Category Archives: Chapter 13

Bankruptcy Alphabet - U is for Utilities

Utilities are obviously important to our everyday functioning. We need water to drink, gas to heat us in the winter and electricity to turn on the lights. A couple of issues can arise in the bankruptcy context regarding utilities.

Discharging Utilities

If you owe PG&E or whoever provides you your basic utilities on the date of filing, you can discharge this. If it’s just your monthly bill and you are current, waiting for a bill to arrive just to discharge probably does not make sense. It may in fact cause complications that we will discuss below. But if you could not pay the phone bill or gas company for several months, you can certainly be rid of that debt through Chapter 7 or Chapter 13 bankruptcy.

Using Utilities After Bankruptcy

If you never owed and discharged a utility company debt in bankruptcy, you can continue to use the service as you did before.

If, however, you discharged a few months of gas and electric bill from PG&E, and you want to continue to use PG&E, it can demand a payment, deposit or assurance of some type to guarantee providing further services. Usually the demand is reasonable, but if your average gas bill is $75/mo., demanding $1,000 is unreasonable, and probably not doable for most people. If a utility company seeking assurances through a deposit goes too far, you can ask the judge to modify the amount.

Be aware of the 20 day deadline. Upon filing bankruptcy, if discharging utilities, that company may terminate services to you if it does not receive an adequate deposit within 20 days. If you are discharging some past utility bills, it’s probably best to play it safe and call the utility after filing to see if it requires a payment, and how much it requires. It’s better to find out that it wants a $100, than to flip the switch when you get home, and not lights come one.

The bottom line with utilities is that the bankruptcy code attempts to strike a balance. It recognizes that they are important and cannot terminate services immediately, but may demand some assurances in order to continue providing services after discharging previous bills in bankruptcy.

Image courtesy of Leo Reynolds

Podcast #12 - Do I make too much money to file bankruptcy?

This podcast addresses the question “do I make too much money to file for bankruptcy?”

One common questions clients asks us is “do I make to much money to file for bankruptcy?” In this podcast, we discuss the income limitations of Chapter 7 and Chapter 13 bankuptcy.

Do you have specific questions about your circumstances? Click here to schedule an appointment.

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Bankruptcy Alphabet - T is for Trustee

by Jeff Curl

The term trustee is used in bankruptcy quite a bit, and you might be wondering, “who is the bankruptcy trustee?” In typical consumer cases there is a Chapter 7 trustee or a Chapter 13 trustee, and then there is always the United States Trustee.

Chapter 7 Trustee

If you file for Chapter 7 bankruptcy, this is the trustee you will meet with at your meeting of creditors. For every Chapter 7 case that is filed, the United States Trustee appoints a Chapter 7 trustee to oversee the case. While appointed by a government agency, the Chapter 7 trustee is a private individual essentially operating a business.

Upon filing Chapter 7 bankruptcy, all of your property goes into the bankruptcy estate. The Chapter 7 trustee is the trustee of that bankruptcy estate, i.e., your property. This means that he or she controls your property upon filing bankruptcy. The trustee’s primary job is to examine your assets to determine if he or she can take and sell them, i.e., liquidate your belongings for the benefit of unsecured creditors.

In most Chapter 7 filings, the debtor is able to exempt and protect all property. In such cases, the trustee will not take and attempt to sell any of your property. A trustee gets paid a flat $60 for administering such a case. On the other hand, if the trustee is able to liquidate assets, he or she gets a percentage of from the sale.

Chapter 13 Trustee

Like a Chapter 7 trustee, a Chapter 13 trustee is appointed by the United States Trustee. A chapter 13 trustee does not take and liquidate your assets like a Chapter 7 trustee. In Chapter 13 you propose a plan to pay some portion of your debt over the period of time. The Chapter 13 trustee is charged with examining the proposed plan to ensure that the plan is fair.

Whereas a Chapter 7 trustee is usually more concerned with assets, a Chapter 13 trustee focuses on income and expenses, to ensure you repay a fair amount. The trustee may either challenge or recommend your proposed plan for confirmation. Confirmation is where the judge allows your proposed plan payment.

In Chapter 13, you send a check to Chapter 13 trustee each month, and he or she will take that money, and distribute it to the creditors over the life of your plan.

United States Trustee

The United States Trustee (UST for short), is a government agency. The UST is a division of the Department of Justice. The UST oversees the trustees and reviews all cases filed under Chapter 7 and Chapter 13 bankruptcy. In Chapter 7, the UST looks for abuses by the debtor, and will look at excessive fees paid to attorneys or bankruptcy petition preparers.

