Monthly Archives: February 2021

What happens to my 2020 tax refund if I file bankruptcy in 2021?

You lose it, unless you spend it first.

Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you’re unsure, call a bk attorney in your state and find out.

I’ve written a few articles on this, and the links are below.

Here, I will try to give you a quick and dirty list of the do’s and don’ts of spending your tax refund monies.

Don’t:

  1. pay off Mom and Dad before you file bk
  2. buy a new toy, like a dirtbike
  3. hide the money and claim that you spent it
  4. buy jewelry
  5. prepay rent

Do:

  1. buy food storage and clothing
  2. buy boring household appliances like washer/dryer/refrigerator/freezer/stove/sewing machine
  3. buy guns (really) (I can protect up to 3 of any value)
  4. pay for vehicle repairs and tires
  5. pay your attorney for your bankruptcy

Here are the old blog articles:

How can I protect my 2019 tax refund if I file bankruptcy in 2020?

Spend it before you go bankrupt!

Utah has NO exemptions to protect your tax refund when you file bankruptcy. This means that if you go bankrupt before you receive and spend your tax refund, you will lose it. The chapter 7 trustee will take your refund and use it to pay your creditors. On the other hand, if you wait just a little bit to file and receive your refund, you can spend it all before filing bankruptcy.

Just remember to spend it on exempt items.

You can definitely use it to pay your bankruptcy attorney to prepare your case.

Don’t pay off friends or family!  Call me if you have any questions on how to spend it.  You can even text me on a Saturday at noon as you’re standing in an RC Willey trying to decide if you should purchase the new $800 bunk bed set for the twins (yes, you can). You can text me at 801-787-8860.

The list is below, but you’re always safe with food storage, clothing, washer, dryer, refrigerator, freezer, stove.

Here is a rehash of my post on this same issue last year (and the year before):

What happens to my 2018 tax refund if I file bankruptcy in 2019?

What happens to my 2017 tax refund if I file bankruptcy in 2018?

What happens to my 2016 tax refund when I file bankruptcy?

It’s that time of year again where I have to answer the phone and tell people that I don’t want their money until February or later because of tax refund season.  It makes a lean December/January in our household, but it’s the only way to protect my clients.

(I am cutting and pasting from earlier posts, so please forgive the repeat information).

So let’s say you get your refund February 1, 2016.   What do you do?

Better said, what don’t you do:

1.  Don’t go buy a new toy like a dirt bike or a tv.

2.  Don’t pay off any friends or family.  This is a preferential transfer, to an insider no less, and it results in Mom and Dad being sued by the trustee.

So what do you do:

1.  Spend it on exempt items under Utah Law.  This basically means food, clothing, washer, dryer, fridge, freezer, stove.

(Did you see a computer on the list?  No.   Don’t ask me if that’s okay.  It’s not).

:)

2.  And use the rest to pay me.  

So let’s say you spend the tax refund on food storage March 1st and keep all of your receipts.  When can you file?  March 2nd.

Here is a relevant portion of the

Utah Exemptions Act, Utah Code Title 78B Chapter 5, Section 505

An individual is entitlted to an exemption in …

(viii) (A) one:

(I) clothes washer and dryer;

(II) refrigerator;

(III) freezer;

(IV) stove;

(V) microwave oven; and

(VI) sewing machine;

(B) all carpets in use;

(C) provisions sufficient for 12 months actually provided for individual or family use;

(D) all wearing apparel of every individual and dependent, not including jewelry or furs; and

(E) all beds and bedding for every individual or dependent;

There are other items you can spend the money on, and this is by no means comprehensive, but this should give you a good idea on how to spend it.  If you have questions on what to use it for, ask your attorney;  that’s what he’s there for.

Can I rescind or cancel my reaffirmation agreement after my chapter 7 is discharged or even closed? (Notice of Rescission Form)

Yes, you can, but the timing is tricky.

Short answer: You can rescind (cancel) it :

1. any time before discharge or

2. within 60 days of the agreement being filed with the court.

Long answer: According to the bankruptcy code, 11 U.S.C. 524(a)(3)(J):

You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later.

So let’s break it down. When you reaffirm a debt, you are re-assuming the debt. This means that your liability isn’t wiped out by the bk. If you stop making payments a year from now, they can repossess the car and sue you.

However, by reaffirming the debt, you get to keep the financed car and get that positive credit reporting.

