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Filing A Restaurant Bankruptcy

As Covid-19 rages on and restrictions for public gatherings ramp up, restaurants in Charlotte and the surrounding area—as well as the country—continue to feel the pain. Many restaurant owners indicate they are at a breaking point financially. During a time when sales are supposed to be highest and restaurants can make up for slower months, the exact opposite is happening.

We speak with small business owners every day regarding their financial predicament. This of course includes restaurant owners. What many small business owners are surprised to find out is that filing a restaurant bankruptcy can be the secret ingredient to future success.

Your Business Can Continue

The options in bankruptcy for restaurant owners have increased with the Small Business Reorganization Act. Together with Chapters 7, 11, and 13, most restaurant owners can find a bankruptcy solution which fits their particular needs.

The primary decision you will need to make is whether the business is going to continue to operate. If it is not, your bankruptcy lawyer will assist with a dissolution of the business in conjunction with the bankruptcy filing. If the business is going to continue, it can do so under either a Chapter 7, 13, or Small Business Reorganization. Chapter 11, an expensive bankruptcy option, is not usually required for a restaurant that is filing bankruptcy.

A recent article in the Philadelphia Inquirer makes specific mention of the concern business owners have regarding continuing operations. Particularly, the article addresses the concern regarding dealing with suppliers. Typically, suppliers will continue to work with you; however, they may require you to pay COD until you prove yourself with them over time.

You Can Protect Your Assets

The bankruptcy code allows for assets to be exempted from creditors. The ability to preserve assets is different depending upon the Chapter you are filing, and your bankruptcy lawyer will work with you to determine your asset exemption needs when strategizing which bankruptcy route to take.

There are some assets which are exempt from creditors in bankruptcy in an ‘unlimited’ amount—401k and retirement savings, for example—so it is important to speak with a bankruptcy lawyer before you start depleting those assets to keep your business running outside of bankruptcy.

Speak With A Charlotte Bankruptcy Lawyer Today

If you own a small business or restaurant, we are here to help. Speaking with someone about your options not only helps ease the anxiety and fear you are feeling, but also provides you with clear direction regarding your options. We know you have put your life into the business; bankruptcy can help you save it.

To speak with an attorney, call 704.749.7747 or click HERE to request a phone consultation. All consultations are free and can be conducted over the telephone.

Bankruptcy and Taxes

If you are considering filing bankruptcy, you may be interested in determining how income taxes are addressed in a bankruptcy filing. In order to determine how bankruptcy affects taxes, you must know the original due date the taxes came due. From there, you will need to know when you filed the tax return related to that tax debt. With an understanding of these two factors, you can determine the treatment of the debt in a Chapter 7 filing and a Chapter 13 filing.

The Taxes Must Be Three Years Old

Your tax obligation comes due on the date the taxes are due. For example, the taxes due for calendar year 2016 did not come due until April 15th, 2017. That tax debt turns three years old on April 15th, 2020. If you file your bankruptcy prior to April 15th, 2020, the debt will still have priority status. This means in a Chapter 7 the tax debt will survive the bankruptcy. In a Chapter 13, the debt will be paid  in full through your 60 month Chapter 13 plan.

If you file your bankruptcy after April 15th, 2020, the debt loses its status and is lumped in with other general unsecured debts in a Chapter 7 or Chapter 13 filing. In a Chapter 7, this means the debt is discharged in full. In a Chapter 13, a percentage of the debt will be paid just like the remainder of unsecured creditors receive a percentage of their debt through the Chapter 13 plan. Many Chapter 13 plans are set to pay 5 or 10 percent to unsecured creditors, or even less. This can be a tremendous advantage for individuals with heavy tax burdens who are considering bankruptcy. (If you want to read more about Chapter 13 payments, we wrote about them HERE).

Your Tax Return Must Be Filed

If your tax debt is more than three years old, there is a chance it qualifies to be treated as unsecured debt, as discussed above. However, there are a few additional requirements. One of those is that the tax returns related to that tax debt must have been filed at least two years prior to the bankruptcy filing. If you failed to file your own return and the taxing authority filed a “forced return” on your behalf, unfortunately even if that forced filing is more than two years old, it will not qualify for this requirement.

The 240 Day Rule

One last requirement is that the taxing authority must have assessed the tax debt at least 240 years prior to the filing. For example, consider a scenario where you file taxes April 15th of 2017 and owe $5,000.00. That tax debt turns three years old April 15th of 2020. However, if the IRS audits you for 2017 and assesses an additional $10,000 of debt for the 2017 tax year, you will need to wait at least 240 days from the date of the assessment of new taxes in order to have that debt discharged in bankruptcy.

Confused? Don’t Be!

