Bankruptcy Planning – Page 6 – Rochester Bankruptcy and Debt Relief

Filing for Chapter 7 Bankruptcy and Keeping Your Bank Accounts

One of the most common questions I hear from clients is whether they are able to keep their bank accounts while they are in bankruptcy, or to open new accounts after bankruptcy. My usual answer to that question is that there is nothing under bankruptcy code that would prevent a debtor from having or keeping bank accounts. While there is nothing under the bankruptcy law that prohibits it, there are may be some practical complications.

As I have discussed previously, a typical bankruptcy requires planning and preparation. One of the possible situations I prepare my clients for is a possibility that their bank may close their bank accounts or withdraw money from their accounts. If the debtor has a bank account with a bank or credit union that has also loaned him or her money, that bank has the right of set-off. That is the bank has the right to set-off the money in the debtor’s account against any debt owed to the bank. This is true even if the debt was not delinquent and the funds would be protected by the debtor’s cash exemption. Under a typical lending agreement, a bank or a credit union is usually cross-collateralized. That means that any assets you have securing the loan, including any accounts you may have at that institution, secure all of debtor’s debts with that bank or credit union. If the debtor files for bankruptcy, the bank may take any funds and apply them to any outstanding loan. Even if the debtor is planning to continue to pay on the loan, and sign a reaffirmation agreement, the funds may be frozen or suddenly become unavailable. It is usually my advice to open a back-up account elsewhere, at an institution where the debtor didn’t borrow any money.

If the debtor has accounts which might be subject to set off, there is no need to close such accounts. If there is a small amount of money left in the account, those issue can be resolved after the bankruptcy filing. With respect to opening bank accounts after bankruptcy, the debtor may run into some problems with the Chex Systems which is utilized by most banks. Chex Systems operates similarly to credit bureaus and receives reports from its member institutions.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Chapter 7 and Chapter 13 Bankruptcy, Recent Move by the Debtor and Applicable State Exemptions

Periodically, I see debtors who have moved recently to Rochester, New York, or nearby, from another state who wish to file either Chapter 7 Bankruptcy or Chapter 13 bankruptcy. The critical issue in those situations is to determine what state’s bankruptcy exemption laws, if any, will apply.

Under BAPCPA, which passed in 2005, the initial question is how long the debtor has resided in the present state of residence. If the debtor has lived in the same state for the two years prior to filing, then New York’s exemptions will apply. However, if the debtor has moved to New York from another state during the prior two years, then the following rules will apply.

If the debtor resided in the same state for at least 730 calendar days continuously (two years) prior to the filing of the bankruptcy petition, then the debtor can use that state’s exemptions. If the debtor did not live in the current state continuously for at least 730 days, then the debtor must pick the state in which he lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where the debtor lived most of the time between 2 and 2 ½ years before filing.

If no state qualifies using the above rules (i.e., the debtor has lived in abroad) or if the 180-day state requires current residency or being a domiciliary to use its exemptions, then the debtor must use the federal exemptions. The default rule will only apply if the debtor did not live in any state during the 180 day period that began 730 days before filing, or if the state requires current residency or domiciliary. Under some circumstances, it is advantageous to the debtor to use the federal exemptions since they are typically more generous than New York’s exemptions.

Should You Use Credit Cards Once You Decided to File Chapter 7 or Chapter 13 Bankruptcy

If you are contemplating filing Chapter 7 or Chapter 13 bankruptcy, you should stop using your credit cards. Once you’ve decided to file for bankruptcy, any credit card use after that point will be highly scrutinized by both the credit card issuer and the bankruptcy trustee, and is likely to be viewed with a great deal of suspicion. The reasons for this are obvious. If the debtor decides that he is seeking to eliminate his credit card debt through Chapter 7 bankruptcy, or pay a lesser amount though a Chapter 13 filing, then incurring additional credit card debt can be considered fraudulent. Specifically, the credit card issuer will make an argument that the additional debt was incurred without intention to repay, then the discharge can be objected to. Also, the issuer will also look at all of the transactions to verify that the money was not spent on such things as vacation trips, or that other unnecessary spending didn’t take place. If a credit card issuer learns that a debtor used a card without any intention of making full payment, then the credit card company has the right to object to the debtor’s discharge of that particular debt.

