Posted by Kevin on December 27, 2013 under Bankruptcy Blog | 
Filing bankruptcy with or without your spouse affects the protection from creditors each of you receives, and also affects whether you file under Chapter 7 or 13.
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Continuing from the last month’s blog:
- There are consequences to filing separately or together, consequences affecting:
- protection from your creditors’ collection activity.
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Bankruptcy Only Protects Bankruptcy Filers, Right?
Start with the sensible proposition that if you want bankruptcy protection from your creditors, you need to file bankruptcy to get it. Sounds obvious and sensible, but it’s only partly true.
It’s True in Chapter 7
If you file a Chapter 7 straight bankruptcy case by yourself—without your spouse—and one of your debts is owed by both you and your spouse, the creditor will be able to continue pursuing your spouse to pay that debt. That’s because the “automatic stay” which stops creditors from collecting debts immediately upon the filing of a Chapter 7 bankruptcy only protects the person who files. The section of the federal Bankruptcy Code which provides for the “automatic stay” says that it stops “any act to collect… a claim against the debtor.” And a “debtor” is a person who has filed a bankruptcy case.
So if your spouse did not join in your bankruptcy case (and didn’t file his or her separate case), nothing stops this spouse’s creditors from pursuing the debts owed by him or her. And that includes debts that the two of you owe jointly. That’s the simple reason that usually married folks file joint bankruptcies—besides any individual debts each may have, most spouses have joint debts which both spouses need protection from.
But Chapter 13 Could Protect a Non-Filing Spouse
Bankruptcy CAN protect a co-obligor, such as a spouse, in a limited but potentially crucial way, ONLY under Chapter 13. The “co-debtor stay” of Chapter 13 extends the “automatic stay” immediately upon the filing of the case not just to the filing “debtor” but to also to co-debtors—any individual that is liable on a consumer debt with the debtor. A spouse who does not join the other spouse’s bankruptcy filing is a protected by this “co-debtor stay” as to any of their joint consumer debts.
But this protection comes with conditions. If the creditor challenges the co-debtor stay as to the non-filing spouse, the bankruptcy court will allow the creditor to pursue him or her EXCEPT to the extent the filing spouse is paying that debt through the Chapter 13 case. So the filing spouse can fully protect the non-filing spouse by arranging through the Chapter 13 plan to pay that debt in full. That way the debt is slowly paid off during the 3-to-5-year plan while both are protected from collections—the filing spouse by the “automatic stay” and the non-filing spouse by the “co-debtor stay.” Chapter 13 debtors are generally allowed to favor such consumer joint debts in their plans over other non-joint debts in order to protect co-debtor. So if the amount of such joint debt is relatively modest, this can be a way for only one spouse to file bankruptcy and still protect the other spouse from a joint creditor or two.
Since the “co-debtor stay” is available only under Chapter 13, if there are good reasons for only one spouse to file bankruptcy, and both spouses are liable on a limited amount of consumer debt, then Chapter 13 could well be the better option.
Posted by Kevin on December 23, 2013 under Bankruptcy Blog |
Your abundant love for your children, spouse, and others is not defined by an (over)abundance of holiday gifts.
If your everyday life is one of constant financial pressure, then the holidays are especially tough on you. If you still have any room on your credit cards or any other kind of credit, it is
so difficult to not use that credit for gifts and holiday celebrations.
That’s especially true if you have children. Every ounce of your parenthood is pushing you to create a happy and memorable Christmas for them. You know you can’t afford to add to your debt and you hate to do it, but there just isn’t nearly enough in the regular paycheck to pay for it. After all, you sure can’t do without a Christmas tree, or without the family feast that’s been the tradition forever. And of course the kids need at least a few decent gifts—they don’t deserve a miserable holiday. Nor does your spouse or other special person.
All true. It is necessary and appropriate to celebrate. To enjoy our precious times of togetherness.
It’s easy for others to tell you not to use your credit cards, but they’re not in your shoes.
Sure, real love is not dependent on the monetary value of gifts, and yet love yearns to be expressed through the giving of gifts.
Everybody knows that they should live within their means, buy non-necessities like gifts only out of their spare income, and save up over the rest of the year for holiday gifts. But sometimes this is all virtually impossible.
We know that we should not judge our own worth—as a parent, spouse, or friend—by the price tag of the gifts we give to our loved ones. And yet we DO feel inadequate if we can’t give them “enough.”
So what’s a financially stressed person to do?
