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Is the Child Tax Credit Protected in Bankruptcy?

in Bankruptcy

WHAT IS THE 2021 CHILD TAX CREDIT?

Parents across the country should have received their first couple of payments from the child tax credit enacted by congress in early March.  Congress voted in March, 2021 to give parents up to $3,600 to help offset the cost of raising their children.  If you are curious about how much you’ll get or if you want to change where the money is sent, you’ll need to visit  this website.

THE 2021 CHILD TAX CREDIT IS PROTECTED IN BANKRUPTCY 

Kids are expensive, I know…I have two. The extra money helps us all out and gives us a lifeline during these difficult financial times. I know that my clients need this extra money to make ends meet.  Fortunately, filing bankruptcy allows you to KEEP YOUR MONEY.  11 U.S.C. Section 541(b)(11) exempts this money from the bankruptcy estate because it was created expressly for the COVID relief package.  

HOW DO TAX CREDITS AND TAX REFUNDS NORMALLY WORK IN BANKRUPTCY

While this credit as well as stimulus funds are protected in bankruptcy, you should talk to your attorney to see what other parts of your tax refunds are protected in bankruptcy.  In a Chapter 13, you can usually keep around $1,500 of your tax refund without question, sometimes more if extenuating circumstances arise.  In a Chapter 7, if you are owed a large refund at the time of filing the trustee can seek to recover those funds if they are outside the exemption, but going forward the trustee will have no further claim to your tax refunds.  Obviously it’s our job to strategize with you so you can keep more of your hard earned money.  

If you have questions about bankruptcy or want to explore the protections bankruptcy provides, we’re just a phone call or message away.

Monsters

in Bankruptcy

Monsters

One of my favorite books from my childhood was Where The Wild Things Are. It’s a book about a misbehaving child who goes on nighttime adventures in a land of monsters.

You’re probably asking yourself, what on earth does this have to do with bankruptcy? Well, I’ll tell you…and it all relates to the last page of the book. 

When you get to the last page the young man in the book is back from his adventure and safe in bed.  This is when you realize that the so-called monster was just the size of a dust bunny under the bed.  

In other words, the size and ferocity of the monsters was blown out of proportion.  

Instead of being viscous, blood thirsty huge monsters, they were remarkably insignificant.  

I bring this up to point out that often, my clients let their imaginations run wild too.  This imaginary monster they think up keeps them from getting the help they need.  

The “monsters” of bankruptcy are entirely fictional. 

Many of my clients create monsters in their head.  They believe that when they file bankruptcy there are a number of horrible things that are just waiting to happen.

  • “They” will come to your house and take your home and everything in it.
  • You get dragged in front of a judge to explain why you “deserve” relief
  • You’ll never get credit again
  • You can’t get rid of tax debt, medical bills, credit cards or anything else

 

Every last bit of this is total garbage. 

People who are in distress believe the bad information they’re fed by creditors and so called “experts” on the internet. They let this bad information bounce around in their heads until they’ve blown it up so much that it consumes them and the fear paralyzes them.  

If only my clients could use their imagination the way Maurice Sendak did they’d never need my help. 

In truth, they just need good information.  Good information is real and it reassures them that they’re making the right choice.  

The pan of bankruptcy is self-inflicted. Beating yourself up 

But the truth is that when you have good information about how bankruptcy really works, the horrors are mostly made up.  The relief that is available is real and reassuring.

Most of the pain in bankruptcy is self-inflicted. You need help and you need it now.  Don’t beat yourself up and remember, the anguish you are putting yourself through doesn’t have to happen. 

When you’re ready to start down the road to financial peace, call me.

Who is eligible for VA DIC?

in VA Disability

DIC

Certain family members are eligible for DIC, or Dependency Indemnity Compensation in the event of the death of a veteran.  In order to qualify for DIC, you have to be verified as a qualified survivor of a disabled veteran.   

Who’s actually eligible for DIC

  • A spouse:

A spouse is entitled to DIC if they were in a valid marriage with the deceased veteran.  Common law marriages generally don’t qualify unless the couple lived in a state where it was recognized.  The couple must also have been “free to marry” at the time of their marriage.  This means that if you were previously married, your previous marriage must have been annulled or ended with divorce or death. The VA will use technicalities like this to deny DIC to spouses.  