Also, if the bankruptcy trustee, or United States Trustee, learn that the debtor intentionally ran up his credit cards before filing, then either trustee can seek to have the debtor’s discharge denied or move to have the case dismissed. There is also the possibility that the debtor can be found to have engaged in bankruptcy fraud, which is a criminal offense.

While consumer Chapter 7 bankruptcy allows the debtor to eliminate all credit card debts and get a fresh new financial start, the debtor should not jeopardize his ability to seek bankruptcy protection by engaging in self-serving or foolish behavior. There is simply no reason to create problems for the upcoming bankruptcy filing. Therefore, don’t use your credit cards once you’ve decided to file bankruptcy.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a New York bankruptcy lawyer.

Mistakes to Avoid When Filing For Chapter 7 or Chapter 13 Bankruptcy in New York

While bankruptcy appears to be a straight forward process, there are many pitfalls for the unwary. Some actions taken by the debtor before filing Chapter 7 or Chapter 13 bankruptcy in New York, may result in serious consequences. Here are some areas where mistakes are commonly made

1. Debts owed to family and friends. I would strongly recommend that you don’t try to pay back the debts owed to family and friends in anticipation of your bankruptcy filing. A trustee in a bankruptcy case can reach back and undo any such transactions that took place within one year prior to your bankruptcy filing. The concept is known as preference. It is intended to prevent debtors from favoring some creditors over other creditors by transferring assets to a third party and then claiming they have nothing left. While you may not be aware of preference, and your actions are responsible and just, they are likely to be undone by the bankruptcy trustee.

2. Disclose your financial affairs to your bankruptcy lawyer. Always be honest with your lawyer about your assets and your financial transactions. I am on your side and am able to help you, but I need to know everything that has taken place in order to take full benefit of the bankruptcy law. I can’t do that unless I have all the information available. Also, if I am not aware of certain facts, and if they come to light during the case or even after your discharge that you’ve withheld information or hid assets, you’ll not only lose the assets that were hidden, but the entire discharge can be undone. This means all of the bankruptcy protection created by your bankruptcy is lost and creditors can once again pursue you.

3. Don’t withdraw your retirement money. Sometimes, this is the easy route out of financial difficulties since the debtor may think that he or she may need more cash on hand if you’re getting ready to file for bankruptcy. However, since retirement plans such as IRAs and your 401(k) are actually protected from creditors by bankruptcy exemptions in New York. If you take the cash out and try to keep it, it will become part of the debtor’s estate. Additionally, you’ll owe pay taxes on the money you withdraw.

4. Don’t disregard pending lawsuits against you. While the automatic stay will protect you from any pending actions, once the bankruptcy is filed, any lawsuits pending prior to the filing should not be allowed to go into default. Lawsuits, if permitted to go into default have consequences and may result in adverse finding that may be difficult to undo during the bankruptcy. Do not treat law suits the same way as creditors. While the creditors will primarily call you and send you letters, lawsuits can have serious consequences that can be implemented before you file. Therefore, make sure that you, or your attorney, respond to any pending actions.

Of course, the most important step in all of this is to make sure you’re working with a knowledgeable, experienced and trustworthy bankruptcy lawyer. A good bankruptcy lawyer will help you successfully navigate the bankruptcy process and help ensure that you avoid all of the potential problems.

Small Business and Chapter 7 Bankruptcy

In the last few months, I have received a number of calls from owners of small businesses who want to file Chapter 7 bankruptcy, primarily due to credit card debt, but want to continue to operate their businesses. In most of these cases, the business owner have used personal credit cards to fund business operations. Since the time the credit cards were used, the business improved, and is now profitable or would be profitable where it not for the payments on credit card debt.

