One of the leading causes of having to file for bankruptcy protection is the loss of income within your family. If you cannot replace the income, you often realize it doesn’t take long in getting way behind on your bills. In looking for a new job, many today are finding out what they have been qualified to do is no longer available where they currently reside, so they are moving out of state in order find work that they are qualified to do. How does moving out of state affect bankruptcy law? Continue reading
Chapter 12 Defined and Compared to Other Bankruptcies
Most individuals will file a Chapter 7 or Chapter 13 bankruptcy if they need to file, but the family farmer or commercial fisherman have their own type of bankruptcy to file that has been specifically designed for them. It is called a Chapter 12 bankruptcy.
Families who are in the farming or commercial fishing industry must actively be working within the industry, have an annual income from their efforts, and they can file as individuals, partnerships, or corporations under the bankruptcy. As part of the Chapter 12 plan, the debtors must propose a monthly repayment plan to pay unsecured debtors over a 3 to 5 year time line, and the plan must include all the debtor’s disposable income.
When developing the laws that cover a Chapter 12 bankruptcy, Congress crafted the bankruptcy laws to meet real economic conditions for people who make their living as a farmer or commercial fishermen. The Chapter 12, more of a cross between a Chapter 11 and Chapter 13, eliminates a lot of the barriers built into those types of bankruptcies. For instance, the Chapter 12 is more more efficient and doesn’t cost as much as a Chapter 11 bankruptcy. Also, it is more advantageous to file a Chapter 12 than a Chapter 13 because the latter is designed for debtors with smaller debts.
Although the Chapter 12 is basically designed to handle a farmer or a commercial fishermen who has a steady income, the bankruptcy is also designed to help the farmer or commercial fisherman who has only seasonal income as well. Relief under a Chapter 12 is voluntary, and only a debtor can elect to file a bankruptcy.
Eligibility to File a Chapter 12 as Individual or Jointly
Here are the eligibility requirements for filing a Chapter 12 as an individual or filing jointly with a spouse: (Taken from the Government website)
- The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
- The total debts (secured and unsecured) of the operation must not exceed $3,792,650 (if a farming operation) or $1,757,475 (if a commercial fishing operation).
- If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
- More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.
There are other special eligibility requirements for farmers and fishermen who file a Chapter 12 as a corporation or partnership.
Although Congress has made special efforts to accommodate those who have special bankruptcy needs, like farmers and fishermen, bankruptcy law still remains complicated for the average layman. If you are considering filing bankruptcy as a farmer or commercial fisherman, it would be wise for you to consider consulting with a bankruptcy lawyer.
Means Test and a Chapter 7
Many questions arise on bankruptcy forum websites about the Means Test for determining whether or not a debtor, considering filing bankruptcy, can file a Chapter 7.
The Means Test is a test devised by Congress in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. Basically, it is given to those debtors wanting to file a Chapter 7 who do not automatically qualify by being below the median income for a family in the area in which the potential filer lives. If the wannabe Chapter 7 filer is above the median income, they can take the Means Test to determine how much their monthly disposable income is, and if under a certain amount may qualify for filing Chapter 7.
As part of the Means Test, the bankruptcy court considers your average income for the past six months, called the look back period. They look back six months in search of bonus income and the like. Consequentially, income tax refunds usually get the attention of wannabe filers. They want to know how the bankruptcy court might view the refund in relation to the look back period. Their concern is not completely unfounded.
Bankruptcy Law Provides Courts with Leeway
Bankruptcy law in the area of the Means Test provides bankruptcy courts with a lot of leeway in determining conclusions about the look back period. For instance, the trustee might look back and determine the unearned income given to a tax filer is new income that has been refunded to the filer. In that case, the bankruptcy court may use part or all of the refund as income in determining the Means Test.
Most bankruptcy courts do not consider a tax refund as new income. Normally, a tax refund is considered income already declared for Means Test purposes, but again, the bankruptcy court has a lot of leeway in making those determinations. If the trustee handling a bankruptcy case decides a certain portion of a tax refund is new income affecting the Means Test, it will be up to the filer to petition the bankruptcy court for a ruling on the matter by the Bankruptcy Court Judge.
