Question Considering bankruptcy, a few questions

[FlibFlob]

Hi everyone, I'm currently considering a chapter 7 bankruptcy and have a few questions I haven't been able to get answered via search, so I'm hoping some of you here can help me figure things out. Don't feel pressured into answered everything if you don't have the time, I ask a lot of questions, and thank you in advance for reading this and potentially answering some of them.

1) If I move home and stay with my parents, would I have to include their income in my household. I've lived on my own for a long time, and I'm only moving back because it's the most economically viable path to hopefully avoiding bankruptcy and getting things in order, however, if I have to go through bankruptcy I want to make sure I don't shoot myself in the foot by not approaching this properly.

2) If I loan items to a friend out of state, would they look at that like it's a gift since it's so far away from me? The items are worth more than $650, but not too much more, and I intend to move back at some point in the future so for now I'm letting the friend use them as a storage fee in a sense.

3) If I gave away a significant amount in gifts 3 years ago, and my state has a lookback period that goes that far, would that potentially be an issue? I was absolutely solvent at the time and probably had 0 debt, and if I didn't I definitely had assets in excess of my debt.

4) What about paying a contractor who is a friend for work they did over a year ago. Would they potentially look at that as a gift and hassle me on it?

5) I make less than the median income currently, however, I'm pretty sure I have some money left over every month, just not enough to tackle my debt. Does that matter, or am I good just because I fall under the median income?

6) Alright, last one. I'm not certain that I'll need to file bankruptcy, there's a reasonable chance that I can avoid it. There's also a reasonable chance that I can't, but I'm planning for the worst while trying for the best. What's the difference between planning in case of bankruptcy, and bankruptcy fraud? I would never make a promissory note, or do any stuff like that if it wasn't for the possibility of bankruptcy. I'd probably structure my life a lot differently than I have since I've been considering it. I'm still using my cards regularly, though I'm spending less, as I won't be trying for a bankruptcy for at least 6 months, if I have to do it.

[justbroke]

Welcome to BKForum!

1) If I move home and stay with my parents, would I have to include their income in my household. I've lived on my own for a long time, and I'm only moving back because it's the most economically viable path to hopefully avoiding bankruptcy and getting things in order, however, if I have to go through bankruptcy I want to make sure I don't shoot myself in the foot by not approaching this properly.

First rule, always make sure you are taking care of your health and safety. If that means living at home with family, that's fine. As for how income is included, only married individuals (whether they are filing together or not) must report both person's income.

For non-married individuals in the same household it works differently. The other income only counts to the extent that it pays your expenses. For example, lets say you shared a home with a roommate. The rent was $1,000/month and the roommate paid half. You would not be able to claim the rent of $1,000. You must reduce it by how much the roommate contributes ($1,000 - $500 = $500).

Calculating your housing expense when you live with family can be a little interesting and I can't tell you how it's handled in your bankruptcy district. On the means test, you get the to take the "allowed" housing expense for 1-person (if you're single and have no dependents). On Schedule I (Expenses) I can't say if you just use that same housing expense because you don't actually have a housing expense. This is an area where a local attorney is very helpful.

2) If I loan items to a friend out of state, would they look at that like it's a gift since it's so far away from me? The items are worth more than $650, but not too much more, and I intend to move back at some point in the future so for now I'm letting the friend use them as a storage fee in a sense.

There is a location on the Statement of Financial Affairs (SOFA) where you list property held by someone else. If you can't exempt that property, the Trustee will require you to bring it back to the State or liquidate it where it is located. I would hope that you can just exempt the property. When you list the property as held by others, just mention that it's for storage purposes only.

3) If I gave away a significant amount in gifts 3 years ago, and my state has a lookback period that goes that far, would that potentially be an issue? I was absolutely solvent at the time and probably had 0 debt, and if I didn't I definitely had assets in excess of my debt.

Maybe. The Statement of Financial Affairs (SOFA) has you list all gifts within 2 years. The Trustee will ask questions and determine whether they want to claw back the money. If the Trustee decides to go after the money, it would be against those insiders and not you.

13. Within 2 years before you filed for bankruptcy, did you give any gifts with a total value of more than $600 per person?

4) What about paying a contractor who is a friend for work they did over a year ago. Would they potentially look at that as a gift and hassle me on it?

If it's more than a year, I don't think you need to list that, but that's a question of law for your State. If it were less than a year, it would likely be a preference. Since that's an insider, a friend, that would likely have been an insider preference.