Unfortunately, in this type of situation, filing bankruptcy comes with a price. If you own a small business and are incorporated, the shares of that business are assets of the bankruptcy estate. Further, any accounts receivable of the business are an asset of the business that belong to the shareholder. Thus, if the shareholder files Chapter 7 bankruptcy, the bankruptcy trustee will treat the shares in the business, value them, and will try to sell them

Except in the case of a personal service business that has no significant inventory, receivables or any valuable assets, other than the experience and labor of its owner, the bankruptcy trustee will demand that the owner cease operating the business, and produce its records, value its assets and disclose other information related to the business to the trustee. As a result, a Chapter 7 bankruptcy filing is likely to result in the business being shut down, and its owner being forced to start over. Once the bankruptcy is completed, a new corporate entity can be formed and, assuming that the owner is able to resume operations and the business can be profitable, operations can be restarted.

Besides Chapter 7 bankruptcy, there are other options. Under appropriate circumstances, an owner of a small business can file a Chapter 13 bankruptcy assuming that the business is being operated as a sole proprietorship, and, if the business is large enough, Chapter 11 bankruptcy may be an option. In a Chapter 13 filing, it is usually difficult to predict what the cash flow of the business will be like and, therefore, it is difficult to come up with a bankruptcy payment plan.

Why a Free Consultation Is Important in Chapter 7 or Chapter 13 Bankruptcy

When a potential client calls my office to ask bankruptcy-related questions, I usually suggest that he or she come in for a free initial consultation. I also ask that when we meet, you bring your bills, tax returns, pay stubs and any other documents that may be related to your situation. The reason I ask for such documents is to assess your overall financial picture and to come up with possible solutions to existing problems.

At the consultation, I ask questions to find out what assets are owned by the potential client and also what their debts are. Depending on the responses I receive, I ask follow-up questions about the issues that may determine the course of action:

1. Recent significant use of credit cards/balance transfers/cash advances;
2. Transfers of property to third parties without payment or adequate consideration;
3. Values of assets which may exceed applicable New York exemptions in a Chapter 7 bankruptcy and may force a Chapter 13 bankruptcy filing instead;
4. The level of household income to make sure that the client can meet the means test and file a Chapter 7 bankruptcy;
5. Whether the debtor recently repaid a debt to a relative or friend which may be a preference;
6. Whether the debtor has a personal injury lawsuit pending, or the right to bring such lawsuit;
7. Whether the debtor had any prior bankruptcy filings;
8. Whether the debtor owes any non-dischargeable debts, such as student loans, maintenance and child support, and some income taxes;
9. Debts incurred as a result of fraudulent conduct or drunk-driving.

After I ask all of these questions, I am able to recommend the course of conduct for the debtor. I typically will explain if the bankruptcy a good option; what are its costs; and how a typical bankruptcy gets prepared, filed and proceeds in bankruptcy court. If a bankruptcy is likely to solve debtor’s problems, I will discuss which type of bankruptcy is available and what are the advantages and disadvantages of Chapter 7 and Chapter 13 bankruptcy?

In the event you decide to proceed with a bankruptcy filing, I will ask you to sign a retainer agreement. You will leave my office with a bankruptcy questionnaire which will ask you to provide information on your income, expenses, assets and liabilities. I will also provide you with a checklist of the documents I am going to need to prepare your petition and file your bankruptcy, including paystubs and tax returns. In addition, I will provide you with a list of organizations providing consumer credit counseling course, so you can meet pre-filing requirements.

I will also tell you how to deal with continuing phone calls from your creditors. There are times when I am not able to answer every questions, and may ask for additional documents to figure out the debtor’s circumstances. I believe that the free consultation benefits both me and the potential client.

Chapter 7 Bankruptcy and Unpaid Tax Liabilities

One issue that periodically comes up in Chapter 7 bankruptcy cases is unsatisfied tax liability. As of late, the IRS and New York State Department of Taxation and Finance, have been aggressive in enforcing their claims with respect to unsatisfied tax liabilities.

