What is a Bankruptcy Conversion?

What is a Bankruptcy Conversion?

A “conversion” is when you change the bankruptcy chapter type after you file your original bankruptcy petition. For example, at the time you file your case, you are over the median threshold to file for a Chapter 7 bankruptcy, so you file a Chapter 13 case. Months or even years later, your income declines and you now meet the income threshold to file a Chapter 7. In that situation, you can convert your Chapter 13 case to a Chapter 7 case. It’s a moving target so if your situation changes, there are solutions to change your situation so you are not stuck staying in a Chapter 13 or being forced to have your case dismissed if you can no longer afford the Chapter 13 payment.

Its uncommon to convert a Chapter 7 case to a Chapter 13 . That would be a rare instance if the trustee believes you did not file your Chapter 7 case in “good faith”. In order words, if the trustee’s office believes you have ability to repay your creditors by not reporting your income or expenses correctly. If you cannot pay the amount of your non-exempt assets in a Chapter 7, then you might need to convert to a Chapter 13 to have extended time to pay the trustee. That is why it is so important to have an attorney prepare your bankruptcy petition to ensure you don’t have an unexpected issue about not qualifying for the Chapter type your filing.

Should I file a Business Bankruptcy or Personal Bankruptcy?

Should I file a Business Bankruptcy or Personal Bankruptcy?

In today’s current market business owners are faced with numerous challenges from finding employees to drastically increased costs. They are faced with the question of whether they will be able to continue their business or whether it’s better to close it.

That is a very personal decision since so much goes into starting and sustaining a business. There are several factors we look at in making that determination.

Are there any business assets such a commercial building, inventory, or equipment that should be liquidated to pay your creditors? Your assets cannot be sold or transferred for your benefit at the expense of paying your creditors. Even transferring assets to a new business venture can disqualify you from filing bankruptcy so its very important to consult with an attorney before making any decisions on the proper steps to close your business. Another issue is whether the debt is exclusively in the business name, did you personally guarantee the business debt, or did you use your personal credit lines to fund your business?

In most cases, there is a personal guarantee on business debt and personal credit cards are used to keep the business afloat. If the majority of your debt, is non-consumer or business-related then you would qualify for a Chapter 7. Again, it is important to seek the advice of an attorney to determine which Chapter type you would qualify for under the bankruptcy code.

Many times, if the business has no assets and will be closed then it can just be administratively dissolved without the need to file for bankruptcy. Another issue also is whether there are any outstanding account receivables, do you reasonably expect payments in the future, or expect any reoccurring income? There is also a potential that that could be collectable by the trustee if you are filing a business bankruptcy.

All of these factors need to be considered whether determining whether to file a business bankruptcy or a personal Chapter 7 or 13 bankruptcy.

What is bare legal title?

What is bare legal title?

This issue comes up frequently when the person who files for bankruptcy (otherwise known as the debtor) is on the title to a vehicle that someone else drives and makes the payments on.

This happens oftentimes when a parent keeps the vehicle in titled in their name instead of their child’s name but the child drives it. It also happens when the debtor puts the vehicle and loan in their name for a family member who does not have good credit. If there is equity in the vehicle (the value of the vehicle exceeds what you own on it) and that amount is over the allowed bankruptcy exemptions you would need to pay the trustee the difference.

However, if you have not paid anything towards the vehicle or any gas or paid for any maintenance then there is an exception you might qualify for called bare legal title which allows you not to have to pay anything to the trustee under those circumstances.

You may have to provide proof that the other person has been the one making the payments. Bare legal title applies to personal property and cars. However, you cannot have bare legal title to real property.

If you are on the deed of any real estate, whether you live there or not, or whether you have paid for it or not, that cannot be considered bare legal title. At that point, we would need to evaluate if the property can be exempt as your homestead or not.

Will Bankruptcy Prevent Me From Selling My House

Will Bankruptcy Prevent Me From Selling My House

If you sell your homestead prior to filing your bankruptcy case, the trustee can look to see how that money was spent.

For example if two years ago you received $50,000 from proceeds from the sale of your house, how was that money spent?

Did you use the money on reasonable expenses?  Did you pay back your creditors?  Did you spend it frivolously?  Did you incur debt at the same time or after receiving that money?  Your case filing has to be in good faith where you didn’t incur debt with the intention of filing for bankruptcy.

You have to make an effort to pay off the debt but genuinely be unable to do so.  Taking that example, if you took that $50,000 and gifted it to a family member the trustee could go after your family members for repayment of the $50,000 and use that money to pay your creditors.

If you took a vacation or spent the money frivolously instead of paying your creditors, the trustee would argue that you did not file the case in good faith and you would need to repay that money to the trustee.  Generally, it’s better not to transfer property just prior to filing your bankruptcy case. Make sure any profits are accounted for from the sale.  Keep receipts.

If there is a divorce order requiring that the property be sold, that is fine, but the money would still need to be accounted for.  If you split the homestead profits with an ex, we would need to look too see if that person was also on the deed to the property and determine if they were entitled to 50% of the equity.  If they have a 50% interest in the property but you give them 100% of the home sale proceeds without a divorce order that could be construed as a gift.  The trustee could reverse the sale or go after your ex-spouse to receive your portion of the sale proceeds to pay your creditors.

If you are considering selling your home its best to wait until your bankruptcy case is concluded or you can potentially waive your homestead exemption by putting your property on the MLS or under contract.  If you bankruptcy case is pending, you would need the court’s permission to sell the property.  The trustee or any creditors could potentially object to you using the homestead exemption.   Before deciding to transfer any property its always best to consult with your attorney prior to doing so.

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