Should My Business File Chapter 7 Bankruptcy?
While individual debtors have the right to file Chapter 7, Chapter 11 or Chapter 13 bankruptcy, corporations and LLC’s only have the right to file Chapter 11 bankruptcy or Chapter 7 bankruptcy. While we often hear of companies filing Chapter 11 bankruptcy, we don’t often get to see the inner workings of a corporate Chapter 7 bankruptcy aka liquidation. But many business owners often consider Chapter 7 bankruptcy because they believe it may be easier or more suited for their business especially if they don’t plan to continue operating that business. Learn more about when to file bankruptcy Chapter 7.
Reasons why a Chapter 7 bankruptcy may be beneficial to some businesses:
- The business considering bankruptcy has some assets and they also owe taxes, such as trust fund taxes–withholding taxes or sales taxes. Oftentimes if taxes are not paid by a business, the tax authority will go after the individual owners of the business. If a business files for Chapter 7 bankruptcy, once their assets are liquidated, the taxing authorities will receive priority payment reducing the individual business owners’ liability for the debt.
- Filing for Chapter 7 bankruptcy can decrease the chances that individual business owners will be sued by creditor. And since the bankruptcy trustee will oversee and approve/disapprove of distributions to the creditors, there is the increased chance that creditors will feel that they’ve received equitable treatment during the bankruptcy.
- If a debtor has many creditors and does not intend to continue operating their business, filing for Chapter 7 bankruptcy may be the best decision. One of the drawbacks of having a lot of creditors is that someone is bound to feel that they did not receive their fair share. But as we have mentioned above, having a third party (bankruptcy trustee) make the final decision on how creditors will be paid decreases the chance that creditors will become litigious after the bankruptcy is closed.
Four Reasons Chapter 7 Bankruptcy May Be Right For You
- If you are low or no-asset debtor, it is unlikely that you will need to pay any money to your creditors or be required to liquidate any of your assets. Because of the bankruptcy codes’ generous exemptions system, many Chapter 7 bankruptcy debtors are able to protect all of their assets from seizure during bankruptcy. Because of bankruptcy exemptions, most Chapter 7 bankruptcy debtors are able to protect their home from foreclosure by filing bankruptcy. But it should be noted that if a debtor keeps their home in bankruptcy, they will be required to continue to pay their mortgage.
- Chapter 7 bankruptcy is usually a quick 90 t o 100 day process. When a debtor does not file bankruptcy, creditors can pursue that debtor for years, file lawsuits, garnish wages and even seize bank accounts with a court order. But once a debtor files bankruptcy they are approximately 3 months away from being debt free and on the road to a new financial start.
- Chapter 7 bankruptcy can stop creditor harassment and collection actions immediately. Once a debtor files Chapter 7 bankruptcy an automatic stay is put into effect prohibiting all creditors from attempting to collect on any debt owed by the bankruptcy filer. This makes bankruptcy very effective in stopping foreclosure, lawsuits and even wage garnishments . If a creditor attempts to collect on a debtor who has filed bankruptcy, they may face sanctions.
- Chapter 7 bankruptcy is a lot less stressful than handling scores of creditor calls, letters and lawsuits. Most Chapter 7 bankruptcy debtors are only required to attend a 5 to 10 minute meeting with the bankruptcy trustee which is called the “meeting of creditors.”
Speak to a bankruptcy lawyer today.
Filing a Joint Chapter 7 Bankruptcy Petition
Married couples that face mounting debt can file for joint bankruptcy together for the purpose of discharging the debts that they cannot pay. This is simply known as a joint bankruptcy or joint Chapter 7 bankruptcy.
Determine Whether You Qualify for Joint Chapter 7
Allmand Law Firm, PLLC can help you and your family get a fresh start. If debt collectors are after you and it doesn’t seem like you’ll ever be able to pay off your debt, joint Chapter 7 is a powerful option available to help you start over again. Contact us today to discuss your situation with an experienced bankruptcy attorney.
Understanding the Joint Bankruptcy Option
When you and your spouse file for bankruptcy together, you file a single set of bankruptcy papers with the court. You disclose all property, debt, income, and expenses to the court. This information forms the basis of your petition.
The debts can be those owed by you and your spouse individually or debts owed by the two of you together. Any debt that you want to have discharged can be added. The benefit of this is that a single joint petition can discharge any debt that is allowed to be discharged by Chapter 7. There are, however, certain instances in which filing jointly may not make sense. We’ll discuss this in more detail below.
