Bankruptcy Law

When you file for Chapter 7 or Chapter 13 bankruptcy in the United States, a bankruptcy trustee will be appointed to administer your case. The role of the trustee will vary depending on whether you file for Chapter 7 or 13 but his or her primary responsibility is to represent the bankruptcy estate which consists of all of your assets that will be used to satisfy the claims of creditors.

Chapter 7

In the case of a Chapter 7 Bankruptcy, the trustee will review your bankruptcy petition and verify that all information provided is accurate based on the various documentation and calculations that you have submitted. Shortly after you file the petition, the trustee in your case will conduct a 341(a) meeting of creditors which you must attend. Creditors are welcome to attend this hearing (although they often do not) where the trustee will ask you questions about the information contained within your filing. All questions are asked under oath and are meant to serve as further verification of your current financial situation. After the hearing, the trustee will assess and liquidate all of your nonexempt assets to pay your creditors and satisfy outstanding debt.

Chapter 13

As with Chapter 7, the trustee in a Chapter 13 bankruptcy will review the petition and accompanying documentation such as paystubs and monthly bills. When filing for Chapter 13, you will also need to submit a payment plan which your trustee will also carefully review taking into account your income, expenses and debt. If a trustee feels you are able to pay more than proposed, he or she may object in order to maximize the return to creditors. Similarly, he or she may propose lower payments if your proposed terms are not reasonable. As is the case with Chapter 7, a trustee in a Chapter 13 case will also hold a creditor hearing where you will testify under oath about all information contained within your bankruptcy petition. This meeting generally happens about a month after the filing.

After the hearing, creditors are required to file a proof of claim. The trustee in a Chapter 13 case must review all of these documents and may ultimately object to the claims if they fail to provide proper supporting documentation. Once the repayment plan has been finalized, the Trustee will begin distributing funds to creditors. It’s important to note that as soon as you submit your payment plan to your trustee, you must make the proposed monthly payment; however, these funds won’t be distributed until the plan has been finalized and approved. For the duration of the payment plan (3-5 years), all payments will continue to be made to the trustee; you do not pay your creditors directly.

As you work through your bankruptcy, it’s important to remember that the trustee assigned to your case is not on your side or on that of your creditors. Instead, they are to be objective third parties assigned to your case to ensure that your debts are satisfied in a fair manner. An experienced bankruptcy attorney, on the other hand, is your dedicated advocate, ensuring your interests are protected. If you are considering bankruptcy, it’s important that you first consult an attorney who has experience working with trustees and helping individuals just like you get back on their feet.  Call us for a consultation.

If you are thinking of filing for bankruptcy, you might be deterred by the devastating effects it can have on your credit score.  It is true that filing for bankruptcy can negatively impact your credit for the ten years that it is noted on your credit report. Luckily, you are not totally helpless as you can take steps to rebuild your credit after you have received your final bankruptcy discharge.

Knowledge is power!  Meaning that in order to have control over rebuilding your credit you must be informed about the things that are affecting it.  After your bankruptcy discharge date, or when your bankruptcy is finalized, you should get copies of your credit reports.  You can request copies from all three agencies, Equifax, Experian and TransUnion, in order to have the most complete information.  You should review these reports carefully in order to identify what is negatively affecting your credit and look for any mistakes.  If you find anything that is incorrect you should contact the agency to let them know and dispute the matter if necessary.

Another step you can take to rebuild your credit is to get a new credit card.  Most likely you will not qualify for a conventional card, but you probably will not have trouble getting a secured card.  A secured card is one in which you make a deposit to collateralize your line of credit.  If you do not pay your bill, the deposit is there for the company to seize.  The amount of your deposit will determine your line of credit.  You should only make small purchases with this card and should only use a small amount of the credit line.  It is also extremely important that you make on-time payments and pay off the entire balance each month.  If you do well with a secured card, you might qualify for a retail card within a few months.  These cards should be used the same way.

It is particularly important to pay your bills on-time when you are trying to rebuild your credit after bankruptcy.  If you can pay your bills early, you should do so.  Paying on time has a huge affect on your credit score and is one of the easiest ways to re-establish good credit.  Having a cash reserve is always a good idea as it can prevent you from relying on credit cards if you ever encounter an emergency.  Call us for a consultation.

If you’ve ever owed money to the Internal Revenue Service (IRS) or state taxing authorities, you know that interest and penalties can add up in a hurry, racking up a tremendous tax debt. Carrying tax debt means also carrying the burdens associated with it:  Tax refunds will be seized until the debt is repaid, and liens will be recorded against you, clouding title to any property you own. If you are behind in payments, your bank account can be levied. The government always gets its money. Or does it?

