Does A Small Business Owner Need A Lawyer?

Yes. A Small Business Owner Does Need A Lawyer. Among the countless worries for entrepreneurs who are starting or are already running a small business is the question of whether they need a business lawyer. The perception is that attorneys charge high rates and many small businesses don’t have much, if any, extra capital with which to pay lawyers. As a result, most small business owners only hire an attorney experienced with business matters when confronted with a serious legal problem (e.g., you’re sued by a customer). However, legal help is a cost of doing business that often saves you money and helps your business in the long run.

While you certainly don’t need an attorney for every step of running your business, an ounce of prevention is worth a pound of the cure. This article will explain when you can cover legal issues on your own or with minimal attorney assistance and when you will definitely need a business lawyer.

Issues You Can Handle on Your Own

There are certain matters that are fairly straightforward and/or not unduly difficult to learn and therefore do not require the services of an attorney who charges at least $200 per hour. There are enough expenses associated with running a business, why not save yourself a load of money and do it yourself if you can?

The following is a list of some tasks that business owners should consider taking on themselves (with the aid of self-help resources, online and in print):
• Writing a business plan
• Researching and picking a name for your business (previously trademarked business names can be researched online)
• Reserving a domain name for your website
• Creating a legal partnership agreement, limited liability company (LLC) operating agreement, or shareholder’s agreement (see Choosing a Legal Structure)
• Applying for an employer identification number (EIN), which you will need for employee tax purposes
• Applying for any licenses and permits the business requires
• Interviewing and hiring employees (there are federal and state anti-discrimination laws which regulate the hiring of employees)
• Submitting necessary IRS forms
• Documenting LLC meetings
• Hiring independent contractors and contracting with vendors
• Creating contracts for use with customers or clients
• Creating a buy-sell agreement with partners
• Updating any partnership, LLC, or shareholder’s agreements under which you are currently operating
• Handling audits initiated by the IRS

The above is not an exhaustive list of legal tasks which small business owners can do on their own. It should be stated that if your business is well-funded or you feel that you need the assistance of an attorney, you can always retain a lawyer to help you with everything listed above.

Issues Where You Will Need a Business Lawyer

Most of the issues outlined above can be handled by any intelligent business owner (if you can run a business, you can certainly fill out IRS forms or fill in boilerplate business forms). There are times, however, when a business faces issues that are too complex, too time consuming, or fraught with liability issues. At that point, the wisest move is to retain a business lawyer.

A few examples include:
• Former, current, or prospective employees suing on the grounds of discrimination in hiring, firing, or hostile work environment
• Local, state, or federal government entities filing complaints or investigating your business for violation of any laws.
• You want to make a “special allocation” of profits and losses or you want to contribute appreciated property to your partnership or LLC agreement
• An environmental issue arises and your business is involved (even if your business didn’t cause the environmental problem, you may be penalized)
• Negotiating for the sale or your company or for the acquisition of another company or its assets
An Ounce of Prevention
While you certainly need to retain an attorney for the serious issues above, your emphasis should be placed on preventing such occurrences in the first place. Prevention does not necessarily involve hiring an attorney, though consulting with one wouldn’t hurt. By the time you or your business is sued, the preventable damage has been done and the only question that remains is how much you’ll be paying in attorney’s fees, court fees, and damages.

For example, by the time a prospective employee files a lawsuit claiming gender discrimination based in part upon questions posed at the job interview, all you can do is hire an attorney to defend the lawsuit. If, on the other hand, you had done your own research on anti-discrimination laws, or you had consulted an attorney beforehand, you would have known not to inquire as to whether the applicant was pregnant or planned on becoming pregnant. The small effort at the beginning of the process would save you an enormous headache later.

To prevent unnecessary attorney costs at the inception of your business as well as tremendous costs after a lawsuit has been filed, you might consider a consultation arrangement with an attorney. Such an arrangement would entail you doing most of the legwork of research and the attorney providing legal review or guidance.

For example, you might use self-help and online sources to create a contract with a vendor and ask an attorney to simply review and offer suggestions. Or from the previous example, you might research types of questions to ask during an interview and then send the list to an attorney for his or her approval. This way, you prevent the potential headache later and the cost to you is minimal because you’ve already done most of the work and the attorney simply reviews the document.

Get in Touch with a Business Attorney Before You Need One

You won’t need a lawyer for each and every legal issue that comes up in your business. But when you do, it’s good to know where to find the right one. And — more to the point — you may not know you need legal help until it’s too late, as attorneys can help you stay in compliance with the law and spot developing legal issues early. Get ahead of the curve by finding an experienced small business attorney near you today.

When startups need lawyers

• Form of business
There are many legal self-help resources available to help you form a corporation, partnership or LLC and handle all the legal paperwork. (Rocket Lawyer, LegalZoom and Nolo are three popular resources to check out.) For most startups, choosing a business structure and forming company can be handled this way. However, if you’re not sure what form of business is best for your startup goals, or if you’re starting a business that is complex, such as having multiple investors or partners, it’s worth consulting with an attorney as well as an accountant. They can help you explore the pros and cons of different forms of business and make the right decision.

• Patents and trademarks
Every business should trademark its logo and other identifying brand marks. There’s plenty of self-help information available at the U.S. Patent and Trade Office website; generally, you can handle trademark filing on your own. Patents are more complex, however, and making a mistake in this area can be costly. An attorney specializing in patent law can be invaluable in getting through the patent process.

• Contracts
Unfortunately, no matter how well you think you know someone, you need a contract to protect yourself and your business. Make sure your contract is clearly written, outlines the scope of work and payment, and covers all the possibilities that could go wrong. You can use online templates to draft contracts for the basic business situations you’re likely to encounter; however, having an attorney review and fine-tune them to make sure they’re complete is worth the money. You should also have an attorney review any contract a client asks you to sign.

When existing businesses need lawyers

• Debt collection
At some point, every small business will experience the pain of not getting paid. If you need to escalate the situation and take the client to court, an attorney can either represent you or offer advice.

• Hiring employees
Self-help legal resources can help you create an employee handbook on your own, but you should always have a lawyer review it to make sure your employee policies comply with state and federal laws. Check out SCORE’s HR resources, resources for writing an employee handbook and their Ultimate Guide to Creating an Employee Handbook.

• Firing employees
It’s also wise to consult a lawyer if you’re considering terminating an employee. To avoid putting your business at risk of a lawsuit—an issue that 30% of small businesses worry about—the lawyer can advise you if you need to take additional steps or gather more documentation before letting the person go.

• Lawsuits
If you’re hit by a lawsuit yourself—which can happen to even the smallest businesses—you’ll need a lawyer on your side. Having a relationship with a lawyer before you need one can ensure you have someone to turn to in an emergency.

• Protect your small business
The law intimidates many small business owners, but it doesn’t have to. The key is to educate yourself as much as you can. Use self-help legal sites such as those mentioned above to get a basic understanding of legal issues. They have resources, articles, templates, legal forms and other tools you can use to tackle simple legal matters on your own.

The key to staying out of legal trouble is to think ahead at every stage of your business. From naming your company and designing a logo to negotiating a lease for your new business and hiring your first employee, running a business involves many potential legal traps that can trip up the uninformed. Knowledge is power, so know what your legal rights and responsibilities are at each stage of business development.

Working with a trusted business advisor such as your SCORE mentor can alert you about what to expect and what steps you must take to protect yourself, your business and your assets. Get matched with a SCORE mentor today.

Why Every Small Business Needs an Attorney?

Most small business owners rarely hesitate to take advantage of certain human resources — such as accountants and insurance agents — when they first start their businesses, and throughout the life of their businesses. Business owners view these resources as a cost of operating a business.
Business owners, unfortunately, don’t often view attorneys in the same light. A business attorney is a resource that business owners should have in their portfolio of business advisors for consultation on a variety of issues. If you’re a small business owner, you may need a business attorney at certain times more than others; however, you should always have an attorney at your fingertips.

