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Recent Blog Posts
Consumer Bankruptcy Changes in the CARES Act
The massive $2.2 trillion coronavirus relief law also includes some legal relief for both Chapter 7 and Chapter 13 consumer debtors.
If you’re thinking about filing a Chapter 7 “straight bankruptcy” case, the new CARES law may help, at least slightly. If instead you’re thinking about a Chapter 13 “adjustment of debts” case, the new law helps in more significant ways. That’s also true if you already are in a Chapter 13 case.
$1,200 Relief Checks Excluded as Income for the Means Test
To qualify to file a consumer Chapter 7 case you have to pass the “means test.” Part of that test is a rather complicated calculation of your “current monthly income.” That’s essentially the average of the last 6 full calendar months of income from virtually all sources. A single large payment—such as a $1,200 coronavirus relief payment—could pump up your “current monthly income” and make you fail the “means test.” Then you could be forced to file a multi-year Chapter 13 case instead of a 3-4 month Chapter 7 one.
Enhanced Unemployment Benefits Under the CARES Act
The greatly enhanced unemployment benefits mean much more money each week, for longer, for many more kinds of workers, and for many others.
Our blog post last week was about the emergency $1,200 Economic Impact Payment that’s “rapidly” coming to most American adults. (Plus $500 for each qualifying dependent child.) For updates on this payment since then, see the IRS’ special “Coronavirus Tax Relief” webpage. That links you to its News Release IR-2020-61, which came out on March 30, 2020. It was modified and updated on April 1, specifically about Social Security recipients.
Today’s blog post is about the new greatly enhanced unemployment benefits provided by the same law. The $2.2 Trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES”) includes about $260 Billion for expanded unemployment benefits. Although that’s only about one-eighth of the whole package, it’s still a huge amount of money. By way of comparison, $260 Billion is almost 40% of last year’s entire defense budget.
Does Filing for Bankruptcy Affect Employment?
There are many situations in which a person might resort to filing for bankruptcy. Maybe they or a family member was severely ill and they have tons of medical bills that they cannot afford to pay. Maybe they lost their job and are now getting behind on payments for their bills. Whatever the reason, bankruptcy is usually entered into by individuals who no longer can keep up with their monthly bills because their income is greatly surpassed by their debts. Filing for bankruptcy is often a person’s last chance at trying to reconcile their finances. Most people understand that a bankruptcy affects many areas of their life. What they might not realize, however, is how their bankruptcy could affect their professional life and career.
Can I Lose My Job if I File for Bankruptcy?
The simple answer to this question is no, your employer cannot fire you solely for filing for bankruptcy. According to the United States’ Bankruptcy Code, neither governmental or private employers are permitted to, “terminate the employment of or discriminate...against an individual who has been a debtor or bankrupt under the Bankruptcy Act.”
Tax Filing and Payment Extended to July 15
The federal April 15, 2020 tax filing and payment deadlines have been postponed to July 15, 2020. Also, no interest or penalties accrue.
Federal Income Tax Return Deadline Postponed
Responding to the COVID-19 pandemic, the IRS has postponed the deadline to file federal income tax returns by 3 months. This was announced (on Twitter, no less!) on Friday, March 20, and then explained in more detail on Saturday.
This tax return postponement applies to all individuals, but also more broadly. It includes every legal “person”: “an individual, a trust, estate, partnership, association, company or corporation.” IRS Notice 2020-18. So it covers all individuals and businesses.
Federal Income Tax Payment Due Date Postponed
Priority Debt for Intoxicated Driving
If you injured someone by unlawfully driving while intoxicated, the resulting personal injury debt would be a priority debt in bankruptcy.
Priority Debts
For many weeks our blog posts have been considering how bankruptcy deals with “priority” debts. Examples of these special debts that we’ve covered include child/spousal support, income taxes, and wages owed employees. Sections 507(a)(1),(4), and (8) of the U.S. Bankruptcy Code.
There’s one more kind of priority debt. It does not come up often but if it affects you, you need to know about it.
Priority Debts vs. Non-Dischargeable Debts
But first we need to clear up something that could be quite confusing.
Some debts cannot be discharged (legally written off) in bankruptcy, or can’t in certain circumstances. For example, bankruptcy never discharges child/spousal support debt, and discharges income taxes only under certain conditions. So the issue is whether or not you will owe the debt after the bankruptcy case is over. See Sections 523 and 524 of the Bankruptcy Code.
