Chapter 7 or Chapter 13

[easycome easygo]

My wife and I are both self employed. Her business has been steady, this year mine has been rocky and has lost money. My income has been very minimal over the past 6 months. The businesses are small and have no debt in their name so I am not interested in filing on them.

Here is our list of personal debts and monthly payments:
Home mortgage 120,000 (Homevalue 140,000) payment 1100
Equity asset line of credit 20,000 the payment is 300
2005 Cevy crew cab 4x4 22,000 the payment is 520
2002 Ford Explorer 10,000 the payment is 450
Unsecured debt (credit cards) 48,000 the payments are 1800

other monthly bills include:
insurance (auto and life) 320
utilities 400
phone 100

Here are my questions:
1. Do you guys think we are potential candidates for Chapter 7?

2. What is a good guideline for income requirements to be able to file Chapter 7 for a family of four? (I may be able to show as little as 45,000)

3. Since we are self-employed we don't have "check stubbs". We file a schedule C at the end of the year. Basiclly we take what money we bring in subtract the expenses we can show for the business and this gives us our income. Will our 2006 tax return be enough proof of income? Will this be a problem?

4. Will we be able to reaffirm our home and the two vehicles with no problem?

5. Under chapter 7 law will we be able to file on the equity asset line of credit and still keep our house?

We are in in neck deep and trying to figure out our best options. After we file our taxes this year we plan on seeing an Bankruptcy attorney. Any help would be much appreciated.

Thanks

[lrprn]

Welcome to BK Forum, ECEG!

Here are my questions:
1. Do you guys think we are potential candidates for Chapter 7?
It would really help if we knew which state you are living in, if you and your wife intend to file together, and if any of your debts are co-signed by the two of you or someone else.

2. What is a good guideline for income requirements to be able to file Chapter 7 for a family of four? (I may be able to show as little as 45,000)
We need to know the state you would file in to answer this.

3. Since we are self-employed we don't have "check stubbs". We file a schedule C at the end of the year. Basiclly we take what money we bring in subtract the expenses we can show for the business and this gives us our income. Will our 2006 tax return be enough proof of income? Will this be a problem?
I don't know. Hopefully others may know?

4. Will we be able to reaffirm our home and the two vehicles with no problem?
Very likely. Since you have businesses involved, you will need an experienced bankruptcy lawyer to guide your decisions. Make free half-hour to hour appointments with 3-4 bankruptcy lawyers in your area, checking to see which have the most experience with self-employed filers in their practice.

5. Under chapter 7 law will we be able to file on the equity asset line of credit and still keep our house?
When you file bankruptcy, you must list every debt - you can't pick and choose which ones to include. Again, it would help to know which state you are going to file in so we can see the exemptions you can use. An experienced bankruptcy lawyer can give you the best advice about where you stand with your house if you would file.

We are in in neck deep and trying to figure out our best options. After we file our taxes this year we plan on seeing an Bankruptcy attorney. Any help would be much appreciated. Thanks

Glad to help if we can - that's why we're here. Good to hear you intend to meet with a lawyer - we would recommend meeting with at least 3-4 when you have a complex filing situation like yours. Keep us posted on what you fine out, ok?

[FilingOnMyOwn]

If at all possible, go chapter 7 and lose what you have to. Otherwise you will be paying into a chapter 13 for at least 3 years.

[easycome easygo]

Yes we intend on filing together, because much of our debt is cosigned together. No one else has cosigned for any of our debts.

We live in the Little Rock, AR area.

As far as proof of income- I spoke with my accountant yesterday and she said that the best time for us to file bankruptcy would be right after we get our taxes completed. This way we could show a good record of our past income. We haven't got them completed yet.

I'm curious to know how much I can "show" That we made and still file chapter 7?

If we reafirm the home mortgage and keep our house (We really want to keep our home) will we have to reafirm the equity asset line of credit also?

One last thing, I had a small boat and a '73 camero that I sold to my Brother back in October for $4,000 (They were both worth !much! more) for safe Keeping. Will this throw up a red flag?

[easycome easygo]

Bump

[LostOne0069]

Well, if you don't have any kids, then the median income for AR is $40,738. If you make less than that, you should be ok.

You can get this info at: http://www.usdoj.gov/ust/eo/bapcpa/2...come_table.htm

As for the equity loan, yep, you'll have to pay it if you want to keep your house as it's a secured loan. Sometimes you can wipe out debt when a bank has loaned you more than your home is worth, say, they loaned you 150k for a house worth 120k, then you might be able to get the extra 30k discharged as "unsecured" but that doesn't look like the case here.

Now, on your income. From the posts that other self-employed people on here have made, be ready to be put under a microscope. They're likely going to want to see the books on your business, your financial records (meaning bank statements and maybe even cancelled checks) for EVERYTHING. Tax records will NOT be enough. I'm sorry to be the bearer of bad news, but it seems like trustees tend to always assume that self employed people are hiding income.

On the car? Yes, that would be considered a preferential transfer at best and fraud at worst. About the only way you're going to get away with that is if you wait for at least a year to go by before filing.

[bige1030]

The businesses are small and have no debt in their name so I am not interested in filing on them.

What kind of businesses do you two run? Are they sole proprietorships or corporations? If they're sole proprietorships (which it looks like here since you mention filing Schedule C later), the businesses will be involved in the bankruptcy.

