Warrant in Debt Template

Here in Virginia, a lawsuit for money in General District Court is called a Warrant in Debt. This sounds a lot scarier than it is. It basically means someone, a person or a company, is claiming you owe them money.

The purpose is of the Warrant in Debt is to get a judgment. A judgment, on its most basic level, is a court order that says you owe them money. It is a legal document that gives them power. The reason people want to get a judgment is they can try more aggressive ways to collect, including garnishing wages or bank accounts. Before getting a judgement, most creditors can only call, send letters, report negative information to credit bureaus (certain creditors, such as IRS, state, federal student loans, etc. do not need a judgment to use other means to collect).

The Process of a Warrant in Debt

After a creditor files a Warrant in Debt in the court, you must be given notice. Most often defendants are served with the notice in two ways: personal service or posted service. With personal service, a sheriff or a process server, brings the notice directly to you or an adult resident at your home. The other way (and much more common way) you can be served is via posted service, when the notice is posted/taped to the front of your door. The creditor will also provide a mailed notice. The Warrant in Debt lays out the most basic information about the claim: the parties involved, addresses, lawyers, the amount of the debt, the reason for the claim, etc.. Additionally, the document will have a “Return Date” on the upper right corner of the document. This is the date and time that the court is setting a hearing about the debt.

If you do not show up at the Return Date, the court will enter a Default Judgment against you. A Default Judgment means no one appeared to defend against the lawsuit, and the court entered a judgment. You have every right to attend, but it is important to understand what factors the court will consider. Often, clients who get a Warrant in Debt want to go to court and explain to the judge that they just cannot afford to pay. The judge may sympathize with the situation, he or she is not there to determine whether you can pay, but to determine whether the debt is valid or not. The judge at the court date will ask if the debtor or defendants owes the money or disputes the debt. If you owe the money, then the court would enter a judgment.

Disputing the Debt

If you say you dispute the debt, a judge will set a trial date to allow the plaintiff and defendant a chance to prove their case. At trial, the creditor will present evidence and try to prove the debt is valid. After the creditor presents its evidence, the court will allow the defendant to present any evidence to show why the debt is not valid or owed. Common defenses are things such as, statute of limitation, previous payments not accounted for, amounts are incorrect, mistaken identity, etc. The court cannot consider arguments about inability to pay. After both sides present evidence, the court will then make a legal determination.

What Happens After a Judgment?

If you fight the debt and win, then there is nothing else to worry about unless the creditor appeals. If you lose or you allow a judgment to be entered, the creditor can attempt to collect. Since a judgment is valid for at least 10 years (can be valid up to 40 years in Virginia), creditors may wait to collect. However, some creditors will immediately start using their rights. Creditors can collect via garnishment of paychecks, garnishment of bank accounts, a lien on property, etc.

After a judgment is entered, creditors are often more difficult to deal with since they have many more rights. Stopping a garnishment is very difficult in Virginia; usually, the only option is bankruptcy. As a result, many individuals are forced to file bankruptcy after being garnished. This is why we highly recommend settling or negotiating with a creditor before a judgment is entered because you are more likely to succeed.

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients deal with debts and Warrants in Debt for most of her career. She helps clients settle or negotiate debts, along with defending against certain lawsuits, and discharging debts through bankruptcy.

Your 2018 1040 tax return will look very different than years past.  With the passing of the Jobs and Tax Act back in 2017, the Internal Revenue Service is experiencing the most substantial changes to the tax code in over 30 years.  These changes include edits to many of the forms you may be familiar with. 

The basic 1040 form will have a lot of changes on the first page.  The new 2018 tax form looks like a postcard.  It only has your filing information, such as name, address, filing status, dependents, etc.  What it will not have is any of your income information on the first page.  As you can see here it looks very different.   The second page of the basic 1040 has most of your income information as well your standard deduction and tax credits. 

The main difference on the second page of the 2018 tax form is that a lot of the “other” income and adjustments to income are not listed.  Those will now be on the Schedule 1.   Business income is reported on the Schedule 1, as well as certain adjustments to income like IRA Deduction, Student Loan Interest, Health Savings Account deduction, and many more. 

Online Filing Software

Many people use free online software to file taxes; the majority of those who use Turbotax will be in for a surprise if they need to include a Schedule 1.  Turbotax is charging individual taxpayers for this additional schedule.  H&R Block is not charging for Schedule 1.  So if you have been using tax software online to do your taxes, make sure to look into this so that you do not get surprised by additional fees from these online software companies. Comparing the various programs out there could save you some money.

