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2 weeks 2 days ago

Bankruptcy is the legal process pertaining to people who cannot afford to pay their remaining debts in order to get a chance to a fresh start. The Bankruptcy laws offer unburdens overwhelmed debtors who are unable to pay their outstanding balances and, at the same time, help the creditors get paid from whatever kind of assets the debtor has no need for. Bankruptcies are often used as a last resort but it is not a sure way to solve all your financial problems. It will cover only certain debts that are eliminated when you file for bankruptcy.
What is a Discharge?
A discharge enables the debtor to be free of debt and prevents the creditors from taking collecting actions against the debtor. In simpler terms, the debts are wiped out and the debtor no longer needs to pay those that are discharged.
However, while most debts can be discharged, not all kinds of debts are removed when you declare bankruptcy. 
What are the Debts that can be Discharged?
 Dischargeable DebtsIn a bankruptcy, “Common Categories of Dischargeable Debts,” states that the debt must meet the qualifications and timing requirements. It works by filing for bankruptcy in the bankruptcy court before and after the case described as follows:

  • Pre-filing debt – is a pre-petition debt obligation that you have before you file for bankruptcy. When the case ends, the court will wipe out or discharge the debts included and qualified in the pre-petition debt such as credit card balances, medical debt, and personal loans.
  • Post-filing debt – are the debts and bills you need to present to the court that you incurred after submitting the pre-petition debt. In all kinds of bankruptcy cases. You are still obligated to pay for the balances the you incur even if the case isn’t over.

Among all the debts obtained, only those debts that you have before filing bankruptcy will be discharged. As for the subsequent debts, you still need to repay those. Take note that if you either fail to follow the bankruptcy process or your debt doesn’t qualify for a discharge, then these can be barriers for you to have your debts wiped out.
Common Categories of Dischargeable Debt
Under the Bankruptcy Code, there are 19 categories of debt that are not capable of being discharged. Everything else not included can be wiped out. However, you need to be mindful that misconduct or fraud in connection to the debts are grounds to make them non-dischargeable:

  • Charges of credit cards (including overdue and late fees)
  • Collection agency accounts
  • Medical bills
  • Personal loans
  • Utility bills
  • Dishonored checks (except if fraudulent)
  • Student loans (in cases where it is proven that you endured undue hardship)
  • Repossession deficiency balances
  • Auto accident claims (except DUI related cases)
  • Business debts
  • Rent debts (including past rents that are due)
  • Civil court judgments
  • Tax penalties and unpaid taxes 
  • Attorney fees (except those pertaining to child support and alimony cases)
  • Revolving charge accounts 
  • Social security overpayments
  • Veterans assistance loans and overpayments 

Non-Dischargeable Debts in Bankruptcy Chapter 7
There are different types of Bankruptcy, some debts are nondischargeable in Chapter 7 but can be wiped out in Chapter 13. These types of debts in Chapter 7 are automatically deemed as nondischargeable without needing a hearing in court: 

  • Unscheduled debts (all kinds of debts that are not in the bankruptcy petition), with the exception that the creditor had actual knowledge or notice about such filing
  • Certain taxes
  • Spousal or child support debts or alimony
  • Debts owed to former spouse or child if they arose out of a divorce or separation
  • Fines, penalties and debts to government agencies
  • Student loans (if not exempted)
  • Personal injury debts caused by the debtor driving a motor vehicle while under the influence of alcohol
  • Certain tax-advantaged retirement plans debts
  • Certain condominium debts or cooperative housing fees (such as homeowners association fees)
  • Attorney fees in child custody and support cases
  • Court fines and penalties, including criminal restitution

Debts not Dischargeable if the Creditor Objects
Not all debts are automatically wiped out. The creditors must ask the bankruptcy court first to know whether or not such debts can be discharged. If the creditors do not raise any objection or issue or if they do but the court doesn’t allow it, these debts are discharged.

  • Credit card purchases for luxury goods
  • Cash advances
  • Debts obtained by fraud or false pretenses
  • Debts incurred due to willful and malicious injury

Planning to file for a Chapter 7 Bankruptcy?
While declaring bankruptcy and bankruptcy filing may be done by any person without a bankruptcy lawyer, you will be responsible for fully understanding everything related to the law. We at Allmand Law are experienced in the field of bankruptcy cases. If you want to know how to file for bankruptcy but you are not sure of what bankruptcy form to avail or maybe you’re worried about potential liabilities, our bankruptcy attorneys can help you. We may be able to answer such questions for you including bankruptcy exemptions, debt settlement, insolvencies, mortgage payments, debt management and many more. Call us now for free legal advice.
The post Understanding Dischargeable Debts in Chapter 7 Bankruptcy appeared first on Allmand Law Firm, PLLC.



