Do I Have To List My Business Assets on My Personal Bankruptcy?

This is an excellent question.  For the most part, our bankruptcy clients who have businesses fall into two categories. The first category consists of those who feel as though they and their business are “one” entity. The second category consists of those who feel as though their business is a completely separate entity. Often, when clients drop their paperwork off at our office and we question what business assets exist, clients will reply, “Well, that doesn’t belong to me, that belongs to my business.”  So the real question is: what needs to be listed as assets in your bankruptcy and what does not?

Technically, ALL of your assets need to be listed.  Therefore, going back to our previous blog post on whether or not tools are protected we can examine debtor-owned businesses based upon the same scenarios.  Let’s use the example of Joe Blow’s Lawn Care.  Joe owns Joe Blow’s Lawn Care.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe. If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to his garage at home. These tools would need to be listed in Joe’s personal property and protected by the exemption known as “Tools of the Trade” as long as Joe is using them in his business. If Joe were to be sued, he would need to protect those tools as he would any other asset (such as a bank account or vehicle) he has from seizure.

Referring back to the same situation as discussed in the previous blog post, let’s use the scenario that Joe went to the Secretary of State and registered his company as a corporation.  Now Joe Blow’s Lawn Care, Inc. is the owner of the tools.  Even though the company at this point in time owns the tools, let us not forget that in the end scheme of things the debtor owns the company.  That company is an asset in itself; therefore the tools would be listed on the business balance sheet, included as an asset and the Joe’s portion of equity from the corporation must be listed in the bankruptcy and protected.

Regardless of how large or small, the court looks as personal assets all in the same; they need to be listed and at least attempted to be protected in the bankruptcy.  Again, it goes back to the confusing question of how the business should be treated for bankruptcy purposes.  Since businesses can get quite complicated at times, we strongly suggest that you thoroughly discuss your business and any other assets you or your business may have with your attorney so they may advise you properly to ensure your assets are protected.

Do My Taxes Have To Be Filed Before Filing for Bankruptcy?

Filing Taxes Before BankruptcyYou will notice when you are filling out your paperwork that the court asks you for what seems to be a billion pieces of documentation ranging from copies of bills, papers from purchases, income advices and federal and state taxes.  These documents are asked for to verify information you are providing is true and accurate.

However, what happens if you haven’t filed your taxes?  Can you still go through the bankruptcy process or must your taxes be done beforehand?  The answer is you must have all prior tax years filed and received by the IRS and state in order to file the bankruptcy. There are several reasons why taxes are required to be filed and received before filing your bankruptcy.

The Bankruptcy Trustee, Bankruptcy Court and Bankruptcy Administrator Require It

As your attorney, are required to send a copy of your most recent tax year to the bankruptcy Trustee.  If they do not get the taxes before the 341 creditor’s meeting then they technically has the right to dismiss your case.  When April 15th (or the appropriate deadline depending on the year) hits, the bankruptcy Trustee will expect taxes to be filed as completed. What if you’ve received an extension?  Even if you have received an extension, if you are filing bankruptcy you need to file the taxes before filing for bankruptcy. This does not mean you have to pay on taxes owed but they at least need to be filed.

The Bankruptcy Administrator’s office randomly elects cases to audit. They do this to ensure bankruptcy lawyers are performing their duties but also to ensure clients are providing accurate information. It is similar to being audited by a taxing agency. If your case is randomly selected to be audited then we are required to provide those documents.

Taxing Agencies Want to Ensure Taxes Are Completed

In addition to the bankruptcy Trustee and bankruptcy court needing to see evidence of your tax filings – the taxing agencies, the Internal Revenue Service and the North Carolina Department of Revenue, also will receive notice of your bankruptcy filing and want to make sure information you are reporting is accurate.  Once they have word that you have filed a bankruptcy they will reassess your prior year’s taxes to make sure they are completed.  If they are not, they can object to your discharge until they have been completed.  If a creditor, such as a taxing agency, objects to your discharge it means your case will be held open longer.  The longer your case is open, the longer it takes to get your financial freedom.

