Worries Making You Sick?

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Do you find yourself stressing out over money issues lately? Or perhaps it’s been ongoing for awhile now. Either way, if you’ve got money problems that are causing you mental strain, angst or a general feeling of dread, you may actually be causing yourself real physical damage.

When you find yourself plagued by negative thoughts (in this case, about money), it’s not only your mental state you need to be concerned about. In fact, there have been a number of studies that show a direct correlation between fretting about your financials and failing physical health.

The correlation between worrying and your physical health is so strong that it simply should not be ignored. Because of  the association between worry and some significant health problems (high blood pressure, chronic migraines, heart attacks and debilitating back and neck pain), it’s crucial that you find an appropriate way to deal with your money worries. Failure to do so could put your health at serious risk.

Are you having trouble paying your mortgage bill? Has your car payment become more than you can handle? Is your electric company threatening to turn off your power if you don’t pay up soon? Are you dealing with seemingly insurmountable credit card bills/student loans/child support?

All of these things can lead to an overwhelming sense of anxiety. Along with the aforementioned physical health problems, long-standing, untreated anxiety can cause you to fall into a deep pit of depression.

Long-standing stressors can also make you more susceptible to infections like the common cold, the flu and other viruses. The more stressed you are, the more likely you will be to catch more serious and more frequent infections. This cause and effect relationship boils down to the fact that stress hormones like cortisol can interfere with your body’s ability to fight off infections.

If it seems like you always have a cold, or if your winter viruses linger long into the spring and even pop up during the summer, take a look at your overall stress level. Studies show that people who are under financial strain have a much harder time fighting off illnesses, and tend to stay sick longer then their more relaxed counterparts.

In fact, you may be up to five times more likely to come down with the cold or flu then people around you who are not under the same financial stress. You should take your body’s signals seriously, and if you’re consistently feeling ill, take inventory of the amount of stress you’re under.

If the primary source of your worry is financial, now is the time to reassess your budget. It may be that all you need is a budget overhaul. On the other hand, you may benefit from some certified credit counseling services in order to get your finances back on track.

If you’re reading this article here on our blog, it’s likely that you could benefit from taking a look around at some of our previous articles regarding money management and stress. Please feel free to read through all of our blog posts that may be pertinent to your own unique situation. Our hope is that you get your financial worry under control, and if you need to contact us, we would be glad to step in and help you.

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Will Co-signing a Loan Affect My Credit Score?

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If you’re at all concerned about your current credit score and report (as everyone should be), you may find yourself wondering whether co-signing a loan for a friend or family member will cause your score to rise or fall. Many of us automatically want to help a loved one in need, but it is important to know what effect such a valiant action will have on your own personal finances.

First and foremost, why would you co-sign someone else’s loan in the first place? Well, the need for a co-signer typically arises with people who don’t have sufficient credit histories for a lender to offer them a loan on their own. These are often young adults just starting out on their own, or recent divorcees whose former spouse handled all of the finances. Neither group will likely have much on their credit report at all, which makes it difficult for lenders to make a decision about their credit-worthiness.

By co-signing a loan for someone with little to no credit history, you agree that if your friend defaults on the loan (fails to make payments), you would then become responsible for the balance. The vast majority of the time, co-signing goes off without a hitch; however, the only time you should even consider co-signing a loan for someone is if you trust them implicitly not to screw it up.

But, what will co-signing do to my credit score?

Now that you understand the fundamentals of when and why co-signing occurs, you need to know what (if anything) this type of action will do to your credit report, and ultimately, your credit score.

First things first. The simple act of signing your name on the dotted line as a co-signer will ding your credit report with a hard inquiry, which will cause your score to drop. The good news about this is that it should only drop a few points.

If you plan to apply for a home loan in the near future, co-signing on a loan for a friend or family member may not be wise, because your overall debt-to-income ratio will change. Essentially, even though you are only “co-signing” – you are making yourself equally responsible for the timely repayment of that loan. This means that your ratio of “available credit” to “used credit” will be affected, which may limit your own potential for a loan in the future.

With all of that being said, if the main borrower on the loan repays it on time and in full, your credit score will improve! So, initially your score will be negatively affected, but usually only negligibly. Over time, as the loan is paid back accordingly, it’s nothing but good news for your credit score.

The bottom line about co-signing a loan for someone is that you should put a lot of thought into all of the potential outcomes before making a decision. Get extremely familiar with your own credit report and score and look to your future as well.

If you are in a position to co-sign a NJ loan, whether mortgage, auto, or other – be sure that you trust the borrower with your life before making a final decision!

 Image credit: Casa Thomas Jefferson

How Can I Remain Financially Stable After a Divorce?

