Tag Archives: fraud

When Chapter 7s Are Not So Simple

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The goal of most Chapter 7 cases is to get in and get out—file the petition, go to a hearing with your attorney a month later, and two months after the hearing, your debts get written off. Mission accomplished, end of story. And usually that’s how it goes. What are some reasons that a Chapter 7 case doesn’t go that way?

Four main kinds of problems can happen:

Income

Under the “means test,” if you made or received too much money in the 6 full calendar months before your Chapter 7 case is filed, you can be disqualified from Chapter 7. As a result, you can be forced into a 3-to-5 year Chapter 13 case, or have your case be dismissed altogether. These results can be avoided by careful timing of your case filing, or by making changes to your income beforehand, or by a proactive filing under Chapter 13.

Assets

In Chapter 7, if you have an asset that is not “exempt” (protected), the Chapter 7 trustee will be entitled to take and sell that asset, and pay the proceeds to your creditors. You might be happy to surrender a particular asset you don’t need in return for the discharge of your debts, in particular if the trustee is going use the proceeds in part to pay a debt that you want paid, such as a child support arrearage or an income tax obligation. But you may not want to surrender that asset, either because you think it is worth less than the trustee thinks or because you believe it fits within an exemption. Or you may simply want to pay off the trustee for the privilege of keeping that asset. In all these “asset” scenarios, there are complications not present in an undisputed “no asset” case.

Creditor Challenges to Discharge of a Debt

Creditors have the limited right to raise objections to the discharge of their individual debts, on grounds such as fraud, misrepresentation, theft, intentional injury to person or property, and similar bad acts. In most circumstances, the creditor must raise such objections within about three months of the filing of your Chapter 7 case. So once that deadline passes you no longer need to worry about this, as long as that creditor got appropriate notice of your case.

Trustee Challenges to Discharge of Any Debts

If you do not disclose all your assets or fail to answer other questions accurately, either in writing or orally at the hearing with the trustee, or if you fail to cooperate with the trustee’s investigation of your financial circumstances, you could lose the ability to discharge any of your debts. The bankruptcy system relies on the honesty and accuracy of debtors. So the system is quite harsh toward those who abuse the system by trying to hide things.

To repeat: most of the time, Chapter 7s are straightforward. That’s especially true if you have been completely honest and thorough with your attorney during your meetings and through the information and documents you’ve provided. In Chapter 7 cases that I do for my clients, my job is to have those cases run smoothly. I do that by carefully reviewing my clients’ circumstances to make sure that there is nothing troublesome, and if there is, to address it in advance in the best way possible. That way we will have a smooth case, or at least my clients will know in advance the risks involved. So, be honest and thorough with your attorney, to increase the odds of having a simple Chapter 7 case.

Discuss your financial situation with bankruptcy attorney Jennifer N. Weil by scheduling a phone appointment at (201) 676-0722 or by emailing weilattorney@gmail.com.

Chapter 7 Bankruptcy After Closing Your Business – Factors to Consider

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Meta Description: Filing for Chapter 7 bankruptcy after shutting down your business may seem like the best option, but there are three key factors to consider: assets, taxes, and other non-dischargeable debts. Consult with a lawyer to determine what’s best for you.

Introduction:

Closing down a business can be a difficult and emotional experience. After all the hard work and effort put into making it successful, it can be tempting to file for Chapter 7 bankruptcy for a fresh start. However, it’s important to consider the consequences before making a decision. In this blog post, we will discuss three factors to consider when deciding whether Chapter 7 bankruptcy is the right choice for you after closing your business.

  1. Business Assets:

Chapter 7 bankruptcy is divided into two categories: “no asset” and “asset.” In a “no asset” case, the Chapter 7 trustee decides that none of your assets are worth taking and selling to pay creditors. On the other hand, if your recently closed business has assets that are not exempt and are worth the trustee’s effort to collect and liquidate, it’s important to discuss with a lawyer whether Chapter 7 is in your best interest compared to what would happen to those assets in a Chapter 13 case.

  1. Taxes:

Closed-business bankruptcy cases often involve tax debts. While some taxes can be discharged in a Chapter 7 case, most cannot. Chapter 13 is often a better way to deal with taxes as it will depend on the type of tax and a series of other factors such as the time the tax became due and whether a tax return was filed.