Self Employed Individuals

Those with self-employment income, such as any 1099 income, will still have a Schedule C to fill out and report on your 1040.  Other additional attachments will also be included.  The real difference is the attempt by Congress to eliminate the Schedule A deduction for most people.  By raising the standard deduction and capping some itemized deductions (including eliminating some all together) they wanted to simplify the 1040 return.

Balance Owed

If you are seeing that you owe for the first time (or even for the 10th time), it is important to understand you have options. Regardless of when you file your return, any balance owed on your 2018 taxes must be paid by April 15, 2019 to avoid failure to pay penalties. This means, even if you file your return in March, you would have a little bit of time to get money together. If you think filing an extension will help, you are out of luck. An extension is only an extension to file, not an extension to pay. Regardless, the balance is still due April 15 and if you pay after that date, even with a valid extension, you will be subject to penalties and interest.

If you owe more than you can feasible pay over a couple months, then you likely need to set up a payment arrangement. The IRS has multiple options that vary depending on your situation. A tax resolution payment plans are agreements direct with the IRS, which allow you to structure payment over time. These plans vary depending on your income and financial situations. Some plans can be as low as $0 per month, if the IRS determines you fall into the category of currently non-collectible. This means that you do not have any disposable income under their standards. Other plans will structure the balance over six years to allow for more reasonable payments.

If you owe, it is also important to determine how not to owe again in the future.For balances of only a couple hundred dollars, then adjusting your withholding to withhold $20.00 to $50.00 more a month, will likely solve the problem. If the balance is substantially more, you may need an analysis to figure out why there is a problem and what can be done to solve it.

Arthur Rosatti, Esq. is a licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies.  If you have concerns about your tax liabilities, making estimated tax payments, or correcting your withholding, schedule an appointment with our office.

It is important at the end of the year to start thinking about next year’s tax situation.  While it is likely too late in the year to fix any issues you had in 2018 with your withholding or estimated tax payments; but it is never too early to get your situation fixed going into 2019. 

Analyze Your Situation 

If you are expecting similar income in 2019 compared to what you have earned in 2018 then you have a good starting point in determining what you need to do with your 2019 tax payments. Going online to a withholding calculator, like the one the Internal Revenue Service offers, right now can show you what type of refund or balance you can expect for your 2018 tax return. Usually, it is not as in depth as going to accountant to get your taxes prepared; but, it can give you a good estimate as to what you are looking for. 

Dealing With Refunds

If you are showing a major refund that is good news.  There are two ways to go with this information for 2019.  You can either keep things as they are and likely get another refund in 2020 for your 2019 tax year.  You could also change your withholding to lower what your refund would be; but, you would see the money in your paycheck every pay period. Just make sure to be careful you are not expecting a change to your 2019 taxes, such as no longer being able to claim a child or decrease in mortgage interest from selling a home (and not purchasing a new one).

A lot of people love getting all that money back in the spring time.  Some use it as a vacation fund that they cannot touch (because the money stays with the government until you file your return).  Others use their refund to pay off those holiday season credit card bills.  Still others use their refunds as a way to get that big-ticket purchase that they have been putting off. 

Others will look at getting a huge refund and think, why should the government get to hold my money during the year?  They can use a withholding calculator to determine the minimum that they would have to pay in during the year to maximize how much they take home every pay period.   Most calculators will advise you to withhold at a level that keeps your withholding at the point where you either get a $100.00 refund or will owe $100.00. 

People can use that extra money each pay period to catch upon bills throughout the year, start saving for a vacation, or starting a retirement account.  One reason why putting the money into a long term investment is a good idea is that it can help with lower your total taxable liability for that year.  It can also get rid of the temptation to dive into that fund for random things through the year.  This goes back to people who don’t mind having the government hold onto the over withholding, it serves has a no interest savings account that they cannot access.  In order to get that savings account back you must file your return.  You are only entitled to the three most recent years of refunds, if you do not file on time. 

Handling Tax Liabilities

On the other side, are those who have not been withholding enough taxes throughout the year.  Those individuals need to make the proper corrections so that they do not continue to owe taxes year after year.  The biggest issue most people have once they owe for one year is that they do not take the necessary steps to correct the underlining issue and the taxes owed for previous years can snowball on them to the point they do not know what to do. 

If you are expecting to owe for 2018, first thing to do is to figure out the issue that is causing you to owe. One common problem is under-withholding from your wages is causing the problem. If this is the issue, then provide an updated W4 form to your employer as soon as possible so that your withholding can be in the proper place at the start of the new year. Another one of the most common problems we see are self-employed individuals that did not make enough estimated tax payments for 2018. If this applies to you, then you need to start preparing for 2019 taxes now. 

