Understanding Why Some Tax Debts Are Excluded from Discharge in Bankruptcy

After tax season has come and gone, people with lingering tax debts may be wondering how to cope with repayment or they are searching for a source of relief from that debt. If you’re looking for relief from other debts on top of tax debts, you may be able to find positive, long-term relief through Chapter 7 bankruptcy. In many cases, income tax debts can be discharged if they are at least three years old and those tax debts have been assessed as being due and payable for at least two years. However, some types of tax debt cannot be discharged through the bankruptcy process. Depending on your tax debts, you may or may not be able to have them discharged in a Chapter 7 bankruptcy. With the help of Behm Law Group Ltd., you can determine if filing for chapter 7 bankruptcy in Mankato, MN, is right for you.

 

Chapter 7 bankruptcy works to discharge debts in exchange for the sale of non-exempt assets. Non-exempt assets are assets whose values exceed the applicable protective exemption amounts provided by the bankruptcy code.  However, tax debts can be complex and how they are treated in bankruptcy can be nuanced.

 

Generally speaking, the conditions for a tax debt to be discharged in bankruptcy are stringent. First, it must be an income tax type of debt.  Second, the debt must be at least three years old, and you must have filed the return for the tax year giving rise to the tax debt at least two years ago. Also, the tax debt must have been assessed (acknowledged as due and payable) by the taxing authority for at least 240 days before you file bankruptcy, and there must be no evidence that you have engaged in fraud or willful tax evasion. If the income tax debt meets these conditions, it can be considered hardship and proof that you were unable to pay that debt for reasons outside of your control and such tax debt can be discharged in a chapter 7 bankruptcy case.

 

Tax debts that are excluded from the bankruptcy process are typically non-dischargeable for good reason. Most of these debts directly impact another person, organization, business, or other third party.

 

With a few exceptions, the tax debts that will typically survive a chapter 7 bankruptcy case include:

 

  1. Property taxes: These affect your city, state, and federal government in many ways. Because property taxes typically impact a local government, they can have significant influences on housing costs, licensing, and other property requirements if they are left unpaid.  Usually, when a city or county is owed property taxes the city or county will be entitled to assert a secured lien against any subject real estate for the amount of the delinquent property tax debt.    For instance, if you owe $10,000.00 to a city for property taxes, the city will assert a secured lien against your home in the amount of $10,000.00.  Such liens are essentially like other secured liens, such as liens on motor vehicles.  In a chapter 7 bankruptcy proceeding, you could technically be relieved of such property tax debt but you would also have to surrender your house.  For example, presume that you own a house that is worth $100,000.00 and that there is a $90,000.00 secured mortgage on the home.  Presume further, that you are delinquent with property tax debt to the city in the amount of $10,000.00 and that the city has asserted a tax lien for that amount.  If you were to file for chapter 7 bankruptcy relief, both the $90,000.00 mortgage and the $10,000.00 property tax lien would be considered secured debts secured by the value of your home.  In a chapter 7 case, both the mortgage lender and the city would only have recourse/relief for such debts against the value of the house.  You could walk away from personal liability for those debts going forward but you also would have to accept that you would have to surrender or lose the home.
  2. Third-party taxes: These include taxes paid to trust fund parties such as FICA and Medicare. It also includes sales taxes paid to the debtor by customers.
  3. Tax liens: Some tax debts can be secured by a tax lien asserted by the Internal Revenue Service or the Minnesota Department of Revenue.  In this case, the lien filed by the taxing authority essentially becomes secured by pretty much everything you own, including 401(k) plans, IRA’s, checking/savings account deposits, furniture and appliances, etc.
  4. Employment taxes: These includes excise taxes and custom duties, depending on time periods.
  5. Tax return errors: If you were erroneously refunded more than you should have on a tax return, you owe that back as a debt to whatever government entity paid it to you. This can significantly affect local governments if you do not repay it.

 

If you are planning on filing for chapter 7 liquidation bankruptcy in Mankato, MN, and want to know how it will affect your tax debt, contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com.