Another thing that must be established is that the veteran and their spouse must have been living together for at least one year prior to the veteran’s death if there were no children.  This is moot if there was.  This means that the veteran must not have been separated or estranged from the spouse.  There are obvious exceptions to this rule but the VA will look into all of these factors.  

  • A Dependent or surviving parent

Parents of any kind (natural, adoptive and step) can qualify for DIC if you acted as a parent for at least one year prior to the veteran’s military service.  The parent must have also been financially dependent on the veteran or have an income below a certain threshold to qualify. 

  • Children

Children (biological, adopted or step) of the veteran are also eligible for DIC.  The child mustn’t be married and must be under 18 (or 23 if in school). If you’re over 18 and want to claim DIC you must have been declared permanently unable to support yourself prior to your 18th birthday.  Grandchildren are also not eligible unless the veteran had legally adopted them.   

Generally speaking other family members are ineligible for DIC.  If you’re applying for DIC you’ll want to send in the documents that prove you’re eligible such as marriage certificates, birth certificates or proof that a child is in school.  

The process can be confusing and we’re here to help. If you’ve been denied DIC, give us a call to see how we can help.

Dependency and Indemnity Compensation

in VA Disability

Dependency and

Our veterans deserve the best.  They’ve served honorably and given much of themselves.  This is especially true of deceased veterans.  If a veteran’s death was related to their service, those who survive the veteran may be eligible for Dependency and Indemnity Compensation from the VA.     

Dependency and Indemnity Compensation or DIC is for the survivors of veterans who died on or after January 1, 1957 and a program called death compensation is for survivors of veterans who died prior to that date.  

Because most people are looking for DIC benefits that’s where my focus will be in this post.  

The Circumstances around DIC

The VA will treat some claims as service connected and automatically grant DIC.  Those claims must fall under the “ten year rule.” That rule states that if a veteran was injured to the point that they were considered totally disabled for at least ten years, the survivor’s benefits will be granted and the death will be considered service related.         

For the “five year rule” to kick in the veteran must have been totally disabled for at least 5 years from the veteran’s release from active duty or discharge.  

The “one year rule” applies when the veteran was a POW and the disability was rated continuously as totally disabling for at least one year prior to death.  

Application

In order to apply for DIC, a survivor must submit a VA form.  This form is 21P-534 if you’re a spouse or child and 21P-535 if you’re a parent.  All these VA forms are online and can easily be found by clicking on the links above or by doing a quick search. 

If you inadvertently use the wrong form, that’s ok.  The VA must interpret any application, whether through the VA or SSI as an application for DIC. 

There is no deadline to apply but the timing of the application can have significant impacts on how much you get paid and when.

If you file the application within the year of the veteran’s passing, the VA will pay the benefits back to the first day of the month after the death of the veteran.  If the application is submitted more than one year after the death of the veteran, the DIC payment will be backdated to the 1st day of the month in which the application was received.  

Other circumstances

If the rules I describe above don’t apply, we have to prove that one or more of the service related conditions the veteran was being compensated for contributed to his or her death.  Obviously, we need to look first at the death certificate. 

If the cause of death is related to a service connected ailment, the VA will likely grant benefits without a lot of problems.  

If the related condition is not the cause of death, then you have to look outside the box.  

There’s been litigation that has given Dependency and Indemnity Compensation to survivors when the veterans service related ailments exacerbated non service related ailments. 

In order to establish this, you have to talk to doctors, family members and others who were around the veteran in order to provide proof to the VA that the two were correlated. 

Finally, in order to actually take advantage of these programs, you have to be eligible.  This is more complicated than one would like to believe.  I’ll cover this in another blog in the future.

In the meantime, if you or any other veteran needs me, I’m always just a phone call away.

Reaffirmation & Credit Scores

in Bankruptcy

There’s a common question amongst my clients.  Should I reaffirm my car loan and does it help rebuild my credit after bankruptcy? 

Rebuilding credit is very important to all of my clients.  We live in a world fueled by debt.  It’s the nature of capitalism.  

Does that mean I should sign away the benefits of my discharge just to keep a car loan and try to rebuild my credit?