Self-Employed Individuals or Business Owners

The first step would be to develop a business budget tracker.  Most self-employed individuals just do not keep good records of what is a business expense and what is a personal expense.  Keep these records can help determine what your actual net income is. Your net income is the key factor in determining what your tax liability is. If you keep a solid spreadsheet of your gross income minus business expenses you can then figure out how much of your net income should be set aside to make quarterly estimated tax payments. 

The IRS requires that if you owe more than $1,000.00 in self-employment tax for one year, the next year you are required to make estimated tax payments.  If you do not make those payments during the year, when you go file your return, and there is another balance, you may have additional penalties for not pre-paying your tax. 

We try to advise self-employed clients to look very closely at their business and personal budgets to figure out where they can make up the difference to pay their taxes going forward. For many, it’s a lot of tough decisions on their personal side. You often have to make the conscientious effort to set aside the potential tax payment every month or quarter.  For others, they realize that being self-employed is too much of a hassle and go find work as a wage earner.  It is possible to be self-employed, make good money, and be responsible with your tax obligation.  It isn’t the easiest thing, but it can be done.

Arthur Rosatti, Esq. is a licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies.  If you have concerns about your tax liabilities, making estimated tax payments, or correcting your withholding, schedule an appointment with our office.

Debt is weighing on a man and consuming all his money.

To Anyone Feeling Overwhelmed with Debt:

As a bankruptcy attorney, my office deals with people who are going through stressful moments in their lives. Every day we help educate people on bankruptcy and debt issues. Hardest part about talking with individuals about debt relief options is combating the significant misconceptions about debt issues and bankruptcy. If we are able to explain the correct information, we can help individuals truly understand the legal process and get a fresh start. But, it is not always easy because many sources promote bankruptcy as the worst option out there and that bankruptcy means you are a failure; these ideas are completely false and do not reflect the actual concept of bankruptcy.

I get asked all the time, is bankruptcy the right option for me? Should I file? I almost always respond that I can’t make that decision; it is a financial decision only you can make. On occasion, when it is the only reasonable option available to achieve their goal (like stopping a foreclosure or garnishment), I let them know it is likely your best option here. Sometimes, I can say — especially when the debt level is very low — I cannot recommend bankruptcy. Often with low debt, the bankruptcy fee could be better put to use to settle debts, make a few payments, or just use the money to live. But, often, the answer is that bankruptcy is a good option, but you need to figure out if it is the right option for you.

For many, whether bankruptcy is a right option comes to whether they can accept bankruptcy as a financial choice and not a reflection of his/her personal situation.

Bankruptcy myths and misconceptions

More often than not, individuals who are great candidates for bankruptcy have preconceived ideas about bankruptcy. Sometimes, the myths can make people wait to consider their options. Waiting can sometimes be the right decision, sometimes filing sooner means you are getting a fresh start sooner, it really depends. Too often, I hear people say:

1. Your credit will be ruined after bankruptcy.
2. You should only file if I have a lot of debt; filing for only $20,000.00 isn’t worth it.
3. I will lose everything, if I file.
4. I can’t have any assets if I want to qualify for bankruptcy.
5. I have a security clearance; I can’t file.

All those reasons for not considering bankruptcy are incorrect. Bankruptcy is a legal and financial option to help individuals and/or businesses manage their debts. Addressing each of those concerns:

Credit after bankruptcy

Six months to a year after bankruptcy discharge, most debtors’ have between a 600 and 650 credit score; some of my clients have even seen higher. This increase in credit is usually without too much effort. If you take good steps toward improving your credit and using credit responsibly, it can be even better.

Additionally, you will be receiving offers for credit (i.e. credit cards and car loans) immediately after filing Chapter 7 or shortly after any discharge. After bankruptcy, most people have no debts (or a limited number of debts) and there is a restriction on when the debtor may file bankruptcy again. After a Chapter 7, a debtor cannot file a Chapter 7 for at least 8 years. This makes you a better credit risk than someone with a similar credit score.

How much debt should you have before considering bankruptcy?

There is no legal amount minimum debt necessary to file bankruptcy. We usually recommend at least $15,000.00 before you start considering bankruptcy as an option. But, the amount of debt usually depends on your income. If, after reviewing your finances, you do not believe you can pay the debt back within 4 to 5 years, then bankruptcy is definitely an option to consider. A Chapter 7 would let you wipe most debt away and Chapter 13 lets you restructure the debt and often allows a payment based on your monthly disposable income.