We are here to help. We assess tax debt on a regular basis in our office and you will have confidence about the treatment of your tax debt prior to your bankruptcy filing. If you would like to schedule a consultation you can call us at 704.749.7747 or click HERE to request one. All consultations are free, and you deserve to understand your options regarding bankruptcy and taxes. When it comes to choosing a law firm, we know you have options. We hope you choose Layton Law.

Emergency Bankruptcy To Stop Foreclosure

Yes, you can file an emergency bankruptcy to stop a foreclosure. If you’re behind on your mortgage and your mortgage lender is about to sell your home in foreclosure, a Chapter 13 bankruptcy filing will freeze the foreclosure proceeding. Then, as long as you make your Chapter 13 payments as scheduled, your Chapter 13 plan will allow you to get caught up on the mortgage over the Plan period (typically 60 months).

What If The Sale Already Took Place?

In North Carolina, after a foreclosure sale, you have ten days within which you can file a bankruptcy to stop the foreclosure. If you have a court paper showing a sale date of January 1st, you would have 10 days after that date to file your Chapter 13 bankruptcy. Weekends and holidays are included in the 10 days, and if your 10th day falls on a weekend or holiday, you have until the next business day to file your Chapter 13.

Will My Mortgage Lender Object To The Bankruptcy?

Most mortgage lenders have no objection to a Chapter 13 bankruptcy. After all, it’s a court-approved plan to get caught up on the mortgage. The mortgage lender will file documents with the court laying out the balance owed on the mortgage and the amount you are behind (The “Arrears”). Your Chapter 13 bankruptcy lawyer will calculate your plan payments for you based on these figures as well as your monthly income and expense figures.

Even if the mortgage lender does object to the Chapter 13, there objection will not survive provided your Chapter 13 plan proposes to pay the normal monthly mortgage payment each month and make up the arrears over the course of the plan.

How Quickly Can I File An Emergency Bankruptcy?

Whether it’s a Chapter 7 or a Chapter 13, an emergency bankruptcy can be filed very quickly. You’ll need to take the mandatory online course required by the statute (it takes an hour), and you’ll need to meet with our firm to sign your bankruptcy petition prior to signing.

When you file an emergency bankruptcy to stop foreclosure, providing the court with the required documentation is very important. Typically, our firm will prepare for quite some time with a client before filing their bankruptcy. When we file an emergency bankruptcy, we have fourteen days to provide the court with the remainder of the information required for a successful bankruptcy. So, getting it filed is the first step, but be prepared to work quickly together to fulfill the remainder of the court’s requirements.

How Do I Get Started?

Getting started with an emergency bankruptcy to stop foreclosure is easy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

Discharging Student Loans in 2019

I have created a Google Alert for Student Loan Crisis. Every day my inbox tells me about one or another tales of how unpayable student loans are the key stressors for Millenials and Generation Z. One of the best measures for the sense of where our country is going is to analyze trending cases in bankruptcy courts that consider whether to discharge student loans in bankruptcy.

As many of us know, the general rule is that student loans are not dischargeable unless the debtor can show that the loans impose an “undue hardship.” While the Bankruptcy Code does not define this phrase, most courts have adopted a three part approach known as the “Brunner Test” to determine whether a debtor’s repayment of student loans after bankruptcy constitute “undue hardship.” The three parts, all of which must be satisfied, are:

  1. Will repaying the loan force the debtor to live an existence below a minimum standard of living?
  2. Will this condition likely persist into the foreseeable future?
  3. Has the debtor made a good faith effort to repay the student loans?

While the U.S. Supreme Court has not stated that the Brunner Test is the sole applicable standard, it has become the widely acknowledged standard around the country. I’ve taken a look at ten of the most recent student loan opinions to see if we can draw any conclusions about national trends in discharging student loans in bankruptcy.

In re Halatek (Eastern District of North Carolina)

  • Amount of Loan: 114,783
  • Held: Although Chapter 7 debtor suffered from Hypermobile Ethles-Danlos Syndrome and narcolepsy, she was gainfully employed by the State of North Carolina in a tenured, non-legal position, earned $66,192 in salary in 2016, debtor could not meet the first prong of the Brunner test because she had the ability to make payments on her student loan debt, while maintaining a minimal standard of living, if she reduced her discretionary expenses.

Analysis: North Carolina is a low income state, and $66,192 (right around median for a family of three) seemed simply too high for this court to find that this debtor could eliminate her student loans, notwithstanding her debilitating illness.

In re Tinsley (New Jersey)

  • Held: 1) whether or not a debtor is eligible for a zero-dollar-per-month repayment plan is not outcome determinative as to the first prong of the Brunner test. If the court finds that a debtor has reasonable expenses that significantly exceed their income and they would be unable to pay any loan amount, then the first prong is satisfied, even if a zero-dollar-per-month repayment plan is an option. 2) Debtor does not satisfy second prong of Brunner test where debtor medical condition does not prevent her from maintaining full-time employment for a significant portion of the repayment period, debtor’s expenses will decrease dramatically for a significant portion of the repayment period of the student loans, and debtor failed to produce any evidence that showed how her student loans have created a “stigma” in her life and how that stigma will impact her for a significant portion of the repayment period of the student loans.

