Do income taxes get eliminated by filing for bankruptcy in Rhode Island?

If you owe federal or state income taxes from past years, you may be able to get rid of them by filing a RI bankruptcy. Generally speaking, you must wait three (3) years from the date the IRS / RI Division of Taxation processed your income tax return. (Note: this will likely be after the date you filed your tax return.) A Rhode Island attorney experienced with bankruptcy will be able to help you figure out when exactly you’re eligible to eliminate your past-due income taxes in a bankruptcy.

Can I file bankruptcy in Rhode Island if I lived in another state recently?

Recently lived in another state of New England than Rhode Island?Rhode Island’s bankruptcy laws are generous as to what belongings you’re allowed to keep (exempt) after filing bankruptcy. In fact, it’s rare for anyone to lose a house, car or anything else in a RI bankruptcy filing (assuming they’ve hired an experienced RI bankruptcy attorney).

Generally speaking, you can file bankruptcy in Rhode Island if you’ve live here for the last 6 months. So for example if you’ve lived in Warwick, RI for the last 180 days, you can file in the District of Rhode Island.

There is a catch, however, if you’ve recently moved here from out-of-state. Even if you’ve lived here for over 180 days, you may still be under your old state’s laws in terms of what things you’re allowed to keep after the bankruptcy.

Bottom line: the longer you’ve lived here, the better. You’ll want to consult with a Rhode Island attorney experienced with bankruptcy to ensure you’re eligible to keep your house, car, and other belongings through a RI bankruptcy.

How can I make sure all my debts get eliminated when I file for bankruptcy?

If you're going to all the trouble of filing for bankruptcy, make sure you do it right!

Bankruptcy laws are more complex than ever, and a messed-up filing is a headache!

When you file bankruptcy in Rhode Island, you should list everyone you owe money to. If you fail to list a creditor, you risk not getting off the hook for that particular debt.  How can you avoid leaving a creditor out of your bankruptcy filing? Typically a credit report will identify most of your creditors. (Once every 12 months you can order a free credit report through annualcreditreport.com, or by calling 877-322-8228.)

However, not all debts will appear on your credit report. Medical bills, utility bills, and cell phone bills are often missing from credit reports, as are outstanding gym membership fees, unpaid magazine subscriptions, etc. In addition, debts that have been unpaid for more than seven years may stop showing up on a credit report. But if you don’t list them they might come back to haunt you after your bankruptcy (for the original amount plus a lot of interest accrued in the hands of some local collection agency– after the original creditor “charged off” the debt).

If you do accidentally fail to list a creditor when filing for Chapter 7 bankruptcy, it’s often possible to go back and amend (fix) your bankruptcy papers to include the missing creditor within 90 days after you file, though a $26 court fee will apply. Beyond 90 days, a heftier court fee ($260) will apply, and there are some situations where adding a missing creditor may not even be allowed. Chapter 13 (payment-plan type) bankruptcies can be even more risky to have to add a missing creditor.

Can I file bankruptcy when I’m receiving unemployment?

filing bankruptcy in RI can relieve unemployed workers struggling to make ends meetGenerally speaking, yes — Rhode Islanders who are unemployed can file for bankruptcy, even if they’re still getting unemployment payments. Of course, you’ll want to make sure that you’re eligible to file a wipe-it-all-clean Chapter 7 bankruptcy (versus a Chapter 13 payment plan bankruptcy). Also, if you have a worker’s compensation claim or are suing your former employer for wrongful discharge, this may complicate things a bit. But a Rhode Island attorney experienced with bankruptcy should be able to sort out these details for you.

Do I need to go to court if I file bankruptcy?

Don't expect to meet a judge simply because you're filing a personal bankruptcy petition in Rhode Island!Most people do NOT need to appear before a judge in order to complete their bankruptcy in Rhode Island. But they do need to attend a Section 341 Meeting of Creditors, which is run by a bankruptcy trustee (not a judge) who has been appointed to administer their case. Typically, the trustee will ask for ID (so remember to bring your drivers license and social security card). Then the trustee will spend several minutes asking you questions about what you own, your debts, income, etc.

If you’ve retained a good attorney, however, you won’t be alone. I attend this meeting with every one of my clients, and it’s rare for there to be any issues. In fact, most creditors don’t even bother coming. This Meeting of Creditors is held on weekday afternoons at the Federal Center, 380 Westminster Street, 6th Floor, in downtown Providence, and usually lasts for only a few minutes.

What should I bring to my free bankruptcy consultation?

People who are considering filing bankruptcy with me often ask what to bring for our first meeting. (If you’re interested in scheduling a free initial consultation to see if bankruptcy is a good option for you, call my office at 401.738.3030 today.) The purpose of this first meeting is to ensure that we’re both comfortable that going forward with a bankruptcy filing makes sense in your specific situation. So it’s generally helpful if you can bring in your recent bills, collection notices, and any lawsuit-related papers, as well as any other documents that you’d like me to take a look at. At the end of the meeting, I can give you a checklist so you’ll know exactly what information my office will need from you in order to get your case prepared and filed.

