Can I Collect Workers’ Compensation Benefits If My Employer Files For Bankruptcy?

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Most employers’ employees are covered by workers’ compensation insurance.  This workers’ compensation insurance is provided by a third party insurance company, not the employer themselves. Insurance companies are required by the state to keep a reserve of money on hand to cover the cost to pay out benefits to the injured worker. Therefore, if your employer files bankruptcy and they had workers’ compensation insurance at the time you were injured, the insurance company will be required to pay you your benefits.

Doctor looking at an x-ray

However, there are a few exceptions to this rule, especially if your employer is a large company that is “self insured”.  In the event your employer is self insured, they must usually have a bond through an insurance company that will “guarantee” injured workers receive their benefits in the event the employer files bankruptcy or cannot provide benefits to the injured worker.

Sadly, if your employer does not have workers’ compensation insurance and they file bankruptcy, it may be difficult to collect money from them if you were injured on the job because they are “broke” and you “can’t get water from a dry well.”

Can Children Attend the Creditors Meeting?

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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.

Husband and Wife with Young Child

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?

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Father & Daughter on Surfing the InternetBefore 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?

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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.

Young boy holding the hands of his parents.

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?

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Business ChecklistIf 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?

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April 15 Tax DayIf 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.