We grudgingly admit that we should have age-appropriate conversations with our children about the true meaning of the holidays, and about the appropriate role of gifts. We know that we should have similar honest conversations with our spouses and other adults we share a home with. At least a part of us accepts that more than anything we need to be honest—again in an age-appropriate way—with both the adults and the children in our lives about our financial limitations. We need to communicate clearly that our abundant love for them is not bound up in abundant gifts. And certainly not in overabundant gifts.
It takes serious bravery to have these conversations. And it all starts with what might be the bravest step of all: a good honest conversation with yourself about all this. You know you are in a vicious cycle of debt, and don’t see any way out. The last thing you need to do is add to your financial pressure. Instead, face your situation. Be completely honest with yourself about where you stand. Be honest about your fears. About how you don’t see a way out. Recognize that that there IS a way out. Then think about what concrete steps you can take to find the best way. Think about where you can find out some answers (such as the phone number on this website).
As you get honest with yourself, get honest with the people you love. Celebrate your love and friendship in a less material but more meaningful way. Celebrate true to the season.
Posted by on December 16, 2013 under Bankruptcy Blog |
A Chapter 13 case is often the preferred way to keep a sole proprietorship business alive. But can a regular Chapter 7 one ever do the same?
In my last blog I said that “if you own an ongoing business as a DBA… which you intend to keep operating, Chapter 7 may be a risky option.” Why? Because Chapter 7 is a “liquidating bankruptcy,” so the bankruptcy trustee could make you surrender any valuable components of your business, thereby jeopardizing the viability of the business. But this deserves further exploration.
Your Assets in a Chapter 7 Bankruptcy
When a Chapter 7 bankruptcy is filed, everything the debtor owns is considered to be part of the bankruptcy “estate.” A bankruptcy trustee oversees this estate. One of his or her primary tasks is to determine whether this estate has any assets worth collecting and distributing to creditors. Often there are no estate assets to collect and distribute because the debtor can protect, or “exempt,” certain categories and amounts of assets. The exempt assets continue to belong to the debtor and can’t be taken by the trustee for distribution to the creditors. The purpose of these “exemptions” is to let people filing bankruptcy keep a minimum amount of assets to get a “fresh start”.
Business Assets in a Chapter 7 Case
If you own a sole proprietorship, are all the assets of that business exempt and protected? In other words, is the entire value of the business covered by exemptions, whether approaching the business as a “going concern” or broken up into its distinct assets.
Many very small businesses cannot be sold as an ongoing business because they are operated by and completely reliant for their survival on the services of its one or two owners. In most such situations the business only has value when broken into its distinct assets. So the Chapter 7 trustee must consider whether the debtor has exempted all of these business assets to put them out of the trustee’s reach.
The assets of a very small business may include tools and equipment, receivables (money owed by customers for goods or services previously provided), supplies, inventory, and cash on hand or in an account. Sometimes the business may also have some value in a brand name or trademark, a below-market lease, or perhaps in some other unusual asset.
Whether a business’ assets are exempt depends on the nature and value of those assets, and on the particular exemptions that the law provides for them. For example, a very small business may truly own nothing more than a modest amount of office equipment and supplies, and/or receivables. In these situations the applicable state or federal “tool of trade” or “wildcard” exemptions may protect all the business assets. You need to work conscientiously with your attorney to make certain that all the assets are covered.
So it is possible for a business-owning debtor to have a no-asset Chapter 7 case, potentially allowing the business to pass through the case unscathed.
The Potential Liability Risks of the Business
However, there is an additional issue: will the trustee allow the business to continue to operate during the (usually) three-four months that a no-asset case is open or instead try to force the business to be shut down because of its potential liability risks for the trustee?
How could the Chapter 7 trustee be able to shut down the business? Recall that everything that a debtor owns, including his or her business, becomes part of the bankruptcy estate. As the technical owner—even if only temporarily—of the business, the trustee becomes potentially liable for damages caused by the business while the Chapter 7 case is open. For example, if a debtor who is a roofing subcontractor drops a load of shingles on someone during the Chapter 7 case, the estate, and thus the trustee, may be liable for the injuries.
The main factors that come into play are whether the business has sufficient liability insurance, and the extent to which the business is of the type prone to generating liabilities. There’s a lot of room for the trustees’ discretion in such matters, so knowing the particular trustee’s inclinations can be very important. That’s one of many reasons why a debtor needs to be represented by an experienced and conscientious attorney who knows all of the trustees on the local Chapter 7 trustee panel and how they deal with this issue.
Conclusion
In many situations it IS risky to file a Chapter 7 case when you want to continue operating a business. You need to be confident that the business assets are exempt from the bankruptcy estate, and that in your situation the trustee will not require the closing of the business to avoid any potential business liability.