Bankruptcy is a legal and financial decision; it is not an ethical or moral one. Congress included bankruptcy as an option to deal with debt. They understand people need help dealing with debt. It also isn’t a kiss of death like many people believe it is; your credit will improve and you are allowed to keep certain things.

What can I keep in bankruptcy?

You can keep various things in bankruptcy. In a Chapter 13, you almost always keep everything you want to keep. In a Chapter 7, you are not completely without assets. There are certain bankruptcy exemptions (or protections) that apply to anyone filing for bankruptcy. Your exemptions vary depending on what state and federal laws apply to your circumstances. Most individuals are allowed to keep some cash, up to a certain value of a car, retirement plans, a base amount of household goods, and various other things. The government understands you should be a zero when you have your fresh start, but they do not want you to keep more than a fair share of assets.

Do I have too many assets to file bankruptcy?

Your assets are not part of the analysis of determining if you qualify for bankruptcy; the court is considering your debts and incomes. Assets are a consideration in determining what you could lose in a Chapter 7 or how many needs to be paid out in a Chapter 13. Sometimes it is surprise what can be protected in a bankruptcy. For example, I have some clients who are able to protect $200,000.00 worth of equity in their home and others who cannot even protect $7,000.00 worth of equity. Assets vary dramatically from individual to individual; an experienced attorney can advise you on what could be at risk in your particular situation.

Security Clearance in Bankruptcy:

Being in northern Virginia, we regularly have individuals who file bankruptcy with security clearances. Filing for bankruptcy relief will not automatically prohibit you from obtaining a security clearance. But whether you have a history of financial irresponsibility will be considered during the evaluation process. If the debt was incurred due to a situation outside of the control of the debtor, such as divorce, illness, loss of job, etc., the concern of losing your security clearance is often a lot lower. The evaluation heavily concerns whether it is likely you will be in debt again.

Bankruptcy is a legal way to apply for debt relief. Handling your debt through a bankruptcy is a better option than just having outstanding debt. With substantial debt, the government can be concerned about the potential for being compromised or bribed. A bankruptcy means your debt has been discharged in a Chapter 7 and/or you have a reasonable repayment plan in a Chapter 13. In fact, getting rid of debt in a bankruptcy could increase your chances of approval. Filing shows that you are taking proper steps toward correcting your financial situation.

Options to manage debts:

The most important thing I tell my clients is that they should understand all options available to them. Bankruptcy is just one financial tool out of many that you can use when having financial problems. Only when you understand all of your options can you make the best decision for your situation. Other options we often at least want our clients to understand include: debt negotiation, debt consolidation, and waiting. Each option can have pros and cons, but will vary due to the specifics of a person’s situation.

Timing is also important when considering your financial issues. Some people come to talk about a bankruptcy months before filing. Others file within two days of filing. If you understand the pros and cons of a bankruptcy well before you file, you could make decision about when to file that is best for you. If you wait until the last minute to consider bankruptcy, for example when a foreclosure is schedule or a garnishment is pending, you have a limited timeline and may have not been able to full review any pros and cons. For example, we do not usually recommend filing bankruptcy within 90 days of any cash advance due to the fact a creditor can object to that debt being discharged.

We offer a free consultation to potential clients for many reasons; we want clients to understand the process, and to see if the client is comfortable with our office. Bankruptcy is a personal process; you must disclose a lot of personal and financial information. If you are not comfortable, you may leave some important information out. We tell our clients you need to be comfortable with us; clients need to be completely candid with your bankruptcy attorney. Many problems can be prevented during a bankruptcy with complete and exact information. Fixing problems after the fact can be difficult, especially when due to lack of information.

You are not alone.

Since the economic downturn of 2007, millions of individuals have filed bankruptcy. Some people have had to file bankruptcy twice in the last 10 years because of many factors, like difficultly finding work even after a bankruptcy, negative equity in real estate, and much more. Bankruptcy is one of many debt relief options; even if you do not need bankruptcy, you may find relief using other options, such as debt negotiation or settlement.

Bankruptcy is a financial tool; Congress included bankruptcy in the laws because the government understands that people can need help with their debts. To make the best decision for any situation, you should educate yourself on all available options. Bankruptcy is one option to help manage one’s finances, it may be or may not be the best option for you, but you owe it to yourself to at least understand the option.

If you want to talk about available options to deal with your debt in northern Virginia or DC, set up an appointment with our office. We want to help you understand your options and get on the right track.

Sincerely,
Ashley

 

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients deal with debts for most of her career. It is important for her that her clients are making the best decision for their circumstances.

