December 15, 2017

Can a Small Business Owner File Chapter 7 Personally and Still Keep His Business

Over the past few weeks, I have received a number of calls from small business operators who want to file Chapter 7 on credit card debt, but continue to operate their businesses.  In many of these cases, the business owner used personal credit cards to fund business operations and now the business is profitable or marginally profitable but for the debt service on tens of thousands of dollars of credit card debt.

Unfortunately the answer I have to give to these prospective clients is not what they want to hear. If you own a small business and are incorporated, the shares of that business are assets. In turn, any accounts receivable for that business are an asset of the business that accrues to the shareholders.

Except in the case of a personal service business that has no inventory or receivables or any value other than the daily efforts of the owner, my experience has been that if you file a Chapter 7, the trustee will demand that you cease operations and turn over the books, the keys and the inventory to the trustee’s office. [Read more…]

Can I File a Chapter 7 By Myself, Without an Attorney

This morning, I received an email from a gentleman named Jim, who writes:

How can I file chapter 7 by myself without paying someone, anyone $ 99.00 $199.00, $299.00 etc… Three different people( with a financial intrest of course) said representation is required.

Here is my response: Jim, you certainly have the right to file a Chapter 7 case by yourself.  The forms are available either on-line or at an office supply store.  There are also several books about how to do this.  I am currently reviewing a book entitled The Complete Chapter 7 Personal Bankruptcy Guide by attorney Edward Haman that is published by Sphinx Publishing that is quite comprehensive.

Here are the issues:

1. the bankruptcy process has become significantly more complicated since October, 2005, when the BAPCPA changes to the bankruptcy laws were enacted.   I know a number of lawyers who used to file the occasional Chapter 7 here in Atlanta, but who have now given up the practice because of the complications.  In particular, you need to fully understand how the median income test and the means test works – if you do the calculations incorrectly, you could end up in a deposition at the United State’s trustee’s office, face a motion to dismiss or face a motion to convert to Chapter 13.

2. you need to understand about the pre-filing credit counseling requirement as well as the pre-discharge financial management course requirement

3. in order to actually file your case, you will need to go to the Clerk of Bankruptcy Court and scan your pages to get your case filed.  I suspect that this process is not particularly complicated, but I have not used the scanning equipment at the Clerk’s office.

4. you cannot dismiss a Chapter 7 voluntarily if you change your mind.  For example, if you file, but it turns out that you earn too much or own too many assets the judge may not let you out of your case, at least until after your assets are liquidated.

5. you need to understand how the Georgia exemption law works and how it applies in Chapter 7 to protect property that the law allows you to protect.  If you don’t properly declare property as exempt even if the law would otherwise allow you to protect it, then you could lose your property anyway.

6. do not expect to receive advice from the Chapter 7 trustees or the U.S. Trustees.  Their interest is to maximize the recovery of the estate (i.e. your creditors).

While folks contemplating bankruptcy obviously do not have a lot of money, I think that in most situations the complexity (which, no doubt is unnecessarily complex) makes a pro se filing a mistake.

Budget Numbers that Apply to Your Case

One of the biggest changes in the new bankruptcy law has to do with the new approved budget figures now being used by the Bankruptcy Courts.  Previously, when I prepared a budget for a case filing, I spoke to my client, reviewed the budget shown on his questionnaire, tweaked it to get rid of any obvious problems and filed it.  As long as we were reasonable, there generally were no problems.

It does not work that way anymore.  Now, the definition of what is “reasonable” comes from the IRS.  These are the same IRS figures that are used in “Offer in Compromise” situations where the IRS is considering a reduction in tax debt.  In other words, the IRS standards are not particularly generous.

You can review the IRS standards at the U.S. Trustee’s web site or the web site for the Clerk of Bankruptcy Court, Northern District of Georgia.  You will notice that there are three different categories of approved budget figures:

– a national standard for allowable living expenses (food, clothing, personal care)

– a local standard based on the county where you live for housing and utilities

– a regional standard for transportation – Georgia is in the “south census” region

In addition the approved standards are updated approximately every 6 months, so before you file, ask your lawyer if the budget numbers are changing anytime soon.

All of these budget numbers are built into the computer program we use to prepare your bankruptcy.  The issues, of couse, arise when you are spending money for “unapproved” purposes, such as paying your child’s private school tuition or college tuition, paying for a child or parent’s car, paying for a home business, etc.

The Chapter 7 and Chapter 13 trustees are filing objections based on these budget figures and are leaving it to the Judges to figure out what is a reasonable deviation.

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