When Chapter 7 Bankruptcy Isn't the Right Choice

By Tony Arnest

A Chapter 7 bankruptcy can sometimes force you to sacrifice property, yet not necessarily discharge all your debt(s).

Food for thought: If you are thinking about filing for Chapter 7 bankruptcy, take a moment to decide whether it makes economic sense. You need to consider these three (3) questions:

1. Are you judgment proof -- that is, are creditors legally barred from taking your property or income even if you don't file for Chapter 7 bankruptcy?

2. Will Chapter 7 bankruptcy discharge enough of your debts to make it worth your while?

3. Will you have to give up property you really want to keep?

Are You Judgment Proof?

You may already know that most unsecured creditors are required to obtain a court judgment before they can start collection procedures, such as a wage garnishment or seizure of personal property. (Collections for taxes, child support, and student loans are exceptions to this general rule.)

It is generally believed that if your debts are mainly of the type that require a judgment, the next question is whether you have any income or property that your creditors can seize if they go to the trouble of obtaining a judgment. For instance, if all of your income comes from Social Security (which can't be taken by creditors), and all of your property is exempt, there is nothing your creditors can take from you to satisfy their judgment. That makes you "judgment proof."

While you may still wish to file for Chapter 7 bankruptcy to get a fresh start, nothing bad will happen to you if you don't file, no matter how much you owe.

Will Chapter 7 Bankruptcy Discharge Enough of Your Debts?

Certain categories of debts cannot be discharged in Chapter 7 bankruptcy. It doesn't make much sense to file for Chapter 7 bankruptcy if your primary goal is to eliminate these non-dischargeable debts. The main non-dischargeable debts are:

· back child support and alimony obligations

· student loans, unless repayment would cause you undue hardship

· income taxes less than three years past due

· recent debts for luxuries (more than $550 to any one creditor incurred within 90 days before you file for bankruptcy, and cash advances of more than $825 within 70 days before you file), and

· court judgments for injuries or death to someone arising from your intoxicated driving.

In addition, the bankruptcy judge may rule some types of debts as non-dischargeable if the creditor objects to a discharge in the bankruptcy court. These debts include:

· debts incurred on the basis of fraud, such as lying on a credit application or writing a bad check

· debts from willful or malicious injury to another or another's property

· debts from larceny (theft), breach of trust, or embezzlement, or

· debts arising out of a marital settlement agreement or divorce decree that aren't otherwise automatically nondischargeable as support or alimony.

If the bulk of your indebtedness is from debts that creditors may object to being discharged, it may still make sense to file for Chapter 7 bankruptcy and hope your creditors don't object.

Co-debtors may still be till be on the hook. If you want to discharge debts for which you have a co-debtor (such as someone who cosigned a loan for you, or a business partner who is equally liable for the debt), bankruptcy won't wipe out the debt. If the debt is of a type that can be discharged in Chapter 7 bankruptcy, you will no longer be legally responsible for paying it, but your co-debtor will.

How Much Property Will You Have to Give Up?

Whether or not you decide to file for Chapter 7 bankruptcy may depend on what property of yours will be taken to pay your creditors ("nonexempt" property) and what property you get to keep ("exempt" property).

Certain kinds of property are exempt in almost every state, while others are almost never exempt. The following are items you can typically keep (exempt property):

· motor vehicles, up to a certain value

· reasonably necessary clothing (no mink coats)

· reasonably needed household furnishings and goods (the second TV may have to go)

· household appliances

· jewelry, up to a certain value

· personal effects

· life insurance (cash or loan value, or the proceeds of life insurance), up to a certain value

· pensions

· part of the equity in your home

· tools of your trade or profession, up to a certain value

· a portion of unpaid but earned wages, and

· public benefits (welfare, Social Security, unemployment compensation) accumulated in a bank account.

Items you must typically give up (nonexempt property) include:

· expensive musical instruments (unless you're a professional musician)

· stamp, coin, and other collections

· family heirlooms

· cash, bank accounts, stocks, bonds, and other investments

· a second car or truck, and

· a second or vacation home.

Is Chapter 7 Bankruptcy More Than You Need?

You may be considering bankruptcy just to stop harassment by your creditors. However, in most cases, you can stop creditors from making telephone calls to your home or work by simply telling them to stop.

Deciding Whether to File Chapter 7 Bankruptcy

If you determine that you are judgment proof, that you'll be stuck with significant debt following bankruptcy, or that you may have to give up too much property, Chapter 7 bankruptcy may not make sense for you.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

When Chapter 7 Bankruptcy may not be the right choice for you.