Debt Settlement as an Alternative to Bankruptcy?

Many clients who come to me to discuss their bankruptcy options have previously tried other means of resolving their overwhelming debt issues. Most often these clients have attempted to work with a debt settlement company. Debt settlement is a process which attempts to get the credit card companies to accept less than 100% of what they are owed on a credit card debt. Ordinarily, the credit card companies are only willing to offer a discount if the credit card payments are seriously (many months) delinquent. They generally insist on receiving the full amount of the settlement within one to three months. This makes it very difficult for people to settle credit cards on their own, because they have to accumulate a fairly large amount of money to have available as a settlement funds. The debt settlement companies deal with this by insisting as part of your contract with them that you pay them a hefty amount each month to eventually build a settlement fund.  Typically, however, the first $3,500 they receive from you is applied to their fee. Only then does your “settlement fund” start to build. Problems with the debt settlement alternative include the following:

  • some of the outfits in debt settlement business are disreputable fly-by-nights
  • the fees are often quite steep
  • assuming that they are able arrange some settlements, by the time these settlements start coming through, you will likely have dealt with many months of creditor harassment, and may be facing lawsuits, wage attachments, and liens on your home
  • there will likely be a very material negative impact on your credit score
  • generally speaking, unlike the situation with bankruptcy, when debt is discharged in the context of a debt settlement, the amount that the creditor agrees to write off will be reported as income to you to the tax authorities so you will be paying taxes on the amount that is forgiven
  • if you become dissatisfied with the way things are going with your debt settlement program (for example if lawsuits start being filed against you) and you want out, it may be difficult to get a meaningful refund.

I should caution that because of the nature of my practice, I rarely see success stories with debt settlement alternatives. That doesn’t mean they don’t exist and the purpose of this post is not to dissuade you from checking into the debt settlement alternative. However, just like everything else, you should proceed cautiously – ask a lot of questions, insist on getting everything in writing, read the fine print, and be comfortable with the refund policy if things get ugly. Most importantly be sure that you are dealing with a reputable company – remember – just because they advertise on the radio or television does not guarantee that they are legitimate.

What can you keep after filing for bankruptcy?

It is rare for someone who is represented by a bankruptcy attorney to lose their property (home, personal possessions, retirement plans, etc.) as a result of a bankruptcy filed in Rhode Island. The Rhode Island statute dealing with what you are allowed to keep or “exempt” in spite of a bankruptcy filing has some particularly generous provisions. You can often keep or “exempt” the following items (up to set dollar limits) from being taken from you as a result of a bankruptcy filing in Rhode Island:

•    the home where you live
•    one or more vehicles
•    furniture, home electronics, and other household items
•    clothing
•    jewelry
•    office equipment
•    401ks, IRAs and various other types of retirement accounts
•    Cash, bank account balances, and cash equivalent assets

If you are considering filing bankruptcy and own real estate or other significant assets, you owe it to yourself to speak to an attorney who specializes in bankruptcy law before assuming that all of your assets will be exempt. I offer free initial consultations and often can determine during this first meeting if there is a risk of assets being lost as a result of a bankruptcy filing. Please feel free to give me a call to schedule an appointment to discuss your particular situation.

What kinds of debt can bankruptcy eliminate?

A Rhode Island bankruptcy filing can be used to get rid of many types of debt. Filing under Chapter 7  may allow many types of debts to be wiped out completely:

  • credit card debt
  • electric, gas, water, and other utility bills
  • medical, dental, and vision bills
  • personal and unsecured bank loans
  • automobile loan obligations remaining on a repossessed vehicle
  • mortgage loan obligations remaining on a foreclosed home

Any child support obligations, recent taxes, and student loans are generally not eligible for discharge. But in some cases, even student loans can be eliminated in a bankruptcy if it can be shown that these debts create an unreasonable hardship for you.

Can I modify my mortgage with a bankruptcy in Rhode Island?

According to a recent study, the typical Rhode Island house lost 25% of its value last year.  For many homeowners, the only alternative to losing a home to foreclosure may be to modify their mortgage.  Fortunately, current bankruptcy laws allow for many Rhode Island homeowners to dramatically reduce their monthly mortgage payments.

If your house is valued at less than you own on your first mortgage, you may be able to eliminate most of yoursecond mortgage with a bankruptcy (for owners of rental properties or investment real estate, it’s even better: you can often use a RI bankruptcy filing to modify both the first and second mortgage).  This can be done by filing for a Chapter 13 bankruptcy: you eliminate your second mortgage obligation and instead make a series of monthly payments for a limited period of time (between 36 and 60 months, depending on your income).

Given the magnitude of most second mortgages, this approach can result in significant savings. For example, if you have a $40,000 second mortgage, you could potentially eliminate all but $7,200 of your debt in a Chapter 13 bankruptcy.