Do I Have To Pay Taxes On Workers’ Compensation Settlements?

The task of fighting for, being approved and actually receiving your workers’ compensation settlement is daunting enough, but what are you to do when you file taxes? Do you pay taxes on the settlements? Should you be setting money aside to cover that?

Circling a Date on CalendarThe answer to your question is no. Workers’ compensation settlements are fully tax-exempt if paid under the Workers’ Compensation Act; according to Publication 907, “Workers’ Compensation for an occupational sickness or injury if paid under a Workers’ Compensation act or similar law” is exempt.

What Is A Rule 2004 Examination In A Bankruptcy?

The Rule 2004 Examination is adapted from the civil “discovery” process in a case.  It allows debtors, bankruptcy Trustees and any other party in interest in a bankruptcy case to examine “any entity” (meaning whatever part of the bankruptcy and its dealings that they choose) as long as the examination relates to, according to Rule 2004 (b) under Section 343 of the Bankruptcy Code,  “acts, conducts, or property, or to the liabilities and financial conditions of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to discharge”.

Bankruptcy Research | North Carolina Bankruptcy Information

A creditor may request the Rule 2004 examination or a representative on behalf of the creditor(s) may request permission to complete the Rule 2004 examination. The Rule 2004 examination is the Bankruptcy Code’s form of a deposition.

A deposition is an opportunity for creditors or other interested to ask questions under oath. The answers to those questions can be used as evidence against the Debtor in an adversary proceeding or in an objection the discharge of debts. The Rule 2004 examination typically last a couple of hours but could be longer or shorter depending upon the complexity of the situation and the amount of questions a creditor has.

As an advocate for debtors, we cannot stress, to the highest degree, how important it is to make sure that you disclose everything to your bankruptcy attorney.  In conjunction with your attorney you should be completely honest on your bankruptcy paperwork. An experienced bankruptcy lawyer can usually take steps to help you avoid a Rule 2004 examination or can help defend your deposition during a Rule 2004 examination.

Can I Collect Rent If I’m Surrendering Rental Property in Bankruptcy?

Person Writing on LaptopRental properties can be a great source of income until a renter moves without notice or fails to pay or that rental income starts to be used for your personal household expenses.  As situations arise, many people are finding it necessary to file bankruptcy and surrender the extra properties and the mortgages that come along with those properties.  When you surrender a rental property in bankruptcy, you are in essence surrendering your interests and rights to the property.  Therefore, you are not eligible to collect rent while in bankruptcy.

Additionally, the bankruptcy Trustee sees this as unprotected funds and will request the received funds to go to the creditors.  Furthermore, tenants are always informed if a house is being surrendered in bankruptcy.  Your tenants may be well aware of their rights and have the responsibility to report a debtor who tries to collect rental income while in bankruptcy.

Once you have been discharged of your debts and have received a final decree that officially closes your case, you may begin to receive rental income.  However, approach this scenario with caution.  Even though you have completed your bankruptcy the Trustee has the ability to reopen your case and require you to pay him all the funds you had received after your discharge.  So, you definitely need to weigh your pros and cons.  If this situation sits in your future horizon, you should discuss this with your bankruptcy attorney prior to your discharge.  Moreover, if the tenants are aware of the circumstances, they may not even be willing to pay rent while still living in the home.  Since the property is still in your name until the bank forecloses, you may engage in the eviction process.  Or you could insist on the tenants paying enough to cover homeowners insurance or property taxes.  If there is a homeowners’ association linked to the home, whoever lives in the property should stay current with the HOA.

We typically tell our clients to stop collecting rent when they decide to file for bankruptcy. Instead, the tenants should pay rent to the bankruptcy Trustee or stop paying rent all together if they no longer wish to stay in the house. This ensures the bankruptcy client is not doing anything to jeopardize the success of their bankruptcy.