1. Do you guys think we are potential candidates for Chapter 7?

2. What is a good guideline for income requirements to be able to file Chapter 7 for a family of four? (I may be able to show as little as 45,000)

You can file Chapter 7, since the median in Arkansas for a family of 4 is $53,904 according to the U.S. Trustee's website someone else cited. However, Chapter 7 might be less desirable if you two (and your businesses if you're sole proprietors) have lots of non-exempt assets.

3. Since we are self-employed we don't have "check stubbs". We file a schedule C at the end of the year. Basiclly we take what money we bring in subtract the expenses we can show for the business and this gives us our income. Will our 2006 tax return be enough proof of income? Will this be a problem?

Like someone else said, you probably will need to provide your books for inspection. If you don't have books, create a spreadsheet from receipts and print a copy. Make receipts available for inspection upon request.

Your tax return is often never enough, even outside of bankruptcy. For instance, if you were audited by the IRS and they wanted you to justify your expenses, how would you do so?

4. Will we be able to reaffirm our home and the two vehicles with no problem?

Are you current on them? Also, you'll have to consider if you have enough of an exemption to cover the equity on the Explorer (if it is substantial). If you don't, it would be pointless to reaffirm it because the trustee will want to sell it. Otherwise, reaffirmation shouldn't be a problem.

5. Under chapter 7 law will we be able to file on the equity asset line of credit and still keep our house?

You'll need to speak to an attorney about this one. The big question is whether a junior lienholder can foreclose...I think they can't, but I'm not for sure. Also, when you pay off the first lien, I'm not sure if there's a statute of limitations on executing the second and if it's tolled until the creditor is allowed to foreclose.[/QUOTE]

I'm curious to know how much I can "show" That we made and still file chapter 7?

You can make no more than the median in your state ($53,904 for a family of four in Arkansas). As for "showing" a different amount...neither the courts nor the IRS take kindly to people massaging the books.

If we reafirm the home mortgage and keep our house (We really want to keep our home) will we have to reafirm the equity asset line of credit also?

It would be safest to reaffirm the equity line. However, you should definitely consult with an attorney on that. Like I said, it's an issue of enforcing a junior lien - when can it be enforced and how long do they have to enforce it?

One last thing, I had a small boat and a '73 camero that I sold to my Brother back in October for $4,000 (They were both worth !much! more) for safe Keeping. Will this throw up a red flag?

Definitely it will! The trustee will most likely sue your brother to recover the difference between what he paid and fair market value, since it's considered a fraudulent transfer or conveyance under the bankruptcy code.

Someone else posted not too long ago about being hit with a fraudulent transfer or conveyance lawsuit by a bankruptcy trustee because they paid off their in-law's loan (in-laws did have equity) and got the house out of the deal. This can and often does happen.

Also, if you are found to have been transferring the property to delay, hinder, and defraud your creditors, you could be denied a discharge.

[easycome easygo]

Thanks for the posts guys. I will make sure that my taxes are spottless. It shouldn't be a problem to come in under 53,000 household income for the year. I have an appointment with an attorney on Monday. We will discuss our books and my recent sales. I think we could possibly wait 3 to 4 months not much longer. It's too bad about the equity asset line. Our business are sole proprietors and her work is very seasonal (feast or famine) so if we wait to long she will hit her busy period and it will show our monthly income as very high.

Is it true that the trustee generally will only look back at your income six months and look back at your purchases for the last 3 months? We havent used our cards very much in the last few months. The only thing on them that might look bad would be a couple of hotel rooms (one in Dec. and one in Jan).

We are current on most of our payments. We are shuffling money around everywhere trying and stay caught up. If we decide to delay filing for a few months should we pay less on everything that we don't want to reafirm to show destitution? It won't be long before we will have no choice anyway.

Sorry if these questions seem very basic, but this is the first time in 15 years that we have had this type of financial struggle.

Thanks

[no_it_all]

You can make no more than the median in your state ($53,904 for a family of four in Arkansas).

Not true. The vast majority of Chapter 7 filers are over the median for their state. Being over the median only requires the petitioner to complete the Means Test Calculation worksheet. Once the Means Test calculations have been completed then a determination can be made about filing Chapter 7.

Statistically about 90-95 percent of filers over the median income levels are still eligible for a Chapter 7. How is that possible?? Because when they complete the means test they do not have enough income (generally over $166 per month) to pay into a Chapter 13 case.

So, (in very simple terms) to be excluded from a Chapter 7 two conditions generally have to be met: One, you have to be over the median income level and two, you failed the means test calculations by having too much disposable income. It is a boolean AND compared to OR...

[no_it_all]

Unsecured debt (credit cards) 48,000 the payments are 1800

What is up with this??? I am assuming a typo...

[easycome easygo]

Nope, this is correct.

[easycome easygo]

I spoke with an attorney today. He wants us to file our taxes first then work up a financial statment for the last 6 months on each business. Since we had some extra income in Sept. and Oct. he said we may need to wait a couple of months to let that drop off. He didn't see any reason why we wouldn't be able to file Chapter 7. He said that we would be allowed a $1800 exemption on home furnishings. Also he mentioned that my wife and I would each be given a $10,000 "wild card exemption" that we could use on any cash or assets that we own and would like to protect from the bankruptcy. Can anyone explain more about this?

If this is the case, my brother hasn't registered the purchace of the boat and car yet so we may pretend that the sale never happened and use the above exemptions to protect them.

I'm going to file my taxes today or tomorrow. My attorney thinks it should take 3-5 months to complete the BK. He also mentioned that the IRS loves to audit small businesses that are involved in Chapter 7 so we should make sure our books are squeeky clean. I'm totally stressed out hopefully all this will pass soon enough.