October 19, 2017

The Pitfalls of Receiving an Inheritance Shortly After You File Bankruptcy

Inheritance, including life insurance proceeds, and bankruptcy can prove to be a very serious issue if not planned for correctly. An individual, depending on timing, may have to surrender a portion or all of an inheritance or life insurance proceeds as a result of filing bankruptcy. This article discusses inheritance in the context of bankruptcy, and the potential issues that may arise.
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5 Mistakes to Avoid Before You File Bankruptcy

There are many mistakes for consumers to avoid before filing bankruptcy. The following list is what I consider some of the top mistakes to avoid before filing bankruptcy.

1. Not Being Honest With Your Attorney: Disclose everything to your attorney; [Read more…]

Chapter 7 Bankruptcy: Voluntary vs. Involuntary

When it comes to a chapter 7 bankruptcy, there are two options available: 1.) it can be filed voluntarily by the debtor; or, 2) it can be filed by a debtor’s creditors, thereby resulting in an involuntary bankruptcy.  This post discusses both voluntary and involuntary bankruptcies, and when involuntary bankruptcies may occur (which is rare).

The vast majority of chapter 7 bankruptcy cases are voluntarily filed; a person has decided that he or she wants to file bankruptcy, and does so.  However, there is a second, yet very uncommon type, of filing: an involuntary chapter 7 bankruptcy.  Involuntary bankruptcy filings usually involve a business as the debtor.  In the common situation, the business owes creditors money and has defaulted on contracts with the creditors.  The creditors are having difficulty getting paid or pursuing the business’s assets.  Faced with the difficulty of recovery, some creditors may file an involuntary bankruptcy for the business.  This is particularly true if the creditors know the business can repay or liquidate assets to pay its debts, but refuses to do so.    It is extremely rare that creditors would file an involuntary bankruptcy for an individual, though.

Once the creditor files a bankruptcy petition “for” the business, the business will receive notice of the bankruptcy filing.  The business will then have 20 days to respond.  If the business does not respond, the bankruptcy court will allow the bankruptcy to proceed.  But if the business does respond, there will be a hearing before a bankruptcy judge to determine whether the petition was filed in good faith and if the business has failed to pay its debts.  If the court determines that the bankruptcy petition was indeed filed in good faith and that the business is refusing to pay its creditors, the chapter 7 bankruptcy proceeding will continue. If the judge, however, rules for the business, the bankruptcy case will be dismissed and the business may be entitled to any damages as a result of the involuntary bankruptcy filing.

If the bankruptcy moves forward, however, a Chapter 7 Trustee will be appointed to administer the bankruptcy estate for the business.   The Chapter 7 Trustee will be in a position to liquidate the assets of the business in order to pay some (if not all) of the debt owed to the creditors.  Such assets would include, but are not limited to, accounts receivables, investments, inventory, goodwill (selling the business name), tools, intangible property such as copyrights, patents, and other various assets.   As a result of a chapter 7 bankruptcy, creditors may be in a better position to be paid on contract; however, such a maneuver should be saved only for the most extreme cases.  Therefore, involuntary chapter 7 bankruptcies are extremely uncommon for business debtors, and even more uncommon for individuals.

 

Chapter 7 “No Asset” Case

The majority of cases filed under chapter 7 bankruptcy are considered “no asset” cases.  This post details what a “no asset” case is, and why we prefer this over an “asset” case.

When you file chapter 7 bankruptcy, everything you own, with few exceptions, becomes part of a “bankruptcy estate.”  To protect these assets as we travel down the road of chapter 7 bankruptcy, we use exemptions, or laws that protect your personal and  real property.  In Oregon, we can use Oregon Exemptions or Federal Exemptions to protect you from losing your property as a result of filing bankruptcy.  I have written several posts about exemptions, particularly the Federal Wild Card exemption. Using exemptions, the vast majority of chapter 7 bankruptcies are “no asset” cases, meaning your assets are protected and you won’t lose anything through the bankruptcy process other than debt.

The opposite of a “no asset” case is an “asset” case.  An “asset” case means that, despite using exemptions, all your property is not protected.  In such a case, the Chapter 7 Trustee will liquidate the asset and pay your creditors a dividend from this asset.  Other than real or personal assets that determine if a chapter 7 bankruptcy is  an “asset” case or a “no asset” case, certain transfers and “fraudulent conveyances” may form the basis of whether a case is an “asset” case or a “no asset” case.