Signing closing documents with house keychain

Mortgages in bankruptcy can be discharged, but the lien remains absent specific circumstances

When considering bankruptcy, many people ask to leave their mortgage out of the bankruptcy. This is not possible; you must include all your debts. However, a mortgage is treated differently than your credit cards or personal loans, it is secured against property.

Most individuals cannot afford to buy a home outright. They need help of buying a property with a mortgage. This mortgage is a lien against the property. The lien allows the mortgage company to take back the property if the terms of the loan are not followed. It also requires that the mortgage loan be paid back in full if the property is ever sold or transferred.

A second mortgage is usually referring to a junior debt that is secured against a property. This could be a loan that was obtained at the time of purchase or years later. A second mortgage could be a home equity loan with revolving terms, often referred to as HELOC, or a traditional 15 or 30 year loan.

There is a common misconception that second mortgages retain limited rights. Second mortgages have basically all the same rights as a first mortgage, only the junior mortgage is second in line in interest on a property. Often a second mortgage will not proceed with a foreclosure due to the fact they must either foreclose subject to the first mortgage or pay the first mortgage off.  But, if there is enough equity in a property, it can make perfect financial sense for a second mortgage to foreclosure.

Our office has even seen second mortgages foreclose when there is minimal equity after a first mortgage. This may occur because a creditor wants to limit the debtor’s ability to incur anymore debt through late payments, fees, interests, etc.

Chapter 7

Many people use a Chapter 7 as a tool to stop a foreclosure or keep a mortgage company from coming after them. If you cannot afford your house, and the property is worth less than what is owed on the property (or there is only de minimus amounts of equity), then a Chapter 7 can be a great tool. Filing Chapter 7 can ensure that debtors are not responsible for any deficiencies that remain after a foreclosure (basically any balance of the loan(s) that a foreclosure sale does not satisfy). Additionally, if the bankruptcy happens prior to a foreclosure being completed, it keeps a debtor’s credit cleaner; a foreclosure would not appear on a debtor’s credit because he/she would not longer have any obligation to pay on the debt at the time the foreclosure happened.

A Chapter 7 only takes care of the in personum obligation of a debtor. Basically, a discharge in a Chapter 7 covers the Debtor’s obligation to pay on their mortgage. A mortgage company cannot force a debtor to pay after a Chapter 7; additionally, if there is a foreclosure, a mortgage company cannot try to collect on any deficiency from the debt. However, in a Chapter 7, the lien remains on the property – this applies to all mortgages. This means that a mortgage company can still foreclose on the property to retake the collateral. A foreclosure against only the property , also referred to as an in rem proceeding.

If you reaffirm a mortgage during your bankruptcy, then all obligations for the mortgage return. The mortgage company can come after the debtor for any unsatisfied obligation.

Mortgage Liens Remain After Chapter 7

Many individuals come to see an attorney years after their bankruptcy. They are confused about why the second mortgage company is trying to foreclose. They say that the their bankruptcy included the second mortgage. Sometimes, the debtor even continued to pay the first mortgage. Usually this confusion comes in because their attorney did not explain the difference in the personal obligation and the lien.

The same terms of the all mortgages remain with the lien after the Chapter 7 bankruptcy. Your mortgage lender may be willing to do a modification to lower your interest and payments, but they are not required. If you do not comply with the terms of the debt, the mortgage company can foreclose.  On a rare occasion, a second mortgage may reduce the balance or forgive a debt after a bankruptcy. This is usually done, if they believe it is not in their best interest to continue having the outstanding liability or that a tax reduction for writing off the loan is in their best interest.

Chapter 13

In a Chapter 13, you must submit a plan to the court explaining your intent with the property. This plan will tell the court if you plan to keep or give up a property. It also likely will tell the court how you plan to repay any arrerages on the property.

A Chapter 13 can be a great tool to help a debtor catch-up on a first and/or second mortgage. A Chapter 13 would allow a debtor to pay back arrearages over the course of 3 to 5 years. While paying back the arrearage, you must also continue to make your regular payments to the mortgage company.

2nd Mortgage Strip off

One very special reason some people file Chapter 13 is to strip off the second mortgage. This process can only occur in a limited number of circumstances. Basically, a second (or even a third or fourth) mortgage can be removed from a debtor’s property if it is wholly unsecured. This means that the value of the senior mortgage is greater than the fair market value of the property. If the property is worth even a penny more than the balance of the first mortgage, then it is considered that the second mortgage has something to attach to and cannot be removed through a Chapter 13 strip off.

In a strip off, the debtor must file a separate lawsuit within his/her bankruptcy. The bankruptcy court must determine the property value is less that the mortgage(s) senior to the mortgage being removed. If the court determines that to be appropriate then the court issues an order that the lien must be treated as unsecured for the rest of the bankruptcy and after the Chapter 13 plan is complete, the liens of the junior mortgage(s) are removed.