Reaffirmation Agreements

The reaffirmation agreement, or reaff for short, is where you agree to be personally liable after your bankruptcy for the balance of the car loan.  If you miss a payment on a reaffirmed loan the lender can repossess the car and then sue you for the difference between what they get at auction and what you actually still owed. 

Unfortunately the desire to rebuild credit often overwhelms my clients who are often severely underwater on the car.  While this desire certainly exists, the reality of the situation is…

The Reaff has no effect on credit scores

Believe it or not, this has actually been litigated.  A woman who had a very modest income had a 40 mile commute to an area with very little in the way of public transit.  She wanted to reaffirm her car loan but upon further review of the facts, the judge wanted to look over it themselves.  The judge was worried that the reaff was not in the best interest of the debtor. 

The woman’s attorney told the judge that the client’s primary concern was rebuilding credit after the bankruptcy and that’s why she wanted to reaffirm. 

At the hearing, the judge called in a witness from Wells Fargo who testified that:

“The reporting of positive payment history on an account that has a discharged in bankruptcy indicator would not be beneficial for a consumer from a scoring perspective.”

The expert testified further that the reaffirmation agreement’s impact on the debtor’s credit score would be “none if very low” and could in fact actually lower the consumer’s credit score.  

Because of this, the judge disapproved the reaffirmation agreement in this case. 

Reaffirmation is risky business

For some people, it makes sense.  If you can afford the car, you’re not underwater and the car is in good shape you may want to consider the reaff.  The message, however, is quite clear.  Reaffirmation isn’t a guaranteed positive on your credit report in your post bankruptcy life.  

If you’re looking for information about bankruptcy, call us to schedule a free, no obligation consultation. 

Forgiven

in Bankruptcy, Credit and Credit Cards

Forgiven

There is a need to be forgiven in the world.  Forgiving others as well as yourself is so important to your mental health.  I discuss mental health a lot on this blog and I believe that it is one of the most important health topics in our country.  

The “forgiven” in bankruptcy goes beyond just the debts.  We need to forgive ourselves in the bankruptcy process.  

A bankruptcy attorney named Rachel Foley wrote about forgiveness in the context of bankruptcy.  

She wasn’t just talking about relieving yourself of debt but also relieving yourself of the negative emotions of the debt itself.  

She advises that we shed anger at the people who threatened the wellbeing of our family and she encourages us to look forward. 

Where she and I differ is on the point of forgiving not just your creditors, but forgiving yourself. 

It Starts at Home

Clients come to me in times of trouble.  They assure themselves that even the act of making an appointment makes them guilty of some unspeakable crime.  That they are guilty of some heinous act. 

But what are they guilty of?

Job loss?

Surviving a Pandemic?

Crashed investments?

Getting sick?

Going through a divorce?

Yes, hindsight is always 20/20 and sometimes there is a choice we make that maybe wasn’t the best decision.

But that doesn’t make us a bad person.  We ALL make bad choices sometimes in life. 

Even some of the biggest corporations in history have filed for bankruptcy and they’re all run by people who are supposedly the best and the brightest.  

If Presidents, businessmen and corporations file for bankruptcy, why do we make ourselves feel guilty?

Living in the Imagination

People believe that bankruptcy will end like the biblical day of judgement.  They stand in front of some Judge and confess their sins, hoping not to be cast into a lake of fire.  

Frankly, this isn’t how bankruptcy works at all.  For nearly all people who file bankruptcy, you’ll never even see the judge. The judge will likely never even give a moment’s thought to your situation.  There is absolutely NO subjectivity in an unchallenged bankruptcy…and most are unchallenged. 

My clients imagine bankruptcy like the Day of Judgment, lined up before the bench to be sorted into those who are worthy of forgiveness of debt and those who are not.

As the debtor, you are presumed to be entitled to discharge.  It is only rarely that someone is scrutinized and generally you must have filed the case in a deceptive or dishonest way in order to be put under the microscope. 

“Forgiven” starts with you

If you’re feeling guilty about filing bankruptcy, it’s all self inflicted. You must start with forgiving yourself and then let that feeling rush over you and extend to others.  

The past is in the past.  

You can’t change what happened now. 

You can only move forward.

When you’re ready to begin your journey towards forgiveness, call me.