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Tuesday, November 29, 2011

Engaged in business for the purposes of the Statement of Financial Affairs/other forms

In every bankruptcy petition the debtor must complete a "Statement of Financial Affairs". Part of which is directed to those debtors who have been "engaged in a business". If so, then questions 19 - 25 must be answered. The requirement to furnish this info is if you have are currently or have been in the past 6 years a director, officer, partner, sole proprietor, self employed, are or were a managing executive or have had an ownership interest of more than 5% of the voting or equity securities of a corporation.

In my experience many clients often don't consider what they may have been doing as being engage in a business to a level sufficient for the requirement to report to kick in. For adult with a paper route, someone selling handmade jewelry on ebay or craft shows, someone with a rental property collecting rents, etc., etc. All of these examples are considered businesses in the eyes of the bankruptcy court. In both Chapter 7 & Chapter 13 bankruptcy cases the interest in the business (if active) should be scheduled as a property interest (valuation for these purposes is another topic). The income or expense relative to the business should be noted on schedules I & J (the income and expense schedules). Plus the information regarding the business entered into the Statement of Financial Affairs (whether an on-going/active business or not). For the statement of financial affairs the interest should be identified as to the structure of the it a corporation, LLC, partnership or sole proprietor. The tax id will be required (or the last 4 digits of the debtor's social security number). I plug in what the extent of the ownership interest is and who the other owners might be, if any. Plus a general description of what the business activity was....real estate development, remodeling, paper route, jewelry sales...what have you. Lastly, the starting and finishing dates if it is a business no longer operating and/or a start date for an on-going enterprise. There are also questions as to whether there have been any recent financial statements, who has keep the books, who is in possession of the business records, etc. Most of the time this is all fairly simple but it is important info to disclose and the trustee will make inquiries about the business at the creditor's meeting for sure. Basically they want to know if there are any assets there or have been transfers of assets to business creditors or other involved persons in order to determine if there is something there that the bankruptcy estate would be entitled to administer for the benefit of creditors.

Also, the local rules where I practice in Minnesota state that in chapter 13 cases any debtor with a business which generates $200 or more revenues is required to submit a "Business income and expense" form. This form indicates what the revenues were for the past 12 calendar months, what the expected monthly income will be going forward and what the anticipated expenses will be on a monthly basis. The expenses need to be broken down with particularity in terms of how much per month for what category of expense. I generally don't do a breakdown for this in chapter 7 although the trustee or U.S. Trustee could certainly request this information if desired.

So, at a minimum...if someone is generating at least $200 a month doing whatever it is they do and it isn't for wages (comissioned people are often running a business..anyone who is 1099'd is running a business) the we fill out these forms...and most often even if it is less. Best practice is to disclose all the information rather than to leave it out which could raise issues of bad faith due to the failure to disclose.

If you've got questions regarding personal or small business bankruptcy matters we'd be glad to help.

David D. Kingsbury, Atty.
Kingsbury Law Office
(952) 432-4388

Monday, November 14, 2011

When can one modify a chapter 13 bankruptcy plan?

I recently had a chapter 13 client connect with me. They've been in their chapter 13 for awhile...6 or so. Their plan is confirmed. They've just been thrown a curve ball. His wife is a school teacher. She, in a year's time, will be taking a leave from work for a whole year....apparently unpaid. Obviously this will have an impact on their ability to continue making their plan payments so he's being proactive in contacting me to see how that will affect their bankruptcy case.

And the answer is....If in a chapter 13 case there is a change in income we can sometimes modify the chapter 13 plan to reduce the payments. That means drafting and filing a new plan, drafting and filing new income and expense schedules plus drafting, filing and scheduling a motion for the court to consider the modified plan based on the change in circumstances. That we do often enough...but, of course, there has to be enough income there to still fund a plan at minimum levels in order to meet statutory requisites and that can vary from one person's situation to the next depending on what they've got going on. If it doesn't work (not enough income)...then one can consider a chapter 7 case to see if that relief is available. The trustee cannot acquiesce to "hiatus" of payments for any duration be it long or short as the confirmed plan is set per court order and the trustee does not have that kind of authority...only the judge does. The thing to do is if there is a change that will impact your ability to make payments is connect with me when that event does occur or is certain in the relatively near future. At that point we can discuss your options to determine what the best way to handle that change in income will be..either a modified chapter 13 plan with an adjustment in the payment if possible or we'd also take a look at converting the case to that of chapter 7 if that makes more sense.

If you've got questions about chapter 7 or chapter 13 bankruptcy we'll be glad to help.

Attorney David D. Kingsbury

Tuesday, November 8, 2011

Individual or joint bankruptcy filing?

I have a lot of people who come in for consults with me and they are wondering if they have to file together or can one or the other file an individual bankruptcy case. If a joint case is filed there are actually two bankruptcy estates. Under 11 USC 302(a) an individual and his or her spouse may file a joint petition under Chapter 7. From a technical standpoint there are two separate bankruptcy cases/estates created. However, in almost every case the estates are consolidated under Bankruptcy Rule 1015(b) and administered as one case. The debtors will have their creditor's meeting scheduled for the same time and the same trustee will be appointed to administer both estates.