With housing prices on the rise and increasing back to pre-2007 levels, this process is getting less common, but it still will be completed from time to time.

Court Orders are Required to Remove any Lien

The rule of thumb at the end of the day is that bankruptcy usually only takes care of personal liabilities. Liens are a special situation; no lien or mortgage can be removed from property unless there is a court order from a judge, the debt is completely satisfied, or the creditor agrees to voluntarily release the debt. Any creditor with a mortgage lien can foreclose on a property as long as the lien is valid.

 

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients stop foreclosures using bankruptcy and non-bankruptcy options.  Ashley has successfully helped many debtors strip off second mortgages from their properties. She has also helped numerous individuals catch-up on their mortgages and save their homes through a Chapter 13 plan.

 

Take a look at the second video in our video series about setting up your new business. Your Employment Identification Number (EIN) is an important part of your business. It is your business’s social security number. You will use this EIN with the Internal Revenue Service, banking institutions, and may other entities. It is important to keep this number secure and to keep the letter that the IRS sends you. The letter that provides you with the EIN will be requested by many organizations as evidence the number is correct.

The most important part about getting an EIN is making sure to tell the IRS how you want to be taxed. When applying for the EIN, your form will ask about what kind of business entity you have and who is the responsible party.

Tax Numbers and Calculator

Tax Debt: A Debt Not to Ignore

Owing taxes may not seem like a big deal. Tax debt is not immediately reported on your credit and the IRS seems to only send collection letters. While it is true, the Internal Revenue Service (IRS) is not usually aggressive the first year you owe traditional income taxes, the IRS can ramp up collection efforts and be very aggressive if they are not satisfied you are trying to pay back the debt and/or get current going forward.

1. The Impact to your Credit Report

While not a direct action against your wages or bank account, a tax lien can have a more lasting impact on your life. They are public record and can be reported to your credit report.  You can see a credit hit of more than 50 points from a federal tax lien.  They attach to all property whether real or personal.  The IRS rarely goes after personal property, unless you are living a lavish lifestyle.  They will go after real property, especially if it is not your primary place of residence.  The lien is the way they have the right to take more aggressive action.

2. IRS Can Levy Wages up to 100%

A wage levy is a headache that nobody wants to deal with. The IRS has a chart that they use to determine how much of your paycheck is exempt from levy.  It is not a favorable chart for the taxpayer.  If you are paid hourly or salary you could see as much as 85% of your pay seized every pay period.  If you are an independent contractor who is paid via 1099 you could lose 100% of your income if a levy is issued to your source of income.  This affects truck drivers more than most.  Also, if you own your own business the IRS can go after accounts receivable with a levy.  Wage levies stay in place for wage earners until the tax debt balance is paid or the taxpayer takes the necessary steps to get it removed, typically agreeing to an installment agreement with the IRS.

3. IRS Can Seize You Bank Accounts or Investment Accounts

Even if the IRS does not go after your wages directly, they can still get your income via a bank levy. The IRS can send notices to any financial institution that you may be banking with.  The institution then will set aside whatever funds are in your accounts at the time the bank receives the levy for 30 days.  After 30 days the bank will release those funds to the IRS if they have not received a levy release directly from the IRS. Even with those funds frozen you can still use your account with any additional money that gets deposited during the 30 day hold.  If you have previously gotten refunds from the IRS and gave them banking information for direct deposit of the refund, the IRS will go after that bank first if you owe debt in the future.

Investment accounts that are levied go through the same 30 day hold on the account before funds are send to the IRS. The major thing to remember here is that when those funds are sent to the IRS that creates a taxable event on most retirement accounts. So the taxpayer who has an investment account levied by the IRS, then gets hit with another tax liability because the IRS does not let you choose to withhold any of the investment funds for tax purposes.

To get your bank account unfrozen and save some of the money in there you have to show an undue hardship with the IRS. In the past I have been able to get funds saved on joint accounts where the other person was a child who was away for college, shown that some of the funds in the account are for an upcoming mortgage payment, and shown that the taxpayer has no ability to pay and the account was placed into Currently Not Collectible status.  However, this does not always work and it is sometimes determined by how nice of a collections agent you get on the phone with the IRS

4. Your Passport Can Be Suspended

The most recent attempt to force people into handling their tax situation is the suspension of passports. Congress passed a law that allows the IRS to tell the Department of State when a taxpayer is seriously delinquent with their tax debt.  Anyone with more than $51,000 in back taxes, who has not taken steps to pay back the debt, could be subject to their passports being suspended.  If you do not have a passport your social security number could still be sent to the Department of State and you will be denied a passport should you apply for one.