The result of considering a portion of your tax refund as new income might have the affect of moving you into a Chapter 13 bankruptcy in lieu of a Chapter 7. Many courts will not consider looking at the tax refund unless the filer is above the median income.
Even if the tax refund does not put you into a Chapter 13, the refund can still be considered an asset in any type of bankruptcy filed. In a Chapter 7, a tax refund unspent will be regarded as an asset to be exempted or used to pay off unsecured debt.
Spend It, Exempt It, or Lose It
That is why many bankruptcy lawyers will advise their Chapter 7 clients to spend the refund before you file when the possibility exists the refund may not be exemption by state or federal exemptions. One blogger put it this way in regards to a tax refund before filing bankruptcy: “Either spend it, exempt it, or hand it over.”
In any regards, if you are planning on filing a Chapter 7 bankruptcy, check with a bankruptcy lawyer before doing anything with your tax refund before filing.
- Unemployment Benefits and Its Affect on the Means Test (betterbankruptcy.com)
- Chapter 7 Bankruptcy for a Family of Four (betterbankruptcy.com)
- 4 Great Reasons to File a Chapter 7 in Lieu of a Chapter 13 (betterbankruptcy.com)
- Bankruptcy Spectrum and Protecting Individual’s Assets (betterbankruptcy.com)
The Set UP
One of yesterday’s news headlines was “California to Run Out of Cash Without Any Action.” This past few years, we have been seeing these types of news headlines in states all across the nation. Does this type irresponsible actions by our states and local government place the entities alongside all the other deadbeats?
One news article written online in 2010 and titled “32 States are Now Officially Bankrupt” took its supporting statistics from the Economic Policy Journal. The news article stated that 32 states across the nation has borrowed $37.8 billion dollars from Uncle Sam just to pay for unemployment insurance. Those figures did not take into account all the other debt the states possess. All of the borrowed money for the unemployment insurance came from our Federal Government who is already in debt beyond what it can ever pay back.
In light of state and federal governments going bankrupt, are these actions setting us up, as individual citizens, for our filing bankruptcy?
Considering there are a large number of self righteous, self appointed, and financially secure individuals that reside in the United States who constantly harangue Congress to pass laws against the less fortunate individuals who go bankrupt, it is a minor wonder that the Feds have not been forced to slam all the deadbeats into debtor’s prison!
Florida Senator Marco Rubio, making the news, recently bashed the Obama Administration for leading the country into becoming a nation for deadbeats. He raises such questions of leadership all the while knowing that during his tenure while serving as Speaker of the House of Florida, Rubio shared co-ownership in a home which later fell into foreclosure after deferring months of mortgage payments. Does defaulting on a mortgage loan make Rubio one of the deadbeats?
We see in Rubio a self appointed financial expert telling the administration how to handle money as if he never had money issues. Rubio’s own financial issue was miraculously resolved when Rubio ran for the US Senate. Money seems to solve all insolvency questions, and lobbyists for big business has lots of money.
The Double Standard
Congress is the one which the Constitution of the United States has given authority to pass bankruptcy laws. Theoretically governments of any kind, at first, were not suppose to be able to file bankruptcy, but the Great Depression changed all of that. Congress gave municipalities the authority to file a bankruptcy under a Chapter 9. Now in light of this past economic downturn, states want to join the parade of municipalities who have recently filed.
All of this is occurring just seven years after Congress passed new bankruptcy legislation to get rid of the individual deadbeats who they claim abuse the bankruptcy system. Big business from the banking industry lobbied Congress to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The title of the act is deceiving because it is arguable there is little in the law that protects consumers.
Add the fact a selective group of rich people want to make it harder for deadbeats to escape their clutches to the fact Congress has been passing laws favorable to the credit card industry for years, and is there any wonder more and more individuals slip into the deadbeat phenomenon of bankruptcy?
Bankruptcy, are we set up for it?
- Bankruptcy Law Makes Filing More Costly but Is It Fair? (betterbankruptcy.com)
- Eleven Common Bankruptcy Definitions You May Want to Know (betterbankruptcy.com)
- The Scariest Part About Bankruptcy (betterbankruptcy.com)
- Filing Financial Bankruptcy: Choice, Right, and New Beginning (betterbankruptcy.com)