The answers below are for questions that are commonly asked not only to myself but also on the internet searches about bankruptcy. These questions generally will apply to any chapter of bankruptcy that a person might file. In most cases, consumers will file chapter 7 bankruptcy or chapter 13 bankruptcy. Businesses most often file either a chapter 7 business bankruptcy or chapter 11 bankruptcy. Congress recently passed the new sub-chapter 5 of chapter 11, which is a lesser version of chapter 11 bankruptcy most often for business. Individuals or consumers may also file chapter 5 or chapter 11 if circumstances apply.
Question 1: Are bankruptcy fees tax deductible?
Since I am not an authority on the U.S. Tax Code, I’m not going to say for sure, but my understanding is legal fees in general for consumers are not tax-deductible. For a business, the answer is probably yes, but still not absolutely sure. Anyone looking to file bankruptcy who is concerned as to whether the legal fees paid to an attorney are tax-deductible should contact their tax professional or certified public accountant for an answer. However, recent tax changes for the 2019 tax reporting year have required that if you pay any money to an attorney for legal fees, the tax filer may obtain a Form W9 from the attorney. Whether that makes the legal fees tax-deductible is a question for your tax professional.
On the other hand, debts that are discharged in bankruptcy are not considered income. In most cases, if you default on a debt such as a credit card, and that debt is charged off by the lender, you might receive a 1099C. A 1099C is a form of reporting income to the IRS for cancellation of debt, which will be added to your gross income for that tax year and you will have to pay taxes on that income. However, if you file bankruptcy, any discharged or forgiven debt is not taxed as income by the IRS. If you receive a 1099C from a lender after you have filed for bankruptcy, simply add it to your tax return along with a notice that you filed for bankruptcy. The IRS will treat it accordingly.
Question 2: How Much Are Bankruptcy Attorney Fees in Arizona?
The answer to this question may vary depending on where in Arizona you live and where you go to find an attorney. It will also depend upon the level of service you want to pay for and the experience or qualifications of the attorney you choose to retain. The more experience the attorney has, the more money he or she will charge for their services. The old saying that you get what you pay for applies in hiring any attorney for any legal matter. Experience counts for a lot of the quality of representation you receive for your money. Some attorneys have now implemented a zero down program which allows bankruptcy filers to pay for legal fees after their case has been filed. A recent ethical advisory to the State Bar of Arizona has accepted this program as an ethical solution to bankruptcy filers who cannot afford the lump sum payment of legal fees commonly required by most bankruptcy attorneys to be paid up-front before any services will be performed on the client’s bankruptcy case. With this new zero down program, a chapter 7 bankruptcy filer may be able to file much sooner than before because of the ability to pay nothing up-front before their case could be filed. Gaudiosi Law has implemented this program and is taking clients on the zero down program to help struggling debtors file sooner.
Question 3: Can Bankruptcy Lawyers Do Debt Settlement?
Yes, absolutely. Most of them do and will take your case to try to settle your debt to keep from having to file bankruptcy at all. The question for me is whether settling the debt and keeping you out of bankruptcy will have a better outcome for you than filing a bankruptcy would have. If the answer is no or it will be about the same, then depending on your circumstances, a bankruptcy might just be easier and less costly. Be careful about how the attorney you choose charges you for debt settlement. Is the attorney asking you to pay more money than you would have just to file bankruptcy? Everyone’s situation is different, and if you do not want to file a bankruptcy, debt settlement may be a better option.
Question 4: Can I Fire My Bankruptcy Attorney?
Yes, the State Bar of Arizona’s ethical rules mandates that an attorney must write into any fee agreement that either side may fire or withdraw from the case at any time and for any reason. If you do decide to move on from your attorney, be careful about asking for a refund of any paid attorney fees. Most bankruptcy lawyers charge flat-fees for bankruptcy services, which are not refundable. Attorneys are required to make an accounting for the services or work performed and provide that to the client upon request or when there is a dispute about refunds. Most attorneys also provide for disputes to be settled through arbitration at the State Bar when disputes arise. If the attorney can make an accurate accounting for his or her time, or if the fee agreement states that fees are not refundable, and you have signed such an agreement, your chances of receiving any refund of attorney fees may be fruitless. If you are comfortable with letting go of previously paid attorney fees, then you should have no problem letting go of your current attorney and signing with another one. Your new attorney should request something in writing from your prior attorney stating that the representation has been terminated before taking your case.
Question 5: What Do Bankruptcy Lawyers Do?
The U.S. Bankruptcy Code is a very complex set of rules that govern bankruptcies. People who file bankruptcy on their own without an attorney very often are not aware of how these rules work. It can be very costly for someone to file bankruptcy only to learn after their case has been filed that they are going to lose their money or property because they failed to comply with the bankruptcy rules. By hiring a bankruptcy lawyer, the lawyer will help you navigate through the pitfalls of the bankruptcy code. Lawyers help you with pre-bankruptcy planning in case there is a problem with filing your case now. All of this preparation avoids the costly mistakes of filing on your own and losing money or property to a bankruptcy trustee or the court. Bankruptcy law often intersects with other areas of law as well such as family law, estates or probate, secured transactions and other areas where most laypersons do not have the knowledge to be able to go through bankruptcy on their own without an attorney. Even those who believe they have nothing to lose or no money or property available find out that they soon do have something to lose. I would highly recommend anyone looking at filing bankruptcy to do so with a lawyer.
Question 6: What Questions Should I Ask a Bankruptcy Attorney?
First, it is not just the questions you should ask, but also, the information you should disclose to your attorney. Let your attorney ask you questions about what you have going to determine the best way to help you. Give your attorney all the information you have freely and without reservation. One of the biggest mistakes to make in a bankruptcy is to think you need to hide money, property, assets or not disclose all creditors. Attorneys need to have the right information before they can properly protect and advise you.
After you have disclosed all of the money, property and assets you own to your attorney, you should ask or make sure your property will be protected through the bankruptcy. If your attorney tells you something will not be protected, make sure you know your options. You should disclose to your attorney your banking information and make sure the attorney has reviewed all of it. Ask if there are any transactions which would cause problems for you in your case. Ask which creditors, if any, will not be discharged in your case. If you have paid money to a friend or family member in the recent past, make sure your attorney knows and ask how that will apply to your case. If you have given away anything of value or sold any property, make sure you tell your attorney and find out if those transactions will affect your case. Bankruptcy trustees have a duty to investigate you and your case. Your attorney can only help you if he or she knows what you have done with money and your financial decisions prior to filing the case.
Question 7: Why Should I Hire a Bankruptcy Attorney?
This question ties in with Question 5 above. Bankruptcy attorneys help their clients get through one of the most stressful legal processes. Filing bankruptcy should never be an easy decision and it should be a decision made in last resort after you have tried all you can to not file. You should never attempt to go through a bankruptcy on your own. When a person files bankruptcy, their money, property, and assets become part of their bankruptcy estate. The bankruptcy estate is then controlled by a bankruptcy trustee. No one would ever allow another person to take control of everything they own without having a lawyer looking out for their best interest and helping them navigate the law. However, many do without realizing what is really going on in a bankruptcy case. The trustee can do anything with your property that you could do such as selling it. Make sure you are protected, and your property is protected by paying for an experienced attorney to help you through the bankruptcy process.
Filing bankruptcy is a difficult and stressful decision. The bankruptcy laws are complex and hard for anyone to understand. Do not file bankruptcy unless you have proper representation and have asked all the questions, so you know what to expect. Contact us here or call us at (623) 777-4760 now to schedule a free bankruptcy consultation for help with your case.