The IRS started implementing this in 2018 and some taxpayers are seeing their passports being suspended. There are ways to get your account back in good standing with the IRS.  Two most common ways are: 1) an installment agreement to pay back the debt over time or 2) having an offer in compromise accepted, not just filed.  The IRS will not simply remove the passport hold because a taxpayer pays their debt below the $51,000 threshold.  The taxpayer has to get into an agreement to repay the balances.

 

 

 

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal with their tax debt and get them into the best plan possible to manage the debt. If you have concerns about your tax liabilities, schedule an appointment with our office.

 

Take a look at the first video in our video series about setting up your new business. It is important to set up your business properly; your business structure will dictate what protections you do or do not have. There can be legal and tax consequences to the way you start your business. It is important to understand all your options.

The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. If you choose an LLC, you must also inform the Internal Revenue Service on how you want to be taxed. If you are a sole owner, you have two options: as a sole proprietorship (listed on a Schedule C) or S-Corp. If you have multiple owners, your only option is usually as an S-Corp. There are pros and cons to each type of taxation; you should talk to a tax and legal professionals before deciding on how to set up your business.

Additionally, most individuals set up a business structure to ensure protection for personal liability. In order to get these protections, you must make sure you are following corporate formalities, such as separate bank accounts, accounting, operating agreement. Even if you are a sole owner, you must have an operating agreement that dictates how decisions for the company must be made. Legal protections only continue to exist when formalities exist; otherwise, the courts will see the business as just an extension of the owner(s) and not a separate entity.

Garnishments are just one way that a creditor can try to collect on a judgment. If you are facing a garnishment, you should understand your options. Understanding how to handle garnishments can save you time and money.

Garnishments are a scary thing. A creditor wants to take money out of your paycheck or your bank account. In Virginia, a creditor can perform either a wage garnishment or a bank garnishment. For a wage garnishment, a creditor can garnish 25% of your “disposable income,” which means they get 25% of your paycheck after deducting for requires taxes. If you are very low income, your income may be too low to be garnished; but, this is very low threshold. For a bank garnishment, a creditor can seize all money in a bank account up to the amount of the judgment. Some funds cannot be garnished, such as social security.

If you are being garnished, there is likely a judgment against you. Most creditors can only garnish you  if there is a judgment against you; the most common exceptions to this rule are tax debt and federal student loans.  Since federal student loans and taxes are owed to the government, they are given special rights to collect. A judgment could have been obtained without you ever having appeared in court or being personally presented with documents.

Some individuals come into our office unsure why they are being garnished or believe they can fight the garnishment. In Virginia, the law requires that a creditor served you at your last known address. Service does not have to be in person, like you often see in the movies (i.e., someone handing you papers and saying you were served). The sheriff or process server can post the notice on the front door of your last know address or hand the papers to any adult living in your residence. If you never got the paperwork, it does not matter — it’s still valid.

On occasion we are able to vacate (reverse) a judgement on grounds that you were served somewhere that was not your residence, but this is rare. Additionally, even if you can get the judgment vacated, you will likely be sued again by the creditor after the judgment was vacated. If the judgment was based on a valid debt, this may be a futile effort.

Guaranteed Ways to Stop a Garnishment

Only two guaranteed ways exist to stop a valid garnishment: satisfy the debt in full or file bankruptcy.

Pay the debt

If you can full pay the debt, a garnishment would stop. Creditors cqn only collect up to what they are owed. However, this can include interest and attorney fees, if they judgement allowed for those expenses. Depending on how old a judgment is, it may have increased dramatically due to interest. We have seen some clients with judgments subject to 30% interest!

Filing bankruptcy

Filing bankruptcy stops any and all collection activity; it is the trump card that debtors can play against handle garnishments and stop creditors from collecting. The moment you file a bankruptcy, as long as you haven’t had multiple bankruptcy cases pending within the last year, the federal court issues an order that says all creditors must immediately cease any and all collection activity. To ensure the creditor has knowledge of a bankruptcy, our office sends notice of the bankruptcy to any creditor attempting to garnish you and the court where the creditor obtained the judgment. Sometimes, we are even able to get some of the garnished funds back.

Bankruptcy is often the only guaranteed way to stop a garnishment. Often, we recommend bankruptcy as the only viable way to stop garnishments. Often, our clients often spend less to file bankruptcy than to pay or settle a judgment.

