Becky Moshier

Chapter 7 or Chapter 13 for Small Business?

If debts become unmanageable, small business owners can file for Chapter 7 or Chapter 13 bankruptcy. However, which chapter is right depends on the structure of the business, how much debt and assets you have, and whether you intend to continue the business. Let’s discuss the pros and cons of Chapter 7 and Chapter 13 bankruptcies for small businesses.

Who Can File For Chapter 7 Bankruptcy?

Both individuals and business entities can file for Chapter 7 bankruptcy. Small business owners can file Chapter 7 on behalf of their business or for themselves personally (sole proprietors must file a personal bankruptcy to wipe out business debts because you and your business are considered the same legal entity). However, many business owners file both because the business bankruptcy does not wipe out personal liability for business debts.

Pros of Chapter 7 Bankruptcy for Small Business Owners

Chapter 7 allows sole proprietors to wipe out both personal and business debts by filing a single personal bankruptcy. In addition, you can use exemptions to protect business assets. This allows you to continue operating the business after wiping out its debts in bankruptcy.

If your business is a partnership, corporation, or limited liability company (LLC), Chapter 7 bankruptcy provides a simple way to close down and liquidate the business. When you file a Chapter 7 on behalf of your business, it becomes the bankruptcy trustee’s responsibility to sell off the assets of the business and pay its creditors. This leaves you free to do other things, including seeking employment.

Cons of Chapter 7 Bankruptcy For Small Businesses

Unless you are a sole proprietor filing a personal bankruptcy, your business does not receive a discharge of its debts in Chapter 7 . Also, you cannot use exemptions to protect assets in a business bankruptcy. As a result, all assets of the business are sold to pay its creditors and the business is closed down.

You are still personally liable for any company obligations unless you file a personal Chapter 7 bankruptcy. As a result, it is best to file a business Chapter 7 if you wish to close up shop, the business has little or no assets, and you are not personally liable for company debts.

Who Can File for Chapter 13 Bankruptcy?

Only individuals are allowed to file for Chapter 13 bankruptcy. Business entities such as partnerships, corporations, or LLCs cannot file. However, similar to Chapter 7, sole proprietors can file a personal Chapter 13 to wipe out your personal and business debts.

Advantages Of Chapter 13 Bankruptcy For Small Business Owners

In a Chapter 13, you keep all your assets and pay back all or a portion of your debts through a repayment plan. If you are a sole proprietor with a lot of business assets, a Chapter 7 trustee may sell them if you don’t have enough exemptions. By filing a Chapter 13, you can protect all business assets and keep the business running while reorganizing your debts.

Even if your business is a separate entity like a partnership, corporation, or LLC, you can wipe out your personal liability for business debts with a Chapter 13. You can also do things with a Chapter 13 that you are not allowed to in a Chapter 7, including paying off priority creditors and cramming down secured loans through your plan.

Disadvantages Of Chapter 13 Bankruptcy

The biggest disadvantage to Chapter 13 is that business entities cannot file a Chapter 13. Also, Chapter 13 takes far longer than a Chapter 7 because you have to make monthly payments to a trustee for three to five years. If you have nonexempt assets, you can keep them but you must pay an amount equal to their value to unsecured creditors which can increase your plan payments significantly. Further, your discharge only wipes out your personal liability for business debts. The business itself must pay back its debts.


For a more detailed explanation of your small business bankruptcy options, let’s schedule a consultation today.

Moshier Law Office, PLLC
St. Paul, Minnesota

Credit Card Debt in Bankruptcy and How to Live Without Them

The main reason most people file for Chapter 7 bankruptcy is to wipe out credit card debt. In most situations, your obligation to pay the balance will go away at the end of your case.

When the Trustee Pays Credit Card Creditors From the Bankruptcy Estate

Most Chapter 7 bankruptcies are “no-asset cases.” There’s no property to sell for the benefit of the creditors. In the rare asset case, creditors will receive money according to a priority ranking system. Credit card debts, which are nonpriority claims, fall at the bottom of the list. So it’s unusual for a credit card company to receive any payment.

Exceptions to the Dischargeability of Credit Card Debt

Although filing bankruptcy usually discharges credit card debt, it doesn’t always work that way. A balance incurred through actual fraud, a false misrepresentation, or false pretenses, will remain. It’s “nondischargeable,” so you’ll have to pay it after bankruptcy.

Credit card purchases are presumed fraudulent in two circumstances.

