Chapter 7 Bankruptcy

Disclose, Disclose and Disclose Some More.

Essential for a bankruptcy filing is that all “Assets, Liabilities, Income and Expenses” are disclosed. So, too, whether there have been any transfers or sales of any real or personal property over the last 2 to 4 years. Assets to be disclosed include all real, personal and intangible property, wherever located and whatever interest you may have. Liabilities, as we have summed up over the years, mean those debts you owe to “Everybody and anybody that you know, think you know, have an idea, inkling or have ever had a nightmare you owe money to.” Don’t forget those loans you guarantied or cosigned for, too. Income is just that, all sources of money that you receive on a regular basis from all sources and any money you have periodically or even one off have received. Just as you don’t want to leave anything out to the IRS, so too you don’t want to leave off the sources of income in a bankruptcy filing. Expenses are by far the category most people and business often have the least control or even awareness of the total amount spent. It is the line items of expenses that elude people and that often bring them to the brink of bankruptcy.

The Means Test

The Means Test came into being for bankruptcy cases in 2005 with the passage of the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA). Although some would say it is a mean test, as it restricts who may qualify for chapter 7, it is really a test of whether your annualized monthly income exceeds the median income in the Metropolitan Statistical Area in which you live. To calculate the Means Test will require disclosing the sources and amount of all income, secured debt payments, the number and members of the household, tax obligations, life and health insurance payments, ongoing charitable contributions and a laundry list of other qualified expense. “Passing” the Means Test should mean you can move forward with a chapter 7 filing.

Chapter 7 Trustee

The role of the chapter 7 trustee is to determine whether there are any assets that can be liquidated with the proceeds used to pay creditors. Chapter 7 trustees have broad powers and discretion. They will not only review what has been filed but they will ask for up to 3 years of tax returns (and if you have a refund due, they will take it). They may ask for 6 months of bank statements to evaluate not only your income but also if there have been avoidable preference or fraudulent transfer payments to creditors. The Chapter 7 trustee will conduct the meeting of creditors that takes place usually within 30 days from the filing date. Creditors may attend. Few do, unless you have one that is really annoyed with their treatment before the filing. The trustee will rely upon the documents provided and the testimony given, but also what is said to them by creditors through emails or delivery of other documents. Again, the disclosures made at the time of filing and after are the keys to getting through the process. The chapter 7 trustee’s remedy to liquidate property is subject to the exemptions that are made available through state law and through the bankruptcy code. Each has different impacts for which experienced counsel should be sought to advise.

Dischargeable Debts – Generally

For the average person, most of the debt that is disclosed should be discharged in a chapter 7. One should consult with counsel if there are taxes owing or there are family law court orders or judgments. Some other judgments may not be discharged depending upon the underlying facts upon which the judgment was entered. Credit card debt that was incurred more than 6 months before a filing are generally dischargeable. Again, it is fact driven per case. Taxes over a certain number of years may be dischargeable; however, in the event of outstanding taxes a “dischargeability analysis” is recommended to determine when or if certain taxes can be discharged. Filing even a day too soon can jeopardize the discharge of taxes. Omitting debts from disclosure could lead to those debts not being discharged. As we stated earlier, disclose, disclose and disclose some more.

Filing Again – Timing is Everything

So, you need to file a bankruptcy again. Generally, 8 years must pass between the date of the earlier filing and the next filing of a chapter 7. A chapter 13 may follow a chapter 7 sooner in time; however, this tactic, commonly referred to as a chapter 20 (chapter 7 plus chapter 13) is not for the faint of heart or the inexperienced practitioner.