When A Trustee Might Abandon a Nonexempt Property in Chapter 7 Bankruptcy

Choosing to file for bankruptcy is a difficult decision that requires important consideration of all factors of your current financial circumstances. If you choose to file for individual consumer bankruptcy, you likely have no other effective or truly productive way of working out your debts and keeping your quality of life stable. People considering filing for Chapter 13 or Chapter 7 bankruptcy in Pipestone, MN can find legal guidance and protection with the help of an expert Behm Law Group, Ltd. attorney.

 

When you choose to file for bankruptcy as an individual consumer, you have two primary options available: Chapter 13 or Chapter 7 bankruptcy. Chapter 13 is a debt reorganization bankruptcy procedure that is highly effective for filers with steady, stable incomes and for those people who may own property that would have more value than their available bankruptcy exemptions would be able to protect and could be liquidated in a Chapter 7 proceeding. On the other hand, Chapter 7 liquidation bankruptcy is a better option for filers without steady incomes or with properties that have values that are within the limitations of their available bankruptcy exemptions.

 

While Chapter 7 bankruptcy will liquidate (sell off) some of your non-exempt properties and possessions (properties that have values exceeding the limitations of your available bankruptcy exemptions), there are ways to exempt important items, like your home and primary vehicle. While you’re allotted exemption amounts for properties that will be removed from the liquidation process, there are sometimes nonexempt properties that will still be removed from the bankruptcy process.

 

Trustee Abandonment of Property

The primary, and for the most part, only reason a trustee will abandon the liquidation of an asset in Chapter 7 bankruptcy is because of its worth. If your property’s current market value is less than the debt you owe on it, it’s not worth the time spent for the trustee administering your case to sell it and return what little value was received to your creditors. This can happen if you continue to default on a debt and the accumulation of interest and late fees increases the debt over time. For example, if you haven’t paid your mortgage in some time, the amount of the mortgage may have increased to well over the market value of your home.

 

Instead of selling the property, the trustee will allow you to keep it. If you own the property outright (as is often the case with jewelry and other luxury goods that would otherwise be liquidated), you get to keep it without any conditions. If your creditor has secured that property with a loan, you can keep it if you continue making payments on the debt to that creditor. Otherwise, the creditor can choose to employ collection agencies, file lawsuits, foreclose, or seize the property from you.

 

One other reason a creditor or a bankruptcy trustee might abandon your property is if it will be too difficult to sell due to an obscure market or an oversaturated market.

 

If you’re considering filing for Chapter 7 bankruptcy in Pipestone, MN, and want to learn more about the process or how your properties will be handled, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.

Why the 180-Day Inheritance Rule in Chapter 7 Bankruptcy Exists

One common misconception about bankruptcy is the idea that it will leave the filer with little to their name and damage their credit beyond repair. In reality, bankruptcy is an extremely helpful process for ridding individuals and businesses of debts they would otherwise not be able to repay.

 

Bankruptcy is a legal process administered through the bankruptcy court system. While bankruptcy does affect the filer’s credit and some could lose certain non-exempt properties in liquidation-type bankruptcies, the overall benefits can greatly outweigh the negatives. If you are considering filing for Chapter 13 or Chapter 7 bankruptcy in Jackson, MN, Behm Law Group, Ltd. can help you build a strong, successful case.

 

If you qualify for Chapter 7 bankruptcy by passing the Minnesota Means Test, you will have the majority of your debts discharged. The majority of common debts like credit card debt, medical bills, mortgages, and car loans are discharged in Chapter 7. When it comes to unsecured debts (debts not tied to a property/collateral), the discharge has no side effects. On the other hand, the discharge of secured debts may mean you’ll lose the property tied to that debt in the liquidation process if there is no equity or value in excess of the debt against the property that you can assert an exemption claim to. Exemptions protect important properties like your home, vehicle, furniture, etc.