2 weeks 2 days ago

Commercial leases in New York City, COVID-19 and Recent ProtestsAs a result of COVID-19, recent protests and the advent of technologies such as Zoom and Google Meet, many tenants have excess office space/s that they cannot or do not want to continue to rent  and would   like to terminate their lease or stop paying rent.At Shenwick & Associates, we have received many calls from clients with these issues and we have developed a strategy to address them.First, we review the company's financial information including a recent balance sheet, income statement,  the commercial lease and guaranty, if any. Second, we determine if the company is a candidate for a bankruptcy filing, either chapter 7 (a liquidation where the company closes as a result of the filing), a small business Subchapter 5 bankruptcy filing, or a full-blown chapter 11 business bankruptcy filing.In the case of a Chapter 7 filing, the lease will terminate; however, the Chapter 7 bankruptcy trustee appointed to the case will also liquidate or close the business. For businesses that are losing money or do not see a bright future, this may be a good strategy.A company that wants to remain in business, but terminate or reject their lease, should consider a bankruptcy filing under  new Subchapter 5, which is a fast-paced, less costly chapter 11 business bankruptcy filing. As part of a Subchapter 5 bankruptcy filing, the lease can be rejected, and the landlord would be paid their lease rejection damages and other monies owed over 5 years or less from disposable income of the business.If Subchapter V does not work due to the debt limit of $7,500,000 or for other reasons, a company can consider a full-blown chapter 11 bankruptcy filing. However, they would want to consider the cost from a chapter 11 filing, versus the expected savings from rejecting the lease. Chapter 11 is a complicated, risky and expensive process for many companies.Another strategy that we have been using with much success is preparing a bankruptcy petition, without filing the petition (a so called Pro-Forma Bankruptcy Petition). This bankruptcy petition would accurately disclose the assets, liabilities and earnings of the company. Then we would forward that bankruptcy petition to the landlord or their counsel indicating that if the tenant and landlord cannot reach an agreement where the tenant is allowed to terminate their lease (pursuant to a Lease Surrender Agreement), then the tenant or company will file for bankruptcy. The benefit of this strategy is that it is quick, relatively inexpensive, the landlord gets financial disclosure regarding the company or tenants finances upfront without litigation or discovery and we convince the landlord that releasing the tenant from their lease is a “win-win” for both the tenant and the landlord. How is this strategy a win for the landlord? The landlord keeps the tenant’s security deposit, the Landlord will also  save substantial money on bankruptcy and landlord tenant legal fees, they remove an unprofitable tenant from their building, and they obtain possession of the premises quickly allowing them to re-let the space.One of the reasons that we have had much success with this strategy in these trying times is that we have been filing  bankruptcy petitions  for over 20 years and the landlord or their counsel can Pacer our law firm’s bankruptcy filings, or visit our website and blog. Based upon our work and experience in this area of the law, landlords realize that bankruptcy is a real option for the tenant not an idle threat. Clients or their advisors who would like to discuss these strategies with Jim Shenwick or schedule a consultation can reach him at 212-541-6224 or email him at jshenwick@gmail.com


2 weeks 4 days ago

A Tidal Wave of Bankruptcies Is Coming
Experts foresee so many filings in the coming months that the courts could struggle to salvage the businesses that are worth saving.

Already, companies large and small are succumbing to the effects of the coronavirus. They include household names like Hertz and J. Crew and comparatively anonymous energy companies like Diamond Offshore Drilling and Whiting Petroleum.

And the wave of bankruptcies is going to get bigger.

Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.

Even a meaningful rebound in economic activity over the coming months won’t stop it, said Mr. Altman, the Max L. Heine professor of finance, emeritus, at New York University’s Stern School of Business. “The really hurting companies are too far gone to be saved,” he said.

Many are teetering on the edge. Chesapeake Energy, once the second-largest natural gas company in the country, is wrestling with about $9 billion in debt. Tailored Brands — the parent of Men’s Wearhouse, Jos. A. Bank and K&G — recently disclosed that it, too, might have to file for bankruptcy protection. So did Weatherford International, an oil field services company that emerged from bankruptcy only in December.

More than 6,800 companies filed for Chapter 11 bankruptcy protection last year, and this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said.

Most good-size companies that go into bankruptcy try to restructure themselves, working out payment agreements for their debts so they can stay open. But if a plan can’t be worked out — or isn’t successful — they can be liquidated instead. Equipment and property are sold off to pay debts, and the company disappears.

Without reform in the system, “we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics said in a letter to Congress in May. “Workers will lose jobs even in otherwise viable businesses.”