Don’t wait till it’s too late

Business owners are hesitant to contact an attorney until a major issue arises. Do not wait until the sheriff is standing on your doorstep with a lawsuit. Lawsuits, whether you are the plaintiff or the defendant, are expensive, time consuming, and emotionally draining.
While there are costs associated with involving an attorney before a lawsuit occurs, those costs can be minor compared to the cost of litigation. Involving your attorney at an early stage can help you avoid situations that increase your business’s liability exposure, and save you money in the long term.

What a corporate attorney can do for you

A business attorney can advise you on issues that your business may face throughout its existence; examples of issues include what legal entity (e.g. corporation vs. LLC) to use to form a business, the legal implications of using employees versus independent contractors, drafting and negotiating contracts, governmental entities that might be investigating your business, terminating a contract or employees, or merging or acquiring another business.

Any time your business is uncertain about a potential action that it might be taking, contact your business attorney to discuss the action and any ramifications that might result from that action. It is generally better to err on the side of caution and pull your business attorney in sooner rather than later.

As an example, let’s look at how an attorney can help your business with contracts. Contracts are prevalent in all types of businesses, but businesses rarely have their attorneys review contracts before they are signed. An attorney can pinpoint typical problem clauses in contracts related to assignment, termination, and dispute resolution.

More specifically, if your contract does not have an anti-assignment provision, the other party may be able to assign the contract to a third-party with whom you do not want to do business. Similarly, your attorney can change the contract to require that the party’s mediate disputes before running to the courthouse, which may save your business money if a dispute arises. These are simply things that your attorney can do before a contract is signed that may save you money down the road.

Businesses are often quick to take action under an executed contract, such as withholding payments or terminating contracts, without consulting an attorney. Maybe the contract does not allow the business to terminate the contract without giving the other party the chance to cure the breach of the contract.

How Lawyers Help Small Businesses

It is easy for small businesses to gloss over hiring a lawyer because other matters, such as marketing, operations and advertising seem more pressing. Many legal issues may not be of immediate concern to small business owners who easily justify holding off on paying for these services. However, there are many ways that lawyers can help small businesses.

Business Formation

Some of the most important matters are handled at the beginning of the business. For example, a small business lawyer may want to structure his or her business in a way that limits personal liability. Small business lawyers can help with the process of incorporation so that new business owners are assured that their business starts on strong legal footing.

Corporate Governance

Even if businesses use a lawyer to help incorporate the business, they may fail to maintain this status. A business lawyer can advise commercial clients to have annual shareholder, director or partner meetings in order to maintain this status.

Failing to take these steps can have disastrous consequences for the business. If sued, the business stands to have its corporate veil pierced and exposes corporate officers to personal liability.

Intellectual Property

Before a business really launches, it must take steps to protect its intellectual property, if applicable. This includes the business name, logo, brand name and other aspects of the business that should be protected by copyright.

Businesses may have other intangible assets that should also be protected, including architectural blueprints, devices, creations and computer software. Certain business processes may also be eligible for patent protection. Business lawyers can assist commercial clients with acquiring the necessary copyright, patent and trademark registrations that are necessary to protect this

Privacy Policies

Business lawyers can also help businesses protect their patient, client or customer information. A privacy policy is required in some states in which a business keeps personally identifiable information. A seemingly innocuous connection such as having a customer’s email address as part of a newsletter list may trigger such a requirement.

Non-Disclosure Agreements

As the business begins to operate, business owners may enter into agreements with other parties. However, business owners will want to ensure that their business ideas and trade secrets are protected. Business lawyers can help draft non-disclosure agreements so that businesses can expand without having to worry about having their information stolen.

Employment Agreements

While many businesses start as a single-person operation, many small businesses owners quickly learn that they need some help for their business to thrive.

Business lawyers may assist their clients by helping to draft employment agreements, including non-disclosure agreements, employment contracts for a specific duration and non-compete agreements. The last group mentioned often requires very specific catering to detail. States have specific rules regarding the duration of a non-compete agreement, the geographical proximity of such a contract and the extent of the agreement.

Benefit Programs

Small businesses may need assistance in developing benefit programs for their employees. They may also be concerned with complying with laws regarding healthcare coverage for employees. A business lawyer may be able to advise small business owners of their responsibilities.

Additionally, small business lawyers may assist clients in drafting an incentive plan to help motivate employees.

Client Agreements

As the business continues to grow and become more successful, it may take in new clientele. To protect the business, a business lawyer may draft specific agreements between the business and the client. By having the terms written upfront, disagreements and misunderstandings can potentially be avoided.

Collections

When customers stop paying their bills, small businesses and their cash flow system can become crippled. A business lawyer may aid in collecting past-due accounts.

Even if a small business owner determines that going to small claims court is faster and cheaper, a business lawyer may walk the owner through this process and provide advice about how to present evidence and support the case.

Defamation

Small businesses rely on their reputation. One bad review can quickly halt a small business’ growth. A small business lawyer may be able to get a court order to take down defamatory online posts. As a faster measure, a lawyer may send a cease and desist order to get the culprit’s attention.

Exit Strategies

Just like a business lawyer can help form the business, it can help develop policies regarding the ending of the business. When a partner or major shareholder decides to the leave the business, the business plan may allow for the business to close or for the remaining members or partners to buy the party’s share of the business back.

Small Business Lawyer Free Consultation

When you need legal help with your small business in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

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ATV Accident Lawyer Midway Utah

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ATV Accident Lawyer Midway Utah

Historically, the first Anglo-Americans to visit the area just east of Mount Timpanogos were members of a fur-trapping brigade led by Etienne Provost in 1824. For many years, the valley was referred to as Provo or upper Provo; the river running south through the valley still bears the name of that explorer but the town became known as Midway City. A wagon road completed through Provo Canyon in 1858 brought the first settlers to the area. In the spring of 1859, many more families began moving farther to the west along Snake Creek. Two small communities were established, called the Upper and Lower Settlements. One was later named Mound City because of the many nearby limestone formations. In 1866, Indian hostilities grew and territorial governor Brigham Young encouraged settlers to construct forts for protection. The two small settlements reached an agreement to build a fort halfway or midway between the two existing communities thus the beginning of our modern day town named Midway. It was in the 1860s and 1870s that a large number of Swiss families arrived with names such as Gertsch, Huber, Kohler, Probst, Zenger, Durtschi, and Abegglen, among others, some still are found in Midway today. Midway was incorporated June 1, 1891.

From the beginning, Midway’s industry was based on livestock and farming; however, as the town grew so did the need for building materials. In the early 1850s sawmills were built with three main operators: Henry T. Coleman, John Watkins, and Moroni Blood. In 1861, John H. Van Wagoner constructed the first commercial gristmill. Soon followed retail stores, one of which was the Bonner Mercantile Store. Later other retail stores were built by Henry T. Coleman and Simon Epperson. As the town grew so did the need for additional stores a confectionery and grocery store, blacksmiths, livery stables, boarding houses, and other businesses soon fulfilled the growing town’s booming economy. Nearby mines, particularly those in Park City, also began to play an important economic role in many Midway households, and did so into the late 1960s. Because of the many ninety-degree-pluses hot water springs or ‘hot pots’ in the Midway area, several resorts were developed including Schneitter’s Hot Pots (now the Homestead) and Luke’s Hot Pots (now the Mountain Spa); both were established in the 1880s. Important civic improvements were made in the 1930s and 1940s. A concrete sidewalk program began in 1938, and the Midway Recreation Center, usually referred to as the “Town Hall,” was dedicated in June 1941 which is now the center of many community events including the famous Swiss Days held each fall.