One common problem associated with back taxes is that the amount owed by the debtor tends to grow rapidly because of the interest and penalties that are imposed by the taxing authority. In their collection efforts, the government agencies can engage in a variety of collection activities, including garnishment, levies, tax liens, seizure of physical assets, intercept of tax refunds, and other collection activities.

For many people with unpaid taxes, bankruptcy may be a way to improve their situation by either improving their financial state and having funds available to pay the taxes owed, or by discharging certain tax liabilities.

In Chapter 7 bankruptcy, certain past due taxes can be eliminated depending on how old the unpaid taxes are and whether the debtor filed an income tax return for the year the taxes came due. For some people filing a Chapter 7 bankruptcy will be a way to permanently eliminate their past-due taxes without having to pay them. To figure our whether or not your taxes can be discharged in bankruptcy you will need to know exactly what taxes you owe and for what years.

There are four general requirements for discharging an income tax in bankruptcy. In this post, I will discuss the first: The tax must be one for which the return was not last due within three years of the filing of the bankruptcy. Therefore, if a 2005 income tax return was last due on April 15, 2006, the three-year requirement would be met after April 15, 2009.

A complication concerns the “last due” requirement. What happens when the debtor requests and receives an extension? The answer is that the three-year clock starts after the last extension. See In re Wood, 866 F.2d 1367 (11th Cir. 1989).

The three-year period is also tolled during the time when the taxing authority is barred from collecting the debt because of a prior bankruptcy.

There are four general requirements for discharging an income tax in bankruptcy. Initially, the tax must be one for which the return was not last due within three years of the filing of the bankruptcy. Therefore, if a 2006 income tax return was last due on April 15, 2007, the three-year requirement would be met after April 15, 2010.

Second, for an income tax to be dischargeable, it must not have been assessed with 240 days of the filing of the bankruptcy. When a return is timely filed, the assessment date is usually around the time a return is filed.

Third, if a return is filed late, it must not be filed within two years of a bankruptcy for the tax to be discharged. This requirement is subject to the following limitations: (1) amended returns count as returns for purposes of this rule; (2) if in the course of correspondence with the IRS, the debtor gives financial statements with all the information needed to complete a return, this can also be deemed to be a return.; and (3) the two-year period begins once the taxing authority actually receives the return, not when the return is mailed, as is the case with timely-filed returns.

The fourth requirement is that the income tax return must be filed by the tax payer, it must not be fraudulent, and the debtor must not have attempted to evade the tax.

If the above requirements are satisfied, a bankruptcy lawyer can help you by obtaining a discharge of unpaid taxes.

Can Trustee Search Your Residence in Chapter 7 or Chapter 13 Bankruptcy?

A question that I commonly hear from debtors in Chapter 7 and Chapter 13 bankruptcies in Rochester or surrounding counties, is whether when they file for bankruptcy, someone will come to their house or apartment, and search or remove their assets. My typical response is to reassure them by telling them that in my experience, any such visits are extremely rare, and would only serve to verify the accuracy of their bankruptcy petition and other disclosure provided during their bankruptcy case. At the same time, as a bankruptcy lawyer, any such statements makes me concerned, since whether or not someone will actually come to search your house or apartment if you file for Chapter 7 or Chapter 13 bankruptcy, the petition, schedules and statement of financial affairs must to be completed truthfully and accurately. Any attempt by the debtor to conceal assets, or any dishonest statements in the bankruptcy petition or other information provided during the bankruptcy, if caught, are likely to result in a referral to the U.S. Attorney Office for criminal prosecution. There are currently individuals serving time in federal penitentiary who have been convicted of bankruptcy crimes, including those whose bankruptcy crimes cases were prosecuted in Rochester. In addition, the financial consequences of the dismissal of the bankruptcy case, and denial of discharge, can be significant, even if there is no criminal prosecution.