Tony Arnest

What is a Fraudulent Conveyance as Considered in a Bankruptcy Case?

by Tony Arnest

A debtor may commit a fraudulent conveyance if they attempt to transfer to a third party their real or personal property and (in the transfer) their goal is to delay, defraud or keep a present or future creditor from obtaining the property. Bankruptcy law considers two types of fraudulent transfers.

The first is "actual fraud" which is the intentional action to defraud Creditors, and the second is called "constructive fraud" which is the transfer of real or personal property for less than it is worth.

In most cases, if the transfer of real or personal property is made within one (1) year of filing a Bankruptcy Petition and the debtor has the intent to keep the creditor from obtaining the property or defrauding the creditor, this is "generally" considered actual fraud. Determining actual fraud can often be difficult and must be done on a case-by-case basis.

Many Bankruptcy courts have outlined specific circumstances where overt or intentional actions may have occurred which constitute fraud including the following:

1) a debtor has attempted to retain or assert of control over the property after transfer;

2) a creditor has threatened to sue the debtor and action was taken to "hide or protect" the property from creditors;

3) a debtor had a special relationship with the person who receive the transferred property;

4) a debtor has attempted to transfer or convey a substantial portion of their property or assets to a new company.

Constructive fraud can be proven if there was an exchange of property made and the debtor did not receive anything in return or payment that is considered of a "reasonably equivalent value" - especially in a case where the debtor was/is having difficulty making payments for their debts when the property transfer was completed.

If you are not sure if a transfer in this context would constitute a fraudulant conveyance, one that a Bankruptcy Court may overturn for the benefit of your creditors, you should consult with an attorney.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

What is a fraudulent conveyance as considered in a Bankruptcy case?

Tony Arnest

What Is Bankruptcy? - By Tony Arnest

Chapter 7 and Chapter 13 bankruptcy basics.

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."

Chapter 7 bankruptcy is the liquidation variety: If you own property that isn't exempt under your state's laws, it may be taken and sold ("liquidated") to pay back some of your debt. Chapter 13 bankruptcy is the most common type of "reorganization" bankruptcy for consumers: You get to keep all of your property, but you must make monthly payments over three to five years to repay all or some of your debt.

Both kinds of bankruptcy have numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy can be filed by individuals (called a "consumer" Chapter 7 bankruptcy) or businesses (called a "business" Chapter 7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months.

Property liquidation. In Chapter 7 bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as exempt under the state or federal laws available to you (such as your clothes, car, and household furnishings). Many debtors who file for Chapter 7 bankruptcy are pleased to learn that all of their property is exempt.

Secured debt. If you owe money on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Eligibility for Chapter 7. Not everyone can file for Chapter 7 bankruptcy. For example, if you’re disposable income is sufficient to fund a Chapter 13 repayment plan -- after subtracting certain allowed expenses and monthly payments for certain debts -- you won't be allowed to use Chapter 7 bankruptcy.

Bankruptcy doesn't work on some kinds of debts. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts that cannot be wiped out in bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also known as "wage earner" bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt.

Repayment. When you file for Chapter 13 bankruptcy, you must propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you'll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you'd filed for Chapter 7 bankruptcy.

Debt limits. Your debts must be within limits set by the federal government: Currently, you may not have more than $1,081,400.00 in secured debt and $360,475.00 in unsecured debt.

Secured debts. If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.

Other Types of Reorganization Bankruptcy

In addition to Chapter 13 bankruptcy, there are two other types of reorganization bankruptcy: Chapter 11 and Chapter 12.

Chapter 11 bankruptcy. Chapter 11 is typically used by financially struggling businesses to reorganize their affairs. It is also available to individuals, but because Chapter 11 bankruptcy is expensive and time-consuming, it is generally used only by those whose debts exceed the Chapter 13 bankruptcy limits (rare) or who own substantial nonexempt assets (such as several pieces of real estate). If you are considering Chapter 11 bankruptcy, you'll need to talk to a lawyer.

Chapter 12 bankruptcy. Chapter 12 is almost identical to Chapter 13 bankruptcy. But to be eligible for Chapter 12 bankruptcy, at least 80% of your debts must arise from the operation of a family farm. A Chapter 12 bankruptcy has higher debt ceilings to accommodate the large debts that may come with operating a farm, and it offers the debtor more power to eliminate certain types of liens. Very few people use Chapter 12 bankruptcy; if you want to join their ranks, you should consult with a lawyer.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

What is Bankruptcy?

