There are two main types of Chapter 7 bankruptcies: asset and no-asset cases. There is a huge difference between the two. Read on to learn more about a bankruptcy asset case.

Legally speaking, a Chapter 7 Bankruptcy is known as a “liquidation” bankruptcy. The bankruptcy court is empowered to liquidate your assets to provide a distribution of funds to your creditors. In more simple terms, your assets can be sold and used to pay off some of your debts in a Chapter 7 bankruptcy. Any debt that remains at the end of your case is discharged and you get a fresh start.

Over 99% of the Chapter 7 bankruptcies that I file are “no asset” bankruptcies. This means that there are no assets for the Chapter 7 Trustee to liquidate. In these cases, no property is taken from the debtor, and creditors receive no distribution of money from the court. Nearly all debts are wiped out and everyone moves on. Simple!

Occasionally a debtor will have too much property to protect (which us lawyers call “exempt”). In this case, the debtor must turn over property to the Trustee. The Trustee then sells the property at an auction, takes a commission, and distributes the rest to creditors.

The thing to remember is that Chapter 7 Trustees earn a commission on any property that they can recover. This incentivizes the Trustees to aggressively root out any hidden assets for the benefit of a debtor’s creditors. A Trustee that can recover property in a case can therefore enhancer his or her own bottom line.

Why would anyone still want to file bankruptcy is they are going to lose property to the Court? Great question! Maybe a debtor will not be able to protect their tax refund, and let’s say it would have been $2,000 this year. But remember, the debtor is discharging their unsecured debt. If they are getting rid of $50,000 in credit cards, this is a good deal! Another favorite asset for Chapter 7 Trustees is a car! Cars are easy to liquidate at auction, so Trustees always enjoy getting their hands on vehicles.

A good Chapter 7 attorney will be able to advise a client before filing whether any funds or property will need to be turned over to the Trustee. This is an important part of deciding whether Chapter 7 or Chapter 13 bankruptcy is appropriate for the client.

Asset Chapter 7 cases can be very complicated. If you need help deciding whether to file for bankruptcy, please call my office and I can walk you through the process. My phone number is (916) 333-222.

Going through a Chapter 13 Bankruptcy can be confusing enough without tax season sneaking up behind you. In this post, I will go through some frequent questions regarding Chapter 13 bankruptcy and taxes. 

What returns are due?

According to the Bankruptcy Code, all Chapter 13 debtors must file all required tax returns for the years ending within four years of your bankruptcy filing. If you’re going to be asking the government for assistance in the form of bankruptcy, the IRS expects that you have played by their rules and filed all of your tax returns. Makes sense!

In addition, you’ll also need to stay current with all applicable federal, state, and local tax returns throughout your bankruptcy. A typical Chapter 13 bankruptcy will last between 3 and 5 years, so it is important to stay on top of your taxes during that time. Even one missed return can put your bankruptcy at jeopardy! 

When should I file?

The federal tax returns for the four preceding years must be filed before your Bankruptcy Hearing, or “Meeting of the Creditors”. You can however, apply for an extension for 120 days if you need to. In general though, it’s always best to file as soon as possible so that all debts are known beforehand. (It can also take some time to verify that all the correct returns were filed.)

What will happen if I don’t file?

If for whatever reason you don’t file your tax returns, your Bankruptcy Plan may not be confirmed. This may result in your case being dismissed. You should also note that interest and penalties will be charged on returns not filed by the due date under the Internal Revenue Code. For more than just bankruptcy reasons, it is critical that your taxes are filed on time each year. 

Where can I get proof of filing?

Your bankruptcy trustee may ask you to submit copies of transcripts of your tax returns as proof of filing. If you don’t have the copies you can request a free transcript from the IRS website, www.irs.gov or submit a Form 4506-T, Request for Transcript of Tax Return, with the IRS by calling 1-800-908-9946. Keep in mind this process may take 10 to 15 days after the request is received. When you go to court for your Meeting of Creditors, it is best to have all of your tax-related issues sorted. If not, the bankruptcy trustee may continue your hearing to allow you time to resolve any issues. 

