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Louisville Bankruptcy Legal Blog

Understanding the "means test" under Chapter 7

Kentuckians who file petitions under Chapter 7 of the United States Bankruptcy Code usually expect to have all of their debts discharged by the bankruptcy court at the close of the proceedings. However, persons who look to Chapter 7 to eliminate their debt do not always understand that they may be required to meet a threshold that requires them to submit their monthly income and expenses to the court for review before they are eligible for a Chapter 7 discharge. This test is commonly called the "means test."

The means test is required only for debtors whose income is more than the Kentucky median income. Persons whose income is less than the statewide median are automatically eligible for a Chapter 7 discharge. The means test requires the debtor (or both debtors if the filing is joint) to submit a statement averaging the person's income and expenses over the last six months and multiplying the result by 12. The resulting annual income is then compared to a table of income levels to determine Chapter 7 eligibility.

Chapter 11 bankruptcy may involve sale of debtor's assets

As many Kentucky business owners know, a Chapter 11 bankruptcy, in which the debtor seeks to reorganize its debt structure while it continues to operate, can take many forms, depending upon the business of the debtor and the extent and nature of its financial obligations. A recently announced bankruptcy filing by a medical device manufacturer shows how even a Chapter 11 bankruptcy may result in the sale of most, if not all, of the debtor's property.

Unilife Corp. manufactures wearable drug delivery systems. The company and its two U.S. subsidiaries recently filed petitions under Chapter 11 seeking protection while the companies reorganize their debts. A key feature of the reorganization plan will be the sale, subject to the approval of the bankruptcy court, of all or substantially all of the three companies' assets in a court-supervised auction. According to the company's CEO, Unilife has arranged a $7.5 million debtor-in-possession line of credit from ROS Acquisition LP. The three sources of cash - operating revenues, proceeds of the auction and the line of credit - will allow the company to continue operating while it attempts to reorganize its debt and equity.

Trustee seeks to reopen bankruptcy case to sell hidden assets

Many Kentuckians who are contemplating bankruptcy under either Chapter 11 or Chapter 13 may believe that when the court enters an order approving the plan of reorganization, the proceeding is over. This belief, however comforting it may be, is not correct. A recent motion by the trustee in a bankruptcy case in Kansas shows how a bankruptcy case can be reopened if fraud is suspected.

The husband and wife debtors sought reorganization of their debts under Chapter 11, and they obtained an order approving their plan of reorganization. The trustee then learned that the couple had concealed their ownership of more than $1 million worth of firearms. The trove of guns included 103 pistols that had been purchased during the pendency of the bankruptcy proceeding.

What happens in a Chapter 7 bankruptcy?

Kentuckians who are contemplating filing a petition for bankruptcy have two choices: a Chapter 7 dissolution and a Chapter 13 reorganization. The consequences of this choice depend upon a number of factors in each person's financial situation. This post will summarize the potential outcomes of a Chapter 7 filing.

In a Chapter 7 personal bankruptcy, the debtor conveys all of his property that is not exempt from the claims of creditors to the bankruptcy trustee. The trustee is an official appointed by the bankruptcy court to take possession of the debtor's property. The trustee will prepare an inventory of the debtor's property and all of the debts disclosed by the debtor.

What is a 'plan of reorganization' in a Chapter 11 bankruptcy?

Many Kentucky business owners who are facing mounting business debts are aware that the federal Bankruptcy Act provides them a haven in which their debt can be reorganized, thereby giving the business a fresh start. This post will provide an overview of one of the most important parts of a Chapter 11 bankruptcy: the plan of reorganization.

A business that wishes to take advantage of Chapter 11 must file a petition with the bankruptcy court. The debtor must also file schedules that list assets and liabilities, individual debts to creditors and recent profit and loss statements. The debtor must also file a written plan of reorganization that provides information about the company and its financial condition that will enable creditors to make a reasonable judgment about the viability of the company's reorganization plan.

Without buyer, HHGregg faces Chapter 7 liquidation

Changing retail habits of Kentuckians and residents of nearby states appear to have claimed another victim: retail chain HHGregg. Gregg has been hoping to reorganize its debts under Chapter 11 of the Bankruptcy Code, but it is now facing the possibility that it will not find a buyer and that it will be forced to liquidate its business.

The chain is based in Indianapolis, but it has a number of stores in the Louisville area. The company has blamed its declining sales on its inability to keep up changing habits of its customers, the internet, and more aggressive marketing by other big box retailers. The company filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on March 6, 2017. The company's original reorganization plan contemplated the sale of the business as a going concern. However, no willing buyer has come forward.

What is a bankruptcy preference in Kentucky?

Small businessmen in Kentucky who are pondering either a Chapter 7 liquidation bankruptcy or a Chapter 11 reorganization may seek to protect family members, friends or close business associates from the effects of a bankruptcy discharge by paying amounts owed to such persons or entities before filing the bankruptcy petition. Such payments may, if they meet six criteria set forth in the bankruptcy code, be voided by the bankruptcy court, and they may impose additional costs on the estate, thereby reducing the amount available to pay creditors. These payments, known as "preferences," can pose a hazard in any business bankruptcy.

A payment to a creditor is a voidable preference if it meets these criteria:

  • A payment or transfer of something of value must occur.
  • The transfer is made for the benefit of the creditor.
  • The debt must have existed prior to the payment.
  • The debtor was insolvent at the time of the transfer.
  • The payment must have been made within 90 days prior to the filing of the petition (the look back period is 12 months if the creditor meets the definition of "insider").
  • The payment enables the creditor to receive a greater portion of its debt than it would have received under the distribution pursuant to bankruptcy code.

Understanding the role of the bankruptcy trustee

One of the most misunderstood roles in bankruptcy proceedings is that of the bankruptcy trustee. This post will provide an overview of the functions of the bankruptcy trustee in personal bankruptcies under both Chapter 7 and Chapter 13 proceedings.

When a bankruptcy petition is filed under either Chapter 7 or Chapter 13, the property of the debtor must be gathered together and managed for the benefit of creditors. This job is handled by the bankruptcy trustee. The exact functions of the bankruptcy trustee vary greatly, depending upon whether the proceeding is under Chapter 7 or Chapter 13 and upon the circumstances of each case.

3 things not to do before filing for bankruptcy

Making the decision to file for bankruptcy is not easy or pleasant, so you may be tempted to try to get it over with as quickly as possible. But before you begin, be aware of what you should not do before you file, helping ensure the process goes more smoothly and has fewer negative consequences on your financial life

1. Do not acquire more debt

How a Chapter 13 bankruptcy differs from a Chapter 7 bankruptcy

Most Kentuckians who are contemplating filing a petition for personal bankruptcy may not understand the different kinds of bankruptcy proceedings or which kind of proceeding may better serve their needs. The United States Bankruptcy Code provides two basic kinds of bankruptcy for individuals, usually referred to as Chapter 7 and Chapter 13. Both plans have the important common features of allowing individuals to eliminate debt and stop creditor harassment, but each plan has distinctive features that require some knowledge of the plans before making a choice.

Chapter 7 plans are generally designed to liquidate all of the debtor's non-exempt assets and use the proceeds to pay the claims of creditors. The balances of debts that are not paid in full are discharged. A significant problem with Chapter 7 is that the debtor may lose his or her residence if the mortgage loan is in default. Chapter 7 generally is most effective if the debts are credit card debts, medical debts, and personal loans.

  • NACBA- National association of consumer bankruptcy attorneys
  • LexisNexis- AV -Peer review rated
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