One thing you want to bear in mind is that Chapter 7 discharges your debts by cannibalizing your assets. While some assets can be protected, others cannot. If one spouse files for bankruptcy, any property that they own or property that is owned jointly would be automatically protected. So there is a danger in filing jointly.
Federal and State Bankruptcy Exemptions
Texas allows you to choose whether or not you use state or federal exemption rules to protect your property in bankruptcy. Those who choose either can double the amount of personal property exemptions they claim by filing jointly — up to $100,000. In addition,
Texas offers a homestead exemption for any residence up to 10 acres in a city or 100 to 200 acres in the country, depending on whether or not you have a family. In addition, Texas allows you to exempt one motor vehicle per licensed family member.
Most families will probably choose Texas exemptions, but Texas doesn’t exempt the proceeds of lawsuit settlements even though federal lawsuits would.
A bankruptcy attorney can help you determine which option better suits your situation.
The Pros of Filing a Joint Bankruptcy
- It’s cheaper. Filing for bankruptcy is expensive. It’s cheaper to file jointly than it is to file two separate bankruptcies and will save you money on both attorneys fees and filing fees.
- It eliminates all dischargeable debts. Filing a joint bankruptcy discharges all debts owed by you and your spouse. If one spouse files for bankruptcy, they can only discharge debts owed in their own name.
- It’s more efficient. Filing for bankruptcy is a tedious time-consuming process. When you file jointly you can economize and streamline the process by getting it all done at once.
The Cons of Filing a Joint Bankruptcy
- You expose all of your assets. Any property that is considered valuable can be liquidated by the trustee during a joint Chapter 7. If one spouse owns a lot of property, that property could be up for grabs. It may, in certain cases, be better to expose the assets of only one spouse.
- You owe too much priority debt. There are certain kinds of debt that cannot be discharged by Chapter 7. These include taxes, mortgages, or child support. If you file jointly, you must pay your debts in full through a joint Chapter 13. In most cases, the spouse that owes the debt is better off filing for bankruptcy themselves.
Contact a Bankruptcy Attorney for More Information
An experienced bankruptcy attorney can help you determine if filing a joint Chapter 7 is in your family’s best interest. There are a number of factors that you need to consider. This includes what kind of debt you owe, what assets you have, and what assets you want to hang on to. For more information, contact Allmand Law Firm, PLLC bankruptcy attorneys today.
Filing For Divorce During Chapter 7 Bankruptcy Proceeding
Debt and financial instability can impact all facets of your life, and can play a role in adding stress to an already rocky relationship. As such, it is not uncommon for financial turbulence to complicate a divorce. After all, married couples typically intertwine their finances and enter into financial obligations they may not always be able to keep. Whatever the situation may be, and whatever the reason behind a divorce, there are a few unique issues and options to consider when bankruptcy and divorce coincide.
At Allmand Law Firm PLLC, our Dallas bankruptcy lawyers have helped individuals and families throughout the Dallas – Fort Worth area address all of their debt and financial concerns. Because these are personal matters, we often work with spouses who are considering, initiating, or in the midst of a divorce. Because we provide comprehensive service to our clients, we always make it a point to openly discuss their questions and concerns about how divorce can impact their bankruptcy, and what steps are most appropriate for them to take based on their unique circumstances.
When it comes to Chapter 7 bankruptcy, or liquidation bankruptcy, the bankruptcy process can be completed in a much shorter amount of time than in Chapter 13. Because Chapter 7 can be filed and completed in a matter of months, it is important to consider the benefits of delaying a divorce, filing jointly, getting a debt discharge, and then initiating the divorce process. Doing so can help both spouses obtain a financial fresh start as they begin their new lives.
Other important factors to consider:
- Household income – Filing bankruptcy jointly while married can save money when it comes to filing fees and attorney fees. However, filing jointly will mean that your income is higher than if you filed independently. When your income exceeds the limits for qualifying for Chapter 7 (the median monthly income in Texas), it may prevent you and your spouse from filing for Chapter 7. Should this be the case, it may be wise to wait until after a divorce if it means qualifying for Chapter 7.
- Property and assets – Because married couples have community property and assets, it is important to consider how they will be protected if Chapter 7 bankruptcy is filed jointly before a divorce. In some cases, spouses may be able to benefit from double exemptions, and this option can be evaluated for its benefits in your particular situation.
