Can A Couple Married Under Common Law File Joint Bankruptcy in North Carolina?

If I File Personal Bankruptcy, What Information is Needed for My Business?

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?

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.

How Are My Creditors Paid in a Chapter 13 Bankruptcy?

As many are aware, a Chapter 13 bankruptcy is known as a repayment plan to the court for the next three to five years. Whereas many would think that everyone in the bankruptcy receives an equal chunk of the payment; that is not the case.   Previously in a Chapter 13 bankruptcy, you would have made a payment to the court then paid your own mortgage yourself.  The court no longer does that, the bankruptcy Trustee will now include your mortgage in the plan payment and pay those each month.

Your creditors’ claims (who all have come forth with documentation that you owe them money) get paid out into tiers starting with your mortgage payment. Here is an example of the typical tiered repayment:

Conduit payments (these are your mortgage payments)

Administrative fees: these are your fees that the Trustee takes and a portion of attorneys fees if you still have a balance with your attorney, along with any additional attorneys fees in which you have incurred during the duration of your plan.

Mortgage arrears: everything (100%) that you were behind from the time that you filed.

Vehicle payments

Priority claims: these are taxes, alimony and child support you are behind on.

Unsecured claims: these are credit cards, medical bills, etc. Usually, you’re only paying back a percentage of unsecured debt.

Bills in Mailbox

When you miss a payment, you are not only behind with the court, but will in turn be behind on your mortgage as well.  Each time this occurs, you will be brought upon a hearing (such as a Motion to Dismiss or Motion for Relief from Stay), and you will need representation from your attorney and there are usually fees involved. Making your payments in a timely fashion and in the full amount is essential to a smooth bankruptcy. You have to always keep in mind that when you do not pay, your bankruptcy Trustee has no money to send out to your creditors and will usually try to dismiss your case.

What is Cross Collateralization in Bankruptcy?

Cross collateralization is a clause in a purchase contract that secures a loan which serves as collateral for all other loans made with the borrower in the past, present, and future. This type of loan is usually found at credit unions, but can sometimes be found at  your typical banks. Cross collateralization most commonly occurs […]

CNN Money Lists 7 Best Credit Cards for Bad Credit

Credit CardA recent article on CNN Money’s website features the seven best credit cards for individuals with bad credit.

While bankruptcy can stay on your credit for 7-10 years from the date that you file, it is important that you begin rebuilding your credit much earlier – in fact, it is best to start doing so about a year after your bankruptcy is closed. You must choose your credit rebuilding techniques carefully, though, so that you do not end up with an outrageous interest rate or hundreds (or thousands!) of dollars in hidden fees.

The credit cards that are featured in CNN Money’s article were chosen because of their more reasonable interest rates and annual fees.

The featured credit cards include:

Orchard Bank

Capital One Secured MasterCard

Navy Federal ‘n Rewards Secured Card

Citi Secured MasterCard

Mango Prepaid MasterCard

Capital One Cash Rewards for Newcomers

Open Sky Secured Visa

Click here to read the article for more information about the cards.

 

How Do I Determine the Value of My Home If I’m Filing Bankruptcy?

The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of.  From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy.  With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.

Family in Front of House

The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth.  If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.

A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.

While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.

Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.