 

Some properties that are only established as a money value, such as your retirement fund, trust fund, or an inheritance, may also be subject to the liquidation process, though there are generous exemptions for tax qualified retirement accounts such as an IRA, 401(k), 403(b), etc.  For inheritances in particular, such as those received through a will or a life insurance policy, there are special rules in place to prevent bankruptcy abuse and maximize the potential benefit/return to one’s creditors:

 

  • If your relative is still alive, your inheritance is safe from the liquidation process because you don’t own it yet.
  • If you received your inheritance more than 180 days after the date you filed your petition – meaning your relative passed away more than 180 days after the date you filed your case – it’s not considered part of your estate and it will be safe from liquidation.
  • If you receive your inheritance within 180 days of filing for bankruptcy (specifically, your relative passed away within 180 days after you filed your bankruptcy case), your case may be amended, and any inheritance could be at risk of being liquidated.  If you cannot use your available bankruptcy exemptions to protect some of the inheritance, whatever amount is not exempted will be liquidated by the bankruptcy trustee and paid over to your creditors.

 

This 180-day inheritance rule was established to prevent debtors from filing for bankruptcy to rid themselves of debt with the knowledge that they will soon receive a large sum from the death of a family member. Filing for Chapter 7 bankruptcy with that knowledge shows that you wanted a way around repaying your debts honestly with the money gained from your inheritance.

 

To learn more about inheritances or other assets and what happens to them when you file for Chapter 7 bankruptcy in Jackson, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or via email at stephen@mankatobankruptcy.com.

Frequently Asked Questions about Chapter 7 Bankruptcy

If your low income is preventing you from meeting financial obligations like debts and bills, you might benefit from looking into the process of bankruptcy. Bankruptcy is available to individuals who have come into difficult times, whether that means unemployment, sudden medical costs, long-term accumulation of debt, or any combination of circumstances. Unlike other types of debt relief, bankruptcy is a formal legal process with permanent results. This means you will be protected by things like the automatic stay, a trustee, and other provisions of the bankruptcy code. With the additional guidance of a Behm Law Group Ltd. attorney, you can file a strong case for Chapter 7 bankruptcy in Luverne, MN.

 

Chapter 7 bankruptcy is a liquidation type of bankruptcy. It’s the most commonly filed U.S. chapter for individuals and corporations alike. For those who haven’t filed before, there are often many frequently asked questions (FAQs), including:

 

  1. How does it work?
    1. Chapter 7 bankruptcy works to liquidate your non-exempt property and repay creditors with the value gained from the sale of non-exempt property.  Most cases, however, are “no asset” cases where no assets are liquidated by the chapter 7 trustee and all of one’s assets are protected by one’s available bankruptcy exemptions.
    2. In exchange for this liquidation of non-exempt assets, your debts are discharged and you are permanently released from having to repay them.
  2. Will I get to keep my house?
    1. While Chapter 7 bankruptcy liquidates non-exempt properties, the bankruptcy code and Minnesota state law provide an allotment of exemptions you can claim to protect assets from sale.
    2. This includes the homestead exemption that protects the equity or value you have in your home and other exemptions that can be used to protect the equity or value you have in your car, additional real estate, personal items, or other properties.
  3. How will it affect my credit?
    1. While bankruptcy can be extremely beneficial for permanent, long-term debt relief, it will have a negative effect on your credit score.
    2. Your credit score will improve over time – indeed, it starts to improve the day after you file for bankruptcy relief – and a bankruptcy notation will generally be removed from your credit profile seven to ten years post-filing, although it is sometimes removed much earlier.
  4. How long does it take?
    1. Chapter 7 bankruptcy cases are generally closed in about three to six months depending on the case circumstances.
  5. How do I qualify?
    1. Individuals who pass the Means Test are eligible for Chapter 7 bankruptcy.
    2. The Means Test measures income-to-debt ratios against the state median income. If your income is lower than the Minnesota median income of a similar filer with a similar household size, you can qualify for Chapter 7.
  6. Which debts will be discharged?
    1. Your unsecured debts, including credit card debt and medical bills, will be discharged.
    2. Your secured debts that are tied to properties that are liquidated or surrendered will be discharged.
    3. Your secured debts related to property that you cannot exempt because there is no equity or value, since the amount of debt you may owe exceeds or is equal to the value of the property, will not be discharged if you choose to voluntarily reaffirm (reassume personal liability)  the related debts.
    4. Your priority debts, including most tax debts, child support, and criminal fines, will not be discharged.
    5. Student loans can be discharged but the process can be very expensive and protracted.  A person must actually sue the student loan lender in bankruptcy court, prove undue hardship , as that term is defined and interpreted under 11 U.S.C. §523(a)(8), and ask the bankruptcy court to discharge the student loan debt.