  1. Other Non-dischargeable Debts:

Closed-business bankruptcies can result in more creditor challenges to the discharge of debts compared to other bankruptcy cases. These challenges are usually based on allegations of fraud against the business owner. Depending on the nature of the allegations, Chapter 13 may give you certain legal and tactical advantages over Chapter 7.

Conclusion:

Filing for Chapter 7 bankruptcy after closing down your business may seem like the best option, but it’s important to consider all factors before making a decision. The three factors discussed in this blog post – business assets, taxes, and other non-dischargeable debts – can play a significant role in determining what is best for you. It’s recommended to consult with a lawyer to help you make an informed decision.

If you are considering bankruptcy, it’s worth discussing your options; make a free phone appointment with Jennifer N. Weil, Esq. by clicking here.

Business Disputes and Bankruptcy: Avoiding Creditor Challenges

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Creditors can challenge the discharge of your debts in a bankruptcy case, especially when the bankruptcy is filed after a business shuts down. To avoid these challenges, it’s important to understand why they happen and what can be done to prevent them.

Reasons for Creditor Challenges:

  • Larger debt amounts, making litigation more tempting
  • Personal debtor-creditor relationships
  • Risky behavior by the business owner
  • Creditors may know about the debtor’s risky behavior

Often, former business owners considering bankruptcy feel that a creditor will challenge the discharge of their debts in court. But such challenges are relatively rare, for the following legal and practical reasons:

1. The legal grounds under which challenges to discharge can be raised are relatively narrow. Instead of proving the existence of a valid debt—as in a conventional lawsuit to collect on a debt—the creditor has to prove that the debtor engaged in behavior such as fraud in incurring the debt, embezzlement, larceny, fraud as a fiduciary, or intentional and malicious injury to property.

2. In bankruptcy, the debtor files under oath a set of extensive documents about his or her finances, and is also subject to questioning by the creditors about those documents and about anything else relevant to the discharge of the debts. When these documents, along with any questioning, reveal that the debtor genuinely has nothing worth chasing—as is most often the case—this tends to cool the anger of most creditors. Only the most motivated of creditors will be willing to throw the proverbial good money after bad in the hopes of getting nothing more than a questionably collectible judgment.

In conclusion, a dischargeability challenge can turn a simple bankruptcy case into a complex one. Hiring an experienced bankruptcy attorney can help you avoid challenges and defend against them if necessary. Contact an attorney if you have reason to believe that a creditor may challenge the discharge of your debts.

To discuss options – bankruptcy and non-bankruptcy – in resolving your debt, schedule a free telephone call with New Jersey bankruptcy attorney Jennifer N. Weil, Esq. at this Setmore page or by emailing weilattorney@gmail.com.

Avoid using credit cards before bankruptcy

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Using credit cards to buy holiday gifts could mean that you will have to pay back those credit charges if you file for bankruptcy. This is a possibility even if you intended to pay on the cards when you made those purchases.

The Bankruptcy Code has specific rules about the consequences of using credit to buy “luxury goods or services” during the months before a bankruptcy filing.  One rule is that if you use a credit card—or any other type of consumer credit—to buy more than $500 of consumer “luxury goods or services” through a single creditor within the 90 days before filing bankruptcy, a “presumption” is created that this debt is not dischargeable in bankruptcy.

Don’t let the word “luxury” deceive you – it is used to mean anything not “reasonably necessary” to support you or your dependents. Anything not used for survival is arguably not reasonably necessary. Even modest holiday gifts could be considered luxuries under this rule.

Another, similar rule applies to cash advances, except that the trigger dollar amount is $750 per creditor, and the period of time is within 70 days before filing bankruptcy, with the same presumption that the debt would not be dischargeable.

While it is true that such presumptions can be defeated, it is not likely in practice. This is because coming up with the evidence necessary to overcome the presumption (you’d have to prove that you intended to pay the money back at the time you borrowed it) is usually not easy. And the high cost of showing the evidence to the court during a separate proceeding normally makes trying to do so not worthwhile. The attorney fees it would cost you to fight the issue would likely be more than the original amount you’re fighting over.

The bottom line is that if  you use consumer credit exceeding these dollar limits this holiday season and then file bankruptcy within the applicable 70 and 90-day periods, you will most likely have to pay for whatever credit charges you incurred during those periods. You can avoid these presumptions by waiting to file the bankruptcy until after those time periods have passed, but that isn’t always possible due to pending wage garnishments or other types of judgment execution. And even if you do wait, the creditor can still try to show that you had a bad intention when you made these credit charges. It’s best to just avoid the problem altogether by not using your credit cards or other lines of credit when there’s even an outside chance that you might need to file for bankruptcy.