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Every day, thousands of people stay in unhappy marriages due to a fear of the unknown. For many of these people, the fear is centered around money.

“How will I support myself/my kids?”

“Can I afford to keep my home without my spouse’s income?”

“Will I have to pay child support and/or alimony?”

“Am I entitled to receive child support and/or alimony?”

“Where will I go if I have to move?”

“Do I make enough money to pay all of my bills on my own?”

These questions are all valid concerns, but the good news is that they are all solvable. While it’s unfortunate that your marriage didn’t survive, it is possible to make your finances work if you decide to divorce.

  1. Start planning for the divorce before you even separate. Get familiar with exactly how much money you would need to make in order to pay all of your expenses on your own. Stop any unnecessary spending immediately and put that money aside for later (See #2 below.)
  2. Open a checking account in your name only. Deposit as much money into this account as you possibly can before and during your separation. If you and your spouse have a significant amount of money in a joint checking account, be advised that you can legally withdraw up to one half of the total amount as long as you do it before the divorce is finalized.
  3. Don’t be in a hurry to finalize your divorce. Understandably, you may be anxious to just ‘get it over with‘ already. However, this mentality can cause you to rush through the negotiation phase, putting your financial security at risk. Take the time to go through and make copies of all important paperwork, like credit card and bank account statements (checking and savings), tax documents, any and all retirement/pension information, stocks and/or mutual fund statements and anything else that is relevant to your finances. Make sure you have a solid understanding of all of the assets and debts acquired during the marriage.
  4. Stay insured. If you (and any children you may have from the marriage) are currently covered by your spouse’s health insurance plan, be aware that as soon as your divorce becomes final, you will lose those health benefits. Ensure that your children will continue to have coverage under your spouse’s plan, and acquire health insurance coverage on your own.
  5. Apply for a credit card in your name only. If you don’t already have one, you should look into getting a credit card with only your name on it. Use it only for emergencies and pay the balance each month. This will help establish a good credit history for you without your spouse’s help. It is also good to have at a time such as divorce to cover unforeseen expenses.
  6. Get a copy of your credit report and a copy of your spouse’s, too. Doing so can give you a lot of insight into not only your own finances, but any that your spouse may have been less than forthright about. It’s also a good idea to keep an extra close eye on your credit report and score as you go through the divorce process. You’ll need to be credit worthy when all is said and done, because you will no longer be financially tied to your spouse.

Keep in mind that you will be much happier at the end of your divorce proceedings if you take the time NOW to set up a solid financial plan and put it into action.

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Foreclosure vs Deed in Lieu: Which is Right for You?

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When it comes to debt resolution, there are quite a few options, and many of them can be confusing and/or overwhelming at first. Although you have probably heard the term “deed in lieu of foreclosure” before, you may not be completely sure of what exactly it entails. Its meaning may be of particular interest to you if you are currently struggling to make ends meet, and if you have a mortgage loan.

When you begin struggling to pay your monthly bills, one of the first things you should do is take a good, hard look at your budget. Where can you make some cuts? Are there any services that you could take a step down on – at least temporarily? Once you’ve gone through your budget (including all of your income and all of your expenses for the month) with a fine-toothed comb, does it look like your financial situation will improve with small changes?

If making small changes to your monthly expenses does not pull you above water, it may be time to start looking at your bigger expenses – and your home almost always resides right at the top of that list. Making changes to your mortgage with a loan modification or mortgage refinancing may be a possible solution. These are two options that can sometimes bring your monthly mortgage payment down enough that it becomes manageable once again.

If you’ve already gone the loan modification/refinancing route only to find that you’re still fighting an uphill battle, your options become: selling your home, listing your home as a short sale, foreclosure, or applying for a deed in lieu of foreclosure.

Today, we’re going to focus on the last two: foreclosure vs deed in lieu of foreclosure.

Foreclosure

If you’ve missed a mortgage payment, or several, your lender can foreclose on your property. Essentially, this means that they can kick you out (due to the fact that you are failing to hold up your end of the mortgage agreement) and take the house back from you. This may sound like an acceptable resolution to your problem, however, your lender can also obtain a deficiency judgement against you if they don’t make enough money re-selling the home to cover your unpaid mortgage. For example, let’s say you owe $210,000 on your home when it goes into foreclosure, but the bank is only able to sell it to someone else for $190,000. That $20,000 difference can become your responsibility. Additionally, having a foreclosure on your credit report will cause your credit score to plummet.