5) I make less than the median income currently, however, I'm pretty sure I have some money left over every month, just not enough to tackle my debt. Does that matter, or am I good just because I fall under the median income?

The bankruptcy petition not only has the Means Test, but also Schedule I and Schedule J. Schedule I and J are used to document current income and expenses, respectively. In some cases, a significant amount of residual income after J expenses are deducted from I earnings, it could create an appearance that you can afford to pay creditors in a Chapter 13. This is where the question of whether your current housing situation will affect you.

6) Alright, last one. I'm not certain that I'll need to file bankruptcy, there's a reasonable chance that I can avoid it. There's also a reasonable chance that I can't, but I'm planning for the worst while trying for the best. What's the difference between planning in case of bankruptcy, and bankruptcy fraud? I would never make a promissory note, or do any stuff like that if it wasn't for the possibility of bankruptcy. I'd probably structure my life a lot differently than I have since I've been considering it. I'm still using my cards regularly, though I'm spending less, as I won't be trying for a bankruptcy for at least 6 months, if I have to do it.

It's a fine line. Moving money around, paying insiders, hiding property, hindering a creditor, giving away property is a bad thing to do within 1-4 years of filing bankruptcy. Many people do things like that and it's not fraud or criminal; they just didn't know. But purposefully defrauding is an issue.

Having wrote that, bankruptcy pre-planning is absolutely fine. For example, for just about every State, putting money in a retirement account is okay. Because of your situation I would pref that you filed with an attorney. Maybe even a free consultation could answer some questions on pre-planning. You already have some potential preference issues and your housing situation, while not rare, presents some questions for Schedule J.

[FlibFlob]

Thank you, that really helps to know, I still have a few more questions if you have the time.

Calculating your housing expense when you live with family can be a little interesting and I can't tell you how it's handled in your bankruptcy district. On the means test, you get the to take the "allowed" housing expense for 1-person (if you're single and have no dependents). On Schedule I (Expenses) I can't say if you just use that same housing expense because you don't actually have a housing expense. This is an area where a local attorney is very helpful.

What if I chose to pay my parents some amount of money? I've already had some plans to pay certain bills, but would paying them rent be an issue, it seems smarter in terms of expenses and there is no deal in place at this point so it's kinda up to me? Also, my business is cash based, I assume cash payments from this point forward aren't a good idea, even though... that's how the world has handled payments forever.

There is a location on the Statement of Financial Affairs (SOFA) where you list property held by someone else. If you can't exempt that property, the Trustee will require you to bring it back to the State or liquidate it where it is located. I would hope that you can just exempt the property. When you list the property as held by others, just mention that it's for storage purposes only.

I definitely don't have property in excess value to my exemptions, nowhere near it. So it should be exempt? It's all just household goods that could be valued below $650 under the garage sale prices metric, but would likely be near double that via ebay prices.

Maybe. The Statement of Financial Affairs (SOFA) has you list all gifts within 2 years. The Trustee will ask questions and determine whether they want to claw back the money. If the Trustee decides to go after the money, it would be against those insiders and not you.

From what I've read, if I was solvent when I gave the gift I should be fine as far as I could tell from all my searching. Is it just a matter of how much of an issue the trustee wants to make of it, and how the judge decides to proceed, or whether there was any intent to defraud or something? I honestly was just moving and the cost to move it would be > than bringing it.

The bankruptcy petition not only has the Means Test, but also Schedule I and Schedule J. Schedule I and J are used to document current income and expenses, respectively. In some cases, a significant amount of residual income after J expenses are deducted from I earnings, it could create an appearance that you can afford to pay creditors in a Chapter 13. This is where the question of whether your current housing situation will affect you.

This is very interesting. I felt like all the things that say "You're below the median, so you can do a bankruptcy" weren't correct, because if you can lower your expenses enough, it's reasonable to expect you to repay it, which means they'd push you to a 13. It is very odd to me that every single thing I read on this says "below median, you pass." Thank you, I saw short explanations of this and had a feeling there was more to it, but couldn't find the info.

Passing the means test doesn't mean you automatically qualify for chapter 7. Following that are forms I and J which compared income vs expenses, which will determine whether you can go with a chapter 7 or have to go with a 13. Thanks, I wish that info was easier to find, hopefully people in the future benefit from this post.

Having wrote that, bankruptcy pre-planning is absolutely fine. For example, for just about every State, putting money in a retirement account is okay. Because of your situation I would pref that you filed with an attorney. Maybe even a free consultation could answer some questions on pre-planning. You already have some potential preference issues and your housing situation, while not rare, presents some questions for Schedule J.

