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.
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 […]
How Do I Determine the Value of My Home If I’m Filing Bankruptcy?
The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of. From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy. With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.
The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth. If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.
A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.
While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.
Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.
Is Life Insurance Protected in Bankruptcy?
There are two primary types of life insurance: term life and whole life. There are many ways these can be structured, e.g. as a universal policy, but for our purposes we will look at the simplified term life insurance and whole life insurance policies.
A term life insurance policy does not mature until someone’s death. As a result, when you file bankruptcy your term life insurance policy, or a policy that you are the beneficiary of, does not have any value until someone’s death. If there is no value there is nothing to protect in your bankruptcy. However, if you are paying premiums for a term life policy, the monthly premium should be listed in your budget.
A whole life insurance policy has a “cash surrender value”. This means after having the policy for a period of time, you can borrow against the proceeds. Those proceeds could then be used to pay your debts. Fortunately, as long as the whole life policy has your spouse and/or children as the beneficiaries and you are using North Carolina exemptions, it is protected under the North Carolina Constitution and the North Carolina General Statutes. The North Carolina Constitution states that life insurance proceeds where the spouse and/or children are the beneficiary are protected from the claims of creditors. As a result, you should be able to fully protect your while life insurance policy when you file bankruptcy.
If you are the beneficiary of a term life policy or a whole life policy and the person dies while you are in bankruptcy, those proceeds belong to your estate or the court. As an example, if your great uncle Billy dies and leaves you $100,000, the $100,000 life insurance proceeds would be payable to the bankruptcy trustee to pay your debts. If the life insurance proceeds pay all your debts in full, any remaining life insurance proceeds would be paid to you. Life insurance proceeds that you become entitled to within 180 days of the date the bankruptcy is filed with the court is also property of the estate. As a result, if uncle Billy dies two months after your bankruptcy is completed, but it is within the 180 days of the date you filed bankruptcy, those proceeds would become the property of the estate as well. Therefore, you should tell your bankruptcy attorney if you believe you may receive any life insurance proceeds during the six months after you file. As always, you should seek the advice of your bankruptcy attorney.