Deed in Lieu of Foreclosure

In plain English: ‘in lieu of’ means ‘instead of.’ Instead of your lender taking your home away from you via foreclosure, you can approach them and offer to give back the property (and the deed to same). Pros for a deed in lieu include: no embarrassing Sheriff’s Sale, and giving your lender plenty of notice that you’re having trouble paying your mortgage means that they may be more inclined to forego charging you the deficiency amount. If they do charge you, the amount you owe may be smaller, and you have the added benefit of coming to an agreement on the amount together (with the help of your attorney). The fewer surprises, the better! Although a deed in lieu will also hurt your credit score, with all of the other factors taken into consideration, it’s usually the better option.

 

 Image credit: Julia Manzerova

Buying a Home in NJ: Why You Need an Attorney

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Purchasing a home is a huge accomplishment in life, and one that is fraught with a million and one ways to confuse you. Signing a real estate contract is often jokingly referred to as ‘signing your life away.’ That’s because of the mountainous piles of paperwork you’ll have to read through (and preferably understand) before signing on the dotted lines.  Yes, you read that right: lineS. During the closing meeting, wherein the property officially becomes yours, you’ll be prompted to put your John Hancock on a veritable myriad of contract papers.

While it’s true that your real estate agent can often act as an intermediary during the informal phase of negotiations, once your transaction edges closer and closer to being a formal written agreement, there are a number of reasons why working with a real estate attorney is in your best interest.

For example, many realtors use cookie cutter paperwork that doesn’t address any number of legal problems that may pop up. Because of this, issues may arise that end up costing you many thousands of dollars – significantly more than the cost of retaining an attorney to assist you.

During a real estate transaction wherein you are the buyer, your attorney can negotiate for you prior to the existence of a contract. Once you are satisfied with the terms and a contract is drawn up, your real estate lawyer will be able to review all of the contract paperwork to ensure that all of your concerns are met.

Additionally, working with a real estate attorney in New Jersey means that all state laws will be followed during the purchase of your home. One such law exists that many New Jersey home buyers aren’t aware of.

The Attorney Review Clause

This is a 72 hour/three (3) day period of time that starts the day after the real estate contract has been signed by both the seller and the buyer. Weekends are not included in the 72 hour time period. During the Attorney Review, both parties are encouraged to seek out a New Jersey attorney who is experienced in real estate contracts.

The attorneys’ review of the contract must be completed within the three (3) day time frame, HOWEVER, if either party’s attorney notifies the realtor(s) of changes to be made to the contract, the review period is extended until such time as the buyer and the seller can come to an agreement.

If your NJ real estate attorney decides that there are fatal flaws in the contract, you are able to “cancel” or “get out of” the contract, and it thereby becomes null and void. Hence, the Attorney Review period is also referred to as the Escape Clause.

The Title Search

Along with reviewing your real estate contract for flaws and errors during the review period, your attorney and his staff are also equipped to perform a title search on the property that you wish to purchase. Title searches are done in order to prove that there aren’t any liens or judgments against the home you wish to buy. The outcome of the title search is crucial because it ultimately reveals whether the seller really has ownership rights of the property and can legally sell it to you.

A real estate broker can perform a title search for you, but a real estate attorney can accomplish a search much more quickly and more affordably due to working closely with title companies on a regular basis.

If there are any liens or encumbrances on the property in question, your attorney can negotiate with the seller and can even guide him or her in the right legal direction to ensure that all liens are taken care of before proceeding.

For these reasons and more, working with legal counsel during a real estate transaction is just the smart way to go. You may be surprised by how affordable a NJ attorney’s services are when compared with the amount of money you could potentially stand to lose in a real estate transaction that goes awry.

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A Perfect Credit Score: Is it Attainable?

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If you’re the type of person who strives to achieve perfection in everything that you do, you may be wondering if it’s possible to attain (and maintain) the highest FICO credit score possible: 850.

Perhaps an even better question would be: Is it necessary? Most financial advisors and credit counseling attorneys in NJ say no, you do not need a perfect credit score. However, they most definitely wouldn’t try to talk you out of trying, if a perfect score is what you really desire. After all, it could be kind of fun to see just how high you could get – right?

While anyone with a score above 760 is going to be eligible for the best rates, some people get a thrill out of watching the causal relationship between their good financial decisions and a rising score. It’s kind of like a reward for good behavior!

What Can I Do To Get a Perfect Score?

If you want to take the Credit Score Challenge – there are a few simple rules to follow in order to get where you want to be.

