The purpose of this section is to highlight issues which arise in Chapter 7 cases. It is not meant to be a comprehensive discussion of all of the issues that can arise in Chapter 7 cases, but a brief overview to provide basic information.

                                                                               Tax Refunds

It is important to note that tax refunds might be taken by the Trustee and distributed to creditors. 

                                                                 Transfers

All transfers within 4 years of a bankruptcy filing are suspect. Some of them are appropriate and can be explained. Some of them are not. While common sense may tell you that it would be inappropriate to transfer $100,000 to one’s mother the day before filing bankruptcy, other transfers may not look so bad. For example, if a debtor buys a car for his son or daughter within a year of bankruptcy, that may in fact be an improper transfer. Therefore, it is important that should you hire Cooper & Forbes you let us know of all transfers which you have made within the past 4 years.

Transfers to creditors may be categorized as preferences. For example, if you pay MasterCard off shortly before bankruptcy, that payment may constitute a preference. If so, the Trustee will sue MasterCard for the money, recover the money and divide it up equally among the other creditors. This is why you should NOT pay back relatives prior to a bankruptcy.  Often times, payments to relatives constitute preferences and ugly litigation results.  No one wants to have their relatives involved in their bankruptcy case.

                                                      Pending Claims or Cases

In a Chapter 7 case, if you have a claim or case pending, for example, automobile accident claim or employment law claim, these claims are property of the bankruptcy Trustee. Therefore, when filing a Chapter 7, you might need to surrender control of those claims to a Trustee if you file a Chapter 7 case.

                                                                                Divorce

The filing of a bankruptcy can have a significant effect on divorce. The automatic stay will stop pending divorce proceedings and the discharge in bankruptcy may effect the property settlement in divorce cases. It is important that you let your attorney know if you are involved in a divorce during the pre-bankruptcy information gathering phase.

                                           Secured Debts and Retention of Assets.

Over the years I have been asked many times why someone got to keep their house and their car even though they went into bankruptcy. The normal answer is that they did not have enough equity in the asset to lose it.  For example, a couple with a $200,000 house, titled in both names, with a $150,000 mortgage is likely to retain that property through a bankruptcy. The equity in the property is $50,000 ($200,000 - $150,000).  Each party can claim $20,000 exempt against the equity, so the parties only have to worry about $10,000 ($50,000 - $40,000).  A Trustee will know that he or she will have costs of sale, such as, real estate commission and closing costs.  If one assumes that it will be 9% of the sale price, the Trustee would consider that after sale, he or she has net proceeds of $182,000.  The Trustee would next consider the debtors exemptions.  The homestead exemption at this time, in this state is $20,000 per individual.  Therefore, after subtracting the $40,000 in exemptions, only $142,000 would remain, which is not enough to pay the $150,000 mortgage.  Therefore, the Trustee would likely not proceed against that piece of real estate.  The same can be said for motor vehicles, although the cost of sale are normally insignificant.  

                                                                             Conclusion

As indicated above, this discussion is not intended to be all inclusive. There are many other factors that go into the determination of whether or not to file a bankruptcy and under what Chapter a debtor may wish to file. However, much of this is not rocket science and basic understanding of these concepts is helpful to the determination of whether a debtor should file bankruptcy and under what chapter.