 Luxury goods. If you use a single credit card to buy more than $675 worth of luxury goods or services within 90 days of filing for bankruptcy, the debt is considered nondischargeable. Bankruptcy law defines “luxury goods or services” to exclude “goods or services reasonably necessary for the support or maintenance” of you or your dependents. Food, clothing, and gasoline, for example, are not usually considered luxury goods.

Cash advances. If you use a credit card to take more than $950 in cash advances within 70 days of filing bankruptcy, the debt is considered nondischargeable, regardless of how you use the money.

The exceptions to discharge for luxury goods and cash advances are not absolute. Under bankruptcy law, it is presumed that any charges for luxury goods and cash advances, within the specified limits, were made through false pretenses, a false misrepresentation, or actual fraud. This means that the burden is on you to prove that you intended to and reasonably believed that you could repay the charge when you incurred it, which is difficult to do.

How the Creditor Challenges Dischargeability

If a credit card company argues that a debt is nondischargeable, it must file a complaint with the bankruptcy court. Unless it files such a complaint, even claims for luxury goods and cash advances are discharged along with other obligations against you.

In Chapter 7 bankruptcy, the deadline for filing complaints challenging the dischargeability of a credit card debt is 60 days after the first meeting of creditors. If a creditor files a nondischargeability complaint, you must file a timely answer to dispute the creditor’s claim. Then the bankruptcy court will hold a hearing to decide whether your debt is dischargeable.

Guarantors and Cosigners on Credit Card Debt

The discharge applies only to the debtor in a bankruptcy case. It does not extend to guarantors or cosigners. If anyone else is liable for charges that you made on a credit card, they will still be liable after you file Chapter 7 bankruptcy, regardless of whether the claim is dischargeable against you.

How To Live Without Credit Cards

Budget, budget, budget: Budgeting is your greatest tool in living without credit cards for two reasons.

First, you need to budget enough money each month to pay off your current credit card debt. A good way to get ahead of your debt is to apply for a balance transfer credit card. Look for a card with a zero percent introductory APR, which will save you from paying interest for anywhere from 6-18 months and no or low balance transfer fees which will save you additional money.

Using a balance transfer card to consolidate all your credit card debt on one card will help you get rid of all your other cards.

Second, you should set enough money aside each month to create a savings account for any emergency spending, like for home repair or unexpected medical bills. Look for savings accounts with high APYs, so you can make the most off your investment.  Online savings accounts are a good idea because they offer the highest APYs and allow a limited number of withdrawals, which can curb the temptation to spend.

Don’t cancel your credit cards if you don’t have to. When most people decide to live without credit cards, they end up canceling the cards without regard to the consequences. Yes, canceling your credit cards altogether will obviously reduce the risk of spending what you can’t afford. The problem is that it will also hurt your ability to receive other lines of credit, whether that be a car loan, mortgage or student loans for your kids.  A better option is to pay off all of your credit cards, and then stop using them instead of cancelling them.

Make sure you have other types of credit: If you do plan on canceling your credit cards, you should keep a diversified credit portfolio full of other types of credit, such as mortgages, auto loans, student loans, etc. While not having credit cards will decrease your available credit, which could hurt your credit score, having these other types of credit will help balance out your credit score and show the credit bureaus that you still know how to utilize the debt you have.

Try a secured credit card: If your score does take a hit after cancelling your cards, or you want to prevent that from happening altogether, try getting a secured credit card. Since secured cards have lower limits – $250 to $500, usually – and the cards report to the credit bureaus, they are good option for people who don’t want to accrue debt but still need a credit card to improve their credit score.

Keep track of your credit score: Living without credit cards may be damaging to your credit score, which may make it difficult to get loans or a mortgage. As your good credit ages out of your credit report, your score will drop, so keeping a close eye on your credit score can alert you to when you need to start rebuilding your credit with other types of loans.

It might also be a good idea to sign up for a credit report monitoring service so you can keep track of how your score is being affected by your lack of credit cards. These services also alert you when there are any changes in your credit report, so they can also help protect against identity theft and fraud.

For a more detailed explanation of your bankruptcy options, let’s schedule a consultation today.

Moshier Law Office, PLLC
St. Paul, Minnesota

Things to Avoid Before Filing for Chapter 7 or Chapter 13 Bankruptcy

Filing for bankruptcy is more than just filling out loads of paperwork. Lots of preparation goes into planning, and what you do or don’t do before filing can affect your bankruptcy’s success.

Don’t Rush Into Bankruptcy

When you’re in financial distress, it’s tempting to do whatever it takes to reduce the pressure. However, because you’re rarely entitled to receive a bankruptcy discharge, it’s important to look at other options.