Ways to Attempt to Stop a Garnishment

There are two other ways that can either potentially handle garnishments. We rarely recommend these two other options, but in certain circumstances they may help; these options are negotiate the debt or file a Homestead Deed.

Negotiate the Debt

We occasionally can recommend trying to negotiate a debt; but, creditors are less likely to negotiate after a judgment is obtained. Creditors get certain rights when they obtain a judgment, these rights include garnishments, interrogatories (getting you to answer questions under oath), etc. If the creditor is getting more through the garnishment process than you are offering, it is not very likely they will take the settlement.

File a Homestead Deed

One other option to handle garnishments that we rarely recommend is to file a Homestead Deed, but it can serve a limited purpose. After a garnishment has been filed you will be served with the garnishment summons. On the garnishment summons, there will appear a “return date.” This date is when the judge will determine if the creditor is owed the funds or not. A homestead deed, which is a document particular to Virginia, advises the court that you are using your lifetime exemption under Virginia Code § 34-4 to protect up to $5,000.00 (or $10,000.00 if you are over 65). You must file the document in the land records.

We do not recommend a Homestead Deed because it offers a temporary solution. This protection is a lifetime exemption. This means that if $3,500.00 has been garnished from your wages during the past 6 months and you file a Homestead Deed to protect the funds, then you have used the $3,500.00 to get the funds release. Following the Return Date, the creditor can just file another wage garnishment immediately and start the garnishment all over again. Eventually, you will exhaust the the $5,000.00 protection. Using up this exemption also result in limited protections in any future bankruptcy; debtors must also use a Homestead Deed in bankruptcy to protect cash, or cash like assets.

 

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has been helping clients manage various types of debts for years. Ashley focuses on helping her clients finding the ideals solution to their debt problems. Ashley reviews each person’s personal situation to determine his/her best options. She regularly helps clients handle garnishments and other collection activity.

Divorced couple fighting over dollar bills

If you are considering getting divorced, you must speak with a divorce attorney immediately. There may be potential tax consequences of divorce.

During what could be the most trying part of one’s life, it may be hard to think about how getting a divorce can affect your taxes.  There are many things that a person who is attempting to finalize a divorce this year has to think about.

Alimony/Spousal Support may be taxable

First, let’s take an example of where there is no tax debt in the relationship.  This allows the couple to only have to worry about one major thing about taxes moving forward: alimony payments or spousal support.  In the past, alimony payments made by one spouse was a tax write off, while the spouse that received the payments had to pay a tax on the amount of alimony received.  This law was changed with the passing of the Tax Cut and Jobs Act of 2017.

The new law said that starting in 2019, alimony payment will no longer be a tax deduction for those making the payments and those receiving the payments will no longer have to claim the payments as income.  Importantly, one can get “grandfathered” in to the old system if they finalize their divorce in 2018. What that this new law essentially means that if spouses finalize their divorce in 2018, the alimony payments fall under the old law; this allows a tax deduction for the spouse making payments and requires the spouse receiving the payments report the payment as income.

As long as your divorce is final before January 1, 2019 – and if Congress doesn’t change the provision again – the payments will be deductible for the payer and taxable for the payee for the life of the existing agreement. However, if you or your spouse modify your agreement in the future, the new laws would control; thus, resulting in change in the tax liabilities.

It is important that couples that are going through divorce understand this change in the law.  One spouse may try to drag things out to 2019 while the other will want to finalize in 2018.  This change is law has resulted in many contentious divorces during 2018.  If you have a divorce attorney, please do not hesitate to have them discuss this provision with a tax professional; this helps ensure they can draft the settlement properly and know your exact tax consequences of divorce .

Tax Debt

Second, the more cantankerous situation during a divorce occurs when there is debt owed jointly between the two spouses when the divorce is finalized.  It is even more difficult to manage joint tax debt.

The first thing figure out in a divorce is who is responsible for repayment of the debt.  Keep in mind that the Internal Revenue Service does not honor what the divorce decree says. The divorce decree only affects the rights of the spouses; it cannot alter the rights of third parties. For example, if the divorce decree states that one spouse must pay the joint debt, the IRS can and will go after both spouses for the debt after a divorce.  With that in mind, for the spouse that is not responsible for repaying the debt in the divorce decree, it is important to have language in the decree/property settlement agreement that gives that spouse the right to reimbursement of any money that goes towards the outstanding tax liability; whether it is future tax refunds, payments as part of a repayment plan, or levy/garnishment payments.

 

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal with their tax debt and get them into the best plan possible to manage the debt. He has experience dealing with divorce spouses dealing with their joint tax debt. If you have concerns about your tax liabilities, schedule an appointment with our office.