I fully agree, my issues are quite complex and I won't risk it. I have to admit that I was scared to post here, and scared to contact a BK attorney because it would suggest any further usage of credit was fraudulent, but I'm actually not in the worst spot, and I don't absolutely need a BK. My expenses ballooned due to covid because I had to travel for work which increased my costs by $2k a month for most of the year, and the last few months of business have been red, so I'm in a pretty tight spot, but I've never missed a payment, I still have a significant amount of credit available, and if things go well I'll be able to pay it all back within 1-2 years.

Unfortunately, after the last few months of business I've realized that believing the worst case scenario won't happen doesn't impact the odds of it happening in the slightest, and if things do go bad for the next 6 months, I'll need to use the power of BK to honestly save my life (prior to considering BK I was thinking some dark thoughts, now that I've realized I have a get out of jail free card though, I'm so much happier knowing there's a way out if everything fails). As it stands right now, I don't sleep well, I have mental health issues that are exacerbated by this, which in turn impact my business negatively, and if I get to the point where recovery is a 3 year process under good conditions, I see no reason to extend the terrible feelings related to this debt any longer.

Thank you very much for you time!

[justbroke]

What if I chose to pay my parents some amount of money? I've already had some plans to pay certain bills, but would paying them rent be an issue, it seems smarter in terms of expenses and there is no deal in place at this point so it's kinda up to me?

If you pay your parents, do it with a check.

I definitely don't have property in excess value to my exemptions, nowhere near it. So it should be exempt?

Sp long as an exemption covers the property and you applied the exemption on Schedule C, thent the property would not be subjected to liquidation by the Trustee.

From what I've read, if I was solvent when I gave the gift I should be fine as far as I could tell from all my searching. Is it just a matter of how much of an issue the trustee wants to make of it, and how the judge decides to proceed, or whether there was any intent to defraud or something? I honestly was just moving and the cost to move it would be > than bringing it.

It just a question of whether the Trustee makes anything of giving away a bunch of property or even if it matters.

This is very interesting. I felt like all the things that say "You're below the median, so you can do a bankruptcy" weren't correct, because if you can lower your expenses enough, it's reasonable to expect you to repay it, which means they'd push you to a 13. It is very odd to me that every single thing I read on this says "below median, you pass." Thank you, I saw short explanations of this and had a feeling there was more to it, but couldn't find the info.

When they say "pass" they mean that you pss the means test. You actually "fail" the means test which means that you don't have the means to afford a Chapter 13. So it's a little backwards... but yet... passing the means test just indicates that the rest of the means test is not necessary. But that's just the beginning of the inquiry. The Trustee (and United States Trustee) will look to Schedule I and Schedule J. It is rare for an under-the-median income person to be denied because their Schedule J showed too much income. It's usually a case where current circumstances (and projected future circumstances) may show that the debtor's circumstances changed and they could afford a dividend.

It's rare.

Passing the means test doesn't mean you automatically qualify for chapter 7. Following that are forms I and J which compared income vs expenses, which will determine whether you can go with a chapter 7 or have to go with a 13. Thanks, I wish that info was easier to find, hopefully people in the future benefit from this post.

Being under-the-median is usually a better than pretty-good shot that there will be no further inquiry and the debtor will receive a Chapter 7 discharge. It's rare, but some debtors plan their "lookback" around a job loss and before taking a new job which earns more. Sometimes this is caught by the UST/Trustee. Sometimes the Trustee/UST just says "congratulations" and doesn't care.

For you, I wouldn't worry the Schedule J issue. As I wrote, it's rare.

[bornfree2]

The number one thing I understood is the minute you sign the bankruptcy petition, absolutely everything I own is not mine anymore. It goes to the trustee who then wants to sell it off and pay off the creditors and get a 25% commission. Its an adversarial process.

From that understanding, its a process of claiming the property back to me via various exemptions (federal and specific state). Some states like California are very generous allowing $30k for someone without property. In addition they offer exemptions for home goods, clothing, tools of trade, car, etc. However, its up to me / attorney to specifically list the property and then apply exemptions. On that basis the tango of what is and what isnt the trustees to sell off begins.