With respect to obtaining access to the debtor’s house or apartment, the bankruptcy trustee has the ability to obtain an order authorizing him or her to search the debtor’s house or apartment, with the assistance of the United States Marshall, and to break doors, locks and safes during the course of an investigation. Usually such order will be obtained on an ex parte basis — meaning without prior notice to the debtor to prevent him or her from hiding the assets.

As I have written before, when you file Chapter 7 bankruptcy, you receive the benefit of bankruptcy exemptions. For most debtors, the exemptions allow them to keep most, if not all, of the property they own. While each case is fact specific, and depends of the property owned and its value, a bankruptcy lawyer will be able to engage in pre-bankruptcy exemption planning to maximize available exemptions, and to minimize the assets that would have to be turned over to the trustee if their value exceeds permissible exemptions.

Therefore, the bankruptcy petition, and all of the schedules and other documents provided to the bankruptcy court, should be prepared truthfully and completely, while understanding that the trustee in your bankruptcy case has the ability to get a court order authorizing him to verify the accuracy of your petition. If the debtor provided truthful and accurate disclosure, he or she has nothing to fear. As a bankruptcy attorney, I work closely with all of my clients to make sure that they understand their obligations as debtors, but also to make sure they get to keep as much property as they are legally allowed.

Social Security Retirement, Social Security Disability and Chapter 7 and Chapter 13 Bankruptcy

If you are in debt, does it always make sense to file either Chapter 7 or Chapter 13 bankruptcy? If your only source of income is Social Security or Social Security Disability, you can file for bankruptcy, but it may not be necessary. Because of the exemptions under both federal and New York State law, if your sole source of income is either Social Security Retirement or Social Security Disability, you are generally considered to be judgment proof and your income is exempt from garnishment or other collections actions by the creditors. While your creditors still have the right to sue you and obtain judgments, they are not likely to be able to enforce them against your income or any bank accounts that contain solely the money from either Social Security Disability or Social Security Retirement. At the same time, the debtor may still have other assets, either personal or real property, that a creditor may reach once it obtains a judgment.

Even if you are judgment proof, you may still need to file a Chapter 7 or Chapter 13 bankruptcy. If you have secured debt, such as a mortgage or car payment, and you are behind on your payments, Chapter 13 may give you the ability to bring these secured debts current, while still discharging most or all of your revolving credit debt, personal loans or medical debt. Another benefit of filing for bankruptcy is that either Chapter 7 or Chapter 13 bankruptcy will stop harassment by the creditors.

Chapter 7 and 13 Bankruptcy and Inheritances

When a debtor files for bankruptcy under Chapter 7 or Chapter 13, all of the debtor’s assets pass under control of the bankruptcy trustee. The reason for this transfer of control is so the debtor will be able to discharge their debts and receive the benefit of automatic stay. As I discussed previously, once a bankruptcy is filed, a bankruptcy estate is created by operation of the Bankruptcy Code which states that the bankruptcy estate is “comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (2008). Under the definition of the property of the estate, it also includes any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date. This particular provision dealing with assets acquired within 180 days addresses inheritances and bequests. Therefore, if the debtor receives an inheritance, or a bequest, within 180 days of the filing for bankruptcy, that inheritance or bequest, become property of the bankruptcy estate.

Since a typical Chapter 7 or Chapter 13 bankruptcy runs its course within less than 180 days, a bequest or an inheritance may come within 180 days of the filing, but after the debtor receives his or her discharge or a confirmed plan. Under those circumstances, the debtor has an absolute obligation to notify the bankruptcy trustee of the bequest or inheritance. Once the money is actually received, the debtor must turn over the funds to the trustee. Here in Rochester, Chapter 7 and 13 trustee specifically tell debtors during 341 meetings that any inheritance or bequest received within 180 days of the filing must be disclosed to the bankruptcy trustee. While most of the time, debtors can protect their personal or real property through the use of exemptions and pre-filing planning, inheritances or bequests do not provide this opportunity.