- Your relationship – Divorce is a personal decision between two people, and it will have the greatest impact on your decision making process. If spouses can communicate effectively and weigh their options for filing jointly after the bankruptcy process has been completed, they may benefit from the debt discharge and other factors. However, rocky relationships could make things complicated, especially if one spouse is hostile and refuses to cooperate. Understanding the nature of your relationship and how it may affect the process is critical to helping you make a decision about whether or not you should wait to file divorce.
- Divorce during bankruptcy – A joint bankruptcy, which can only be filed by spouses, is two bankruptcy filings merged into one. If the bankruptcy process has already been initiated and a married couple chooses to divorce, they do have the option of separating their cases. This can be done by filing a motion to “deconsolidate” the bankruptcy, which will allow each partner to make independent decisions about the course of their case. Still, deconsolidating a divorce may not always be the best option, which is why it is important
to consult a qualified bankruptcy lawyer.
All relationships are unique, and every financial situation is different. Because of this, it is essential to personally evaluate your situation, available options, and how they may benefit you and your spouse should you choose to wait to file a divorce until after bankruptcy, or initiate a divorce before or during the process. Our attorneys at Allmand Law Firm, PLLC can work closely with you and your spouse to evaluate all of your available options with your unique situation, needs, and goals in mind. We can then provide the insight and counsel you need to make an informed
decision, and deliver the support and representation to guide you swiftly and successfully through your bankruptcy journey.
To discuss your situation personally with a member of our legal team, do not hesitate to request a FREE financial empowerment session. Contact us today to get started.
What are the Deadlines for a Chapter 7 Bankruptcy?
Like all things legal, a Chapter 7 bankruptcy has deadlines that signify important milestones in your case. You should understand when to file Bankruptcy Chapter 7. The following deadlines are ones you want to take particular note of because they’re very important.
10 Days after the 341 Meeting
Ten days after your 341 meeting with the bankruptcy trustee and your creditors you will receive a notice regarding the Means Test. This notice will tell you whether you’ve passed or failed. If you’ve failed the Means Test the trustee will file a statement to dismiss your case within 30 days.
30 Days after the 341 Meeting
If there are no objections to your exemptions within 30 days after your 341 meeting then typically your assets are safe. If any amendments were filed the 30 day clock starts from the day refilled.
60 Days after the 341 Meeting
Sixty days after your 341 meeting your creditors can no longer claim that certain debts shouldn’t be discharged. If they miss this deadline then they have no recourse and those debts will be wiped out with the bankruptcy. Also within that 60 day time period if anyone believes there was misconduct and wants to refute the discharge entirely they need to bring it to the courts attention.
Once these deadlines have passed you can assume that you’ve completed your paperwork properly and that no one is disputing any of your claims. The bankruptcy should then proceed smoothly.
Which Assets Become Part Of Bankruptcy Estate After Chapter 7 Conversion?
Your Assets After a Converted Bankruptcy
Let’s take a look at what the bankruptcy code says:
- Except as provided in paragraph
- when a case under chapter 13 of this title is converted to a case under another chapter under this title- (A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion;
What Does This Mean?
Generally speaking, only the property that was part of the original Chapter 13 bankruptcy filing will become part of the new Chapter 7 bankruptcy case. But this does not include property that has paid for via Chapter 13 bankruptcy or property that simply does not exist because it was sold, was destroyed or donated. Also, the new Chapter 7 bankruptcy case will not include property that was acquired after the Chapter 13 bankruptcy case was filed. For example, if you were in Chapter 13 bankruptcy for 2 years and purchased a new car in that time, the new car would not become part of the new Chapter 7 bankruptcy case. However, there are some exceptions….
(2) If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property of the estate in the converted case shall consist of the property of the estate as of the date of conversion.
An example of bad faith would be if the debtor received an inheritance that was large enough to repay his/her creditors in full but instead the debtor decided to file Chapter 7 bankruptcy. In this case the inheritance money would become part of the Chapter 7 bankruptcy case and would be used to repay creditors.
Converting Chapter 7 Bankruptcy Into Chapter 13 Bankruptcy
If you’re in a Chapter 7 bankruptcy and behind on your car payments and home mortgage you could face a vehicle repossession and foreclosure. For those Chapter 7 bankruptcy debtors facing vehicle repossession and/or foreclosure converting their Chapter 7 bankruptcy into a Chapter 13 bankruptcy may be the right choice.
