Bankruptcy filing trends is a topic that seems to garner local and national attention at least once a year.  This was especially true in October of 2005 when the Bankruptcy Abuse Prevention and Consumer Protection Act became law. Out of fear, much of it unjustified, potential candidates for bankruptcy flooded into law offices throughout the county to get their bankruptcies on file prior to the new laws taking effect.

Between 2007 and 2010, as a result of a troubled regional and national economy, the notable bankruptcy filing trend has been a substantial increase in the number of bankruptcies filed both in Nebraska and nationally.  In fact, on a national level, between 2007 and 2009, Chapter 7 bankruptcy filings increased more than 40% each year. While the bankruptcy filing trend in Nebraska, over the same time period, has also been an increase, Nebraska’s strong agricultural economy has kept that increase significantly lower than the national average. Good news may be on the horizon. In Nebraska, during the first 6 months of 2011, bankruptcy filings were lower than the same time period in 2010.

It is difficult to find a silver lining from this four year bankruptcy trend.  However, there is one positive to come from this, at least for those individuals and companies that are now considering filing for bankruptcy.  The significant increase in bankruptcy filing encouraged many attorneys to either enter or reenter the bankruptcy practice. As a result, competition among attorneys for work in the area of bankruptcy has created a “buyer’s market.”

Those considering filing bankruptcy should demand that they receive a free consultation with an attorney and not just a paralegal. Moreover, bankruptcy candidates in this market should seek flexible payment terms, reasonable hourly rates or a fixed fee, and a thorough explanation of the Chapter 7 and Chapter 13 process.

At Jeffrey Hahn, our potential bankruptcy clients receive a free consultation with an attorney who thoroughly explains the Chapter 7 and Chapter 13 bankruptcy process. If, after the initial consultation, an attorney/client relationship is formed, Jeffrey Hahn offers flexible payment terms, including reasonable hourly rates and fixed fees. The lawyers of Jeffrey Hahn frequently encourage potential clients, after an initial bankruptcy consultation, to visit with other lawyers in or around Lincoln, Hastings, Kearney, or York and decide if Jeffrey Hahn is the best law firm for them.

Everyone who files Chapter 7 bankruptcy in the State of Nebraska must participate in a Meeting of Creditors (also known as a Section 341 Meeting).  Most individuals who file Chapter 7 bankruptcy will attend this Meeting of Creditors in person. At this Meeting of Creditors, the debtor in bankruptcy can expect the Chapter 7 trustee to ask a series of questions.  The questions asked by the Chapter 7 trustee, to some extent, are seasonable in nature.

This time of year, the debtor can expect the Chapter 7 trustee to ask the question, “Have you received, or do you expect to receive, a tax refund?”  Those who testify that they do not expect a tax refund and have not received a tax refund will not have much interest in the remainder of this blog post.  Those who testify that they do expect a tax refund or have received a tax refund will wonder what happens to that refund in Chapter 7 bankruptcy.  The answer to that question is the subject of this post.

The attorneys of Jeffrey, Hahn, Hemmerling & Zimmerman, PC, LLO frequently represent individuals who are filing Chapter 7 bankruptcy and expecting a tax refund.  In explaining the treatment of a tax refund in Chapter 7 bankruptcy, it is first necessary to understand the three components of most tax refunds.  These components may be referred to as an overpayment, Child Tax Credit, and Earned Income Tax Credit.  We will briefly discuss the nature of each along with its treatment in Chapter 7 bankruptcy.

The first component of a tax refund is an overpayment.  The overpayment is simply the difference between the amount withheld from an individual’s check per pay period during the calendar year and the individual’s income tax liability.  For example, during the course of a year, an individual with $2,000.00 of tax liability that paid $5,000.00 in withholdings can expect a $3,000.00 refund resulting from his or her overpayment.  In other words, this taxpayer overpaid his or her tax liability and is owed money back.  A refund attributable to an overpayment is an asset of the bankruptcy estate that the Chapter 7 trustee will claim unless the overpayment is exempt under Neb. Rev. Stat. § 25-1552.

The second component of a tax refund is a Child Tax Credit.  The Child Tax Credit is, generally speaking, claimed by parents of children 17 years of age or younger.  The Credit of $1,000.00 per child will offset a taxpayer’s tax liability.  If the Credit exceeds a taxpayer’s liability, he or she may expect to receive a refund.  A refund attributable to claiming a Child Tax Credit is an asset of the bankruptcy estate that the Chapter 7 trustee will claim unless the Credit is exempt under Neb. Rev. Stat. § 25-1552.