Midway Swiss Days brings thousands of people to its tiny town. it was originally called Harvest Days and was established in 1947 through the efforts of Luke’s Hot Pots Resort owners Joseph B. and Pauline S. Erwin and a number of local enthusiastic supporters. The club became known as the Midway Boosters and continues today to play a role in many city improvements and activities. Although agriculture is still a significant industry, recreation has fast become an important aspect of Heber Valley’s economy. Local recreation attractions include golf courses, Deer Creek Reservoir, Wasatch Mountain State Park nationally known Homestead Resort and the Olympic Venue Soldier Hollow. Soldier Hollow is home to world-class cross-country skiing, tubing and soon will add one of the State’s largest golf courses to its venue. As the world changes so does the community and as the world discovers Midway and its charm, we hope we have captured some of the past and preserved all of those future visitors and citizens of Midway to enjoy.

What You Need to Know and Do after an ATV Accident

In case you didn’t know, ATV stands for “All Terrain Vehicle” and there are many uses for them besides fun. People use them to plow farms, plow snow, and even to transport materials. And the accidents that come from ATVs are from these uses as well as recreational ones. In the United States, alone, ATVs are responsible for 100,000 injuries and 650 deaths every year but think about how many more people get on ATVs when they’re on vacation? Yet most of never even think to stop about the risks and injuries that happen from ATVs. The next time you find yourself with an ATV and you’re asked to sign some kind of contract before riding one, learn about what some of the most common ATV injuries are, how to legally protect yourself, and what to do if you ever find yourself in need of injury lawyers.

Before Going ATV Riding

In many states, you must register an ATV if you buy one and you must have insurance if you want to ride it out on the open road. In addition, some states also require special licenses for the driver and there are strict age restrictions on who can ride one. For instance, some states require children under a certain age (usually 16) to ride with supervision, which is probably a good idea because ATVs are responsible for about 77 children’s deaths per year, according to the Consumer Product Safety Commission. Of course, if you choose to not follow the law, no one will ever know but if you ever find yourself in an accident, you won’t have any legal protection and you can be charged for not following state regulations. Always check with your local DMV before buying or riding an ATV.

ATV Insurance

While some states require you to have ATV insurance before riding one, some don’t, which leaves many ATV users to think they probably won’t need one. But we’ll tell you this: most ATV users who get into accidents never thought they would need one too. Those who had it were glad they did and those who didn’t regret it. Depending on the type of ATV insurance you buy, it can cover a range of damages and risks. Some cover bodily injuries, some cover property damages, some cover collision damages, and some cover all. In a worst case scenario, you can end up in an accident where you hurt yourself or someone else severely and you would have to pay thousands of dollars for medical expenses and property damages. Even if you just have a medical ATV insurance, it would cover your entire medical expenses, otherwise, your health insurance will be your only safety net. At the end of the day, the choice to get ATV insurance or not is up to you but as with most auto insurances, some coverage is better than no coverage.

After ATV Accident

Right after an accident, you should seek medical help as soon as possible. Even if you feel fine, there can be internal or delayed injuries that you can’t see or feel until later on. Go and get yourself checked out in the hospital just to be safe.

Among those who reported being in ATV accidents, the most common injuries were:
• Arms and hand (29%)
• Head and neck (27%)
• Legs and feet (22%)
• Torso (20%)
• Other (2%)
But keep in mind; you can have one or multiple injuries when you get into a 4-wheeler accident.

Brain Injuries: Of all the ATV injuries, brain injuries are probably the most worrisome because you cannot see them from the outside and sometimes symptoms might take up to days or even years to show up. This makes the cause of the injury difficult to trace and it poses a problem if you end in court. Traumatic brain injury, memory loss, and permanent concussions are some of the more severe injuries that can happen to ATV crash victims. Children are especially more susceptible to brain injuries because their bodies are smaller and the impact of the crash can harm them more.

Spinal Cord Injuries: Spinal cord injuries are another type of damage to look out for if you’re ever in a four-wheeler accident. Aside from being painful, spinal cord injuries can be devastating because they can cause a person to become disabled. They can lose their ability to walk, to move, and drastically change the quality of the person’s life. A less experienced but similar injury in its potential affect on your life is one that causes hip pain, which can be easily overlooked initially.

Seek Medical Attention: Regardless of severity, all ATV injuries should be examined. If you ever get into an ATV accident, never underestimate the amount of damage it can do to your body. Always go to the hospital as soon as possible to get your whole body checked out. Recovery from ATV injuries is both time-consuming and expensive. Furthermore, it can put you out of work for weeks, months, or even years. If you’re looking into getting legal compensation for your injuries, make sure you keep formal documents of all your injuries and doctor’s visits.

Document Wreckage: If possible, make sure you get pictures of the accident. This means pictures of the vehicle, the environment, and any visible injuries on yourself and anyone in your party. These pictures will serve as evidence and give you leverage if you do end up going to court. You’ll also want to obtain a police report in case you end up needing a lawyer.
Get Names of Witness: If you end up crashing into another vehicle or someone else’s property, or even your own, get the names of everyone that is involved. If it’s another vehicle, make sure you take down their license plate number, contact information, and insurance information. For insurance and legal purposes, you’ll need all of this information in case any of your information is called into questioned and needs to be investigated. If the other party involved is unwillingly to cooperate, do not try to force them. Call the police and take down whatever information you can. Take pictures of their license plate if it’s there. You are also not legally bound to answer any of their questions.

Get Legal Help

One study of an ATV accident in Midway found six victims permanently damaged and needed $11.5 million dollars to pay for basic long-term skilled care until they’re 65 years old. Without legal representation, the six victims involved would not have been able to get the money they were entitled to care for themselves and their families. Even if your accident doesn’t bring about such extreme consequences (and we hope it doesn’t), you might be entitled to legal compensation for whatever damages happened to you. Vehicle accidents of any kind can cause a lot of mental, physical, and financial stress on the victims and the victims’ families. After you get the medical treatments you need, find a lawyer that specializes in vehicle accidents to get a free review of your accident. ATV injury lawyers are especially knowledgeable in this area and will be able to quickly access your case.

Even if the cause of your accident is unclear, get a lawyer’s opinion on the accident. What if the manufacturer of your ATV had a recall for your ATV years ago but the seller never informed you? What if the road your accident happened on had caused several other accidents? Our point is, you don’t know what you don’t know and a lawyer will be able to help you find out.

Notify Your Insurance

If you have ATV insurance, notify the company and send in all the necessary documentation to file a claim as soon as possible. In situations where another party was involved, make sure you get the names and contact information of the other people. If you have evidence to prove it was the other party’s fault, get their insurance information and notify their insurer. If, however, you don’t have evidence but strong reasons to believe it was the other party’s fault, you’ll need to get a lawyer.

Have Fun But Be Prepared

We do not mean to scare you about riding ATVs but we do think it’s important that you are aware of their dangers and are prepared if you ever find yourself in an ATV accident. To put things into a healthier perspective, deaths account for less than one percent of all 4-wheeler accidents. Most ATV injuries are not fatal and most victims heal from them. But the emotional, physical, and mental scars that are left can take a toll on the injured person. If you suspect you have any emotional or physical traumas from an ATV or vehicle accident, don’t be afraid to get in touch with one of our ATV injury specialists for a free case review of your accident. All-terrain vehicles (ATVs) are 3-wheel and 4-wheel motorized vehicles designed for off-road riding. ATVs are used for both fun and rescue, as they provide quick and easy access in off-road areas. Unfortunately, every year, many people including children are severely injured in ATV accidents. Some victims suffer fatal injuries.

According to the most recent available Consumer Product Safety Commission (CPSC) statistics, more than 100,000 ATV injuries occurred in a single recent year, with 25 percent of those injuries affecting children under the age of 16. CPSC reports that, on average, 568 adults and 144 children die in ATV crashes every year. ATVs have a high center of gravity and are prone to roll over. Riders can be trapped underneath these vehicles that weigh up to 600 pounds. They are not designed for use on public roads, and drivers often fail to see ATVs, which can result in collisions. As with motorcycle riders, ATV riders have no protection whatsoever from the vehicle in an accident only whatever protection their protective gear provides them.
Many different factors may contribute to ATV accidents, including:
• Vehicle defects.
• Improper positioning on the vehicle.
• Too many riders on the vehicle.
• Lack of protective gear.
• Operating an ATV at unsafe speeds.
• Riding on paved roads.
• Operating an ATV under the influence of drugs or alcohol.
• Negligence of other drivers.