Analysis: the Court added a “stigma” gloss to the second Brunner prong where none had existed previously. Plus, the likelihood that expenses would decrease caused the court to refuse to discharge the student loans.

In re Quackenbush (Southern District of Mississippi)

  • Amount of loan: $30,809 and $7,760 in accrued interest
  • Held: Debtor could not survive DOE’s motion for summary judgement even though debtor was unemployed and supporting her mother and mentally disabled daughter where debtor did not produce evidence that her situation was likely to persist for a significant portion of the repayment period of her loans, or that she had made a good faith effort to repay.

Analysis: the evidence required to discharge the student loan must be applied to every prong of the Brunner test. Borrowers frequently run afoul of the third prong because they have been simply unable to make any payments at all.

In re Regan (New Mexico)

  • Amount of Loan: $50,000
  • Held: Debtor, a 62 year old with an annual income of $44,444 could not discharge loans under Brunner because under the first prong of the Brunner test, evidence of her financial condition established that she could maintain a minimal standard of living even if forced to repay her student loans under an income-based repayment plan and public service loan forgiveness program; if she made payments under an IBRP, took advantage of the PSLFP, and made 114 consecutive qualifying payments, the remaining balance of her student loan debt would be forgiven in nine years, when she was 72.

Analysis: This opinion demonstrates the bias against discharging student loans in bankruptcy. The income of $44,444 was below the state median income, even for a household of only one person.

In re Lozada (SDNY)

  • Held: debtor fails first prong of Brunner test where his expenditures indicated that he lived a comfortable lifestyle and the record did not reveal any efforts to minimize discretionary expenses. Also, debtor has at least $1,400 of surplus income that he could apply towards paying his student loans. Debtors’ charitable donations totaling more than $100,000 in the five years preceding his bankruptcy also weighed against him.

Analysis: This was a fairly easy decision. Surplus income of any kind is typically enough to defeat a request to discharge student loans in bankruptcy.

In re Kinney (Northern District of Iowa)

  • Held: Debtor’s cosigning of niece’s student loans, where debtor receives no educational benefit from these loans, weighs against prohibiting discharge for debtor, so long as debtor can otherwise satisfy the Brunner test.

Analysis: this decision makes a nuanced distinction between guarantying another’s student loans and obtaining student loans for one’s own benefit.

In re Metz (Kansas)

  • Amount of Loan: $67,277
  • Held: 59 year old single debtor who filed bankruptcy under Chapter 13 was entitled to partial relief under the Brunner test where, although she had an income of $43,000, she could not make minimum monthly payments of $564 while maintaining a minimum standard of living, had few if any prospects of earning a higher salary, and would have been required to pay to work until she was 84 to pay the entire debt.

Analysis: like other cases, the age and low relative income of the debtor entitled her to obtain relief from her student loans.

In re Menefee (Eastern District of VA)

  • Held: debtor failed to satisfy any prong of Brunner test where she failed to provide any evidence as to her current income and expenses or the amount of her student loan payment, and thus did not establish that she could not maintain a minimum standard of living.

Analysis: this case raises the question of debtor’s good faith in attempting to obtain student loan relief. Debtors bear the burden of establishing the right to a discharge in bankruptcy for student loans.

In re Pierson (Northern District of Ohio)

  • Held: 1) debtor could satisfy first prong of Brunner test notwithstanding in the IBR repayment program at a zero monthly payment requirement. 2) Debtor met second prong of Brunner test where debtor struggles with learning disabilities and bi-polar manic-depressive disorder and thus had limited future earning potential. 3) Debtor could satisfy third prong of Brunner test where he utilized administrative assistance such as requesting forbearance and did not seek discharge until 20 years after his education. Discharge granted.

Analysis: this case would provide the greatest hope for those who would seek to discharge student loans in bankruptcy. This debtor overcame two of the greatest hurdles facing such debtors: participating in an income based repayment program and seeking forbearance and deferment instead of outright making payments. This court certainly focused on the debtor’s long term mental health struggles.

 In re Richardson (Southern District of Georgia)

  • Held: debtor fails first prong of Brunner test where creditor shows that debtor could maintain minimal standard of living by limiting his retirement plan payroll deductions.

Analysis: voluntary deduction for retirement plans frequently interfere with a debtor’s efforts to discharge student loans or otherwise obtain bankruptcy relief. Courts frequently view such deductions as a debtor paying themselves before paying creditors. On the other hand, if a debtor can’t possibly save for retirement because he owes exorbitant student loans, then why is that not an undue hardship?