If your tax debt is relatively old and certain other conditions are met, your tax debts can be discharged in a Chapter 7 bankruptcy. To discharge a tax debt, the following must exist:

• You filed a tax return for the year (or years) in question. The return must not have been fraudulent.
• The debt you want discharged must be for a tax return that you filed at least two years before you filed your bankruptcy petition. A “Substitute for Return,” completed by the IRS on your behalf which you did not sign or consent to does not qualify.
• The tax return for the debt you want to discharge must have been due at least three years prior to the filing of your bankruptcy petition.
• The IRS must not have assessed your liability for the taxes within the 240 days before you filed your bankruptcy petition.
• You have not willfully evaded paying your taxes.

The first step in determining whether your tax debts are dischargeable is obtaining your account transcript from the IRS or your state taxing authority. This transcript will show you the dates returns were filed, or obligations became due. If all five of the above conditions are met, your tax debt is likely to be discharged.

Penalties that were imposed on a dischargeable tax debt are also dischargeable, which is important given the onerous sums typically imposed. If your underlying tax debt is not dischargeable, some courts may allow for the discharge of the penalties.

Note that if you incurred other debts in order to pay off non-dischargeable tax debts, those debts are not dischargeable. For example, if you made payments using your credit card to pay off non-dischargeable tax obligations, you will not be permitted to discharge that credit card debt in a Chapter 7 bankruptcy.

If your tax debts are successfully discharged, any liens placed on your property could remain in effect. This means that the IRS or state government may not seize your bank account or wages to collect the debt, but if you want to sell your property, you will have to pay the debt in order to clear title to the property.

Tax debts that cannot be discharged in a Chapter 7 bankruptcy may be eligible for repayment without penalties or interest in a Chapter 13 bankruptcy proceeding. Bankruptcy is not a one-size-fits-all approach. An experienced bankruptcy attorney can help you determine whether your outstanding tax bills are dischargeable and whether you should file under Chapter 7 or Chapter 13 of the bankruptcy code.  Call us for a consultation.  

Financial hardship is difficult for any individual but for business owners, it can be particularly stressful as the line between personal and business finances may become blurred.  You may have racked up a lot of personal credit card debt and may be considering filing for personal bankruptcy, but you are concerned about how bankruptcy will affect your small business. Or, your business could be struggling and you may wonder how a business bankruptcy will impact your personal finances.

First, you need to know about the three most common types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Under a Chapter 7 bankruptcy, which is a liquidation, assets are used to pay debts, and any remaining debts are “wiped out”.  A Chapter 7 filing can be utilized for both individuals and businesses. A Chapter 11 or 13, which are also available for individuals and businesses, commonly referred to as reorganization, allows debtors with a regular income to set up a new timetable for paying off creditors, while keeping their assets.

The second thing to consider is how your business is set up. If you are a sole proprietorship, and are simply operating the business in your own name, then there is no way to separate your personal assets and liabilities from those of your business. Therefore, any business assets (in excess of the exemption you are allowed) could be surrendered as a part of the bankruptcy. Also, any receivables of the business or other potentially valuable business property could be claimed by creditors in a bankruptcy.

If your business is operated under a separate entity, such as an LLC (limited liability company), an LLP (limited liability partnership), or a corporation, the shares of your business that you own are assets. If partners are involved in the business, the bankruptcy trustee who represents the interest of the creditors could become a de facto substitute partner and force a liquidation of the business.

If your business is struggling, but you are personally doing fine financially, you may consider a business bankruptcy. If you aren’t interested in keeping your business open, you may consider filing a Chapter 7, which will simply liquidate the business. A Chapter 7 is probably best if the business is not going anywhere, does not have significant assets, or if the debts are so completely overwhelming that it’s not possible to restructure them. Keep in mind that vendors and other creditors may have obtained a personal guarantee from you, in which case, you may be personally on the hook for your business’s liabilities, even if you do file bankruptcy for your company.  Personal guarantee clauses are common on many credit applications and commercial leases.

If your business is fundamentally sound, but because of excessive debt, bad contracts, or other unfortunate circumstances faces significant liquidity issues, a Chapter 11 may be appropriate.  A corporate reorganization can be complex and requires a significant time investment from the owners and managers who have to work with creditors and attorneys. It can also be expensive. Unfortunately, most reorganizations ultimately fail.

If you are considering business or personal bankruptcy, it’s important to carefully assess your individual circumstance and consult with a bankruptcy attorney who can advise you of all your options and help you navigate the process.