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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
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Experience:  B.A.; M.B.A.; J.D.
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( State of Virginia) I had a small business that I had to close

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( State of Virginia) I had a small business that I had to close earlier this year. I am going to file chapter 7 bankruptcy-( I owe about $400,000- from the business). I now have a regular job & my attorney said from what he sees so far I should be good canidates for a chapter 7. However, because I filed an extension on my taxes, my CPA will have them done by October 15th and it looks good for a tax refund because we had a $120,000 loss for our business tax year 2009. I haven't "officially" filed bankruptcy yet, but if we get a large tax refund $10,000 + what can I do to protect those funds and make it work in my favor. I keep reading about legit expenses- as long as you spend it before you file - or would it help to just file chapter 7 jan 1st 2011?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 3 years ago.

 

( State of Virginia) I had a small business that I had to close earlier this year. I am going to file chapter 7 bankruptcy-( I owe about $400,000- from the business). I now have a regular job & my attorney said from what he sees so far I should be good canidates for a chapter 7. However, because I filed an extension on my taxes, my CPA will have them done by October 15th and it looks good for a tax refund because we had a $120,000 loss for our business tax year 2009. I haven't "officially" filed bankruptcy yet, but if we get a large tax refund $10,000 + what can I do to protect those funds and make it work in my favor. I keep reading about legit expenses- as long as you spend it before you file - or would it help to just file chapter 7 jan 1st 2011?

 

Response: It would be better to wait until next year to file for bankruptcy protection. At that time, you would have legitimately used all the tax refund. Then, you can comfortably tell that the Chapter 7 Trustee that you used the refund for your living expenses. If you file right after the refund, you may have a hard time convincing the Chapter 7 Trustee that you spent the $10,000.00 days before filing for bankruptcy protection.

 

You may also run into problems with preference if part of the refund was used to pay for your business debts. Trustee has power to void payments made to creditors within 90 days of bankruptcy filing if the payments are not in ordinary course of business, payments are not for new value; payments are not made as a contemporaneous exchange. See 11 U.S.C. Section 547(b) and (c)

 

http://doney.net/bkcode/11usc0547.htm

 

Customer: replied 3 years ago.

Ok, a couple of things, how do we legitmatley apply the money to our living expenses? I have read about litttle stuff, like food and clothes, but there is only so much of that you can buy- Medical expenses? what about a new roof? new well? new garage? gravel for the driveway? I will definately not be putting any money towards creditors.

I am making enough to pay our bills, but obvisily not enough to pay back $400,000 of unsecured debt from the business. Also, the debtors may possibly start garnishing wages, sorry, lots of gray area! Hypothetically if we waited till next year - does the refund count as earned income & affect our chances of filing a chapter 7? If not, how far into 2011 should I file?

Also, since my attorney has a small deposit, and we have talked with him, is that some sort of acknowledgement that I knew what I was doing? I mean, I sort of do, I know I owe "banks" & "vendors" money but I am trying to justify this because of all the money I put in this business and am now broke because of customers that didnt pay me. I am married but my wife is not filing for bankruptcy because it is all in my name and she does not work. Thanks for any additonal help.

Expert:  Phillips Esq. replied 3 years ago.

Ok, a couple of things, how do we legitmatley apply the money to our living expenses? I have read about litttle stuff, like food and clothes, but there is only so much of that you can buy- Medical expenses? what about a new roof? new well? new garage? gravel for the driveway? I will definately not be putting any money towards creditors.


Response 1: All of the above. If you can spend the money that way now, then you can file for bankruptcy protection without waiting until next year. However, you should keep all receipts in case the Trustee asks for them.

 

I am making enough to pay our bills, but obvisily not enough to pay back $400,000 of unsecured debt from the business. Also, the debtors may possibly start garnishing wages, sorry, lots of gray area! Hypothetically if we waited till next year - does the refund count as earned income & affect our chances of filing a chapter 7?


Response 2: No. The refund is not income but an asset. Income is listed on bankruptcy Schedule I and Asset is listed on Schedule B.

 

If not, how far into 2011 should I file?


Response 3: See my Response #1

 

Also, since my attorney has a small deposit, and we have talked with him, is that some sort of acknowledgement that I knew what I was doing?


Response 4: Yes but any discussion you have with your attorney is protected by Attorney-Client privilege.

 

I mean, I sort of do, I know I owe "banks" & "vendors" money but I am trying to justify this because of all the money I put in this business and am now broke because of customers that didnt pay me. I am married but my wife is not filing for bankruptcy because it is all in my name and she does not work. Thanks for any additonal help

 

Response 5: You are quite welcome.

Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 12957
Experience: B.A.; M.B.A.; J.D.
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