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Complex Bankruptcy Cases
Complex Chapter 7 Bankruptcies
A Chapter 7 liquidation proceeding is available to individuals, partnerships and corporations. However, most individuals must first qualify for a Chapter 7 based on income. If you earn more than the median income you have to pass the 'means test' in order to file a Chapter 7. For individuals with significant income that may not be possible. A Chapter 11 or 13 may be the only option. However, if more than one-half of your debt is business debt (this includes investment property mortgages) then you may qualify for a Chapter 7 regardless of income. We have filed Chapter 7 bankruptcies for doctors, lawyers, developers and other individuals with large incomes. With the dramatic drop in real estate values in the Fort Lauderdale area and Broward and Dade Counties, complex bankruptcies in these areas are not uncommon.
In a Chapter 7 the debtor is allowed to keep exempt assets. For individuals filing bankruptcy in Florida, the exemptions are primarily determined by Florida law. The available exemptions are described on our Chapter 7 page. All non-exempt assets must be turned over to the Chapter 7 trustee for liquidation and distribution to creditors or bought back from the trustee through a payment plan.
For individuals with significant assets a Chapter 7 may not be a viable option. In some cases pre-bankruptcy planning may allow for a meaningful Chapter 7 with limited loss of assets. We will work with you to achieve an optimal result. We also handle Chapter 7 tax discharges. Read more on Chapter 7.
Complex Chapter 13 Bankruptcies
A Chapter 13 bankruptcy, or "wage earner reorganization" is available only to individuals with regular income. It requires that the debtor file a plan providing for payment to creditors over a period of up to five years. The benefits of a Chapter 13 include the ability to reinstate a home mortgage that is in default, stop IRS collection efforts while payments are made, the ability to retain non-exempt real estate and personal assets, and a broader form of discharge.
For individuals with small businesses a Chapter 13 may be an inexpensive alternative to a Chapter 11. For individuals with multiple investment properties a Chapter 13 may allow the individual to retain some properties an even strip off second mortgages and reduce first mortgages. Read more on Chapter 13.
A Chapter 11 reorganization is available to individuals and businesses. Due to the higher court fees, reporting requirements and legal fees involved in a Chapter 11, it is only used by individuals with combined debts of over $1,000,000.00. However, it may provide individuals and businesses with an opportunity to reorganize their debts and make arrangements to pay all or a portion of the debts, or sell the business, while obtaining protection from creditors. It may also allow an individual to retain more properties than in a Chapter 7 or 13. A Chapter 11 generally provides more flexibility than a Chapter 13 reorganization for individuals. Read more on Chapter 11.
Dischargeability of Taxes in Bankruptcy
Most individuals are unaware that they may be able to discharge some or all of their older income tax obligations in bankruptcy. Dischargeability of these taxes turns on the question whether or not they are "priority" claims. Tax obligations which are non-priority are dischargeable.
The Bankruptcy Code provides that taxes assessed by a governmental agency which are based on income (income taxes) lose their priority status when:
(a) the tax return, with all extensions, was due more than three years prior to filing for bankruptcy protection;
(b) a return was filed at least two years prior to the filing for bankruptcy relief;
(c) the tax obligation was assessed at least 240 days prior to filing; and
(d) the tax payer is not guilty of fraudulent conduct or tax evasion and has not signed an offer in compromise or other settlement agreement.
Certain penalties and interest may also be dischargeable. Penalties designed to compensate the agency for actual loss are non-dischargeable while those which are punitive in nature may lose priority and become dischargeable. Employment taxes are not dischargeable regardless of the age of the tax claims. This is true whether the obligation arose because the debtor was the employer or a responsible officer.
Bankruptcy protection also provides a means to stop IRS collection procedures for a period of time while payments are made. Bankruptcy Code § 362, which grants debtors automatic relief from collection activity, applies to the IRS in the same manner as other creditors. The period of relief depends on many factors, including whether the tax payer files for relief under Chapter 7, 11 or 13. Priority and non-priority taxes can be treated in a Chapter 11 or Chapter 13 plan and paid out over time. The bankruptcy stay remains in effect until the Plan is completed or the case dismissed. This may allow a business which has been seized by the IRS to re-open and operate under a Chapter 11 Plan without interference from the IRS or other creditors. The filing of a Chapter 7 stays all collection proceedings until the entry of a discharge or dismissal of the case See our page on Violation of the Automatic Stay or Discharge Injunction.
This article is not intended as a substitute for competent legal or accounting representation, but merely as a guide to help you decide whether you need the services of a licensed attorney or CPA.
David W. Langley is licensed to practice only in the State of Florida and handles bankruptcy cases in Miami, Hollywood, Fort Lauderdale, Plantation, Pembroke Pines, Pompano, Coral Springs, Deerfield, Boca Raton, Delray and West Palm Beach.
Law Offices of David W. Langley
8551 W. Sunrise Blvd., Suite 303
Plantation, FL 33322
Phone: (954) 356-0450
Fax: (954) 356-0451
For an appointment call (954) 356-0450