It usually makes sense to file a joint case when there are joint obligations on a significant portion of the debt. I've had some people fairly surprised to learn that they can't get rid of debt for their spouse if they file a bankruptcy on a creditor. Doesn't work that way...if the spouse has signed on the dotted line..then they are liable too and one person who is liable on an account is not going to get rid of the debt for the other because they've filed a bankruptcy case. On the other hand, if one spouse owes the lion's share of the debt and the other spouse is fairly debt free (meaning they haven't obligated themselves to pay on the debt)....then filing an individual case makes all kinds of sense. The court will always, as discussed in other posts, take the non-filing spouse's income into consideration when determining if the person that does file the bankruptcy case is eligible to file from an income standpoint. That's because the debtor and the non-filing spouse are seen by the court as an "economic unit". I usually get a "that's not fair", especially from people who may have just gotten married recently and where one has brought a lot of debt as baggage into the relationship. Whats "fair" hasn't got much to do with it. However, if the non-filing spouse has debt service of his or her own though that can be and should be factored in to the calculation so not all the income of the non-debtor always counts in an "ability to pay" analysis.

Only married persons can file a joint case. So boyfriend/girlfriend...even though it may feel like your married and you've got kids in common, have joint bank accounts or hold title to real estate any other trappings of a serious and permanent relationship without that marriage certificate you'd be looking at two separate bankruptcy filings as individuals...two filing fees, two attorney fees, two hearings and two separate discharge orders.

If you've got questions about chapter 7 or chapter 13 bankruptcy for personal or small business we've got the answers.

Kingsbury Law Office

Sunday, November 6, 2011

Income for non filing spouse's count in Bankruptcy

I've had many, many clients come in for consults who aren't married but intend on filing an individual case. Perhaps they've been married for decades...maybe they just got married a couple of days ago. Sad news is...the spouse's income counts. That goes for no matter how long you've been married be it long or short...or even if all the debts are separate. "Whoa" they say...that's unfair...none of that debt is even his (or her's).....that's "not fair". Fairness my friends often has very little to do with how the law works.

Moral of the story...if you're single and thinking about getting married...and lots people determine they need to file a bankruptcy case so they aren't dragging a bunch of old debt into the to your bankruptcy attorney before you do anything about "tying the knot". Once you're married...then the income matter what.

If you've got questions about consumer or small business chapter 7 & chapter 13 bankruptcy we can help.

Kingsbury Law Office--Apple Valley and Rochester, MN
(952) 432-4388

Wednesday, November 2, 2011

Prohibited discriminatory treatment because of a bankruptcy filing

I got a message from a financial planner who often refers me clients. He had been speaking with someone who insisted he couldn't file a bankruptcy case because he had it (on "good" authority) that he would lose his state issued contractor's license. Sadly...another case of taking legal advice off of street corners...or worse, taking advice from an attorney poorly versed in the law.

11 U.S.C. 525 of the United States Bankruptcy Code which is entitled "Protection against discriminatory treatment" provides that a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate in respect to to employment against, a person that is or has been a debtor in bankruptcy. It provides the same protection if you are just related to someone who has filed bankruptcy....apparently a concern that the drafters of the statute wanted to address.

Another subsection of that provision also protects against discriminatory treatment in regard to student loans....any entity that grants student loans can't discriminate against someone because they've filed a bankruptcy or are related to someone that has done so. They could for some other legitimate reason, of course, but not because of a bankruptcy filing. That would go for the situation with the contractor who is worried about his license too. However...if everything else is good...then a bankruptcy won't be a detriment and the worry about losing his license (or a person worried about not getting a student loan) should not be a bona fide concern.

If you've got questions about chapter 7 or chapter 13 bankruptcy for consumers or small businesses we'd be glad to help.

Tuesday, November 1, 2011

Exceptions to the general rule for what property comprises a bankruptcy estate

For the most part property that a debtor acquires (or becomes entitled to acquire) after filing for bankruptcy is not something that is considered part of the bankruptcy estate administered by the trustee.

There are some exceptions though. Here's the deal....if the debtor receives or even has a right to receive property of a certain type within 180 days after filing for bankruptcy you must let your attorney know to make the assessment to determine if it can be exempted (protected) for you. Failing to do so could result in a revocation of discharge based on bad faith and non-disclosure of the asset. Not a good result for anyone. In pretty much every creditor's meeting I've ever attended (many thousands) the trustee will make an inquiry as to the potential for the debtor to acquire certain types of property within 180 days of filing their case and will also inform them that if they do...they need to let them know (the trustee assigned to the case) and also their attorney.

  • an inheritance (applies if the person dies during the 180 you have the right to inherit at that don't actually have to have received the inheritance within the 180 days...could be years later.
  • Life insurance proceeds.
  • property received from a marital settlement agreement or divorce decree.

It's rare that these things crop up in an average case...but it does's happened in some of my cases over the years. It is more likely that the most or all of the types of assets listed above could be exempted in your bankruptcy depending on the value. Your attorney needs to make that analysis for you.

If you've got questions about chapter 7 or chapter 13 bankruptcy we'll be glad to help.

Attorney David D. Kingsbury