Tony Arnest

What is a Small Business Chapter 11 Bankruptcy Case?

By Tony Arnest

It is often asked - in contemplation of filing a Chapter 11 Bankruptcy case - whether there is a significant difference between a “small” versus a “large” business Bankruptcy. The short answer is yes, but it may depend upon certain definitions. What is generally not known is that Chapter 11 Bankruptcy proceedings for a “small business” can be treated differently than other Chapter 11 Bankruptcy cases. Under 11 U.S.C. § 101(51C), the small business bankruptcy is not defined in terms of corporation vs. sole proprietorship, or partnership vs. limited liability company, etc. Rather, it is identified as a case where there is a small business debtor and small business debt. This distinction can affect how a Chapter 11 Bankruptcy case is approached. Consequently, many small business owners will ask what defines a small business debtor. The U.S. Bankruptcy Code outlines a two (2) part test:

Question 1: Is the business debtor involved in business or commercial activities (with the exception of primarily owning and operating real property) with liquidated, non-contingent unsecured and secured debts of $2,000,000 or less?

Question 2: Has the U.S. Trustee appointed a creditors' committee, and if they have not, has the U.S. Trustee decided the creditors' committee is unable to sufficiently oversee the debtor (11 U.S.C. § 101(51D))?

In order to prepare a Chapter 11 Bankruptcy small business case, the small business debtor (generally called the“debtor in possession” after the filing) must provide the most recent prepared balance sheet, cash-flow statements, a statement of operations and the most recently filed United States tax return. All documents must be attached to the Chapter 11 Bankruptcy petition. If these documents are not provided, a statement that clearly outlines the reason(s) for their omission or absence must be attached to the filing. Under 11 U.S.C. §§ 308, 116, the small business debtor must also provide documentation outlining their projected cash receipts and disbursements and their profitability analysis. In addition, the debtor will also provide the Bankruptcy Court with reports about their tax status and whether or not all of the business tax returns have been filed.

As with most Chapter 11 cases, the U.S. Trustee provides monitoring for these types of cases. This oversight may include evaluating the debtor's viability; reviewing the debtor's business reorganization plan; defining and explaining the requirements for filing the debtor's bankruptcy reports; and overseeing the debtor's business activities throughout the duration of the bankruptcy proceeding.

If you are a small business that may be considering filing a Chapter 11 Small Business Bankruptcy, you should know that in many instances, these cases can often be resolved more quickly than large business bankruptcies. Often, small business debtors will be able to prepare and file their Chapter 11 Bankruptcy “disclosure statement” and “plan for reorganization” during the first 180 days after the initial Bankruptcy filing. This is often referred to as the "exclusivity period." Of course, depending upon the circumstances, this period can be extended significantly with Court approval. The faster a debtor can present the Bankruptcy Court and creditors with a reorganization plan, the faster a bankruptcy proceeding may come to an amicable conclusion for all parties concerned.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

What is a "Small Business" Chapter 11 Bankruptcy Case?

Tony Arnest

What percentage of my wages can creditors take?

What percentage of my wages can creditors take?

By Tony Arnest

Question:

This is a question I hear often: I have substantial balances owed to several credit card companies. If fact, one credit card company has sued me already. If it wins, how much of my take-home pay can it get? And what about the other companies? I'm worried that I won't be left with enough money to pay for things like rent, food, and gas.

Answer:

The total amount your creditors can take from your wages is generally limited to 25% of your net pay. That limit applies whether you have one creditor or many. Remember, however, that each creditor must have a judgment against you to be able to garnish your wages. If more than one creditor has a judgment, the first one would garnish your wages, get the 25% until the judgment is paid, and then cancel the garnishment. Then the second creditor would garnish 25% of your wages until that judgment was paid. And so on.

If your income is very low, the creditor may not be allowed to attach the full 25%. You will need to consult our individual state law on this.

Before you lose a variety of lawsuits, you may want to get some help dealing with your creditors. To find credit and debt counselors in your area, go to the website of the U.S. Trustee, www.usdoj.gov/ust, and select "Credit Counseling and Debtor Education." You'll find a list, by location, of counseling agencies that have been approved by the federal government to advise debtors who are considering filing for bankruptcy.

Although you might not be in that position, these agencies have been examined and approved by the government, which makes it less likely that you'll run into some of the scam artists that all too often prey on people who are deeply in debt.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

I'm having debt problems - What percentage of my wages can creditors take?