Have more questions?

If you’re planning on filing for a Chapter 13 Bankruptcy and have more questions regarding your situation, please call my office at (916) 333-2222.

No one ends their bankruptcy thinking that they will need to do it again. However, as most people facing bankruptcy already know, you can’t plan for everything life throws at you. “Can I file bankruptcy again?” is a question that we get asked quite often. Whether there is a medical emergency, divorce, or if you lose your job – a second bankruptcy may be a viable financial option.

As a reminder, in a Chapter 7 all or most of your debts are discharged. In a Chapter 13, you are focused on reorganization so that you can repay some of your debts over time.

While there aren’t any rules on how many times you can file bankruptcy, the court does limit when you can file again. This can be confusing, because the length of time varies based on what type of bankruptcy you originally filed.

For example, you must wait 8 years in between Chapter 7 bankruptcies. The time is computed from the day that you filed your first bankruptcy.

Let’s say instead that you filed a Chapter 7 and now you need to file Chapter 13. In order to receive a discharge under Chapter 13, you only need to wait 4 years from the day that you filed your first Chapter 13.

If you received a prior discharge under Chapter 13 and now want a Chapter 7, you will need to wait six years. However, there are exceptions to this rule. If during your first bankruptcy, you paid back all of your unsecured creditors OR if you paid back at least 70% of the claims and the plan was made in good faith and was your best effort, you will not need to wait 6 years.

As you can see, the rules for when you are allowed to file subsequent bankruptcies can be difficult and confusing. If you find yourself looking at bankruptcy for a second time, call 5 Star Sacramento Bankruptcy Attorney Rick Morin at (916) 333-2222. We can help you figure out what type of bankruptcy is right for you.

To qualify for bankruptcy, there are multiple things to look at. Debt, income, and other factors all play a role. This article will focus on qualifying for Chapter 7 Bankruptcy.

The first qualification is that you must have debt. There is not necessarily a hard and fast rule about how much debt you must have to qualify for bankruptcy. As a general rule, I look to see that a person has at least 25% debt-to-income ratio.

Having a smaller debt-to-income ratio does not automatically disqualify you from bankruptcy. The bankruptcy court looks at each case individually. There are many reasons why a smaller debt-to-income ratio would still result in a successful bankruptcy.

Speaking of income, this is the most important qualification there is for Chapter 7 bankruptcy. If you have too much income, you might not be able to file Chapter 7 bankruptcy. Instead, the law will require you to enter into a Chapter 13 reorganization.

The income limits for Chapter 7 are constantly changing. The limits are based upon the median income for your household size in your state. As of today, the median income in California for a family of two is $62,917. If you have a family of two and less income than that on a yearly basis, then you are presumed to be eligible for bankruptcy. Please call my office for up-to-date income limits for your household size.

Now here’s the interesting part. If you have more income than the median for your household size, you automatically fail. BUT, there is still a possibility that you can qualify for Chapter 7 bankruptcy. In this case, you are required to take the “means test.” The means test is a bankruptcy form that determines whether your case would be an “abuse” of the bankruptcy process. This is a complicated subject that I will discuss in a later blog post.

The thing to remember is that it is still possible to file Chapter 7 bankruptcy even though your income might be “too high” at first glance.

There are other important factors when considering bankruptcy, including, but not limited to: 1) whether you have filed prior bankruptcies recently; 2) where you lived for the past two years; 3) the amount of your assets; 4) whether you have transferred or given any large assets or property to family or close friends recently; and 5) your marital status.

I go over each important bankruptcy consultation with you during your free bankruptcy consultation. I want to make sure that you make best decision possible when considering something as important as bankruptcy.

Please call my office if you have any questions about whether you qualify for Chapter 7 or Chapter 13 bankruptcy. My office phone number is 916-333-2222.