Got debt problems? Call (201) 676-0722.

THE Goal of Bankruptcy: Discharge of Your Debts

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5708755837_b5af43415d_zMost, but not all, debts are written off, or “discharged,” in a bankruptcy case. Is there a simple way to know what will and what will not be discharged in a Chapter 7 bankruptcy?

No, not really.

I can give you a list of the categories of debts that can’t, or might not, be discharged, but some of those categories don’t have clear boundaries, and some depend on whether a creditor is going to challenge the discharge and how a judge might rule.

But why can’t it be simple? Here’s what you need to know:

1)  All debts are discharged, EXCEPT for those that fit within an exception.

2)  There ARE a lot of exceptions, BUT if you tell your attorney everything, you are likely to discover whether you have any debts that may not be discharged. Surprises are rare.

3)  Some debts are never discharged, NO MATTER WHAT: for example, child or spousal support, criminal fines and fees, and withholding taxes.

4)  Some debts are never discharged, but THAT’S ONLY IF the particular debt fits certain conditions: for example, income taxes, depending on conditions like how long ago the taxes were due and when the tax return was filed; and student loans, as long as conditions of “undue hardship” are not met.

5) Some debts are discharged, UNLESS timely challenged by the creditor and resulting in a ruling by the judge that the debt meets certain conditions involving fraud, misrepresentation, larceny, embezzlement, or intentional injury to person or property.

6)  A few debts (used to be many more) can’t be discharged in Chapter 7, BUT can be in Chapter 13: for example, divorce debts other than support.

The bad news: as simple as I would like to make it, determining what debts aren’t dischargeable isn’t simple. But there’s more good news than bad. First, for many people all the debts they want to discharge WILL be discharged. Second, an experienced bankruptcy attorney can predict which of your debts will be discharged. And third, if you have troublesome nondischargeable debts, Chapter 13 can be a decent way to keep those under control.

If you are in New Jersey and looking into bankruptcy, call Jennifer Weil now to schedule a consultation: (201) 676-0722.

 

Photo credit: Jason Meredith

What’s involved with discharging my debts under chapter 7?

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Discharge of debts

The point of filing bankruptcy is to get relief from your debts. So, when and how DO those debts get discharged in a regular Chapter 7 bankruptcy?

Here’s what you need to know:

1.      You’ll receive a discharge of your debts, so long as you play by the rules. Under Section 727 of the Bankruptcy Code, the bankruptcy court “shall grant the debtor a discharge” except in relatively unusual circumstances:

  • If you’re not an individual:  Corporations and other kinds of business entities do not receive a discharge of debts, only human beings do.
  • If you have received a discharge in an earlier case too recently. You can’t get a new discharge of your debts in a Chapter 7 case if:
    • you already received a discharge of debts in an earlier Chapter 7 case filed no more than 8 years before your present case was filed, or
    • you already received a discharge of debts in an earlier Chapter 13 case filed no more than 6 years before your present case was filed (except under limited conditions).
  • If you hide or destroy assets, conceal or destroy records about your financial condition.
  • If in connection with your Chapter 7 case you make a false oath, a false claim, or withhold information or records about your property or financial affairs.

2.      ALL your debts will be discharged, UNLESS a particular debt fits one of the specific exceptions. Section 523 of the Code lists those “exceptions to discharge.” I’m not going to discuss those exceptions in detail here, but the main ones include:

  • most but not all taxes
  • debts incurred through fraud or misrepresentation, including recent cash advances and “luxury” purchases
  • debts not listed on the bankruptcy schedules on time (although there is a major exception to this)
  • money owed because of embezzlement, larceny, or through other kinds of theft or fraud in a fiduciary relationship
  • child and spousal support
  • claims against you for intentional injury to another person or property
  • most but not all student loans
  • claims against you for causing injury or death to someone by driving while intoxicated (also applies to boating and flying)                                                                                                                   

3.      A discharge from the bankruptcy court stops a creditor from ever attempting to collect on the debt. Under Section 524, the discharge order acts as a court injunction any act to collect a debt. If a creditor violates this injunction by trying to pursue a discharged debt, the bankruptcy court may hold the creditor in contempt of court and, depending on the seriousness of its illegal behavior, can require the creditor to pay sanctions.

Photo credit:  Alan Cleaver