Filing for Bankruptcy can be both a scary and exciting prospect that allows a person deep in debt to make a fresh financial start. However, bankruptcy isn’t always the right answer. Here are a few factors to consider when deciding if declaring bankruptcy is right for you.
What type of bankruptcy should I file?
When a person decides to file for bankruptcy, he or she may be able to file two different types of bankruptcy: Chapter 7 or Chapter 13.
Filing for bankruptcy can be a great way to finally get out of debt and start your financial life over. However, there are some debts that bankruptcy does not eliminate. For instance, a bankruptcy will not remove a debtor’s student loans or owed child support payments. The good news is that a Chapter 13 Bankruptcy repayment plan may help a debtor bring their missed child support payments current.
Why are child support payments not included in a bankruptcy?
The federal government has decided that some debts are too important to be erased by bankruptcy. Congress decided that it would be too fundamentally unfair to allow a person to get out of their obligation of paying child support by filing for bankruptcy. A child support payment is court ordered and the money is spent on a child’s welfare.
Deciding when the best time to file for bankruptcy can be a very difficult issue for couples. Especially for couples who are planning to be married. While married couples can still file for bankruptcy jointly and/or separately, being married can make it more difficult to qualify for the bankruptcy chapter you wish to file.
Filing a joint bankruptcy is normally a more convenient process as it allows a couple to wipe out their debts together in a single bankruptcy. This means the couple will not have to attend separate hearings. A joint filing will save the couple money on court costs, as the filing fees are the same for an individual or joint bankruptcy. And attorneys will also charge less for a joint bankruptcy filing than if the attorney was filing two separate bankruptcy petitions.
However, filing a joint bankruptcy may not always be in the best interests of the couple depending on the couple’s income, assets, and debts. Once a couple gets married, they may have a more difficult time qualifying for a Chapter 7 Bankruptcy.
Filing a Chapter 13 Bankruptcy is a very difficult decision to make. The main reason deciding to move forward with a Chapter 13 Bankruptcy can be so difficult is because it can bring with it many limitations that can be hard to swallow.
Working with your attorney, and ultimately your Court appointed Chapter 13 Trustee, you will be put into a Chapter 13 Plan and required to make monthly payments to your Trustee for three (3) to five (5) years. At first this doesn’t sound too bad since you will just make monthly payments for the next three (3) to five (5) years as you would when you finance a new vehicle.
Then you find out more.
In many Chapter 7 bankruptcies where the Trustee determines there are assets, the Trustee can collect administrative fees at the close of the bankruptcy case. You are probably first wondering what are administrative fees and what do they mean to me.
First, assets are basically just about everything you own (from money in any sort of financial account, to cash, to your home, to the furniture in your home, and etc.), but the Trustee cannot touch every asset. You are allowed to use certain and specific exemptions to protect all or some of your property. Some exemptions are limited to a dollar amount while others, such as retirement accounts, may be fully protected.
Assets or property that do not qualify for an exemption or are over the dollar amount allowed can be taken by the Trustee and used to pay your debts. However, in many situations, the Trustee may offer you a payment plan equal to the dollar amount of the asset not protected in exchange for you being able to keep the asset.
If you are deciding whether you should file a Chapter 7 Bankruptcy or not, the first question that needs to be answered is do you qualify? Whether a person can file a Chapter 7 Bankruptcy almost entirely depends on their current income and household size. As of April 1, 2015, the current household size to income ratio is as follows:
| Household Size | Yearly Income |
| One | $42,718 |
| Two | $52,421 |
| Three | $57,977 |
| Four | $67,539 |
| Five | $75,639 |
| Six | $83,739 |
To determine if you qualify for a Chapter 7 Bankruptcy use the following example: You are married with two minor children. This would be considered a household size of four. Your income must equal or be less than $67,539 in order to qualify for a Chapter 7 Bankruptcy.
If you make slightly more than the income allowed, you might still be able to qualify if you have certain types of expenses that can be deducted from your income. If you still make more than the income allowed and still need or want to file bankruptcy, you will have to file a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy is a reorganization of your debts instead of a strict liquidation as is the case with a Chapter 7 Bankruptcy.