Types of Injuries in ATV Accidents

Since ATV riders are virtually unprotected, a range of serious injuries can result from accidents. Of the more than 100,000 ATV injuries that occurred in one recent year, the CPSC reports that there were:
• 31,400 arm and hand injuries (29 percent).
• 29,300 head and neck injuries (27 percent).
• 23,100 torso injuries (22 percent).
• 22,800 injuries to the legs and feet (21 percent).
• 1,300 other injuries (1 percent).
Particularly when riders do not wear helmets, traumatic brain injury can be a devastating result of ATV accidents. Crushing injuries, torso injuries and paralysis caused by spinal cord injuries are common when ATVs roll over. Fractures, contusions and abrasions are also common. In the most tragic cases, ATV accidents result in death.

Who May be Liable for an ATV Accident?

Liability for an ATV accident depends on what caused the accident and how it occurred. If the accident and injuries were caused by the faulty design of the vehicle, the ATV manufacturer may be liable. If a driver who failed to see an ATV on the road caused the accident, that driver may be liable for the ATV riders’ injuries. An ATV passenger injured in an accident caused by the negligence of the operator may be entitled to a claim for damages against the operator.

If you have been injured in an ATV accident due to the negligence of another person or because of faulty manufacturing of the vehicle, speak with a Long Island four-wheeler injury attorney as soon as possible. You may be entitled to file a claim for compensation for the injuries you have suffered. Our knowledgeable motor vehicle accident attorneys can evaluate the circumstances of your accident and advise you as to whether you have a case, who could be liable and what damages you may be able to claim. We handle accident cases on a contingency fee basis, and you will pay us no fees up front when you work with our firm. Call Ascent Law LLC now for a free consultation. We respond to messages as soon as possible, and we can come to you if you are in the hospital or unable to travel.

Midway Utah ATV Accident Lawyer Free Consultation

When you need legal help with with an ATV Accident Injury case in Midway Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews

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1099 Tax Issues In Foreclosure

As far as the Internal Revenue Service is concerned, a foreclosure is treated the same as the sale of a property. The bottom line is that once it was yours and now you no longer own it. The event can trigger a capital gain and, in some cases, you might also owe income tax on the amount of any part of the mortgage debt that’s been forgiven or canceled. The sale of real property normally goes through an escrow process. The seller receives statements showing how much the home was sold for. There’s no escrow period with foreclosures, however, lending bank simply takes possession of the home. The basic formula for calculating capital gains is to subtract the basis or cost of the property from the sales price. The difference is how much of a profit the seller made, or how much money was lost in the transaction.

In a foreclosure situation and without escrow statements, there’s no mutually agreed-upon sales price, but, there’s still a “sales price” for tax purposes. It will be either the fair market value of the property as of the date of the foreclosure, or the outstanding loan balance immediately prior to the foreclosure. It will depend on the type of mortgage loan you had. Your mortgage was either recourse or a non-recourse loan.

Recourse Loans

If you had a recourse loan, this means that you’re personally responsible for the debt. The lender can pursue you for repayment even after the property has been repossessed—it has “recourse.” In this case, the figure used as the sales price when calculating any potential capital gain is the lesser of the following two amounts:

• The outstanding loan balance immediately before the foreclosure minus any debt for which the borrower remains personally liable after the foreclosure
• The fair market value of the property being foreclosed
In addition to a capital gain, you can have canceled debt income from the foreclosure with this type of loan as well. Mortgages used to acquire homes tend to be non-recourse loans, while refinanced loans and home equity loans tend to be recourse loans. This is by no means an absolute rule, however. It can also depend on the state in which you reside.

Non-Recourse Loans

A non-recourse loan is one where the borrower isn’t personally liable for repayment of the loan. In other words, the loan is considered satisfied and the lender can’t pursue the borrower for further repayment if and when it repossesses the property. The figure used as the sales price is the outstanding loan balance immediately before the foreclosure of a non-recourse loan. The IRS takes the position that you’re effectively selling the house back to the lender for full consideration of the outstanding debt, so there’s generally no capital gain. You won’t have any canceled debt income, either, because the lender is prohibited by law from pursuing you for repayment. You’ll Receive Tax Reporting Documents

• Form 1099-A is issued by the bank after real estate has been foreclosed upon. This form reports the date of the foreclosure, the fair market value of the property, and the outstanding loan balance immediately prior to the foreclosure. You’ll need this information when you’re reporting any capital gains related to the property.

• Form 1099-C is issued by the bank after the bank has canceled or forgiven any debt on a recourse loan. This form will indicate how much debt was canceled. You might receive only a single Form 1099-C that reports both the foreclosure and the cancellation of debt instead of receiving both a 1099-A and a 1099-C if your lender both forecloses on the home and cancels the unpaid debt in the same year.

Reporting a Capital Gain or Loss

You can determine the sales price after you’ve determined what type of loan you had on your property. Report the foreclosure on Schedule D and Form 8949 if the foreclosed property was your primary residence. You might qualify to exclude up to $500,000 of gain from taxation subject to certain rules:
• The home was your primary residence.
• You owned the home for at least two of the last five years (730 days) up to the date of sale.
• You lived in the home for at least two of the past five years ending on the date of foreclosure.

Individual taxpayers can exclude up to $250,000 in gains, and married taxpayers filing jointly can double that amount. If the foreclosed property was mixed-use it was your primary residence at one time and a secondary residence at another time you can still qualify for an exclusion from capital gains tax under the modified rules for calculating your gain or loss. The rules are also relaxed somewhat for members of the armed forces.

Capital Gains Tax Rates

As of tax year 2019, the rate on long-term capital gains for properties owned one year or longer depends on your overall taxable income and filing status.
Single taxpayers:
• 0% if taxable income is under $39,375
• 15% if taxable income is from $39,375 to $434,550
• 20% if taxable income is over $434,550
Heads of household:
• 0% if taxable income is under $52,750
• 15% if taxable income is from $52,750 to $461,700
• 20% if taxable income is over $461,700
Married Filing Jointly and Qualifying Widow(er)s:
• 0% if taxable income is under $78,750
• 15% if taxable income is from $78,750 to $488,850
• 20% if taxable income is over $488,8503
These long-term capital gains income parameters are different from those that were in place in 2017. Rates were tied to ordinary income tax brackets before the Tax Cuts and Jobs Act (TCJA) went into effect. The TCJA assigned them their own brackets. It’s a short-term capital gain if you owned your home for less than a year. You must pay capital gains tax at the same rate that’s applied to your regular income in other words, according to your tax bracket.

When Discharged Debt Is Taxable Income

The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) provided that taxpayers could exclude from their taxable incomes up to $2 million in discharged mortgage debt due to foreclosure a nice tax break indeed. Prior to 2007, discharged debt was included in taxable income. Then the MFDRA expired at the end of 2017, so discharged debt was once again considered to be taxable income by the IRS. Fortunately, this provision of the tax code is back again, at least for foreclosures that occur from Jan. 1, 2018 through Dec. 31, 2020. Title I, Subtitle A, Section 101 of the Further Consolidation Appropriations Act of 2020, signed into law by President Trump in December 2019, extends this provision through the end of 2020.5 You no longer have to concern yourself with paying income tax on debt discharged through foreclosure, at least through the end of 2020 and if your forgiven debt doesn’t exceed $2 million.