Conclusion: as much as we would like for bankruptcy courts to take up the mantle of addressing the huge social problem imposed by ruinous student loan debt, it appears almost certain that the final word must be made by Congress. However, if an enterprising attorney were to bring this matter to the Supreme Court who would articulate a standard that is less rigid than the Brunner Test, as traditionally applied by bankruptcy courts, that could open doors for huge change in the world of student loans and bankruptcy.

This article was contributed by Ronald J. Drescher. He can be reached at www.drescherlaw.com or 410.484.9000.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy or have questions about discharging student loans,  it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

What Is The Bankruptcy Process?

Thank you for choosing to work with The Layton Law Firm to file your bankruptcy. Completing the online MyCaseInfo questionnaire is required in order to see if you qualify for Chapter 7 or Chapter 13. Once you have completed the questionnaire, we can analyze it and confirm for you that bankruptcy is a good option. The bankruptcy process can be smooth and painless if you and your bankruptcy lawyer have a good working relationship.

After confirming whether you will file a Chapter 7 or 13, we put a plan in motion to gather all necessary documentation and information required for a successful bankruptcy filing. Generally speaking, this article Is meant to help you understand the process going forward. If you need to file an Emergency Bankruptcy, this article still applies; however, your bankruptcy will be filed first, and then we will quickly work to fulfill the remaining steps.

Gathering Required Documentation

Before we can put together a draft of your petition for you, we need to review certain documents. You will be provided with a short list of documents we need. For example, we need copies of your mortgage statement and vehicle loan statements to confirm balances. We can also verify your income with the pay stubs you provide. Your bank statements help us to identify any transfers which need to be disclosed in bankruptcy in order to comply with the bankruptcy code.

Bankruptcy law firms have a duty to hold certain supporting documentation and deliver it to the bankruptcy trustee upon filing, or if requested. While we try to limit the documentation required, please know we are only trying to insure a successful filing for you.

If you are a small business owner, you will most likely need to submit a 12 month profit and loss statement, to show the court how much income you are generating from the business. Most business owners can file a Chapter 7 or 13, and are not required to file a Chapter 11 business bankruptcy.

Answering Follow Up Questions

Once we have had time to review the documentation you provide, we will quickly follow up with you, with any questions we have. We may ask you to assist in determining the value of an asset, or to help us properly disclose the sale of some property that took place in the time frame leading up to the bankruptcy filing.

Drafting Your Petition

Once we have your documentation and we’ve resolved any questions we had regarding income and assets, we can draft your bankruptcy petition. The bankruptcy petition is the document which requests the court to grant you the relief allowed by the bankruptcy code, in exchange for full disclosure in compliance with the rules of bankruptcy.

The petition is the debtor’s vehicle for thoroughly disclosing income and assets, and also identifying creditors so that the court can provide the creditors with notice of your bankruptcy filing. The petition is your way to communicate your entire financial picture to the court. The trustee will examine the petition during the time leading up to your 341 meeting, and may request additional information about items listed in the petition. It’s important that the petition is accurate, and our job is to help you meet that goal.

Reviewing Your Petition Draft

Having a draft of the petition marks a significant step in the process and indicates you are in the homestretch toward your filing. We will provide you a draft copy to review, and schedule a phone call or a time to meet together, to go over the items in the petition. This document is a very helpful tool in assisting the attorney and the debtor in properly identifying assets, income, expenses and creditors.

Finalizing The Petition

After the review process, our firm will make any necessary changes to the petition. At that time, you will be asked to review those changes and sign the petition. While we can file your petition electronically, you have to sign it before it is filed.

Attending The 341 Meeting

Once your petition is filed, the court will assign a 341 meeting date. This date is typically 45 days after the filing date. This gives both the attorney and the debtor plenty of time to make sure their schedule will allow them to attend. Requests to reschedule the 341 meeting are not often granted, and should be reserved for emergencies only.

At the 341 meeting, the trustee will ask you if you reviewed the petition and signed it. He or she will also ask you and your attorney about a few items disclosed on the petition. In some cases, the trustee may ask for additional documentation. For example, if you disclosed that you sold a vehicle six months before filing your petition, the trustee may ask your attorney to provide proof of the sale.

The 341 meeting is typically the only court appearance the debtor makes.

Filing Reaffirmation Agreements

If you are reaffirming any debt as part of your bankruptcy, the reaffirmation agreements will need to be generated, signed and filed shortly after the 341 meeting. We will discuss reaffirmation agreements with you before we file the bankruptcy, and in many cases there is no need for a reaffirmation agreement.

Completing The Financial Management Class

Before your discharge is entered, you must complete the second and final online counseling course. It’s just the rule.