  1. Keep a close eye on your overall credit utilization. In plain English – keep your credit card balances under 30% of your TOTAL credit availability. Using more of your available credit makes it seem like you rely too much on credit cards rather than cash. Each time your credit utilization percentage goes above 30%, your score will take a hit.
  2. Pay all of your bills in full and on time. This includes your credit card bills, but also all of your other monthly expenses – from your rent or mortgage to your water bill. Keep current and timely, because the alternative will get marked on your credit score and will bring your score down a few points each time you’re late.
  3. Don’t open new lines of credit unless absolutely necessary. Every time you apply for a new credit card, or a new loan, the lender will request a copy of your credit score. This type of request is known as a ‘hard inquiry,’ and the reason they’ll knock your score down is because applying to borrow money implies that you’re in financial trouble. Each time a lender does a hard inquiry, imagine a little “Ping!” going off at the FICO office. It’s a little alert to them that you may be struggling.
  4. Check your credit report often. Doing so yourself will not affect your score at all, so feel free to check it every day if you want to! The main reason you should keep an eye on your credit report as well as your score, is to make sure that you’re doing things right. If you’re not, you’ll only know about it if you check your score! It’s also a good idea to be vigilant about looking for any errors on your report. It happens all too often, and if there is misinformation on your credit report, having it removed will boost your score right away.

Honestly, credit score researchers say they rarely see a perfect credit score – and most say the highest they’ve seen is around 845-847. Even if you manage to get your score into the upper levels, the most difficult part may be keeping it there. In that range, even the tiniest misstep will negatively affect your score much more so than for those with a moderate score, because their mistakes have already been accounted for.

Whether you’re interested in achieving the perfect credit score, or simply improving upon your current number, you can always seek out the help of a professional in the credit repair field. Avoid credit repair agencies if they promise you “a completely new credit history” or a dramatically increased score on the spot. These things are impossible to achieve and anyone who promises them is using illegal tactics.

If you’d like free legal advice on how to raise your credit score the right way, and how your score affects all of your financial decisions, come out to the Manalapan Township Library in Monmouth County on March 11, 2015 at 7pm. Veitengruber Law will give an informal, hands-on, FREE workshop that will teach you short term and long term ways to raise your credit score, how to more effectively manage your money, and how to set up a budget that works.

 

Image Credit: Bruce Berrien

Dying Without a Will in New Jersey: What Happens?

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If you have recently lost someone close to you and dear to your heart, we realize that you are undoubtedly weighed down by sadness and grief. Unfortunately, if the deceased wasn’t able to leave a Last Will and Testament, this time in your life just got incrementally more difficult.

When anyone dies without a will in New Jersey, they are said to have died “intestate.” This is the legal term for a deceased person who has not left any testamentary documents regarding the distribution of their assets. Some people mistakenly believe that an intestate decedent’s property will be taken by the state in which they reside. While that is not true, there are state laws that govern who the property should be divided between, and who should make decisions for the estate.

It’s important to know that not all assets are created equal. In fact, many types of assets/property are not passed from person to person via Last Will and Testament at all. These include:

  • Proceeds from a life insurance policy
  • Funds in an IRA, 401(k) or retirement account
  • Property named in a living trust
  • Funds in a POD bank account (payable on death)
  • Real estate, bank accounts, etc held in joint tenancy
  • Stocks, real estate or vehicles with a TOD (transfer on death) deed or title

The above assets will be distributed according to their individual documentation. They should each name a beneficiary or have a joint owner, making their transfer rather clear. Again, the above assets are never included as part of a will, and are inherited outside of the deceased’s estate.

In order to transfer ownership of the rest of the decedent’s assets and property, NJ state law dictates, using “intestate succession” laws to do so.

Since there is no will (in which an executor would have been named), the New Jersey Surrogate’s Court will appoint such a person so that the estate can be properly and fairly distributed. The NJ Surrogate’s Court typically chooses someone from the following list, in order of preference: surviving spouse, surviving partner of a civil union, children, grandchildren, parents, siblings, nieces, nephews.

Ultimately, the person who is selected as the estate’s administrator (executor) will be responsible for the fair and legal distribution of the estate to its heirs and creditors. S/he may be summoned to Surrogate’s Court to explain how or why  assets or property were distributed in a certain way. If mistakes are made by the estate administrator, s/he may be forced to pay for any losses that were suffered by the estate’s heirs and creditors.

Because it is such a big responsibility, many estate administrators choose to hire and work with an attorney during the process of distributing the estate. This is acceptable, and executors are permitted to use money from the estate to pay for this expense.

Distribution of the estate money and property must be completed in a very specific order so as to be legally correct. Before any heirs or survivors receive anything, all outstanding creditors and taxes must be paid. Following this distribution order is critical, because if it is later found that the executor made distribution errors, there’s a good chance s/he would be held personally responsible.

Beyond paying any and all creditors and taxes due, New Jersey laws state who shall be eligible to inherit parts of the estate of an intestate decedent. For more information about the New Jersey laws surrounding death without a will, call or contact our office today. In addition, strongly consider having Veitengruber Law draw up your own Estate Plan, so that your loved ones don’t have questions and conflict after you pass.

 

Image Credit: Alex Eflon