 

If you want to learn more about how the bankruptcy process will work and how it will affect your life, contact Behm Law Group Ltd. at (507) 387-7200 or via email at stephen@mankatobankruptcy.com for information about Chapter 13 or Chapter 7 bankruptcy in Luverne, MN.

Redeeming Secured Property in Chapter 7 Bankruptcy

If you’re facing a large amount of debt and unable to make payments each month on those debts without severely compromising your quality of life, you may want to consider filing for bankruptcy. Chapter 7 bankruptcy is the most commonly filed case for individual consumers. In fact, there were over 400,000 non-business Chapter 7 bankruptcy cases filed in 2017. If you are considering filing for Chapter 7 bankruptcy in Redwood Falls, MN, Behm Law Group, Ltd. can help you put together a strong case that will provide long-term debt relief.

Chapter 7 bankruptcy works as a liquidation process. You will have to provide all your financial information including debts, income, and properties to the bankruptcy trustee assigned to oversee your case. The trustee will then liquidate (sell) any non-exempt assets (properties) you have if you cannot claim an exemption on them. You can claim exemption amounts on properties like your home or car and other assets to protect them from liquidation. Once your non-exempt assets have been liquidated, the debts tied to them are discharged along with your unsecured debts such as credit card and medical debt.

There is one other way your secured properties can be treated in Chapter 7 other than with liquidation or exemption. They can be redeemed.

Property redemption essentially means you are buying the property back from your creditor for the value it’s currently worth. This is a beneficial option for filers if they owe a debt on the property larger than its value. By redeeming the property, you may pay less than actually paying back the debt, and you will be able to keep the asset.

The value of the property is either agreed upon by you and your creditor, or, if you disagree, the court holds a valuation hearing. When the value is determined, you have to buy it back by paying one lump sum.

To redeem a property, there are several requirements that must be met. These include:

  • The property cannot be of value in the Chapter 7 case. This may mean you exempted it from liquidation or the trustee has determined that it has no value to your bankruptcy estate.
  • The property must be a tangible item.
  • The property cannot be real estate. It has to be a personal item such as a vehicle or computer – something other than your home or other real estate properties.
  • The property cannot be used for business purposes (i.e. if you use your car for onsite jobs).

Redemption is an effective way to reclaim property you owed a debt on that was much higher than its actual value. If you want to own your property debt-free, the Chapter 7 bankruptcy process and redemption is one way to do it.

To learn more about redemption and filing for Chapter 7 bankruptcy in Redwood Falls, MN, contact Behm Law Group, Ltd. at (507) 387-7200 or via email at stephen@mankatobankruptcy.com today.

Overview of the Basic Differences between Chapter 7 and Chapter 13 Bankruptcy

In the United States, there are two main types of bankruptcy available to individuals and businesses alike: Chapter 7 and Chapter 13. While both types provide government-administered debt relief, the two chapters work very differently. Both are valuable options for debtors, and the more suitable one depends on the financial and personal circumstances of any given filer. If you are considering bankruptcy but don’t know where to start, Behm Law Group Ltd. can help. We can work with you to determine which chapter is right for you, and we can guide and protect you throughout your case. Filing for bankruptcy in St. Peter, MN, isn’t the impossible process it might seem to be, and our expert attorneys can help you see that every step of the way.

The main differences between Chapter 7 and Chapter 13 lie in how the debts are handled and how long the cases take.