Receiving Your Discharge

After a waiting period for creditors to object—they rarely do—your discharge will be entered and your case will be closed. This is the final step in the bankruptcy process.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

What To Expect After Filing Bankruptcy

When you file bankruptcy, you should feel an instant sense of relief. Your bankruptcy attorney has filed the paperwork, and the court has sent out notices of the filing to your creditors. The Automatic Stay immediately goes into effect, which means your creditors are no longer allowed to contact you. You are on your way toward a brighter financial future. Below, we address some common concerns clients have shortly after filing.

The Post-Bankruptcy Timeline

If you file a Chapter 7 or a Chapter 13 bankruptcy, you will receive notice within a week, of your 341 meeting date. The 341 meeting date is typically 45 days after the bankruptcy is filed. The meeting only takes about 10 minutes and your attorney will attend with you. The advance notice is provided so you can make sure to clear your schedule. You can read further in our blog about what happens at a 341 meeting if you like.

Note also that the trustee may request additional documents at the 341 meeting. These may be bank statements, or other information related to assets or debts. The trustee will typically continue the meeting for a few weeks. So long as you provide the requested documentation within 14 days, you do not have to attend a continued 341 meeting.

Chapter 13 Payments

If you have filed Chapter 13, you will need to make your first Chapter 13 payment within 30 days of the bankruptcy filing. Because it takes seven days for your payment to post, you should make sure to mail your payment no later than 21 days after the bankruptcy was filed. Making on time payments in Chapter 13 is a key part of not having your Chapter 13 case dismissed. You will be provided guidance as to how to make a payment.

Taking The Financial Management Course

Once you file, you will need to take a second online course called the Financial Management course, or the Post Bankruptcy course. This is true of Chapter 7 or Chapter 13. The course is for education purposes only, but it is a requirement that it is completed prior to the entry of your discharge. A failure to take the course in the required time will result in you not receiving your discharge. Taking the Financial Management course should be done prior to your 341 meeting. Our firm pays for both the Credit Counseling course you take before filing, and the Financial Management course you take after filing.

Reaffirming Vehicle Loans

In Chapter 13, there is nothing to do regarding your vehicle except to make your monthly Chapter 13 payment. If you have decided to keep your vehicle in Chapter 7 bankruptcy, you may need to complete a Reaffirmation agreement with the lender. Essentially, if you want to keep your car, and if the car has a loan, you must complete and submit the Reaffirmation agreement as quickly as possible after filing. In any case, it must be completed prior to the entry of discharge. In a Chapter 7, this means you have roughly 60 days to complete the Reaffirmation agreement and return it to the lender with enough time for them to review it and file it.

While we will assist with completing the Reaffirmation agreement, you will need to request it from your lender. Steps should be taken toward this as quickly after you file your bankruptcy as possible—certainly no later than two weeks after filing. It will take time for the lender to draft the agreement and send it to our office.

When you reaffirm a vehicle loan, you are re-obligating yourself to the debt. This is done under the same interest rate, terms and repayment period. Additionally, once you reaffirm, any payments you make on the loan will be reported by the lender to the credit bureaus and will help to rebuild your credit.

Surrendering A Vehicle

If you are surrendering a vehicle in bankruptcy, you will simply need to reach out to the lender and make arrangements for them to pick up the vehicle. In the alternative, you can deliver the vehicle to them. This process is quite painless, but you should take steps shortly after filing, to complete the process.

Making Car Payments

In Chapter 13, your car payments are built into your Chapter 13 payment. In Chapter 7, if you plan to keep your car in bankruptcy, you will find that until your bankruptcy case closes, you will most likely need to make your monthly car payments to the bankruptcy division of your car lender’s office. This is a procedural matter for the car lender, and is a temporary payment situation until your cases closes. Once your case closes, you can resume auto-draft or any other type of payment method available prior to your bankruptcy filing.

Redeeming A Vehicle Loan

You may also choose to Redeem a vehicle loan in Chapter 7. This is a process by which you take out a new loan with a redemption company such as 722 Redemption. They will pay off your current vehicle loan, and going forward you will pay the new loan and keep the car. This is usually done to avoid reaffirming a vehicle loan with a very high interest rate, lower the loan balance to the blue book value, and may even offer a longer repayment period than a Reaffirmation. If you wish to start this process, you must reach out to a redemption company as soon as possible after the filing of your bankruptcy.

Home Mortgage Concerns

In Chapter 13, you simply make your Chapter 13 payment. In Chapter 7, as opposed to Reaffirmations on vehicles, you can generally keep your home so long as you continue to pay your mortgage. There is a public policy against reaffirming a home loan. The theory behind this is that your bankruptcy filing relieved you of the obligation to repay the home loan. To enter into a large debt immediately after filing bankruptcy may not be advisable. Supposing the housing market crashed after your bankruptcy. If you never entered into a home Reaffirmation, you could simply turn the home over to the mortgage lender and you would not be responsible for any remainder on the loan if the home is upside down.