Tony Arnest

 

Some Good “Tips” On What NOT To Do

When Preparing To File For Bankruptcy

By Tony Arnest

For any number of reasons, people can find themselves in financial difficulty and decide that enough is enough; it's time to file bankruptcy. The goal is for a “fresh start” from the day-to-day burden of trying to pay bills when there just is not enough income to do so.

When it happens to you, and you have concluded that Bankruptcy may be your best option to resolve your financial problems, you will want to avoid these common mistakes which can have very severe negative implications on your goal to obtain a satisfactory Bankruptcy outcome.

· Don't lie, don’t lie, don’t lie!!

Court statistics have shown that the vast majority of those who file for bankruptcy protection do qualify. Those who don't will generally have other options available to them. Deciding to file anyway -- despite not qualifying -- by leaving out assets or income could result in the case being dismissed and the filer being barred from filing on those particular debts ever again.

· Don't leave out any of your income or other monies you receive, even gifts

Interestingly, some people think that a second, part-time job does not count as income. All household income must be included, even perhaps the $500 per month your minor daughter earns working part time while in the local retail store and gives to you to help pay the bills. If you want to claim her as a dependent in your bankruptcy, you must include her income.

· Don't leave out any cars or other vehicles - i.e. boats, planes, etc.

We hear all the time… "I don't want to lose my car. Why are you listing it in the paperwork?" The car is an asset (or a liability if it is secured by a loan). You are required to list all your assets and all your debts in your Bankruptcy Schedules. The court-appointed trustee reviewing your case must know about every car or vehicle you own. Even a car driven by your daughter, which was never transferred into her name, must be listed. And don't transfer it to her prior to filing. That's the best way to lose it.

· Don't leave out car loans, or any loans of any kind, for that matter

You must notify all your creditors, even car lenders, that you have filed bankruptcy. You can usually keep the car, but the lender may have specific requirements you must follow. Failure to notify the lender may result in the loss of the car.

· Don't leave out any creditors – that is anyone to whom you own money or a debt

Bankruptcy attorney hear frequently from their clients that they’ve heard you can leave our a certain creditor if you are current with them or don’t own them anything at the present time. For example, a client may say he or she can use a particular credit card even though that card was not listed in the bankruptcy. Why, because there is no outstanding balance. This is NOT correct. The majority of credit card companies centralize the processing of credit card payments and services. Card companies will know that you filed for bankruptcy protection even if you don't have a balance on that particular card. So don't try to hide a credit card. You can get new credit after the bankruptcy. It is not worth it to leave out any creditor and run the risk of your entire Bankruptcy case being tossed out for failure to list all your creditors.

There is one big exception to this rule, and it pertains to credit unions. You may be able to keep an account with a credit union after filing for bankruptcy. If this applies to you, you will want to discuss this with your Bankruptcy attorney.

· Don't transfer assets out of your name to anyone else before filing

Transferring an asset prior to filing for the purpose of protecting that asset is illegal. Just because you have an asset you want to protect does not mean you can give it away. Your bankruptcy attorney can discuss how to legally protect an asset that might otherwise be at risk.

· Don't pay back family prior to filing – blood is not thicker than water in this instance!

You may owe your sister $15,000 and have every intention of paying her back. Just don't pay her back in the 12 months prior to filing. No matter what you think, she is still a creditor like your department store or bank where you hold your credit card. However, the bankruptcy code looks even more harshly on payments made to family prior to filing. It is often call a “preference.” And preferential treatment to family members over other non-family creditors can be unwound!! You will need to understand how the rules work concerning payment to creditors prior to filing your case.

· Don't forget to list all potential or pending lawsuits you have against anyone or they have against you

You are suing your former employer for unpaid wages, or you are suing your former best friend for unpaid rent. Those are assets and must be listed as such in your bankruptcy paperwork. You may be able to continue with the case, but the court-appointed trustee must know about those claims or potential claims.

You may even lose the right to continue with a potential lawsuit because the court-appointed trustee might be interested in taking over your lawsuit on your behalf. The lawsuit becomes an asset in your bankruptcy case and may have significant value. This is a complicated topic, but failing to list potential or pending lawsuits is a common mistake made by bankruptcy filers.

· Don't gamble

Even gambling with your own money can have negative implications in bankruptcy. The general rule of thumb is that any gambling losses in the twelve (12) months prior to filing must be disclosed in the bankruptcy paperwork.

