What Are the Most Common Reasons A Bankruptcy Case is Dismissed?
There are numerous reasons a bankruptcy case may be dismissed. A dismissal of a bankruptcy case is when the federal judge issues an order terminating a case. Usually the debts are not eliminated if the case is dismissed. In contrast, a “discharge” means the debts have been eliminated. Listed below are the most common reasons a bankruptcy case could be dismissed:
1) The debtor gives a false oath or information on the bankruptcy petition with the intent to defraud creditors,
2) The debtor has filed a previous bankruptcy within a certain time period and is not eligible to file another bankruptcy and receive a discharge of the debts,
3) The debtor has not filed all the required documents with the bankruptcy court,
4) The debtor did not take and complete the required court approved credit counseling and/or financial management courses as required by federal law,
5) The debtor fails to provide certain documentation to the bankruptcy Trustee upon request of such documents by the Trustee,
6) The bankruptcy Trustee has objected to the discharge of the debtor’s debts based upon his investigation of the debtor,
7) In a Chapter 13 repayment plan, the debtor fails to make the required Chapter 13 plan payments to the Chapter 13 Trustee,
8) The debtor has non-exempt property and fails to turn such property over to the Trustee upon request,
9) The debtor fails to obey a lawful order of the court, and
10) The bankruptcy judge believes there is good cause to deny the debtor a discharge and dismisses the bankruptcy case.
In conclusion, the above list is not exhaustive, but does highlight some of the most common reasons a bankruptcy case could be dismissed.
Am I Required to File Tax Form 941 Before Filing Bankruptcy?
If 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.
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 […]
Hidden Traps of Credit Unions When Filing Bankruptcy
When it comes to banking accounts and financing a loan, credit unions are often a highly sought-after source for mortgages, vehicle loans, and bank accounts. However, what you may not know about credit unions could come back to have negative consequences against you during and after your bankruptcy.
Credit unions have become a sought-after banking source for many people because they offer competitive banking advantages without some of the hassles and fees of larger banks. Additionally, if you are a member of a credit union, you are essentially a part “owner” of the credit union. You can usually find lower interest rates at credit unions and will usually find much better customer service than a larger, traditional bank because credit unions are non-profit organizations.
There are some down sides, however, to becoming a member of a credit union. Sometimes actually becoming a member can be the most difficult part of the process. Most credit unions have certain requirements for membership – usually the requirements involve being a member of some specific organization or group (e.g. teachers, government employees, school, place of worship, organization, etc.). The membership eligibility requirements will vary depending on which credit union you wish to join, so you will need to contact the credit union for more information on their requirements.
A big trap of credit unions is cross-collateralization, which means that you have both a credit card and a vehicle or home loan with the credit union, and that your vehicle is collateral for the credit card. Cross-collateralization does not always occur, but is very common with credit unions and can have negative implications in your bankruptcy. Read more about the dangers of cross-collateralization here.
Once you do become a member, you may find that you are required to maintain a savings (or “share”) account with a minimum balance in order to also maintain a checking account. Additionally, you will find that ATM machines may be harder to find, particularly if you are traveling to a different state. In order to do your banking, you will usually have to find a credit union branch.
If you become a member of a credit union and later file bankruptcy, there are some repercussions that you will experience as a direct result of your bankruptcy filing. Regardless of whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, your credit union will consider the bankruptcy filing a “loss” and will likely close any and all checking or savings accounts you have with the credit union. This is usually the case even if you are going to keep your mortgage loan or vehicle loan through the credit union. The only exception to this rule may be if you file Chapter 13 bankruptcy and are paying back 100% of your unsecured debt in the bankruptcy.
While credit unions are often a better option for folks who are seeking financing due to the lower interest rates, better customer service, and reduced fees, the hidden traps should be carefully reviewed if and when you run into financial hardship.
If you have further questions about filing Chapter 7 or Chapter 13 bankruptcy, contact us today for a free consultation.