For this reason, most individuals choose to “Retain and Pay” the mortgage. This means that as long as you continue to make mortgage payments, you are allowed to keep your home. You do not need to sign a home reaffirmation agreement. Additionally, your lender can not foreclose on the property if you are current. Lastly, your mortgage balance will reflect any payments you make, over time.

The only downside to not reaffirming a home loan is that the lender will typically NOT report the payments to the credit bureaus. This means you won’t get credit for your mortgage payments, and your credit score will not reflect them. You can address this yourself at the end of each year by submitting a list of payments you made on the mortgage, to each credit bureau. If the mortgage lender does not dispute them, you will be given credit for the payments on your credit report.

Your Credit Score After Bankruptcy

Everyone is concerned about their credit score after bankruptcy. You will be surprised how quickly your credit score recovers after bankruptcy. Additionally, you will receive offers for credit cards and vehicle financing shortly after your discharge. In most cases, our clients are able to purchase new homes two years after filing bankruptcy. You can read more about Your Credit Score After Bankruptcy on our blog.

The Discharge

In Chapter 7, after replying to any trustee requests for documents, filing Reaffirmation agreements, and taking your Financial Management course, your discharge will be entered. This means your case is officially closed and you have no further obligations in bankruptcy.

In Chapter 13, your discharge will be entered after you make your final Chapter 13 payment.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

How Is A Chapter 13 Plan Calculation Performed?

A Chapter 13 plan calculation is based on two premises: your budget (ability to pay), and your mandatory repayments.

The Chapter 13 Budget

One premise behind Chapter 13 is that you must pay all disposable income to your creditors. This is known as your ability to pay. As such, you must show the court your ability to pay in the paperwork you file. You and your bankruptcy attorney will propose a budget to the court. The budget will be laid out in your filing as Schedule I (Income) and Schedule J (Expenses). Any ‘left over’ money in your budget must be committed to your unsecured creditors each month as Net Disposable Income.

When calculating the budget, your mortgage and vehicle payment are accounted for, together with all other ordinary and ongoing income and expenses. While the budget is not exact, you must use good faith efforts to disclose your anticipated ongoing income and expenses. The items you do not put into your budget are the ongoing debt payments to creditors—those are being removed as part of the relief offered by Chapter 13. Again, your Net Disposable Income (Sample of Net Disposable Income form) will be assigned to those creditors each month. If your plan is approve, they are required to accept those amounts as payment.

Chapter 13 Budget Example

A very simplified Chapter 13 budget example would be as follows:

Gross Monthly Income – $4,000.00

Monthly Expenses –  $3,890 (Taxes $900, Mortgage $1,600, Vehicle $340, Food $600, Utilities $375, Home Maintenance $150, HOA $150, Hobbies/Entertainment $150, Health Insurance $450, Misc. $75)

Net Disposable Income – $110

In the example above, your Net Disposable Income (Income minus Expenses) is $110. You would need to commit $110 per month to your Chapter 13 creditors as part of your Chapter 13 plan calculation.

Mandatory Chapter 13 Payments

While your budget shows your ability to pay creditors, there are also mandatory payments which must be considered when calculating your Chapter 13 payment. In the example above, the debtor is keeping their home and vehicle. Both of those items have payments. As such, those payments are built into the calculation.

Suppose the debtor also owed the IRS $2,000. If that debt is from taxes which are less than 3 years old at the time of filing, that is a mandatory payment which must be paid in full over the life of the plan. When divided over a 60 month plan, the $2,000 debt comes to roughly $33 per month. As such, the $110 does not change for the debtor; however, $33 of that $110 each month will go to the IRS. This is an example of how the ability to pay works in tandem with mandatory payments.

Other examples of mandatory payments include: attorney fees, filing fees, mortgage arrears, vehicle arrears, child support, state taxes owed.

What If Mandatory Payments Exceed Net Disposable Income?

If your budget is very tight and you have a large mandatory payment which must be paid in full during your plan, you must show the court that despite the calculations, your plan is still feasible. Taking the example above, if the debtor owed the IRS $10,000, this would amount to a $166/month payment to the IRS; however, the debtor already established they only have $110 available for Chapter 13. Without further explanation, the trustee would object to the proposed plan because it is not ‘feasible’ given the debtor’s current budget.

One way to overcome feasibility objections in a Chapter 13 plan calculation is to provide an explanation to the court in your filing, showing the court why you believe you will be able to make the payments. It could be that you have a family member who has told you they will help out. Or, perhaps you expect your income to increase slightly in the near future. Perhaps a certain monthly expense is about to be removed from your budget. Any one or all of those things will start a conversation with the trustee about the feasibility of your plan.