For example, you can receive a Chapter 7 discharge only once every eight years, or six years after a Chapter 13 bankruptcy filing.

While waiting, you might find face even more severe financial problems, including unemployment, an eviction, foreclosure, car repossession, or illness. If you’ve already filed a Chapter 7 bankruptcy, you might not be able to do it again for many years, possibly subjecting yourself to a creditor garnishing your wages (taking money out of your paycheck), levying (seizing) the funds in your bank account, or taking valuable property.

Less effective Chapter 13 bankruptcy options may be available, but you’d need income to qualify, and you’d be required to pay some, if not all, of the debt during a three- to five-year repayment period.

Don’t Wait Too Long

Sometimes, it’s in your best interest to file for bankruptcy immediately, especially when a creditor has filed a lawsuit against you. Your attorney will look at the complaint to see if it includes a fraud allegation. If so, and the matter goes to judgment, the debt won’t be able to be eliminated in bankruptcy.

Also, once a creditor wins a money judgment, the lien rights that come with it will allow the creditor to garnish your wages, attach your bank accounts, repossess your car, and foreclose on your house. In most cases, if you file for bankruptcy before the creditor wins the case, the bankruptcy will stop the pending lawsuit, wipe out the debt, and prevent any lien rights from attaching.

You should be aware that this is a complicated area of bankruptcy. If you’ve been served with a lawsuit, you should contact a bankruptcy attorney as soon as possible.

Don’t Drain Your Retirement Account

You can protect most retirement funds in bankruptcy. One of the financial mistakes that people regularly make before filing for bankruptcy is withdrawing retirement funds to pay off debt that could be wiped out in bankruptcy.

Before paying off debt in this manner, speak with a knowledgeable bankruptcy attorney. You’ll likely find yourself in a much better financial situation.

Don’t Provide Inaccurate, Incomplete or Dishonest Information

On your bankruptcy paperwork, you’re must provide complete and accurate information about all of your assets, debts, income, expenses and financial history, or risk perjury. If you knowingly misrepresent your information, such as by failing to disclose an asset, you could face criminal penalties, including fines of up to $250,000, 20 years in prison, or both.

Also, if you don’t file all of the paperwork, the bankruptcy court might dismiss your case, or you might have to file additional papers to correct the paperwork and pay more fees. Also, if you leave a creditor out, that debt might not get discharged. If you forget to include an asset, the Chapter 7 trustee might find it and take the property.

Don’t Run Up New Debt

If you rack up debt during the 70 to 90 days before filing bankruptcy, beware (unless it was for necessities, including food, clothing and utilities). The creditor might object to your discharge by arguing that you took out the loan without any intention of paying it back. As a rule, if you took out cash advances or used a credit card to buy a luxury item within 70 to 90 days of filing bankruptcy, then you’ve committed “presumptive fraud” and might not get to discharge the debt.

Don’t Shift Assets

While the bankruptcy schedules ask that you provide information about assets that you own (or will own), don’t be tempted to sell, transfer for safekeeping, or hide assets before filing bankruptcy. If you do, you might be denied a discharge and even be subject to criminal penalties.

You might have sold property to pay your expenses, such as your rent, and doing so isn’t wrong. Be prepared to explain your transactions and provide supporting documentation.

Don’t Selectively Repay Loans

If you pay back loans to friends or relatives within one year of filing, or even other creditors within 90 days of filing, then this may be considered a “preferential transfer.” A preferential transfer can be “undone” in bankruptcy.

The bankruptcy trustee may file an adversarial proceeding to get the money back from the person or entity you paid, and then disburse the money in equal shares to all of your creditors. If you paid an ordinary creditor, then that might not matter to you. You might care, however, if the trustee sues your mom or sister to get the money back.

Don’t File if You are About to Receive Major Assets

You should reconsider filing bankruptcy if you are about to receive an inheritance (within one year), a significant income tax refund, a settlement from a lawsuit, or repayment of a loan you made to someone else. Why? Because once you receive the funds, you might not be bankrupt, especially if you could use this money to settle with creditors and get out of debt on your own. If you find yourself in this situation, contact a bankruptcy attorney to discuss your options.

Don’t Fail to File Income Tax Returns

If you aren’t required to file tax returns, you don’t need to worry about this requirement in a Chapter 7 bankruptcy. If you’re supposed to file taxes, however, but haven’t done so for the two years before filing bankruptcy, you’ll run into problems.