Before Discharge: If you change your mind after reaffirming the debt, you can rescind (or cancel) it at any time before discharge. All you have to do is notify the creditor. That being said, I like to file a Notice of Rescission with the court as well. I am putting a text version of my Notice of Rescission below. I also mail and email a copy to the secured creditor.

After Discharge: The bk code gives you 60 days from the date your reaffirmation agreement was filed with the court. This is NOT 60 days from when you signed it. This is 60 days from when the creditor got around to filing it. Use that same Notice of Rescission.

Case Closed: A Client contacted me today and said that wants to give up her reaffirmed truck. Her discharge was entered 2 weeks ago, and her case closed out 5 days ago. Now she changes her mind! Officially, I don’t have to file that Notice of Rescission, but I’m going to do so and send a letter to the creditor.

Oral Notice????: Technically, there is no required means of giving notice to the creditor. Oral notice is actually sufficient (just telling them over the phone). That being said, I like to keep things in writing. In law school they taught us that: “If it’s not in writing, it didn’t happen.”

Just remember that if you do rescind your reaffirmation agreement, they will want the car back soon. They can even repossess it that night. However, they’ll probably contact you to arrange a time to pick it up.

Here is a copy of my poorly drafted official “Notice of Rescission.”

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

In re:

DEBTOR
Debtor.

Bankruptcy No. XX-XXXXX

Chapter 7 Hon. WTT

NOTICE OF RESCISSION OF REAFFIRMATION AGREEMENT WITH RC WILLEY FINANCIAL SERVICES

Debtor gives notice that she is rescinding the Reaffirmation Agreement (Docket 10) recently filed between her and RC Willey Financial Services.
Dated this 30th day of July, 2019.

/s/ Robert S. Payne Attorney for Debtor

Certificate of Service

I certify that I mailed a copy of the foregoing to RC Willey Financial Services at POB 65320, Salt Lake City, UT 84165-0320

I wrote an older article about this (6 years ago) here: I already signed my reaffirmation agreement, but I changed my mind. Can I cancel/rescind that agreement?https://robertspaynelaw.com/myutahbankruptcyblog/2014/03/27/i-already-signed-my-reaffirmation-agreement-but-i-changed-my-mind-can-i-cancelrescind-that-agreement/

My car just got repossessed. Can I get it back if I file bankruptcy (chapter 7 or 13)?

Short answer: You can either file a chapter 13 bankruptcy within 10 days of the repossession or pay off the loan balance in full. Either one gets you the car back.

Since you’re probably not sitting on a wad of cash, you can file a chapter 13 and restructure the car payments over a 60 month plan at roughly 6% interest. Your chapter 13 plan payments will start on the 25th of next month.

The long answer is a bit more complicated.

Under the Utah Code, a creditor cannot sell the car for 10 days from the date of repossession. repo

70A-9a-612. Timeliness of notification before disposition of collateral.
(1) Except as otherwise provided in Subsection (2), whether a notification is sent within a reasonable time is a question of fact.
(2) In a transaction other than a consumer transaction, a notification of disposition sent after default and 10 days or more before the earliest time of disposition set forth in the notification is sent within a reasonable time before the disposition.

During that 10 day period, you have a right to redeem the repossessed car. This means that you have the right to pay off the loan balance plus any collection fees, and then you can get the car back.

70A-9a-623. Right to redeem collateral.
(1) A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
(2) To redeem collateral, a person shall tender:
(a) fulfillment of all obligations secured by the collateral; and
(b) the reasonable expenses and attorney’s fees described in Subsection 70A-9a-615(1)(a).
(3) A redemption may occur at any time before a secured party:
(a) has collected collateral under Section 70A-9a-607;
(b) has disposed of collateral or entered into a contract for its disposition under Section 70A-9a-610; or
(c) has accepted collateral in full or partial satisfaction of the obligation it secures under Section 70A-9a-622.

This means that if you suddenly come into some healthy cash, you could basically buy the car, paying off the balance in full. This is not the case for most people.

Or, you can file a chapter 13 bankruptcy. A chapter 13 bankruptcy triggers the redemption section of the Utah law, letting us propose a chapter 13 plan that will pay off the loan in full. Right after you file the chapter 13 case, your attorney can demand that the lender allow you to pick up the car from the repo yard.

Even better, chapter 13 lets you change the interest rate and stretch out the loan repayment to 60 months.

You can also file a chapter 7, but it is 100% up to the lender as to whether or not they’ll let you get the car back and resume payments.