Our experience has been that the easiest way to overcome a feasibility objection is to make your payments on time. In other words, when your attorney files your Chapter 13 case, you should make a full payment as quickly as possible. This way, when you attend your 341 hearing, the court will see that you’ve already demonstrated your ability to pay by making a payment on time. This, together with an explanation as to why you think ongoing payments are feasible, will most likely appease the court.

Additional Items Making Up The Chapter 13 Payment

If you still owe your attorney fees, those will be treated as a mandatory fee and will be calculated as the IRS payment was calculated above. Additionally, the trustee’s office charges a 4% fee for every dollar that flows through the plan. Therefore, if your mortgage is $1,000 and you have a budget of $100 Net Disposable Income, you will have a trustee fee of $44 added to the payment. Your bankruptcy attorney will account for this in the calculations—it will not be an additional fee.

If you own property, you must determine the equity in the property. The bankruptcy court allows you to keep a certain amount of equity in property, and these allowances are known as Exemptions. If your equity exceeds the allowable exemptions, you must propose a plan which pays at least that excess amount to the unsecured creditors, over the course of the plan. Your bankruptcy attorney will make sure your plan meets this test.

Gaining Perspective Regarding Your Chapter 13 Payment

Keep in mind, you may be discouraged about paying a trustee fee, or committing $100 a month to unsecured creditors; however, when you look at the full picture, Chapter 13 typically offers debtors a very enticing deal. In exchange for paying a very small payment to unsecured creditors each month, the remainder of the debt will be discharged. In the example above, if the debtor has $50,000 of unsecured debt, the Chapter 13 plan will allow them to receive a discharge of that debt in exchange for roughly $6,300 spread out over 60 months.

Speak With A Charlotte Bankruptcy Attorney Today

If you have not already, speak with a Charlotte bankruptcy attorney today. We can be reached at 704.749.7747 and we’re happy to help you understand the options. You can also request a FREE CONSULTATION and we will be in touch soon.

Can I File Bankruptcy Without My Spouse?

Yes, you can file bankruptcy without your spouse. When deciding whether to file bankruptcy with or without your spouse, there are a few factors to consider. We’re here to help you sort through the decision-making process and make the best choice for you and your family. Click HERE to request a free consultation, or call 704.749.7747 to speak with an attorney.

Examining Your Joint Debt Before Filing

The primary purpose of filing bankruptcy is to free yourself from debt. Bankruptcy is typically referred to as a Fresh Start. Because of the powerful relief offered by a bankruptcy filing, you truly do get a fresh start after your case closes. For this reason, our first priority with clients is to make sure we are discharging as much debt as possible in bankrutpcy. Quite often, this analysis will answer the question whether to file bankruptcy with or without your spouse.

For a household that has $100,000 in credit card debt, a Chapter 7 or Chapter 13 filing will provide much needed relief. If half of that debt is joint debt between you and your spouse, the bankruptcy filing would only provide your household with half of the available relief, which we see as a bad result.

Can I File Bankruptcy Without My Spouse If We Have Joint Debt?

If you and your spouse are both debtors on a credit card debt with a balance of $10,000, your bankruptcy filing will relieve you of your obligation to repay that debt; however, if your spouse does not join in the filing or file her own bankruptcy, she will still be liable for the entire $10,000 balance on the debt. As a result, unless there is a pressing reason to not file a joint bankruptcy, we strongly encourage it.

Preserving The Credit Score Of One Spouse

One strategy for not filing a joint bankruptcy is that you want to preserve the credit score of one spouse, for future purchases and credit. While this may have some appeal, more often than not it is misguided. Unless clients are planning on purchasing a new home shortly after the bankruptcy filing of one spouse, preserving your credit score is usually a high price to pay for continuing to carry burdensome debt as a married couple. We have written extensively about how your credit score will recover after bankruptcy, and the news is good. In fact, our favorite bankruptcy clients are those individuals and couples who have already purchased a home and have working vehicles—they can wait the year or two after bankruptcy for their credit scores to recover, before entering into large credit transactions.

Household Income In A Bankruptcy Filing

There may be instances where one spouse makes more income than the other. In these situations, you may think the spouse with lower income can file bankruptcy despite the income of their spouse. For better or worse, the bankruptcy court looks at the income of the entire household when determining whether you pass The Means Test in bankruptcy. As a result, both your income and your spouse’s income will need to be considered when determining whether you qualify to file Chapter 7. Additionally, if you’re considering  Chapter 13 filing, your household income will be a factor in determining your Chapter 13 payment.

Fortunately, if one spouse is filing and the other is not, there is an opportunity to take what is known as a Marital Adjustment when calculating household income. In this instance, we are able to exclude any household income which the non-filing spouse is spending on him or herself. This includes, but is not limited to: hobbies, health insurance, food, vehicle, etc. When these expenses are carefully investigated, quite often they make the difference for passing The Means Test.