However, whether or not a Chapter 7 Bankruptcy is right for you is more than just a question of if you can qualify or not. If you have a lot of assets, you may want to stay clear of a Chapter 7. Any money sitting in a financial account that does not qualify for an exemption will be take from you by the Trustee and used to pay off your debts. This is also true for personal property and real property that is not your homestead. If you have lots of assets and still want to file bankruptcy and be able to keep them, a Chapter 13 Bankruptcy might be a better choice for you.
In other words, there are a lot of considerations to take in to account before deciding whether or not to file a Chapter 7 Bankruptcy. It is best to meet with a bankruptcy attorney who understands all ways you can qualify for a Chapter 7 and which assets may or may not be protected. The attorneys at the Law Office of David M. Goldman, PLLC are here to help you navigate the confusion that comes along with facing bankruptcy. Contact an attorney today by calling (904) 685-1200.
As tax season comes to an end, many of my bankruptcy clients want to know whether they can keep their tax refund. The answer is it depends. It depends on when you filed your bankruptcy, how much your refund is, what bankruptcy chapter you filed, why you need your refund, etc.
Chapter 7 Bankruptcy
If you filed a Chapter 7 Bankruptcy, your tax refund is automatically deemed to be property of your bankruptcy estate and must be turned over to your Trustee ASAP. The Trustee will use the refund to pay off your creditors. You may be able to keep all or part of your refund if you are able to exempt it. When you file bankruptcy, you are allowed certain exemptions you can use to keep some of your property. You can use some of your exemptions to keep your tax refund if you choose.
If your small business is facing financial difficulty and there is no expectation of reorganization, a Chapter 7 Bankruptcy might be your ideal answer. If your small business is a limited liability company (LLC), partnership or corporation AND you do not want to or cannot continue operating your business, a Chapter 7 Bankruptcy can provide a relatively quick and easy way to close the business and liquidate business assets. The chief disadvantage with filing a business Chapter 7 Bankruptcy is that if you are personally liable for any of the business debts, you will also have to file a personal bankruptcy or remain responsible for those debts. Furthermore, there are no exemptions to protect any of the business’ assets and your business does not receive a discharge of its debts. Instead, the Trustee sells all of the business’ assets to pay its creditors and shuts the business down.
If your small business is a sole proprietor, a Chapter 7 Bankruptcy will not only help you wipe out the business debts, it will also wipe out your personal debt. This is because you and your business are considered to be one in the same. You can also use exemptions to protect business assets and continue to operate the business after bankruptcy.
As a sole proprietor, you can also file a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy allows a sole proprietor to keep all of its assets and pay back all of your debts through a set repayment plan OR pay back a portion of the debt through a repayment plan. However, LLCs, partnerships and corporations cannot file a Chapter 13 Bankruptcy.
Most debts can be liquidated through a Chapter 7 bankruptcy, or reorganized through a Chapter 13 bankruptcy. However, there are a few debts that can altogether be non-dischargeable.
Some types of debts are always non-dischargeable, unless a debtor can demonstrate extraordinary circumstances to convince a court otherwise. One such debt includes any debt the debtor fails to list on his or her bankruptcy petition; unless the creditor had actual notice or knowledge of the bankruptcy.
Other debts that are generally always non-dischargeable include certain taxes, such as federal tax liens, payroll taxes or fraud penalties. Child support debt and other debts owed to a former spouse that arise from divorce are also non-dischargeable. Student loans, injury caused by DUI, and homeowner association fees are also included in this list.
Once a debtor files for bankruptcy, his or her home and other possessions become part of their bankruptcy estate. While creditors cannot automatically foreclose on the property because of bankruptcy protections, the debtor is likewise not allowed to sell a house without first obtaining permission from the court.
During a Chapter 7 bankruptcy, it can be difficult to sell a home. The debtor must first convince the court that the sale will not prejudice ay creditor. A trustee must also obtain the court’s approval to sell a home in order to generate cash for creditors.
However, in a Chapter 13 bankruptcy, a debtor is allowed to sell his or her home as long as the sale does not cause financial harm to the mortgage lender.
Jacksonville Bankruptcy Lawyer Blog