The second thing I understood is the movement of money/property prior to filing is subject to review. Here it gets hairy and scary as to what is a gift, whats is where and with who, what money is headed your way (refunds, rent deposits, lottery, etc), and more

The next is the necessity for support documentation ready to go prior to the 341 meeting with creditors. Have my taxes filed (current, last 1 or 2 or even 3 years), bank statements past 1 year, evidence of income from pay stubs, car registration, insurance, title current, etc. Anything that says this is mine and legal, this is what is money ive had and where it came from

And as im a broke Pro Se at the moment, i found a lot help understanding the system via searching the local court and other state court websites for resources related to self petition. You can use goole and a search for 'site:www.yourcourtwebsitegoeshere.com 'keyword' filetype:pdf' That will bring up a lot gems. Also search the justice site. Find who the trustees that server your city and their websites. Find out what docs they require prior to the meeting. you will dig up tons. I err on the side of major caution so if one trustee said 6 months of bank statements and another a year, im going with a year (cause you dont know who will be assigned)

In addition, review my post on how to search existing filed petitions to study how other people have done it. you can view a history of the filing (the docket) and see what traps some fell into. You can search for keywords like 'roomate' or 'living with family' etc and see what comes up. This has helped me immensely in making my own filing more 'professional'

https://www.bkforum.com/forum/before...ual-california

https://www.bkforum.com/forum/before...lings-to-study

Lastly, I guess ive become known on here as the overly cautious Pro Se filer. Bankruptcy is like the old gauntlet where you leave all your property at the front of the line, walk down a line of creditors, the trustee, and judge and they all take shots at you and then you come out the other side with what you fought for. At least thats my feeling as i got nothing left but what i have left at the moment.

T more ive dug into this the more ive understood bankruptcy is not just a 'call a few local lawyers and let them handle it'. Of course do call them! But its 100x better to come fully armed with knowledge of the law, process, and your specific holes and questions than to give over your financial future to a hired gun who is handling many other cases. The last thing I want is to pay the price for someone elses impatience and 'billing for each phone/email inquiry'.

And this forum is awesome!! welcome to the jungle!!

[FlibFlob]

Thanks JustBroke, I spent a week of searching this forum and I couldn't find these answers, thanks a lot for providing them!

[bornfree2]

I also suggest you read the handbook given to Trustees to get an 'inside' view of their rules.

https://www.justice.gov/ust/file/handbook_for_chapter_7_trustees.pdf/download

Other docs here

https://www.justice.gov/ust/private-trustee-handbooks-reference-materials/chapter-7-handbooks-reference-materials

From the manual:

The trustee has a duty under section 704(a)(6) to object to the debtor’s discharge if advisable. 11 U.S.C. § 727(a). To determine if it is advisable to oppose the debtor’s discharge, the trustee must consider the cost of the litigation, the amount of estate funds available, the benefit to creditors of a denial of the discharge, and the likelihood of success. 11 U.S.C. § 704(a)(1), 28 U.S.C. § 586.

The trustee must be familiar with the grounds for objecting to discharge, and whenever appropriate, must examine the acts and conduct of the debtor to determine whether grounds exist for denial of discharge. 11 U.S.C §704(a)(6).

[FlibFlob]

I hear ya BornFree. I honestly love doing everything on my own, it's why I don't have a boss, fix my car when it has issues, etc. However, my case is actually very complex involving several states and lots of other stuff, and the risk is just too high whereas the cost of it shouldn't be an issue. I've been looking through the actual documents requested and forms I'll need to fill out so that I have an idea of what issues could come up. Based on all the forms I've seen, and questions I've heard asked, I believe the only issue that could impact me is the 3 year old gifts.

Thanks for the advice though, now I've found my (future) local trustees information, the forms required, and all that jazz. Very useful. Woah, I just found a friends name in the BK database... I need to take back my thanks, BornFree you just sent me down a new rabbit hole after I thought I had it all figured out. I have to stop myself, everything seems to be in order and being able to see actual BK forms filed by folk is incredibly powerful. Thanks.

[FlibFlob]

Looks like my only real issue, one I didn't raise here, is that there's a high chance I'll have an inheritance sometime in the next 6 months, so odds are I won't have to go through bankruptcy... not that it'll be for a big amount, but it'll put me in a pretty good spot where I'd be very confident in paying back the debts. I just didn't want to base my life on the death of someone important to me, and I hope that they live for a significantly longer time, though the doctor says it should be less than 6 months. I can probably survive as is for another year without bankruptcy, but this is going to be rough, hopefully, everything goes well and business picks up.

I honestly put the inheritance thing out of my mind, because I didn't want to rely on the death of someone I care about as a get out of jail free card. It seems pathetic, wrong, etc, which I guess is why I've spent a week doing a deep dive on bankruptcy without realizing this.