How Much Will a Foreclosure Affect a Tax Refund

Foreclosure is one of those difficult experiences certain homeowners may have to go through. Not only does foreclosure affect your credit rating, but it also can make it difficult to purchase another home in the immediate future. Additionally, there may be tax consequences attached to your foreclosure. In certain cases, foreclosed homeowners have been hit with a significant tax bill that often reduces or eliminates any tax refund due.

Foreclosure Tax Consequences

Often, the Internal Revenue Service (IRS) considers debt that’s forgiven by a lender because of foreclosure to be taxable income. Through calendar year 2012, the IRS is waiving taxation of mortgage debt forgiveness in certain cases. Because the IRS is waiving taxation of forgiven mortgage debt, any income tax refund isn’t affected by your foreclosure. However, foreclosures occurring in 2013 and beyond could affect the income tax refunds of those experiencing foreclosures. After foreclosure, the IRS could consider taxable any cash you took from your home as the result of a refinance. In addition to cash-out income, any income you took from a home equity line of credit (HELOC) could be taxable under IRS rules. Your forgiven mortgage debt and income gained from refinances or HELOCs might also be taxable at the state level.

Reporting Foreclosure Income

Taxable income resulting from forgiven mortgage debt and any cash-out refinances or HELOCs has to be declared in the year in which the foreclosure occurred. IRS taxation waivers of forgiven mortgage debt apply only to principal residences. However, money taken from a cash-out refinance or HELOC that’s applied to home renovation or improvement is often tax-exempt after foreclosure. Also, ensure the federal income reporting document (Form 1099) your mortgage lender gives you after your foreclosure is accurate.

Avoiding Taxation

Federal law considers debt discharged in bankruptcy, including potentially taxable forgiven mortgage debt, to be non-taxable as a result. Insolvency immediately before mortgage debt is forgiven also could exempt you from taxation of that debt. According to the IRS, insolvency is when the total of your liabilities exceeds the fair market value of your assets. Consult a tax professional if you’ve recently experienced foreclosure in order to discuss any income tax and tax refund implications.

Difference between A 1099-A and 1099-C

Selling real estate in this precarious market can be quite a task in and of itself. When the dust clears, sellers often are left to navigate through a maze of issues, not sure what to expect next. Many sellers have no idea what tax forms to expect from the lender, so they have no way of knowing if they received them. Two forms in particular, the 1099-A and 1099-C, create much of the confusion for sellers, their lawyers and their financial advisors. Every time real property is sold or transferred, the IRS must be notified. In a traditional sale of property, the seller will receive a Form 1099-S (Proceeds from Real Estate Transactions) to report the sale of the property to the IRS. This form is used to determine whether there is a gain or loss on the sale of the property. In a short sale or deed in lieu of foreclosure, the seller also receives a 1099-S because the property is sold willingly.

1099-A: Acquisition or Abandonment of Secured Property

However, in the case of a foreclosure, no 1099-S is issued because the “sale” is involuntary. Instead, the seller will receive a 1099-A (Acquisition or Abandonment of Secured Property) to report the transfer of the property. The 1099-A reports the date of the transfer, the fair market value on the date of the transfer and the balance of principal outstanding on the date of the transfer. Just like the 1099-S, the 1099-A is used to determine whether there is a gain or loss on the sale of the property. Many sellers mistakenly believe that if their property is sold in a foreclosure auction, they will not have any capital gain. This is not always the case. As a result of the adjustments to cost basis in certain situations, there may be a capital gain on property that is sold in a foreclosure auction. This may cause yet another source of unexpected tax liability that the seller is unable to pay.

1099-C: Cancellation of Debt

Now that short sales have become so common, many sellers understand they may receive a 1099-C (Cancellation of Debt), to report the cancellation of debt resulting from a short sale or deed in lieu of foreclosure. What comes as a surprise to many sellers is that they may receive a 1099-C as a result of foreclosure sale as well. Some sellers believe that if they allow their property to go into foreclosure, they will avoid the tax consequences of the cancellation of debt. However, the tax ramifications are the same for cancellation of debt income, whether it is generated from a short sale, deed in lieu of foreclosure or foreclosure. At the time the seller/borrower obtained the loan to purchase or refinance the property, the loan proceeds were not included in taxable income because the borrower had an obligation to repay the lender. When that obligation to repay the lender is forgiven or cancelled, the amount that is not required to be repaid is considered income by the IRS. The lender is required to report the amount of the cancelled debt to the borrower and the IRS on Form 1099-C, when the forgiven debt is $600 or greater. There are certain exclusions that can be used to reduce or eliminate the cancellation of debt income from taxable income. This includes discharge of the debt in bankruptcy, insolvency of the seller before the creditor agreed to forgive or cancel the debt, or, if the seller qualifies, relief pursuant to the Mortgage Forgiveness Debt Relief Act (MFDRA).

To summarize, any sale or transfer of property, whether voluntary or involuntary, must be reported to the IRS. Form 1099-S is used for a traditional sale, short sale or deed in lieu of foreclosure; Form 1099-A is used for a foreclosure. A lender may forgive or cancel debt in any case – where it’s a short sale, deed in lieu of foreclosure, or foreclosure – which will result in the issuance of a 1099-C. In order to properly report these transactions on the tax return, sellers should seek advice from an experienced tax professional. When homeowners fall into lender foreclosure, several things may end up affecting them, including potential tax issues. The Internal Revenue Service treats foreclosures as sales of property and those properties’ former owners could be liable for certain federal income taxes. After foreclosure your lender may send you IRS Form 1099-A, Acquisition or Abandonment of Secured Property. Form 1099-A is used to show three key pieces of information that helps foreclosed homeowners determine their tax liability, if any. The IRS considers canceled mortgage debt that results when a borrower is foreclosed as income to that borrower. To account for their cancellation of foreclosed mortgage borrowers’ debt, mortgage lenders send them IRS Form 1099-A. Foreclosed mortgage borrowers’ principal loan balances are shown on Form 1099-A’s Box 2 and the fair market value (FMV) of their foreclosed properties in Box 4. Box 5 of Form 1099-A indicates whether foreclosed borrowers are personally liable for repaying their mortgage loans. Whether you’ll owe taxes on your foreclosure’s lender-canceled debt also depends on Box 5 of Form 1099-A. Mortgage borrowers shown in 1099-A’s Box 5 to be personally liable for repayment of their mortgages could face taxable income liability. States such as California are non-recourse and lenders foreclosing no judicially or without the courts can’t pursue borrowers for negative loan balances or deficiencies. Foreclosed borrowers in non-recourse states might not be held personally liable for repaying their foreclosed mortgages, thus eliminating any tax liability.

The difference between a mortgage’s principal balance shown in IRS Form 1099-A’s Box 2 and Box 4’s FMV is important. For example, if your foreclosed mortgage loan’s principal balance is $100,000 and its FMV $50,000, that $50,000 difference could be taxable income. Your mortgage lender could also overestimate your former home’s FMV shown in Box 4 of your 1099-A. Consider an appraisal to obtain an accurate FMV of your foreclosed home if you’re concerned about possible future tax liability. Foreclosing lenders might issue IRS Form 1099-A to borrowers as a kind of placeholder until they decide whether to issue Form 1099-C. In some cases, foreclosing mortgage lenders need time to decide whether they’ll be canceling their foreclosed borrowers’ mortgage debt. Mortgage lenders may issue Form 1099-A to borrowers and file copies with the IRS to indicate a foreclosure has occurred and that a debt cancellation decision is pending. If you’re issued Form 1099-C after foreclosure your lender has definitely canceled your mortgage loan’s debt.

Taxable Income Exclusions

It’s possible to exclude from taxable income lender-canceled mortgage debt resulting from a home foreclosure. The most common exclusion to the tax liability resulting from lender-canceled mortgage debt comes from the Mortgage Debt Relief Act of 2007. Through Dec. 31, 2012, mortgage borrowers whose principal residences were foreclosed may be able to exclude up to $2 million of lender-canceled debt. Insolvent foreclosed mortgage borrowers, with debts exceeding assets, may also be able to exclude lender-canceled debt from taxable income. The foreclosure itself is treated as a sale of the home. So, you might need to report it on Schedule D. You should receive Forms 1099-A with information about the sale.