Top Things You Should Know About Declaring Bankruptcy
Being in debt can feel like you are drowning, especially if you are so far into debt that you do not see a way out. Whatever the reason for the extreme amount of debt, there are options that you can consider to help with the debt. For many people, bankruptcy can be the right option to relieve them of most, or even all of their debt. However, filing for bankruptcy is not easy and can actually be quite complicated and confusing. Each bankruptcy case is different, so it is not always simple for you to know what to expect after you declare bankruptcy. Here are a few things you should know if you are considering filing for bankruptcy.
Bankruptcy Does Not Happen Overnight
Some people think of bankruptcy as being similar to small claims court where you usually receive your disposition the same day you attend court. This is not the case. The bankruptcy process is complex and typically lasts at least a few months if you file for a Chapter 7 bankruptcy. If you file for a Chapter 13 bankruptcy, the case is open and ongoing for three to five years, the duration of your repayment plan.
Commissions Owed to Independent Contractor
If you owe sales commissions to an independent contractor when you file bankruptcy, it may be a priority debt. Here’s what determines this.
Our last blog post was about conditions in which wages, commissions, or benefits owed to an employee are “priority” debt.
But what if your debt was not to an employee but an independent contractor? Especially in today’s “gig economy,” small businesses (and large ones, too) often have independent contractors instead of employees.
Why “Priority” Matters
As discussed last week, whether a debt qualifies as a priority debt can make a huge difference.
This most often matters in a Chapter 13 “adjustment of debts” case. You have to pay all priority debts in full during the 3-to-5-year court-approved payment plan. In huge contrast, usually you only pay the non-priority “general unsecured” debts to the extent you can afford to pay. The common result is that you pay priority debts 100%, while those that don’t qualify as priority little or nothing.
What Does the Texas Bankruptcy Process Look Like?
Bankruptcy
is the legal process of determining whether or not a person or business is actually unable to pay their debts and if their debts should be discharged. For individuals, there are two main types of bankruptcies -- Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, typically the filer has their debts discharged or forgiven at the end of the process. In a Chapter 13 bankruptcy, the filer’s debts are reorganized and a repayment plan is entered for three to five years to pay off as much of the debt as possible.
According to statistics from the Judiciary Data and Analysis Office, the most common type of bankruptcy that is filed is Chapter 7 bankruptcy, which made up around 60 percent of all bankruptcy filings in 2017. If you are thinking about filing for a Chapter 7 bankruptcy, it is important that you understand the process.
Wages Owed to an Employee
If you owe wages to an employee when you file bankruptcy, that may or not be a priority debt. Here’s what determines this and why it matters.
Our last dozen blog posts have been about “priority” debts. These are special unsecured debts that bankruptcy law treats better than the rest, called “general unsecured” debts.
(Secured debts are a third main category of debts, distinctive because they are attached to your assets as security. We’ve covered those before and will again later. But now we’re addressing priority debts, which are not secured by any of your assets.)
The most common priority debts in consumer bankruptcy cases are income taxes and child/spousal support. So our recent blog posts have focused on these two. But if you have been operating a business with employees or independent contractors there are other important potential priority debts. These involve unpaid wages, salaries, commissions and benefits owed at the time of bankruptcy filing. Our next few blog posts will focus on these.
A Chapter 13 Plan to Catch up on Past-Due Support
Here’s an example of a Chapter 13 payment plan to pay past-due child and/or spousal support, showing how you can catch up safely and sanely.
Today we put what we explained in the last three weeks of blog post into a sample Chapter 13 plan. It shows how powerfully Chapter 13 helps you if you owe past due child and/or spousal support. A Chapter 13 filing protects you from the aggressive collection of overdue support, immediately and as long as needed. And through the Chapter 13 payment plan you get a reasonable and even peaceful way to catch up on support.
The Example
Assume you’ve fallen behind on both child and spousal support because your income was interrupted. You owe $6,000 in past-due support. You’re back at work so you can now pay your ongoing monthly support but have no way to catch up. You have too many other debts.
Your ex-spouse’s support enforcement agency is poised to garnish your wages for the past-due support. If they did so you wouldn’t be able to pay your vehicle loan payment and you’d lose your vehicle.
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