An important part of your bankruptcy consultation is to determine not only your debts but also your assets.  If you have too many assets, or the value of an asset is too high, we can consider filing a chapter 13 bankruptcy or consider some pre-bankruptcy planning to help alleviate any potential problems with an “asset” case.

When do you find out if your case is an “asset” case or not?  Usually when you first meet with me, we make this determination and what planning is necessary to alleviate the possibility of an “asset” case, including, but not limited to, considering a chapter 13 bankruptcy filing.  Also, the Chapter 7 Trustee, at the conclusion of the meeting of creditors, will usually make the determination if your bankruptcy is an “asset” case or a “no asset” case.

There are additional benefits for having a “no asset” case.  For example, if you accidentally missed listing a creditor in a “no asset” case and you have already received your bankruptcy discharge, this creditor will be discharged by operation of law in the bankruptcy despite not receiving actual notice of the bankruptcy.  On the other hand, if the case is an “asset” case, then if you miss listing a creditor and have received your bankruptcy discharge, you will be stuck with this debt.

Please call to learn more about bankruptcy and whether your potential bankruptcy case may be an “asset” case or a “no asset” case.  I offer free in-office bankruptcy consultations in Eugene.

 

 

Exemptions & Bankruptcy – What State’s Exemptions Apply & Why?

I have written several posts on exemption law and bankruptcy, because exemptions are such an important part of the bankruptcy process.  Exemptions simply are laws that protect a client’s property when he or she files for chapter 7 bankruptcy and even chapter 13 bankruptcy.

Oregon has two exemption schemes: 1) exemptions based on Oregon law, or 2) exemptions based on federal law.  Generally the Federal exemptions are much more advantageous to use, as they contain a powerful wildcard exemption that can protect assets that may not be protected using Oregon exemptions.

But what are the requirements to be eligible to use Oregon exemptions or Federal exemptions? Can another state’s exemption scheme apply to your bankruptcy if you file in Oregon?

To be eligible for Oregon exemptions or eligible to elect the Federal exemptions in Oregon, you must have lived in Oregon for the past 2 years.  If you moved from another state to Oregon a year ago, for example, another state’s exemption laws may apply.

The rule, simply stated, is: a debtor in bankruptcy can use the exemptions available in Oregon provided that the debtor lived in Oregon for the past 2 years.  If the debtor lived in more than one state in the past 2 years, then you look at what state the debtor predominantly lived in the 6 months prior to the last 2 years (or where the debtor lived predominantly between months 24-30).

An example of the above principal is in order: Client has moved to Oregon from Arizona a year ago, and had lived in Arizona for 5 years.  Client, therefore, has lived in more than 1 state in the past 2 years.  Since the client lived in more than 1 state during the past 2 years, then you must look at where the client lived predominantly during the 6 months before the 2 years (or lived between 24 – 30 months ago).  In this case, since client moved to Oregon less than 2 years ago, and lived in Arizona for the 6 months prior to the 2 years, Arizona exemption law applies despite the client filing bankruptcy in Oregon.

Now, some state’s exemption laws only apply to residents of that state.  This is usually clearly written into the state’s exemption laws.  What happens when, based on the above analysis, a state’s exemption laws apply to a person, but only if that person is a resident of that state? Federal exemptions then will apply.

Why is this convoluted system in place?  To deter “forum shopping,” or moving to a state that has better exemption laws to protect assets and then filing bankruptcy in that state.  By making it more difficult to forum shop, Congress intended to help deter abuse of the bankruptcy system.

Determining what exemption law applies is not always a simple process.

If you have lived in more than one state in the past 2 years, another state’s exemption laws may apply (other than Oregon).  If you have questions about bankruptcy, exemptions, and what laws may apply, please feel free to contact me today for a free in-office bankruptcy consultation.

 

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

CAUTION: This website is to provide visitors with basic information about my law office, and information about how to contact me. Every situation is different, and no information on this website is legal advice on any specific question. You should not act on any of the information without first conferring with an attorney licensed in your jurisdiction. No attorney-client relationship or privilege is formed by visiting this site or by unsolicited email. Therefore, initial emails should not contain any confidential information. I may already represent parties adverse to you and cannot advise or represent you until we check for conflicts. I am licensed only in Oregon and offer my services only to those doing business in Oregon, unless I am associated with local counsel in accordance with other states' laws. The applicable laws may have changed after the information on this website was published. While effort is made to keep the information current, you should not presume that all information is up to date. You must confer with an attorney to be sure you have current information.

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