What you’ll report as the amount realized on the sale depends on which of these applies:
• If you were personally liable for the loan. This is called a recourse loan.
• If you weren’t personally liable for the loan. This is called a nonrecourse loan.

On a recourse loan, the amount realized on the sale is the lesser of:
• The outstanding debt right before the foreclosure. Subtract any amount for which you remain liable right after the transfer.
• The fair market value (FMV) of the property transferred
On a nonrecourse loan, the amount realized on the sale is the full amount of the debt outstanding. This is as calculated right before the foreclosure.

You might be able to exclude the capital gain under the sale-of-principal-residence exclusion if both of these are true:
• You have a gain on the sale.
• The home was your main home.

Cancellation of Debt

If you were liable for the loan, you might have cancellation of debt income. You should receive a Form 1099-C with this information. This is usually the total amount of debt owed right before the foreclosure, minus the property’s FMV. Cancellation of debt income from property secured by a recourse debt is taxable. This is true unless exclusion applies. There are exclusions for these:

• Debt cancelled in a bankruptcy proceeding
• Qualified principal residence indebtedness
• Insolvency (your debts are more than your assets)

Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506

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Does A 401k Go Through Probate?

Source: https://www.ascentlawfirm.com/1099-tax-issues-in-foreclosure/

Does A 401k Go Through Probate?

The short answer is maybe. It depends on it a beneficiary was named for the 401(k). Best next step is to talk to probate attorney.

Ensuring your assets go to your intended beneficiaries is important. Retirement accounts such as 401(k) or IRAs, annuities, and life insurance policies are controlled by the beneficiary designation you have selected. These types of assets are not controlled by the terms of your will or trust. Your named beneficiaries on these types of assets will receive the account or policy at your death after completing a claim process. If your 401(k) or other beneficiary driven asset does not have a valid beneficiary designated at your death, the terms of the plan control where the asset goes. Generally, the default in such cases is ‘my estate.’ This means the 401(k) or other asset would have to go through a probate process before the terms of your will or trust would determine who ultimately receives the asset. It is generally not a good idea to name a minor as the beneficiary for these types of assets. The custodian or administrator will likely require a conservator be named for the minor to receive the account. If you would like to leave an asset to a minor it would be better to have a trust for the minor’s benefit in your estate planning so the trust can be named as the beneficiary of the account or policy. It is a good idea to review your beneficiary designations every five to ten years or at the occurrence of a major life event such as a marriage, birth of a child, divorce, or death. You can update your beneficiary designations by contacting the plan administrator or custodian, or your life insurance agent. You can also find beneficiary designation forms on line in many cases. Not all property is equal in a person’s estate.

Property can fall into different categories, with some property required to go through probate while other assets, such as retirement accounts, pass outside of the probate process. As a retirement account, a 401(k) falls into the category of “non-probate” property. A 401(k) has a named beneficiary who will receive the assets in the account upon the death of the account holder regardless of whether the account is mentioned in a will.

Final Will & Testament

A will is the bedrock of any estate plan, and the document has many uses. One of the primary purposes of a will is to direct how the assets in a person’s estate are to be distributed after his death. The clearer the language used in the will, the less likely there will be contentious probate litigation between heirs, named beneficiaries and other relatives. A will typically only addresses “probate” property, which includes assets whose ownership does not automatically transfer upon death, such as solely-owned real estate or automobiles. Non-probate property is not affected by the terms of a will, even if those assets are mentioned in the will itself.

Probate Process In Utah

When a person dies having left behind a valid, correctly-executed will, the probate process begins. This process entails the named executor of the estate marshaling a decedent’s assets and paying creditors and applicable taxes, distributing any remaining property to the people named as beneficiaries in the will. For many simple estates, this process can be completed within a few months, while larger; more complicated estates including those in which the will is being contested can take much longer, possibly even a few years. During that time, probate property is tied up in the court process and mostly unavailable to beneficiaries, while non-probate property is often distributed almost immediately.

Utah Non-Probate Property

There are many different types of non-probate property and retirement accounts fall into this category. Individual retirement accounts, 401(k) and most other forms of retirement plans are set up with a named beneficiary attached to the account. Most people set up retirement accounts for their own use, but naming a beneficiary ensures funds pass directly to that person upon the account holder’s death, if there are any funds left in the account at that time. Life insurance policies and joint bank accounts are other common forms of non-probate property.

Advantages for Beneficiaries

The biggest advantage of being a named beneficiary of non-probate property, like a 401(k) account, is that this type of property will not get tangled up in the probate process. The funds in a 401(k) account, for example, will be available to the named beneficiary almost immediately, even if the beneficiary is also designated to receive property being distributed through the probate process. The death of a loved one inevitably causes distress. However difficult it may be to focus on finances at such a time, there are certain things you’ll need to know especially for tax planning if you are the beneficiary of that person’s 401k plan.

How the 401k is treated for Tax Purposes

When a person dies, his or her 401k becomes part of his or her taxable estate. However, a beneficiary generally won’t have to wait until probate is completed to receive the account balance. You will need to pay income tax on the amount you receive (in addition to any estate tax owed), but there are different strategies you may be able to use to spread out or delay the tax burden, especially if you are the spouse. There are other considerations also. For example, you may qualify for a federal income tax deduction if the 401k account is also subject to federal estate tax, which will generally be the case if the taxable estate is over $650,000.

All 401k Plans Are Not Created Equal

When looking at your options for receiving money from a 401k plan as a beneficiary, it is important to realize that each 401k plan has its own set of rules. The IRS sets the outside limits of what plans may do, but a plan is allowed to be more restrictive than that general framework. For example, the IRS may say it is okay for you to leave your 401k inheritance in the account for years without touching it (or paying taxes on it), but the plan rules may stipulate that you take it out sooner. If you inherit someone’s 401k account, the first thing you should do is look at the plan document or summary plan description of the 401k plan to find out what rules will apply to your situation. It is a good idea to ask a tax professional for help, as this can be complicated. Rules may also differ depending on whether the person who died was your spouse, and whether he or she was already receiving periodic payments from the account.

How Retirement Accounts End Up in Probate

While in most cases retirement accounts don’t end up in probate, there are a few ways it can happen. This also means that debt collectors for an estate might be able to use the funds in a retirement account to settle their debts, too. This is why it is best to avoid these mistakes to keep retirement accounts free and clear of probate.

Naming a Minor as a Beneficiary

Money can be left to a minor, but they can’t use it until they come of age. In this situation, in order to avoid probate, someone already needs to be assigned to manage the money until the minor comes of age. If no such party is stated, the probate court will get involved to set up a court supervised custodial account.

No Alternate Beneficiaries

If your primary beneficiary is no longer living, if you have no alternate named, then it will need to go through probate. The funds then become part of the estate and are divvied out to everyone else.

Beneficiary is the Estate

If you name your estate as the beneficiary, the funds will be probated. This may cause creditor and tax issues. It is usually recommended that you not leave these types of funds to your estate. The probate process is never particularly easy. This is why it is nice that in most cases, retirement accounts are not included in it.

What Assets Must Go Through Probate?

Lots of assets, including real estate and retirement accounts, may not need to go through probate. Almost every person leaves behind some assets that don’t need to go through probate. So even if you do conduct a probate court proceeding for the estate, not everything will have to be included. That’s good news, because property that doesn’t have to go through probate can be transferred to the people who inherit it much more quickly.