Debt Handling

  • Chapter 7 is a liquidation process. This means your non-exempt assets/properties are liquidated/sold, and the amount realized from that sale is given to your creditors. This payment to your creditors allows any debts tied to those sold properties to be discharged. Your unsecured debts, such as credit card or medical debt, will also be discharged in the Chapter 7 process.
  • Chapter 13 is a reorganization process. This means that you will take your debts and reorganize them into a repayment plan customized to your income. The repayment plan requires one lump monthly payment until your plan is complete. You may be able to repay your secured debts in full under different terms, but your unsecured debts will be fully discharged after your chapter 13 plan has concluded.

Time

  • Chapter 7 takes between three to four months to complete. The time period varies depending on how quickly you complete the pre-bankruptcy credit counseling and other requirements, how long it takes your trustee to liquidate any non-exempt assets, and whether there are any judgment claims in your case that need to be expunged. 
  • Chapter 13 takes three to five years to complete. Your repayment plan will either be a three-year or a five-year period. If your income is lower than the state median of a similar household, it will be a three-year plan. If it’s higher, then your plan will be five years.

There are other differences between Chapter 7 and Chapter 13 as both are nuanced processes that vary case by case. Another major difference, for example, is that you can only qualify for Chapter 7 if you pass the state Means Test. This test measures your income-to-debt ratio. You’ll only be eligible for Chapter 7 if that ratio is lower than the state median of a similar household.

To learn more about the differences between the two chapters or to begin filing for bankruptcy in St. Peter, MN, contact Behm Law Group Ltd. at (507) 387-7200 or via email at stephen@mankatobankruptcy.com today.

Unusual Properties Involved in Chapter 7 Bankruptcy

Filing for bankruptcy is a highly effective process for finding long-term, permanent debt relief. Not only does bankruptcy treat the majority of common individual debts, it also creates a situation for debtors to learn better financial practices and it protects the local and national economies from an excess of debts that won’t be repaid. If you are considering filing for bankruptcy, you’re not alone. Thousands of Americans file each year. With the help of Behm Law Group, Ltd, you can build a successful case for Chapter 13 or Chapter 7 bankruptcy in Worthington, MN.

Chapter 7 bankruptcy is the most commonly filed type of bankruptcy for individuals and consumers alike. It works to discharge your debts in exchange for the liquidation of your non-exempt assets. This means you may lose some non-exempt property in Chapter 7, but it doesn’t mean you’ll be left destitute with nothing to your name. In fact, thanks to the allotted exemptions you’ll be able to claim, most if not all of your property, like your home or car, will be protected.  In fact, in the vast majority of chapter 7 bankruptcy cases, all people lose are their debts and no property is lost at all.  

On the other hand, the property that cannot be exempted or protected will be liquidated or sold by the chapter 7 bankruptcy trustee. This often includes luxury items and other uncommon properties. Some unusual properties that might be subjected to the liquidation process include:

  • Pets: Most pets won’t be of any interest to your trustee because their monetary value is often insignificant in comparison with the rest of your property. However, if your pet is a rare breed, exotic animal, show-breed, or other expensive animal, it could literally be worth thousands of dollars. In that case, your pet could, unfortunately, be sold in the bankruptcy process.
  • Artwork: If you own valuable artwork, you may not be able to exempt or protect all of it from the bankruptcy process. Depending on the circumstances of your case, if it has a lot of value, your trustee could sell or liquidate it.
  • Jewelry: While exemptions can protect some of the value of one’s jewelry, some people could lose some of their jewelry depending on its overall value.
  • Boats: Boats are expensive, and if you’re filing for bankruptcy and own a boat, it’s likely you have a lot of debt to get rid of in a bankruptcy. Because of this, it may be difficult to exempt a boat from liquidation if that vessel has a lot of value.
  • Collections: Valuable collections often include rare items, complete assortments, antiques, or specialty trading cards. Even card collections like Magic the Gathering or Pokémon can be of value today. If you’ve put time and energy into compiling a valuable collection, it’s important to understand that, depending on its overall value, it could be liquidated in a Chapter 7 bankruptcy.