Your tax returns are crucial to determining your current and past earnings and asset holdings, as well as satisfying potential priority tax claims. Without your returns, completing your paperwork, and (if applicable) a Chapter 13 plan will be next-to-impossible and will halt your bankruptcy. For example, there’s no way for the IRS to determine your tax obligations without a tax assessment.

If You Make a Mistake

If you already made one or more of these errors, you should contact a bankruptcy attorney to discuss how to proceed.


For a more detailed explanation of your bankruptcy options, let’s schedule a consultation today.

Moshier Law Office, PLLC
St. Paul, Minnesota


Best Approach to Bankruptcy and Divorce

Divorce and bankruptcy are painful life events that are an unfortunate reality of life. In fact,  many people cite divorce as a leading reason for filing bankruptcy. However, with proper planning, you can make your bankruptcy and your divorce less complicated, less expensive and ultimately less painful.

Filing for bankruptcy before or after a divorce depends on where you live, how much property and debt you have, and the type of bankruptcy you decide to file.

Bankruptcy and Divorce Costs

Bankruptcy filing fees are the same for joint and individual filings, so filing a joint bankruptcy with your spouse before a divorce can save a lot on court fees. If you decide to hire a bankruptcy attorney, your attorney fees will likely be far lower for a joint bankruptcy than if you filed individually. However, you should let your bankruptcy attorney know about the impending divorce as there may be a conflict of interest in representing both of you.

Filing for bankruptcy before a divorce can also simplify the issues regarding debt and property division, potentially lowering your divorce costs.

Chapter 7 or Chapter 13 Bankruptcy?

A Chapter 7 is a liquidation bankruptcy to get rid of your unsecured debts such as credit card debt and medical bills. In a Chapter 7, you usually receive a discharge after only a few months. So it can be completed quickly before a divorce.

In contrast, a Chapter 13 bankruptcy lasts three to five years because you have to pay back some or all of your debts through a repayment plan. So if you were looking to file a Chapter 13, it may be a better idea to file individually after the divorce because it takes a long time to complete.

Division of Property

Wiping out your debts jointly through a bankruptcy will simplify property division in a divorce. However, before filing a joint bankruptcy, make sure that your state allows enough exemptions to protect all property you own with your spouse.

Some states allow you to double the exemption amounts if you file jointly. So, if you own a lot of property, it may be a better idea to file a joint bankruptcy. If you can’t double your exemptions and you have more property than you can exempt in a joint bankruptcy, it may be better to file individually after the property has been divided in the divorce.

Also, keep in mind that if you file bankruptcy during an ongoing divorce the automatic stay will put a hold on property division until the bankruptcy is completed.

Debt Allocation

Litigating which debts should be assigned to each spouse in a divorce can be costly and time consuming. Further, ordering one spouse to pay a specific debt in a divorce decree does not change the other spouse’s obligations toward that creditor.

For example, let’s say your ex-husband was ordered in the divorce to pay a joint credit card. If he doesn’t pay it (or files bankruptcy), then the creditor can come after you to pay the debt. If you end up paying the debt, you can be reimbursed because of violation of the divorce decree. This holds true even if they filed bankruptcy because they can discharge an obligation to pay the creditor but cannot discharge obligations to you under the divorce decree.

However, trying to collect from your ex will usually mean spending more money in court. As a result, it is in both spouses’ best interest to file bankruptcy and wipe out their combined debts before a divorce.

Income Qualification for Chapter 7

If you intend to file a Chapter 7, the decision to file before or after a divorce can come down to income if you maintain a single household. If you wish to file jointly, you must include your combined income in the bankruptcy. If your joint income is too high, then you might not qualify for a Chapter 7.

This can happen even if each spouse’s income individually is low enough to qualify on his or her own. This is because Chapter 7 income limits are based on household size and the limit for a household of two is not twice that of a single person household (it’s usually only slightly higher). In that case, it may be necessary to wait until each spouse has a separate household after the divorce to file bankruptcy.

For a more detailed explanation of your divorce/bankruptcy options, let’s schedule a consultation today.

Moshier Law Office, PLLC
St. Paul, Minnesota


Filing for Bankruptcy Without an Attorney

Lots of people file for bankruptcy without an attorney. In some districts, nearly 30 percent of bankruptcy filings are by pro se litigants (the legal term for “filing on your own”).

Some people represent themselves because they can’t afford an attorney. Others have simple cases and don’t feel they need to hire an attorney. But representing yourself is not wise in every case. In this blog, you’ll learn about some of the most common problems in bankruptcy cases filed without an attorney.

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