Common Assets That Go Through Probate

Basically, probate is necessary only for property that was:
• owned solely in the name of the deceased person; for example, real estate or a car titled in that person’s name alone, or
• a share of property owned as “tenants in common”: for example, the deceased person’s interest in a warehouse owned with his brother as an investment.
This property is commonly called the probate estate. If there are assets that require probate court proceedings, it’s the responsibility of the executor named in the will to open a case in probate court and shepherd it to its conclusion. If there’s no will, or the will doesn’t name an executor, the probate court will appoint someone to serve. Either way, the person in charge can hire a lawyer to help with the court proceeding, and pay the lawyer’s fee from money in the estate.

Assets That Don’t Need to Go Through Probate

Typically, many of the assets in an estate don’t need to go through probate. If the deceased person was married and owned most everything jointly, or did some planning to avoid probate, a probate court proceeding may not be necessary.
Here are kinds of assets that don’t need to go through probate:
• Retirement accounts; IRAs or 401(k)s, for example—for which a beneficiary was named
• Life insurance proceeds (unless the estate is named as beneficiary, which is rare)
• Property held in a living trust
• Funds in a payable-on-death (POD) bank account
• Securities registered in transfer-on-death (TOD) form
• U.S. savings bonds registered in payable-on-death form
• Co-owned U.S. savings bonds
• Real estate subject to a valid transfer-on-death deed (allowed only in some states)
• Pension plan distributions
• Wages, salary, or commissions (up to a certain amount) due the deceased person
• Property held in joint tenancy with right of survivorship
• Property owned as tenants by the entirety with a spouse (not all states have this form of ownership)
• Property held in community property with right of survivorship (allowed only in some community property states)
• Cars or boats registered in transfer-on-death form (allowed only in some states)
• Vehicles that go to immediate family members under state law
• Household goods and other items that go to immediate family members under state law

In addition, most states offer simplified probate proceedings for estates of small value. The simpler process is commonly called “summary probate.” The executor can use the simpler process if the total property that is subject to probate is under a certain amount, which varies greatly from state to state. In some states, the limit is just a few thousand dollars; in others, it’s $200,000. Because you count only the property that must go through probate and exclude property that was jointly owned or held in trust, for example, some very large estates can take advantage of the “small estate” procedures. For example, say an estate consists of a $400,000 house that’s jointly owned, a $200,000 bank account for which a payable-on-death beneficiary has been named, a $100,000 IRA, and a solely owned car worth $10,000. The estate has a value of more than $700,000, but the only probate asset is the car and its value qualifies it for the small estate procedure in almost every state.

As you can see, there are tax implications no matter what strategy you choose for receiving the 401k funds you inherit. If you are the beneficiary of someone else’s 401k plan, you should consider consulting a tax professional who can help you determine what options you have for receiving the money, and the income tax consequences of the different options.

Free Consultation with Probate Lawyer in Utah

If you have a question about probate law or if you need to start or defend against a probate case in Utah call Ascent Law LLC (801) 676-5506. We want to help you.

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506

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Will Bankruptcy Show Up On My Credit Report?

Source: https://www.ascentlawfirm.com/does-a-401k-go-through-probate/

Will Bankruptcy Show Up On My Credit Report?

Bankruptcy may help relieve your debt obligations, but it will impact your credit for years. Bankruptcy is a special legal proceeding you can use to reorganize or get rid of your debt, depending on your financial situation. Bankruptcy can be helpful if you’re overwhelmed with financial commitments, but it could also negatively affect your credit. A bankruptcy will generally stay on your reports for up to 10 years from the date you file. The good news is your credit can gradually heal if you take the right steps.

How bankruptcy appears on your credit reports

Bankruptcy is a type of public record that can be listed on your credit reports. As long as it’s listed on your reports, the bankruptcy may negatively impact your credit. According to the Fair Credit Reporting Act, a Chapter 7 bankruptcy may stay on your reports for 10 years from the date you file. A discharged Chapter 13 bankruptcy typically stays on your reports for seven years from the date you file, but it could remain for up to 10 years if you don’t meet certain conditions. Both types have the same impact on your credit scores. However, it’s possible that a future lender could view one type more favorably than the other. This type of public record may lower your scores significantly. If your credit was healthy before the bankruptcy, it may be hit harder than someone with poor credit. Ultimately, how a bankruptcy affects credit can vary, partially because of the different factors that make up each person’s credit.

How accounts appear on your credit reports

Before filing for bankruptcy, you probably had bills you struggled to keep up with credit cards, medical debt and more. When you include those accounts in a bankruptcy filing, they’ll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as “discharged” or “included in bankruptcy” with a zero balance. Even though you owe $0 for them, they’ll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application. But here’s that good news we promised: Accounts included in a bankruptcy filing won’t be reported as “unpaid” or “past due” anymore, and you may feel relief without those financial burdens. Your credit scores will eventually start rebounding with those positive effects. That’s assuming, of course, you use credit responsibly from here on out.

Credit recovery post-bankruptcy

After filing bankruptcy, you can work to build your credit again but it won’t be instantaneous. Start by making a list of the debts included in your bankruptcy, and check them on your credit reports. After they’re discharged, it may take about two months for the accounts to be updated on your reports. They should be labeled “included in bankruptcy”, “discharged” or similar language. Check your reports every few months for errors. Make sure to check that the negative marks are removed in a timely fashion. In the meantime, consider building credit with a secured credit card. Only take out lines of credit you can afford, and pay back debt as agreed. After several years’ worth of responsible credit behavior, your credit scores can improve. “If someone walks the straight and narrow after bankruptcy,” “it would be possible their scores would be higher now than prior to the bankruptcy.”

How Long Does a Bankruptcy Stay on Your Record?

Although a bankruptcy filing remains on your credit report for up to a decade, the effect on your credit diminishes over time until it drops off your report completely. Chapter 7 bankruptcy is the classic bankruptcy measure for people who have defaulted (that is, failed to pay) their loans. This form of bankruptcy forgives most debts, including:
• Credit card debt
• Medical bills
• Personal loans
Chapter 7 bankruptcy stays as a negative mark on your credit report for 10 years from the date of filing. The bankruptcy also can cause your credit score to drop by as much as 200 points or more. Any debts that were wiped away by filing for Chapter 7 bankruptcy will be included on your credit report. To qualify for Chapter 7 bankruptcy, you must first pass a means test that assesses your income and assets-to-debt ratio. Often, property, cars and other valuables might have to be liquidated in order to pay back as much of the debt as possible but some day-to-day essentials you own might be exempt under the law, such as your house or computers you use for work. Chapter 7 bankruptcy (unfortunately) doesn’t apply to student loans, taxes, criminal fines, alimony or child support. There are some consequences you can’t escape.

How long does Chapter 13 stay on your credit?

Chapter 13 bankruptcy, also known as “wage earners bankruptcy,” is for people who earn too much to qualify for Chapter 7 but not enough to meet creditors’ immediate payment requirements. As with Chapter 7 bankruptcy, filing for Chapter 13 bankruptcy will torpedo your credit score, and the filing will remain on your credit report for seven years. If you need to apply for another loan during that time, you’ll need to file a motion and obtain the court’s permission first. Under Chapter 13 bankruptcy, the court creates a payment plan for you to repay your debt over the span of three to five years. After that span of time, any remaining debts are wiped clean meaning that your creditors may not get the full amount you owe them. Chapter 13 bankruptcy allows you to repay some of your debt while still holding on to your assets, including cars, jewelry and property.

Can you get bankruptcy off your report faster?

What’s interesting is that there’s no minimum amount of time before bankruptcy can be removed from your credit report; 10 years is only the maximum. So get a free credit score and credit report and look really closely for mistakes. If you find any errors with your personal information, debts, creditors, timelines or other information, file a dispute with the credit bureau. Any entries related to your bankruptcy must appear on your credit report correctly, and mistakes could force a credit bureau to remove the bankruptcy from your report. Bankruptcies automatically fall off your credit report after the designated amount of time. If you notice that a bankruptcy doesn’t come off your credit report after the expiration date, you should file a dispute with the credit bureaus.