If you are considering filing for Chapter 7 bankruptcy in Worthington, MN and want to know more about exemptions, contact Behm Law Group, Ltd today at (507) 387-7200 or via email at stephen@mankatobankruptcy.com.

How Government Debts Are Handled in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most frequently filed individual consumer case type. This type of bankruptcy discharges your debts in exchange for the liquidation of your non-exempt assets. While the loss of some property in return for the dissolving of certain debts is a possibility, such is not the case for most filers because they can use bankruptcy exemption allotments to protect their assets.

To qualify for Chapter 7 bankruptcy, you must satisfy the Means Test, which measures your income-to-debt ratio. If your income-to-debt ratio is lower than the state median of a similar household, you are eligible to file for Chapter 7. If you are considering filing for Chapter 7 bankruptcy in Jackson, MN, Behm Law Group, Ltd. can provide support, guidance, and legal protection throughout your case.

In Chapter 7, the majority of your unsecured debts will be discharged. This commonly includes credit card debt and medical bills, but may also range into more unusual debts like personal loans and income taxes. There are also various forms of government debts that are unsecured but might be treated as priority debs in your case.

SSA Overpayments: If you were accidentally given overpayments on your social security checks, you may be required to repay that debt if the SSA notices. If you file for Chapter 7 bankruptcy, however, this debt will be treated as an unsecured debt. The SSA may file an objection to the discharge of this type of debt on the grounds that you defrauded the SSA, but more likely, the debt will be discharged.

County/City Fees: Certain fees you owe to your local government may be discharged in part. This typically includes first-time fines, tickets, and other fees. For example, if you were required to pay a government-employed contractor to tear down an illegal structure on your property but could not make the payment, that debt would likely be discharged. If you paid a private contractor to tear it down but were fined for failing to tear it down in a timely manner, that contractor debt will likely be discharged, but the fine may or may not be discharged.

Fines: Strictly speaking, government fines are not discharged. The only exception to this rule is if the debt was gained in reimbursing the government for money that entity spent or lost separately from the fines you were charged. For example, you are billed for the removal of a tree on your property but the government over-estimated the cost of that removal. The over-fine will be discharged in a Chapter 7 case.

If you have government debts, they will most likely be discharged in Chapter 7, but there are a few exceptions. To learn more about how debts are treated in bankruptcy or to get started on filing for Chapter 7 bankruptcy in Jackson, MN, contact Behm Law Group, Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com today.

Why Chapter 13 Is Less Common than Chapter 7 Bankruptcy in Mankato, MN

If you’re considering filing for bankruptcy, you’re not alone. Over 700,000 individuals file for bankruptcy each year in the United States. While those numbers have decreased significantly since the 2008 market crash, they still show that anyone can struggle financially in the face of many different factors. Filing for bankruptcy is a process designed to treat personal and business debts with a legal, federal court-administered relief program. However, filing for bankruptcy can also be a highly complex, nuanced system to navigate. The help of an expert bankruptcy attorney can turn a difficult case into a successful one with long-term debt relief. Behm Law Group Ltd. attorneys have the knowledge, skills, and experience to guide you through a Chapter 13 or Chapter 7 bankruptcy in Mankato, MN.

 

The two most frequently filed types of individual bankruptcies are Chapter 13 and Chapter 7. Chapter 13 bankruptcy works to reorganize your debts into a manageable repayment plan suited to your income. This plan lasts three to five years depending on your income in comparison to the state average income of a similarly sized household. Chapter 7, on the other hand, works to liquidate your non-exempt assets in exchange for the discharge of your debts.

 

While both Chapter 7 and Chapter 13 are common bankruptcies for individuals, Chapter 7 bankruptcy is filed for much more frequently than Chapter 13. From 2006 to 2017, the ratio of Chapter 13 to Chapter 7 cases filed was on average 30% versus 70%. These ratios range from 75.09% of Chapter 7 bankruptcies versus 24.85% Chapter 13 bankruptcies in 2006, and 61.50% versus 31.94% in 2017 with fluctuations between. Historically, in the United States, every year’s total of cases shows more Chapter 7 bankruptcies than other type, and for good reason.

