This information just released from the National Association of Consumer Bankruptcy Attorney’s (of which I am a member):
The Judicial Conference approved new filing fee increases effective June 1, 2014.
The administrative fee and a.p. filing fee increases are as follows:
The total new filing fee for each chapter will be as follows:
For filing a petition, or for filing a motion to divide a joint case, under Chapter 7: $335
For filing a petition, or for filing a motion to divide a joint case, under Chapter 12: $275
For filing a petition, or for filing a motion to divide a joint case, under Chapter 13: $310
For filing a petition under Chapter 9, 11, or 15: $1,717
If you consult with a bankruptcy lawyer about a possible Chapter 13, then you will likely hear them tossing around phrases such as, “100% plan” or “7% plan”. This sounds foreign, but I want to give you a quick explanation. When one files a Chapter 13, they propose a plan. This is very much like the reorganization of debt plans that businesses (and sometimes individuals) use to restructure in a Chapter 11. On a miniature scale, the individual debtor in a Chapter 13 is restructuring their debt via their plan.
One aspect of a plan that can be confirmed (approved by the court) is that it divides debts and creditors into different classes. The common classes are priority debts, such as recent income tax debt; secured debt, such as a car loan or mortgaged loan on your house; and unsecured debts, such as most credit cards. There are different rules for each class. For example, priority debts get paid in full in a plan. The rule for unsecured creditors is that each gets treated the same and will receive a pro-rata share of the payments made over an above what is required to pay priority and secured debts.
So, unsecured creditors are the last on the list of who gets paid and they only receive the leftovers. They must get as much in leftovers as they would have gotten in a Chapter 7, but this bottom number is usually zero. That is, most individual Chapter 7 bankruptcies have no non-exempt assets to be liquidated, divided and distributed. But, if your assets in the Chapter 13 are not entirely exempt, then you may have a higher dollar amount that must go to unsecured creditors. For example, if you can exempt all but $10,000.00 of the equity in the home you are keeping, then your unsecured creditors will have to collectively receive $10,000.00 over the course of your Chapter 13.
Now, the percentages I referred to above speaks to the pro-rata share each unsecured creditor will receive through the plan. Ordinarily, trustees will give higher scrutiny to expenses listed in your budget (Schedule J) when your plan only pays a very low percentage. Despite this, there are plans that get approved for debtors who are barely getting by where unsecured creditors get zero percent payment. From my experience, though, the average Chapter 13 debtor is going to repay 3 to 7% of their unsecured debts.
I have seen a number of 100% plans for debtors with relatively high income who fell behind because of a temporary job loss or some snowball effect of debt. In these plans, the trustees are typically less concerned about relatively high expenses and lifestyles.
My last post hit some highlights on tax debt from a presentation by Professor Williams at the 16th Biennial Judge Joe Lee Bankruptcy Institute. This post delves a bit deeper into a specific tax law I touched on in that last post. The tax code provision is 26 USC Sect 1398 and it applies specifically to Chapter 7 and Chapter 11 bankruptcy cases. It does not address Chapter 13 cases.
The main thrust of Sect. 1398 is to allow for a Debtor to make an election to treat their ordinary tax year as two separate, shorter tax years. The first tax year would go up to and include the day before a Chapter 7 or Chapter 11 is filed. The second tax year includes the filing date of the bankruptcy and runs through the remainder of the normal tax year. This does NOT happen automatically, so the Debtor must take affirmative action.
If a married couple file jointly, the Joint-Debtor may also make this same election, but again it has to be an affirmative step taken by the Joint-Debtor; the Debtor’s election does not automatically apply to the Joint-Debtor. The election of the Debtor and election of the Joint-Debtor must be made no later than the due date for filing the return for the first short year and it cannot be undone once made.
By making the election, income that is part of the bankruptcy estate is taxable to the estate instead of to the Debtor. An example of how this might matter for a consumer debtor is if the Debtor becomes entitled to an inheritance or lottery winnings during the 180 days after filing. These monies get pulled back into the estate and might not be exempt or only partially exempt. Without this election, the Debtor may be hit with taxes on monies they were not able to keep.
This tax code provision would most usually come into play for business related bankruptcy debtors. Even if the Debtor is an individual, they own a business entity that may not be exempt or only partially exempt. The revenue that business generates would be income to the estate to the extent that business entity is not exempt. This can occur through ongoing revenues of the business or liquidation. The Debtor, again, would not want to be liable for taxes on funds they cannot enjoy.