Filing Taxes Allows You to Accurately Budget Repayments

Just like any other debt you have in your bankruptcy – the amount owed for taxes has an impact on your bankruptcy filing.  If you have not filed your taxes, and you are filing a Chapter 7 bankruptcy, then you have no way of knowing what you owe, and cannot go ahead and budget a repayment plan going forward.  If you file a Chapter 13 bankruptcy, and you have not filed taxes yet, then the IRS or NCDOR is going to estimate what you will owe them and file a Proof of Claim for un-assessed returns.  Oftentimes, the taxing agencies file the proof of claim as a worst-case scenario on your taxes, which typically, means the amount is overstated which can cause an increase in your Chapter 13 plan payment. If you file your taxes then the IRS can use the amount of taxes owed to file a more accurate proof of claim, which may increase your chances of success in a Chapter 13 bankruptcy.

The bottom line is, yes you have to file your taxes before filing your bankruptcy. We understand that it’s a pain to have to dig through your paperwork, retrieve the documents, make copies and bring them to us, but the government requires it as part of your bankruptcy documentation.

How Do I Request Copies of My Taxes From the IRS?

Ordering Tax Transcripts from the IRSWhen you file bankruptcy, your bankruptcy attorney will request to have a copy of the last 4 years of tax returns.  Why?  It is among the documents required by the federal bankruptcy courts.  Your tax returns reveal a good bit of information about transactions and assets that would be pertinent to the preparation of a bankruptcy petition.  Plus, before you file bankruptcy, you are usually required to have all taxes filed.  Many of us file our taxes electronically and don’t think to print them out.  After so much time has gone by you may not have easy access to your returns anymore.  Or if you go through a tax service, they may charge certain fees to provide duplicates.  So if you fall into one of these categories or perhaps your records aren’t exactly impeccable, all is not lost.  You may request transcripts from the IRS for taxes as far back as 10 years ago.  These transcripts are free, but they are also only recaps and not full returns. The transcripts are okay for our purposes. However, the Trustee will not accept a recap transcript for the most recently filed year.  There is a fee to get a copy of the full return.

There are 4 ways to obtain transcripts from the IRS: mail, fax, call, or automated.

Fax and Mail:  You may fill out a simple form: 4506-T Request for Transcript of Tax Return or 4506 Request for Copy of Tax Return.  For 1040 series, W-2s, and 1099 forms, if you decide to manually fill out the form, you may then fax it to 859-669-3592 or mail it out to: RAIVS Team, P.O. Box 145500, Stop 2800 F, Cincinnati, OH 45250.  All other requests for transcripts may be faxed to 816-292-6102 or mailed to: RAIVS Team. Stop 6705 P-6, Kansas City, MO 64999.

If calling is more up your alley, you may contact someone at: 1-800-908-9946.

The easiest, most efficient way is using the automated self-help tools at  Click on “Order a Return or Account Transcript.” Be prepared to answer some personal information questions.  Then just follow the directions!

What Is A Summary Judgment?

Is Emotional Distress From Being Robbed On the Job Covered by Workers’ Compensation?

Family Walking Holding Hands | PTSD Workers' CompensationEmotional distress caused by being robbed on the job is covered under the Workers Compensation Act in North Carolina. Under North Carolina law, mental as well as physical injuries sustained on the job are a compensable injury.  The “injured worked” must provided evidence, usually medical evidence, he or she is unable to work due to the traumatic psychological injuries they sustained during the robbery. However, the psychological injury sustained may not be permanent disability.

For example, the person may be robbed at a fast food restaurant late one night.  This traumatic event may not preclude her from working in the future in a factory during the daytime. The environment in each of the jobs is completely different.  The job in the factory does not have her working late at night with the chances of being robbed on the job again.  However, having the worker go back to a job late at night in another restaurant could cause the psychological issues to resurface precluding the worker from maintaining a job.

The workers’ compensation insurance company will send the worker suffering from the post-traumatic stress disorder to a medical professional or psychologist to diagnose the worker.  To receive compensation, the worker must have a diagnosis.  The worker cannot just claim they have psychological injuries; a professional must substantiate the injury.

One major focus in post-traumatic stress disorder situations is whether other reasonable employment exists.  If the worker could be trained (vocational rehabilitation) for another job in which they would not be under the psychological stress then workers’ compensation will not continue to pay indemnity benefits going forward.

What Is Abandonment In Bankruptcy?

Foreclosure Sign in Front of HouseProperty that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee.  Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.

At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case.  If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property.  Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay.  At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company.  Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.)  A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.

To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions.  The Trustee reviews the estate and decides to hire a real estate agent.  The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months.  The Trustee decides to put both on the market for 6 months.  Debtor receives a discharge but not a Final Decree.  The time passes and the Trustee has not even received an offer on the land or house.  To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed.  The debtor receives a Final Decree a month later.  The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again.  The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.

The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.