 

Bankruptcy isn’t something that people choose to go through if they can help it. Those who file for bankruptcy are truly struggling with debts and have other financial hardships, and they turn to bankruptcy as the best choice for help in resolving those issues. If you are considering filing for bankruptcy, you can understand the legal, mental, and general stress that those who file experience. On top of this, the most common cause of bankruptcy is unemployment. The stress of financial burdens and a typically lower income means that filers will more frequently qualify for Chapter 7 bankruptcy.

 

Chapter 13 bankruptcy is a highly effective process for those with steady incomes. While you are more unlikely to have a significant amount of debt when you have a steady income, it’s completely possible to find yourself with heavy debts and a steady income. Typically, however, a low income is a primary cause of burdensome debt and leads to a Chapter 7 bankruptcy case more often than not.

 

If you are struggling financially for any reason, filing for bankruptcy may be the best step to take for long-term debt relief. To learn more about Chapter 13 and Chapter 7 bankruptcy relief in Mankato, MN, contact Behm Law Group Ltd. at (507) 387-7200 today.

Why Many Local Restaurants File for Chapter 7 Bankruptcy in Jackson, MN

Running a business is a difficult endeavor, especially if it’s a young company. Maintaining a steady income and company growth means battling on several different fronts and working through many different expenses. Not only do the local economy and your business marketing endeavors affect your business standing, but also the national and even global economy play a role as well. Additionally, some businesses are even more difficult to run than others. Restaurants, for example, are notoriously difficult to maintain successfully. Behm Law Group Ltd. has helped many people work through a Chapter 7 bankruptcy in Jackson, MN, and the surrounding area.

 

If you find yourself facing a business bankruptcy after your restaurant becomes impossible to maintain, you’re not alone. Every year, many restaurants close due to bankruptcy, each case with its own unique set of circumstances. Despite the differences among cases, we can often highlight several common factors that played a part in the situation leading up to a bankruptcy.

 

Common Factors Playing a Part in Bankruptcy

 

  1. Capital: Restaurants require a lot of capital to operate. Not only does this include expensive kitchen equipment, restaurant-specific building systems, staff facilities, a large supply of furniture, registers/accounting systems, uniforms, and many other concrete items, they also include a range of food types with varying shelf lives. Building maintenance and restaurant operations are more expensive than almost any other service company.
  2. Licensing and Property: Liquor licenses, health inspections, zoning laws, rent, property taxes, and many other restaurant requirements are sky-high for restaurants. With the food service industry booming in the United States, state and municipal governments put restrictions on opening restaurants with these licensing and property expenses. In addition, federal health and food safety certification requirements put further strains on business incomes.
  3. Market Saturation: Another effect of the booming restaurant industry is market saturation. Restaurant customers are picky and they are eager to try new things and they are constantly demanding newer options and better quality. This results in a restaurant market that is highly saturated with many different types of restaurants that provide stiff competition to anyone else trying to make a living in the area. All of this means it’s extremely difficult to succeed based on market saturation alone, let alone in addition to other obstacles.

 

All these factors make restaurants a unique business in the fact that they are more difficult to run and more likely candidates for bankruptcy than most other companies.

 

Restaurant owners who file for Chapter 7 bankruptcy will face the good and bad of their situations. Chapter 7 works to liquidate some business assets in exchange for the discharge of debts, including mortgages, personal loans, equipment debts, and more. However, in many cases, this discharge comes with the reality of having to close down operations. It’s not impossible to reopen a restaurant again in the future, but for the time being, filers usually shut down their businesses.

 

If you are considering filing for Chapter 7 bankruptcy in Jackson, MN, contact Behm Law Group Ltd. at (507) 387-7200 to learn more about restaurant bankruptcy cases.