Joint Mortgages In Bankruptcy

Filing a bankruptcy without your spouse will not affect a joint mortgage negatively. In a Chapter 7 filing, you will need to be current on the mortgage when filing, or make a decision to surrender the property to the bankruptcy court. In Chapter 13, one spouse can use the bankrutpcy filing to get ‘caught up’ on the mortgage; in the meantime, so long as the Chapter 13 payments are consistently made, the non-filing spouse will be protected from the mortgage creditor, the same as the spouse who filed the bankruptcy.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article regarding “Can I file bankruptcy without my spouse?” was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

How Does Bankruptcy Affect Tax Refunds?

Tax refunds are protected in bankruptcy by the bankruptcy exemptions available to all debtors. Your tax refund is an asset, and must be declared as an asset on your bankruptcy case filing. By applying the bankruptcy exemptions to the refund, you can keep the refund.

Bankruptcy Exemptions To Protect Tax Refunds

The Bankruptcy Code provides for debtors to retain property even when filing a bankruptcy. It is for this reason that you can typically keep your home in bankruptcy or keep your car in bankruptcy. The allowances which dictate how much value in an asset is protected in bankruptcy are called Exemptions. Tax refunds are a general asset, and as such, you can protect them by using N.C.G.S. Sec. 1C-1601(a)(2). This is commonly referred to as the “Wild Card” exemption. It allows you to protect up to $5,000 of any asset, including your tax refunds. The exemption applies to each debtor. For a married couple filing bankruptcy, you would have $10,000 available under the Wild Card exemption.

Refunds Received Before Filing Bankruptcy

If you receive your tax refund before you file bankruptcy, you may still need to protect it by using an exemption. It is perfectly fine to spend your tax refund before you file bankruptcy. You may decide to use it to pay for bankruptcy, pay for some home repairs, buy new car tires, or pay for normal living expenses. These expenditures are perfectly allowable in bankruptcy and will not negatively affect your bankruptcy filing. If you have funds remaining from your tax refund when you file bankruptcy, you will use the Wild Card exemption to protect those remaining funds.

Tax Refunds In Chapter 13

If you are filing a Chapter 13 bankruptcy, you will need to disclose your tax refunds each year that you are in the Chapter 13. If your tax refunds are the result of an earned income credit or child tax credit, they are exempt in bankruptcy and you can keep them. Generally, you can also keep the first $1,000 of a tax refund each year. If your tax refund exceeds $1,000, your Charlotte bankruptcy attorney will disclose the refund to the Chapter 13 trustee. This is a good time to also tell the trustee if you have household expenses which you have been putting off. You can propose to keep your tax refund to take care of those household expenses, provided they are not luxurious.

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article addressing “How Does Bankruptcy Affect Tax Refunds?” was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

What Does Bankruptcy Do To Your Credit Score?

Bankruptcy affects your credit score differently, depending upon what your credit score is just prior to filing. You can expect that your credit score will drop after filing bankruptcy, but it will also recover quickly if you take the right steps after bankruptcy to increase your credit score.

If your credit score is above 650 before filing bankruptcy, you can expect a significant drop in your credit score, according to Experian. However, you should remember that your purpose for filing bankruptcy is less related to your credit score and more related to being able to balance your budget. You can recover your credit score after the debt is gone.

If your credit score is below 650 before filing bankruptcy, you can expect your credit score to drop but not in a significant way. In fact, your credit score will bounce back within a year from filing the bankruptcy and go up from there.

Does Chapter 7 Affect My Credit Score Differently Than Chapter 13?

When it comes to your credit score, it does not matter what chapter of bankruptcy you file. Some clients feel better about filing a Chapter 13 than a Chapter 7 because in a Chapter 13 you are paying back some of your debt. We encourage clients to file the chapter of bankruptcy that makes most financial sense for them. We help you to make that decision, of course.

Improving Your Credit Score After Bankruptcy

Keep in mind that while filing bankruptcy lowers your credit score, you will also get a bump up in your score when your debt to income ratio changes. While filing bankruptcy doesn’t change your income, it does change your debt. As a result, your “debt to income” ratio changes in your favor. This is one of the key factors used to calculate your credit score.

Once your bankruptcy case closes, the key to improving your credit score is to make payments to creditors who will report your payments to the credit reporting agencies. Most commonly, mortgage payments and vehicle loan payments are a way to do this. If you do not own a home or car, you can take out a secured credit card at a local credit union. This is a quasi-credit arrangement where you give the credit union a small amount of money. Then, each month, you spend or borrow against that money by making purchases on the card. When the monthly statement comes, you pay it off. In exchange, the credit union will report your payments as positive payments to the credit agencies and it will help build your credit.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article regarding “What does bankruptcy do to your credit score?” was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.