Changing a Chapter 7 Bankruptcy Into Chapter 13 Bankruptcy
Here’s what you need to know:
- It is a lot easier to convert a Chapter 7 bankruptcy into a Chapter 13 bankruptcy than the other way around. However, you will still need to convince the bankruptcy trustee that the conversion is not being done in bad faith. You may not be granted a conversion if you converted in the past.
- To receive approval for a conversion from Chapter 7 bankruptcy to Chapter 13 bankruptcy, you need to have a very good reason to convert. Most likely if you’re facing a vehicle repossession or foreclosure that may be reason enough.
- You must be able to afford the Chapter 13 bankruptcy payments. If it is obvious that you cannot afford Chapter 13 bankruptcy, you won’t be granted the conversion.
- Once your Chapter 7 to Chapter 13 bankruptcy conversion is approved you will need to have another meeting of the creditors and some of your debts may be treated differently. For example, if you have credit card debt, you may be required to repay some or all of those debts in your Chapter 13 bankruptcy.
- And finally, once your bankruptcy conversion is approved you will be granted a brand new bankruptcy trustee who will then review and approve/disapprove your Chapter 13 bankruptcy repayment plan.
The good news is that once you convert to Chapter 13 bankruptcy your creditors will not be able to move forward on any collections actions because of the automatic stay. If you have any more questions feel free to contact the bankruptcy attorneys at Allmand Law to schedule a free consultation.
Can I Convert My Chapter 13 To Chapter 7 Bankruptcy?
Chapter 13 bankruptcy allows a debtor to repay all or part of their debts over a 3 to 5 year period of time. However, some debtors who have filed Chapter 13 bankruptcy may find themselves facing new financial difficulties at some point during the repayment period that prevents them from making agreed upon payments. This reason alone has been major factor is scaring off some debtors from filing Chapter 13 bankruptcy. However, while that fear is understandable, it is unnecessary since bankruptcy law states that a debtor may convert their Chapter 13 bankruptcy to a Chapter 7 bankruptcy at any point during their repayment plan. Below are a few reasons why you may want to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy:
- Your financial situation has changed significantly. Maybe you suffered a job loss that prevents you from making payments to the bankruptcy trustee. If so, converting to a Chapter 7 bankruptcy may be a simple and of course logical decision.
- You have suffered an illness that has created medical debt that you can’t pay. Medical debt is one of the leading causes of bankruptcy and converting to a Chapter 7 bankruptcy because of medical debt may be a smart choice.
- Your household size has changed. Maybe you just had a child and the increased expenses make it impossible for you to continue your Chapter 13 bankruptcy payments. If this is the case speak with your bankruptcy attorney about how this will impact your ability to file for Chapter 7 bankruptcy. An increase in household size could place you below the median income for Texas.
It’s also important to note that if you decide to convert your Chapter 13 bankruptcy into a Chapter 7 bankruptcy any assets you acquired after filing Chapter 13 bankruptcy will be exempt from seizure.
Speak to our bankruptcy attorney today.
Good Faith vs. Bad Faith Chapter 7 Bankruptcy Conversion
Many debtors considering Chapter 13 bankruptcy worry about their ability to make bankruptcy plan payments if they lose their job or their income decreases for some reason during their course of their bankruptcy. But the bankruptcy code has already taken into account the possibility that a debtor may not be able to complete their Chapter 13 bankruptcy payment plan and will allow a debtor to convert their case to Chapter 7 bankruptcy under certain circumstances. What this means is that the debtor’s remaining debts will be discharged (if they are dischargeable under the bankruptcy code) and the debtor will be free of any obligation to repay that debt despite the fact that they initially filed a Chapter 13 bankruptcy. However, this is only the case if the debtor is converting to Chapter 7 bankruptcy in good faith and only if the debtor filed their Chapter 13 bankruptcy in good faith. What is a good faith bankruptcy and more specifically what is a bad faith bankruptcy?
2 examples of bad faith bankruptcy filings:
- A bad faith bankruptcy would be a bankruptcy filing where the debtor hid assets. For example, a debtor who filed Chapter 13 bankruptcy but hid the fact that they had cash income from a side business might be considered a bad faith bankruptcy filing.
- A Chapter 7 bankruptcy conversion might be considered bad faith if a debtor has experienced positive change in their financial situation and now wants to convert their bankruptcy to a Chapter 7 bankruptcy. For example, if a debtor found a significantly better paying job during their Chapter 13 bankruptcy repayment plan and then tried to convert their case to a Chapter 7 bankruptcy that might be considered a bad faith Chapter 7 bankruptcy conversion.