The 1398 provision does not, however, have any impact on tax debt arising prior to the filing of the bankruptcy and the vast majority of consumer debtors will never need to avail themselves of this election to split tax years. Business related debtors need to be mindful of this option when there are non-exempt assets. Businesses entering bankruptcy as an entity, rather than the individual owner, must remember this election.
These last years of recession afforded me the privilege of consulting with a number of small business owners. There are special concerns for the small business owner facing a debt crisis and so finding someone with experience in this area is paramount. Few small business owners would be good candidates for a Chapter 11 bankruptcy because of the expense involved, but it is wise to consult a practitioner that has a grasp of Chapter 11 issues even when looking at a Chapter 7 or possibly a Chapter 13.
Ordinarily, the small business owner’s personal finances are tied to the business finances in such a way that an individual Chapter 7 or Chapter 13 is necessary, even if most of the debt belongs to the business. In other words, just filing a Chapter 11 or Chapter 7 on the business almost always leaves the business owner still personally liable on the debt. The practitioner, then, must analyze whether both a business and an individual bankruptcy is necessary. If only a business entity needs to enter bankruptcy, then things remain fairly straightforward. If an individual (or joint for married folks) bankruptcy is required, then what will come of the business?
Very often the small business owner wants to keep their business up and running through the entire individual bankruptcy. Sometimes there are practical reasons behind this, but many times it is more of a sentiment. The small business owner understandably becomes very attached to the business entity. It is very common for the small business owner to have a hard time differentiating between themselves and the business because they have put so much work and care into it that it becomes an extension of themselves. Solid legal counsel can help you figure out just what the risk is of keeping the entity as a going concern versus letting is dissolve or filing a business bankruptcy.
One key factor the attorney must analyze is the value of the business. To do this, the assets, including accounts receivables, must be valued and any secured debt tied to those assets must be ascertained. Furthermore, is there transferable goodwill or a client list with substantial value? Is this a sole owner business or are there multiple owners? If multiple owners, how readily transferred are the debtor’s shares? Once a best estimate of the value is derived, the attorney must see if there are sufficient exemptions to cover the non-encumbered value (equity). If the value can be exempted, then the attorney must determine the likelihood of challenge by the trustee based on the nature of the business and help the small business owner decide what level of risk they are comfortable with. If the value cannot be exempted fully, then the lawyer should help sort out what a Chapter 13 plan payment would look like given the unique set of facts involved or if there is a source of funds to buy the non-exempt interest back from the trustee.
Depending on the option the owner/debtor chooses there are a number of other considerations to take into account beyond these basic ones listed. However, one thing is almost assured, unless the business is shut down or bankrupted too, a Chapter 7 will last one to two years rather than five to six months. The Chapter 13 would not be extended beyond its normal time frame, but that is three to five years.
- CAUTION: Tax Refund
- When Business Owners Should File Bankruptcy
- To File or Not to File: Attorney decision making
- Deadlines for Filing Prepetition Tax Returns in Chapter 13 Cases
- Delinquent Property Tax Claims in Chapter 13 Cases
- Lessons Learned the Hard Way
- Miscellaneous Hot Topics in the EDKY
- ‘Tis the Season
- How to Choose a Bankruptcy Lawyer
- The Entrepreneurship – Bankruptcy Intersection
- Making Chapter 13 Plan Payments in the E.D. Ky. – New Online Payment Option
- “I’ve Changed My Mind – I Want to Surrender My House”: What Effect Does Post-Confirmation Surrender Have on the Debtor’s Discharge?
- Alternate Debt Relief
- attorney fees
- Automatic Stay
- Business debt
- Cash Advances
- Chapter 11
- Chapter 13
- Chapter 7
- Credit Counseling & Debtor Education
- Debt solution centers
- Disposable Income / Budget
- Home Loan Modification
- Home loan modifications
- Means test
- Plan payments
- Pre-filing planning
- Preference / Preferential payments
- Proof of Claim
- Property (exempt
- reaffirm or surrender)
- Redeem / Redemption
- Security interests
- Student loans
- Tax Debts
- The estate
- Business & small business
- child custody
- child support
- Civil Procedure
- consumer bankruptcy
- consumer debt
- Debt collection
- dissipation of assets
- Estate Planning
- Family Law
- Life & Law
- Marital Assets
- Negotaion & conflict resolution
- property allocation
- Solo & Small Firm
- Visitation/Time sharing
- Words & Phrases