Can Children Attend the Creditors Meeting?
The creditors’ meeting is a serious affair and can take several hours. Most children (adults too) will find it boring and may not be able to sit still that long. While you may bring your child with you, if he or she can’t remain quiet and sit still for an extended period of time it may be best to find some kind of child care. The Bankruptcy Trustee will want your full attention and will not look kindly on disruptive children.
At the same time, if you have a young child and cannot get reasonable child care then you can bring your child to the creditors’ meeting. As with most areas of the law, the different courts and trustees may vary on their tolerance of children at the creditors meeting so be sure to ask your bankruptcy attorney specifically about your areas courts and trustees.
Is Child Support or Alimony Included As Income in Bankruptcy?
Before you file bankruptcy your attorney will ask you for verification of your last six months of income as a factor to determine Means Test qualification. The Means Test is a household income limit you must fall below according to the number of household occupants in order to qualify for a Chapter 7 bankruptcy.
Child support and alimony are considered income and can greatly impact your ability to qualify for the Means Test. Income from child support or alimony may put you over the Means Test limit causing you to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy.
In addition to having an impact on your Means Test calculation child support and/or alimony will also be considered when determining your monthly budget moving forward. It’s important that you discuss any form of domestic support obligation (child support or alimony) you receive with your attorney before filing your bankruptcy.
Are Food Stamps Considered Income in Bankruptcy Filings?
When you go to file bankruptcy, the court considers your income to determine whether or not you qualify for a Chapter 7 bankruptcy, and in the case of filing a Chapter 13 bankruptcy, to determine the amount of your monthly payments. Obvious income would be wages earned from employment, self-employment income, social security and child support; but what about government assistance such as food stamps? In short, food stamps are considered as income for the purposes of a bankruptcy.
The Means Test in a bankruptcy considers most income that you receive: wages, self employment, child support, family support, retirement withdrawals. When you receive food stamps, the monies go straight to a debit card in which you can only use to purchase food in a store that accepts the card. You cannot get cash back from the card?. However, for the purposes of the Means Test, it is still considered income. Since you can use the governmental assistance to purchase necessities, such as groceries, it is considered to be a part of your monthly income that is calculated under the Means Test. Therefore, it needs to be accurately reflected in both the Means Test and in Schedule I, which is the section that discloses your income to the courts.
If I File Personal Bankruptcy, What Information is Needed for My Business?
If you file bankruptcy, either Chapter 7 bankruptcy or Chapter 13 bankruptcy, you must disclose information about any business interest you have now, or have had in the past six years, where your ownership in the business is 5% or more. This includes disclosing the following information for each business:
Name and address of the business
Federal tax identification number
Beginning date of the business and ending date of the business, if appropriate
Names and addresses of any accountants or bookkeepers
Inventory taken for the business, if appropriate,
Partners, officers, directors and other shareholders as appropriate
Number of shares owned if incorporated or percentage ownership
You must also disclose financial information for any business you have had an interest in over the past three calendar years. This is required for an active, inactive or business closed during that timeframe. Depending on your interest in the business will impact what information is required.
If you have 50% or more ownership interest in the business, the following information is required:
Tax returns for the business, either Form 1120 or Schedule C, for the first two years is sufficient.
An income statement (often known as a profit and loss) and the most recent month’s balance sheet are required for the most current calendar year.
An income statement for each of the six months prior to filing bankruptcy, along with the income statement for the current month, is required.
If you have less than 50% interest the business, the following information is required:
Personal tax returns, which are already required, that shows your profit or loss in the business for the first two years.
A statement indicating your portion of the income or loss from the business for the most recent calendar year. This can be either an income statement for the business or a written statement, on company letterhead, indicating your profit or loss in the business and the most recent month’s balance sheet.
A statement indicating your portion of the income or loss from the business for each of the six months prior to filing bankruptcy.
This may seem like a great deal of information, but it is necessary to understand how the business impacts your personal financial situation. The most recent six months of financial information is used for the means test, if required. The balance sheet provides the equity in the business. It is extremely important that the equity in the business can be protected before filing bankruptcy. Your attorney will use this financial information to ensure bankruptcy is the right approach for you.