In Chapter 13, the UST spends more time overseeing the Chapter 13 trustee, ensuring that the Chapter 13 trustee is bonded, audited, monitored for trust accounting and reviews his or her budget.

Photo courtesy of chrisinplymouth

Bankruptcy Alphabet - S is Sole Proprietorship

by Jeff Curl

What happens to my sole proprietorship in bankruptcy?

Operating a sole proprietorship is a huge topic in bankruptcy that covers a lot of ground. So let’s take a couple of smaller bites and break down what operating a sole proprietorship means in bankruptcy. We have the pleasure of working with a lot of business own ers, and sole props have their own special issues.

You Cannot “Just File for the Business”

A lot of sole prop owners in financial distress ask if they can file the business only, and not involve themselves personally. The short answer is no. Having a license from the city to operate as a DBA (doing business as) does not create a separate legal entity. Corporations and LLCs are formed as separate entities under the laws of the state where they are formed. Sole proprietorships do not obtain this legal designation. So if you are John Smith DBA John’s Auto Shop, you will be filing yourself and business as one.

Filing a Sole Prop in Chapter 7

It is really important to understand what happens when filing Chapter 7 and you are operating a business as a sole prop. Here are couple of major considerations:

When you file Chapter 7, all of your assets go into the bankruptcy estate, including the inventory and receivables of the business. Your Chapter 7 trustee is the trustee of the estate, meaning she or he controls the assets. Understanding the values of your assets is paramount because you are allowed to exempt and keep a certain amount, but it is not unlimited. If you cannot protect everything, the trustee may liquidate your unprotected assets.

The trustee is also responsible for any liabilities that arises from the business. Therefore, there’s a risk that the trustee may demand that you cease operating your business while the trustee administers your assets. This varies by trustee to trustee and varies by the business. For example, operating a restaurant as a sole prop has many inherent liability potentials, such as payroll taxes, suits by employees against the business owner, and injuries claimed by patrons. Contrast this with the person working as a consultant with his or her laptop out of their home that raises less concerns from a liability perspective. This is a factually sensitive discussion you should have with your bankruptcy attorney.

Filing a Sole Prop in Chapter 13

There are several distinction between Chapter 7 and Chapter 13 when it comes to operating a proprietorship. Here’s a couple of important ones:

The sole proprietor can continue to operate the business in Chapter 13 without the threat of shutdown by the trustee as can happen in Chapter 7. A sole proprietor can also opt to shut down the business before or during a Chapter 13 as well.

A Chapter 13 trustee does not liquidate assets like a Chapter 7 trustee.

In other words, Chapter 13 generally offers flexibilities and forgiveness that are not available in Chapter 7. But sometimes one chapter is better than the other, or sometimes you only qualify for one. Operating a business leads to a lot of complicated issues quickly in the bankruptcy world, so please consult with a bankruptcy attorney familiar with these complications.

Photo by elycefeliz

Bankruptcy Alphabet - Q is for Qualify

Do I qualify for bankruptcy?

Any person filing for bankruptcy must meet a few basic criteria to be eligible for bankruptcy. Sometimes these requirements can present difficult obstacles to qualifying for bankruptcy protection but actions can be taken to cure these issues.

Qualifying for Chapter 7

To file for Chapter 7, you must meet the following criteria to qualify for bankruptcy:

Take a credit counseling course before you file

This part is easy. It’s not like you have to go to school. For about $35, you can take the course over the internet or by telephone. It lasts about an hour or so, and requires putting together a budget and expenses.

Fall below the income limits

You are entitled to a certain amount of income. If you have more income than the threshold, you must complete the means test that permits additional deductions to determine your monthly disposable income. If your income is low enough, you can file Chapter 7. There are ways around the means test, such as business debt and heavy tax debt; if the majority of your debt is “business” related, you get a pass on the means test.

Cannot have filed a previous bankruptcy within a certain period of time

To get a discharge a Chapter 7 to Chapter 7 must wait 8 years. Chapter 13 to Chapter 7 is six years unless in your Chapter 13 you paid 100% or 70% and made something referred to as your “best efforts.”

Qualifying for Chapter 13

To file for Chapter 13, you must do the following:

Take a credit counseling course before you file

It’s the same class described above.

Fall below the debt limits

A Debtor is barred from Chapter 13 bankruptcy if his or her debt exceeds $1,081,400 in secured debt and/or $360,475 in unsecured debt. If clients exceed these limits, sometimes actions can be taken such as selling a home. Taking any actions like these should be done in consultation with your bankruptcy attorney.