· Don't run up credit card balances prior to filing

Many potential filers say that they are going to use up all their available credit before filing for bankruptcy. This usually does not work for the filer. The creditor will review your credit card charges after receiving the bankruptcy notification. If the creditor believes you ran up your credit card balances before filing, it has the right to challenge your request to eliminate some or all of your balance. You could end up owing money on a few of your credit cards after your bankruptcy is over.

· Don't wait until the last minute to file for Bankruptcy if circumstances warrant it

Don't wait until your wages are garnished, your bank account is levied, or your home foreclosure sale is the next day. You want to have the luxury to prepare a legal and thorough bankruptcy petition. Rushing your filing may not allow for a diligent and competent investigation of your bankruptcy qualifications.

· Don't become depressed or inactive about your situation – take action!

Taking the old sticking my head in the sand approach to your situation will never resolve it. It is normal and reasonable for you to get upset or feel depressed that you are in a difficult financial position. Unfortunately, avoiding your financial straits will not resolve them. Sometimes, bankruptcy is your best solution.

Again, bankruptcy can be a “correct” solution for anyone depending upon the circumstances. Your case can go smoothly as long as you disclose all information required to receive your fresh start.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

Some good tips on what NOT to do when preparing to file for Bankruptcy

Tony Arnest

Alternatives to Bankruptcy - by Tony Arnest

Learn when an alternative may be better than Chapter 7 or Chapter 13 bankruptcy

In many situations, filing for bankruptcy is the best remedy for debt problems. In others, however, another course of action makes more sense. This article outlines your main alternatives.

Stop Harassment from Creditors

If your main concern is that creditors are harassing you, bankruptcy is not necessarily the best way to stop the abuse. You can get creditors off your back by taking advantage of federal and state debt collection laws that protect you from abusive and harassing debt collector conduct.

Negotiate With Your Creditors

If you have some income, or you have assets you're willing to sell, you may be a lot better off negotiating with your creditors than filing for bankruptcy. Negotiation may buy you some time to get back on your feet, or your creditors may agree to settle your debts for less than you owe.

Design a Repayment Plan With Outside Help

Many people aren't comfortable negotiating with their creditors or with collection agencies. Perhaps you aren't confident with your negotiation skills, or the creditors and collectors are so hard-nosed that the process is too unpleasant to stomach.

If you don't want to negotiate on your own, you can seek help from a nonprofit credit or debt counseling agency. These agencies can work with you to help you repay your debts and improve your financial picture. (To find out about agencies in your area, go to the website of the United States Trustee at www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education"; this will lead you to a state-by-state list of agencies that the Trustee has approved to provide the credit counseling that debtors are now required to complete before filing for bankruptcy.)

Debt Counseling vs. Chapter 13 Repayment Plans

Participating in a credit or debt counseling agency's debt management program is a little bit like filing for Chapter 13 bankruptcy. The agency will help you come up with a plan to pay back your creditors over time, somewhat like a Chapter 13 plan. But working with a credit or debt counseling agency has one advantage: No bankruptcy will appear on your credit record.

However, a debt management program also has some disadvantages when compared to Chapter 13 bankruptcy. First, if you miss a payment, Chapter 13 protects you from creditors who would start collection actions. A debt management program has no such protection: Any one creditor can pull the plug on your plan. Also, a debt management program usually requires you to repay your debts in full. In Chapter 13 bankruptcy, you often pay only a small fraction of your unsecured debts.

Consumer advocates have also raised concerns about credit counseling agencies, because these agencies receive most of their funding from creditors. As a result, critics say, these agencies could face a conflict between the interests of their funders and the interests of their clients.

Do Nothing

Surprisingly, the best approach for some people deeply in debt is to take no action at all. If you're living simply, with little income and property, and look forward to a similar life in the future, you may be what's known as "judgment proof." This means that anyone who sues you and obtains a court judgment won't be able to collect from you simply because you don't have anything they can legally take.

Except in unusual situations (for example, if you refuse to pay taxes as a protest against government policies or you willfully fail to pay child support), you can't be thrown in jail for not paying your debts. Nor can a creditor take away such essentials as basic clothing, ordinary household furnishings, personal effects, food, or Social Security, unemployment, or public assistance benefits.

So, if you don't anticipate having a steady income or property a creditor could grab, bankruptcy is probably not necessary. Your creditors probably won't sue you, because it's unlikely they could collect the judgment. Instead, they'll simply write off your debt and treat it as a deductible business loss for income tax purposes. In several years, the debt will become legally uncollectible. And in seven years, the debt will come off your credit record.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

Tony Arnest - Alternatives to Bankruptcy