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…]

Retiree With $25,000 of Credit Card Debt Contemplates Bankruptcy

Thank you for your informative web site.  I have 2 questions I am filing for SS as I am 63 my bill are current however I was laid off last year and my health is failing. If I file would I be able to keep my car?   I owe 16K on it as low milage (17K) my son will be giving me the payments.  Also I have been renting this small house for the past 5 years I have never been late with the rent do I have to notify the landlord if I plan to stay here? I own nothing but have 25K credit card debt all these bill are current but I have run out of savings
Christina

Jonathan Ginsberg responds:  Christina, thanks for your questions and the kind words about my Atlanta bankruptcy web site.  With regard to your car, in a Chapter 7, you can reaffirm your car note if (1) you are current on the note and the lender agrees to a reaffirmation and (2) you have less than $3,500 of equity in the vehicle.

Reaffirmation is a voluntary process most frequently used in the case of secured debt in which you keep your property and reassume full legal responsibility for the note.  If you are current and you have a source of funding for the payment, you should have no trouble reaffirming.

The $3,500 figure comes from Georgia’s exemption statute.  Under Georgia law (which applies to your bankruptcy case), you can shelter or "exempt" up to $3,500 of equity in your vehicle.  If you have more than $3,500 of equity, you would need to settle up with your Chapter 7 trustee and pay him the non-exempt portion of your equity – which he would use to pay creditors of your bankruptcy estate.

WIth regard to the lease, technically a rental contract is known as an "executory contract."  This means that its terms have not yet been fulfilled (the terms being your monthly lease obligations).  Until the October, 2005 changes to the law, most lawyers did not include current lease contracts in bankruptcy petitions.  Under the new law, however, an executory contract that is not "assumed" is deemed rejected.  So, it probably makes sense to include the lease contract on Schedule G of your petition and to assume the contract.   The potential problem with including the lease contract in your petition is the notice that will be given to the landlord.  Some large apartment complexes may be reluctant to give you a new lease if you have filed bankruptcy – this is rarely a problem with smaller ownership groups.

I would also note that if your only source of income is Social Security, and you have no assets, then you are basically judgment proof.  If you own only $25,000 and you are judgment proof, I wonder if filing Chapter 7 is really a good idea.

 

Will the Trustee Seize 100% of a Tax Refund if Only One Spouse Files Bankruptcy?

My question is if someone comes to you to file BK individually, but she is due a tax refund that is in her name as well as her husband’s, could the bank trustee only take 1/2 of the refund since the other 1/2 is considered an asset of her husband who is not filing?
–Jennifer

Jonathan Ginsberg responds:  Jennifer, you did not say where you live, but I will answer based on my experiences here in the Northern District of Georgia.

When this situation has come up, I show the tax refund as 50% property of the debtor, with the other 50% not part of the bankruptcy estate.  In 20 years, I have never had a trustee attempt to go after the non-filing spouse’s 50%.

If the trustee was to try to go after this money, I would think that we could look at the source of the refund kind of like the way a Superior Court judge would evaluate assets in a domestic relations (divorce) case.  Georgia is an "equitable division" State, meaning that the judge has the power to decide what is fair.

In your case, if your husband earned 95% of the income, the trustee might argue that more than 50% of the refund is his property.  In my view, that argument would not go very far.

I also think it matters how much money is at stake.  Usually tax refunds are less than $10,000.  I question whether a trustee would engage in litigation over $5,000 or less.

One other point – in most cases, you get a refund because your withholdings were higher than they needed to be.  In effect, you are using the U.S. Treasury as a (no interest) savings account.  I think that the U.S. trustee could look at your withholding pattern and make an argument that you have more disposable income than what is shown on the petition, if you adjust your withholdings to minimize your refund.

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