Debtors with primarily business debts may still need to provide evidence of income to bankruptcy trustees

tickertapeBankruptcy cases often resemble ticker tape parades: lots of paper flying in all directions.

Debtors with primarily business debts — that is, more than 50% of their debt total is from a failed or failing business — get a break when they file for Chapter 7 bankruptcy: they can skip the means test, meaning they automatically qualify for a Chapter 7 (a quick, cheap end to the problem) and avoid having to pay in to a Chapter 13 plan each month, unless that is to their advantage. And that cuts down on the paperwork obligation as well.

But not quite so fast. Even though debtors with “business debts” don’t have to fill out the means test form and qualify, they still have obligations to report to the trustee information about their income.

These requirements come from Bankruptcy code section 521, Federal Rule of Bankruptcy Procedure 1007, Rule 4002, and often the local rules of the court where the debtor lives.

The upshot is that even debtors with business debts should be ready to provide the trustee in their case a copy (or transcript) of their last filed federal income tax return, as well as information on their income for the 60 days prior to the bankruptcy filing (either a pay stub or a profit and loss statement will usually suffice).

These documents should be given to your bankruptcy attorney, so he can send them to the trustee at least a week before the meeting of creditors in the case

 

By Doug Beaton

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