How Are Delinquent Accounts Reported on Credit Reports?

People who file for either type of bankruptcy may have accounts which have been delinquent for several months or even longer. The individual delinquent accounts are deleted seven years from the original delinquency date. The delinquency date is the date the account first became delinquent. Filing for either kind of bankruptcy does not alter the original delinquency date nor does it extend the time the account remains on the credit report.

In most instances, since the account was delinquent before it was included in the Chapter 7 or Chapter 13 bankruptcy, it is likely to be deleted before the bankruptcy public record.

How Bankruptcy Affects Your Credit

Filing for bankruptcy makes it challenging to receive credit cards or lower interest rates because lenders will consider you risky. These consequences could occur immediately, affecting any short-term needs such as getting affordable interest rates or approval from prime lenders. Rebuilding your credit as soon as possible is paramount. One way to increase your credit score is to pay all your bills on time each month, creating and sticking to a budget and not incurring more debt. You should also avoid overuse of credit cards and failing to pay balances in full each month. Having a good credit score gives consumers access to more types of loans and lower interest rates, which helps them pay off their debts sooner.

New Bankruptcy Laws

The bankruptcy law changed in 2005, making it more difficult for individuals to file for Chapter 7 bankruptcy and have all their unsecured debt discharged. Government-backed and private student loans are rarely included in either type of bankruptcy. The “not dischargeable” rule also applies for court-ordered alimony, court-ordered child support, reaffirmed debt, federal tax liens for taxes owed to the U.S. government, government fines or penalties and court fines and penalties.

What Documents Do You Need to File Bankruptcy?

Before filing for bankruptcy, consumers should collect several financial documents including:
• Tax Returns
• Bank Statements
• Paycheck Stubs
• Debt Statements
If you discharged debts in bankruptcy, here’s how they should (and should not) be listed on your credit report. In short, yes. Not only will a bankruptcy filing remain on your credit report for seven to ten years, but you can expect information about the debts discharged (forgiven) in bankruptcy to continue to appear on your credit report, too.

Reporting Debts as Discharged in Bankruptcy

While it might be daunting to think about a bankruptcy filing showing up on your credit report for ten years, it might not be as bad as you think. A bankruptcy discharge can help you clean up debt much faster than you’d be able to do yourself. For instance, instead of a delinquent or unpaid debt lingering on your report for years, it will show as being discharged as part of your bankruptcy. In fact, creditors won’t be able to report your debt in a variety of ways that could cause your credit to suffer, such as allowing the obligation to show as:
• currently owed or active
• late or delinquent or outstanding
• charged off
• having a balance due, or
• converted to a new type of debt (re-aged or given new account numbers, for example).

Such reporting labels are often the reason creditors deny applicants credit. In some cases, applicants must pay off such debt as a condition of loan approval. Instead, when you pull your report, each qualifying debt should be reported as:

• having a zero balance, and
• discharged, “included in bankruptcy,” or similar language.
Unfortunately, some creditors don’t update information to the credit reporting agencies. This tactic could be a way to get you to pay up, even though you no longer legally owe the debt. If your credit report shows an improperly labeled discharged debt, you’ll want to take steps to correct the problem.

Checking Credit Report Accuracy after Bankruptcy

You’re entitled to get a free credit report from the three major credit reporting agencies (TransUnion, Equifax, and Experian) each year. That should allow enough time for creditors to report the bankruptcy information. Thoroughly review each listed debt for accuracy. Also watch out for unfamiliar creditor names or debts, as they might be discharged debts that were bought and sold to a third party, but are not accurately reflected as having been discharged. To make changes, follow the instructions under the “Correcting Misreported Discharged Debt” heading. You’ll want to claim each of the remaining two credit reports at three-month intervals. Each time, check to see if the credit report reflects the previously requested changes, and, take steps to correct any remaining inaccurate information. This approach should allow you to clean up your credit report at no cost to you.

Correcting Misreported Discharged Debt

Disputing errors is relatively straightforward. You’ll do so by using the online procedure provided by each of the three major credit reporting agencies. A creditor who repeatedly refuses to report your discharged debt properly might be in violation of the bankruptcy discharge injunction prohibiting creditors from trying to collect on discharged debts. If you take steps to remedy the misreporting, and the creditor (or collector or debt buyer) refuses to fix the error, talk to a bankruptcy attorney. The Fair Credit Reporting Act is the law that requires consumer reporting agencies (also called credit bureaus) to maintain an accurate file of your credit information. Creditors who report your information to the consumer reporting agencies (CRAs) must also be truthful and accurate. The FCRA tells CRAs and your creditors what they can report and how long it can legally show up on your credit report.

How Much Will My Credit Improve Once My Bankruptcy Falls Off?

Bankruptcies fall off personal credit reports after 10 years, after which time a damaged credit score can begin to improve. There’s no way to determine exactly how much your credit score will improve after bankruptcy, because it depends entirely on the decisions you make after the 10-year period. By actively working to improve your credit score, it’s possible to raise it out of the “high-risk” category and eventually into the 700’s or higher, to a maximum score of 850. Rebuilding a credit score requires patience and consistent financial responsibility.

What You Can Expect

After a bankruptcy, you can expect your credit score to be well below 640. Credit scores can range anywhere from 300 to 850, with anything above 700 considered “low risk.” To begin the process of improving your credit score, check your credit report after the bankruptcy falls off. The closer to 300 it is, the more work you will have to do to approach 700. Actively work to boost your score for six months, and then assess how much it has improved. Use that figure to guide your expectations for future improvement. For example, if you find that your score increased 30 points after six months of diligent debt management, you might set a goal of increasing it another 30 points in the next six months. This can give you a target towards which to work, although the exact improvement in any given period is never guaranteed.

Manage Bill Payments

Never miss a bill payment including utilities, rent, mortgage, credit cards or any recurring obligations. Consistently paying bills on time can keep your credit score from temporarily dropping as you work to build it back up. Set up automatic bill payments whenever possible to avoid the risk of forgetting a due date. Create a spreadsheet or chart to regularly track your upcoming payments, and pay bills a few days early whenever possible. Work with your past creditors to establish affordable payment plans for any debts that were not removed by the bankruptcy, such as student loans.

Rebuild Good Debt

Maintain one credit card and one store credit account, but only if you can afford to make the payments. Do not use any form of debt to finance luxury goods or leisure and entertainment products. Do not allow your credit accounts to exceed 30 percent of their total limits at any given time and make larger than minimum monthly payments if possible. It may seem counter-intuitive, but actively using your credit is essential to rebuilding your credit score after a bankruptcy. Establishing a record of responsible borrowing is one of the most important factors in boosting your credit score.

Check Your Credit Report

Check your credit report every few months to be aware of the factors influencing your credit score. Compare each entry in the report to your own financial records to ensure that debt balances and account histories are accurate. Dispute any inaccurate or fraudulent listings in your report as quickly as possible to avoid negative impacts. Personally contact any companies that have legitimately listed defaults or missed payments, and work with them to establish repayment plans to avoid further negative reports.

Work With Your New Creditors

If you ever have to miss a debt payment due to unforeseen financial hardship, contact your creditor long before your next due date. Work with the creditor to establish a future payment arrangement, and ask a service representative or manager to note your account with a “promise to pay.” Specifically request that the creditor not report the missed payment to credit bureaus, and check your credit reports after a few weeks to ensure that it did not.

For many, bankruptcy is a last resort. If you’re considering filing, know the financial and credit implications. Your credit will show a public record of bankruptcy for up to 10 years, and discharged accounts will get a negative mark. You can lessen the effects on your credit by responsibly using credit going forward and making sure your credit reports accurately reflect your situation.

Bankruptcy Attorney Free Consultation

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. We want to help you with a chapter 7, chapter 11, chapter 12 or chapter 13 bankruptcy in Utah. Come in or call in for your free initial consultation.

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506

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