Am I Required to File Tax Form 941 Before Filing Bankruptcy?
If you own a business or owned a business in the past and had employees, you were most likely required to file IRS Form 941 on a quarterly basis or IRS Form 944 on an annual basis. Form 941 is the quarterly report reflecting the taxes you withheld from your employees’ payroll checks as well as the employer portion owed the federal government for Social Security and Medicare taxes. In many cases, small employers pay their payroll tax liability at the same time they file the 941s. You can obtain an understanding of the IRS guidelines for filing Forms 941 and 944 on the IRS website, www.IRS.gov. You can type the term “Form 941” or “Form 944” in the search box to access the instructions.
This blog is not intended to provide instructions on when and how to complete the tax forms, rather the impact of not filing these returns may have on your bankruptcy. Depending on how the company is legally organized will impact your personal responsibility. If you are a sole proprietor, single-member LLC or 100% owner of the corporation, you are mostly likely personally responsible for the taxes. Even if the business entity is no longer doing business or has even been dissolved with the state, you are responsible for the payment of these taxes.
If you file Chapter 13 bankruptcy, you will need to have your tax returns including 941s or 944s filed with the Internal Revenue Service. At your meeting of creditors some bankruptcy districts require you to sign an affidavit stating you have filed your tax returns, inclusive of 941s or 944s, for the past four years. If you are unable to sign this affidavit, your case will not be recommended for approval or confirmation and will most likely be dismissed. If you sign the affidavit, not realizing it applies to 941s as well as your other tax returns, you will be met with a surprise. The Internal Revenue Service may file a motion to have your bankruptcy case dismissed. They may also estimate your tax liability and file a proof of claim in your bankruptcy for the amount they have estimated you owe. This claim will most likely be greater than your actual tax liability, sometimes much great. As a result, your bankruptcy may not appear viable if you cannot afford to make the Chapter 13 bankruptcy payments including the liability estimated for the payroll taxes owed.
As a result, it is extremely important to file the 941 reports as soon as you anticipate you will file bankruptcy. The taxes owed for the employee payroll taxes and reported on the 941s can be added into your monthly bankruptcy payments. As a result, you should be able to resolve any payroll tax liability to the IRS within your bankruptcy.
How Are My Creditors Paid in a Chapter 13 Bankruptcy?
As many are aware, a Chapter 13 bankruptcy is known as a repayment plan to the court for the next three to five years. Whereas many would think that everyone in the bankruptcy receives an equal chunk of the payment; that is not the case. Previously in a Chapter 13 bankruptcy, you would have made a payment to the court then paid your own mortgage yourself. The court no longer does that, the bankruptcy Trustee will now include your mortgage in the plan payment and pay those each month.
Your creditors’ claims (who all have come forth with documentation that you owe them money) get paid out into tiers starting with your mortgage payment. Here is an example of the typical tiered repayment:
Conduit payments (these are your mortgage payments)
Administrative fees: these are your fees that the Trustee takes and a portion of attorneys fees if you still have a balance with your attorney, along with any additional attorneys fees in which you have incurred during the duration of your plan.
Mortgage arrears: everything (100%) that you were behind from the time that you filed.
Vehicle payments
Priority claims: these are taxes, alimony and child support you are behind on.
Unsecured claims: these are credit cards, medical bills, etc. Usually, you’re only paying back a percentage of unsecured debt.
When you miss a payment, you are not only behind with the court, but will in turn be behind on your mortgage as well. Each time this occurs, you will be brought upon a hearing (such as a Motion to Dismiss or Motion for Relief from Stay), and you will need representation from your attorney and there are usually fees involved. Making your payments in a timely fashion and in the full amount is essential to a smooth bankruptcy. You have to always keep in mind that when you do not pay, your bankruptcy Trustee has no money to send out to your creditors and will usually try to dismiss your case.
What is Cross Collateralization in Bankruptcy?
Cross collateralization is a clause in a purchase contract that secures a loan which serves as collateral for all other loans made with the borrower in the past, present, and future. This type of loan is usually found at credit unions, but can sometimes be found at your typical banks. Cross collateralization most commonly occurs […]