The third component of a tax refund is an Earned Income Tax Credit.  The Credit is a subsidy for low income families and is determined by household size and income.  A refund attributable to an Earned Income Tax Credit will be exempt, in its entirety, pursuant to Neb. Rev. Stat. § 25-1553.  In other words, a Chapter 7 trustee will not be able to claim any part of the debtor’s refund to the extent the refund’s origins are from the Earned Income Tax Credit.

In conclusion, be careful to examine components of a tax refund.  Its origins will determine, at least in part, what a debtor keeps in bankruptcy and what the Chapter 7 trustee will claim.

You might have heard of Hostess. Not the hostess that kept you waiting in the lobby of your favorite restaurant last weekend when an open table was clearly available, but  the maker of the delicious and overwhelmingly healthy Twinkie. You might also remember Hostess from such other roles as: manufacturer of the Hoho,  manufacturer of the Ding Dong, and manufacturer of the lip-smacking, salivation generating 100 Calorie Pack (seriously, I doubt anyone believes that high calorie food tastes as good as a delectable 100 Calorie Pack).

Sadly, Hostess was forced into filing Chapter 11 bankruptcy last month. Surely, this should put us all on notice. In an economic climate where the maker of the Twinkie cannot thrive, what hope is there for the rest of us? But Hostess, with over $860 million of debt and over 100,000 creditors, expects to move through bankruptcy without the Twinkie production line ever coming to a halt. Clearly, there is hope for life post bankruptcy.

For the majority of our clients, the choice to file bankruptcy is one of the most difficult decisions they will ever make. At Jeffrey, Hahn, Hemmerling & Zimmerman, we will do everything that we can to make your bankruptcy as painless as possible. After all, there could be a Twinkie at the end of the bankruptcy Tunnel.

For more information regarding Hostess’ bankruptcy, feel free to visit the sources below:

http://dealbook.nytimes.com/2012/01/11/hostess-files-for-bankruptcy/

http://www.usatoday.com/money/industries/food/story/2012-01-11/hostess-bankruptcy-twinkies-wonder-bread/52495162/1

http://online.wsj.com/article/SB10001424052970204257504577154402317896574.html

Many of our consumer bankruptcy clients find themselves in jeopardy of losing their residence as a result of foreclosure.  A Chapter 13 bankruptcy has been, and continues to be, one of the best ways to prevent a foreclosure.  The Obama Administration sought to create an alternative to bankruptcy by way of its legislation related to loan modifications.  Through the representation of our bankruptcy clients, we have learned that efforts to take advantage of the loan modification program can be very frustrating.  Clients and prospective clients who sought counsel on a consumer bankruptcy often relayed their frustrations in dealing with lenders to modify their loans.  A recent article reflects that this legislation, coined Home Affordable Modification Program, has resulted in a mixed bag.  See www.marketwatch.com/story/obama-loan-modification-program-moving-slowly-2012-01-09 for a look back at the program during its two year existence.

From the farm crisis of the 1980’s to the recent consumer debt crisis, the law firm of Jeffrey, Hahn, Hemmerling &  Zimmerman, PC, LLO has consistently represented creditors and debtors in various bankruptcy matters. Over the course of the past three decades, the Firm has utilized its experience to assist its individual and corporate clients in countless legal proceedings within the United States Bankruptcy Court for the District of Nebraska.

In some instances, the proceedings included relatively simple consumer bankruptcies filed under Chapter 7 or Chapter 13. In other instances, the proceedings involved more complex commercial and farm bankruptcies filed under Chapter 11 or Chapter 12. The firm has also represented many of its individual and corporate clients in adversary cases filed in the context of bankruptcies concerning the dischargeability of debts under Section 523 of the Bankruptcy Code. Additionally, the Firm has advised its individual and corporate clients regarding the treatment of tax liabilities within bankruptcy.

While the Bankruptcy Code and the nature of bankruptcy proceedings may change over time and between clients, the attorneys at Jeffrey, Hahn, Hemmerling & Zimmerman, PC, LLO always pride themselves on having the resources and experience necessary to provide competent and responsive representation to their bankruptcy clients. With this in mind, the Firm has created this blog so that its attorneys may share their experiences in bankruptcy proceedings with present and prospective clients and also with their colleagues in the legal community.

You should know that the Firm’s attorneys practice in areas beyond Bankruptcy, including Estate Planning, Wills and Trusts, Estate and Trust Administration, Business Planning, Farm Planning, Municipal Law, Corporate/Business Law, Collections, Landlord/Tennant, Real Estate law, Commercial Litigation, and General Litigation. From time to time, you can expect blog posts to appear that address these areas as well.

JHHZ has finally taken the time to create and institute a blog. Expect future posts!