Among their suggestions: increasing budgets to recall retired judges and hire more clerks, and giving companies more time to come up with workable plans to prevent them from being sold off for parts.

“Tight deadlines may lead to overly optimistic restructuring plans and subsequent refilings that will congest courts and delay future recoveries,” they wrote.

The pandemic — with its lockdowns, which have just started to ease — was enough on its own to put some businesses under. The gym chain 24 Hour Fitness, for example, declared bankruptcy this week, saying it would close 100 locations because of financial problems that its chief executive attributed entirely to the coronavirus.

But in many cases, the coronavirus crisis exposed deeper problems, like staggering debts run up by companies whose business models were already struggling to deal with changes in consumer behavior.

Hertz has been weighed down by debt created in a leveraged buyout more than a decade ago, and added to it with the acquisition of Dollar Thrifty in 2012. As it was battling direct competitors, the ascent of Uber and Lyft further upended the rental-car industry.

J. Crew and Neiman Marcus were carrying heavy debt loads from leveraged buyouts by private equity firms while struggling to deal with the changing preferences of shoppers who increasingly buy online.

Oil and gas companies like Diamond and Whiting borrowed heavily to expand when commodities prices were much higher. Those prices started to fall as production increased, and plunged further still when Russia and Saudi Arabia got into a price war shortly before the economic shutdowns began.

(And then there are cases that have nothing to do with the pandemic but nonetheless take up time and energy in the courts. Borden Dairy, a Dallas company with a history that goes back to 1857, declared bankruptcy in January, a victim of declining prices, rising costs and changing tastes.)

A run of defaults looks almost inevitable. At the end of the first quarter of this year, U.S. companies had amassed nearly $10.5 trillion in debt — by far the most since the Federal Reserve Bank of St. Louis began tracking the figure at the end of World War II.

“An explosion in corporate debt,” Mr. Altman said.

Having a lot more debt to deal with is likely to make the coming bankruptcies a bruising experience for unsecured creditors, who may include retirees with pensions or health benefits, vendors waiting to be paid, tort plaintiffs whose lawsuits are cut short and sometimes even current workers. If a company goes into bankruptcy with more secured debts than the value of its assets, the secured creditors — including vulture investors who bought up the debt for a song — can walk away with virtually everything.

The sums at play in some of these cases will be enormous. Mr. Altman expects at least 66 cases with more than $1 billion in debt this year, eclipsing 2009’s mark of 49. He also predicted 192 bankruptcies involving at least $100 million in debt, which would trail only 2009’s record of 242.

Robert J. Keach, a director of the American College of Bankruptcy, said many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs.

But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Mr. Keach said.

Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.

Companies that received loans under the federal Paycheck Protection Program may be waiting to file, said Mr. Keach, who practices bankruptcy law with the firm of Bernstein Shur in Portland, Maine. The loans can be converted to grants if the companies meet certain requirements, and if the borrowers can put off bankruptcy until they’re sure they won’t have to pay the money back, they will have more cash when they file.

That’s an important consideration, because Chapter 11 is expensive. A bankrupt company must pay the fees of the lawyers and other professionals that help it reorganize, as well as the fees of those who advise the official creditors’ committees.

The experts’ recommendations to Congress walk a fine line. They suggest allowing companies more time to come up with reorganization plans, even though Chapter 11 cases are supposed to move quickly so bankrupt companies don’t burn through their cash before they reorganize.

Generally, the longer a company stays in bankruptcy, the greater the chances of a liquidation. And that increases the likelihood that the company’s troubles will spread: Suppliers of raw materials could fold if a manufacturer languishes in bankruptcy, and smaller stores in entirely differently lines of business can suffer if a shopping-mall anchor can’t stay open.

These risks are real, said Robert E. Gerber, who retired in 2016 as a bankruptcy judge in the Southern District of New York. One of his cases was the 2009 bankruptcy of General Motors, which moved at lightning speed to keep the automaker from going under for good.

“If G.M. had failed, God knows how many companies in the supply chain would have failed, and this would have snowballed terribly,” said Mr. Gerber, who is now of counsel with the Joseph Hage Aaronson firm. The cascade would have wiped out paychecks to workers throughout the supply chain, threatening other businesses and even the finances of the local governments that count on them for tax revenue.

That, Mr. Gerber said, makes it imperative that the bankruptcy system have the resources to deal with the coming rush of cases.

“Bankruptcy can’t print money for those companies,” he said, “but it can give a good number of them a chance of survival.”


3 weeks 18 hours ago

Figuring out your financial situation is imperative in a bankruptcy petition. For starters, you need certain details to be able to correctly accomplish your bankruptcy forms. In case you’re hiring a bankruptcy lawyer, the information is also important for him or her to provide you with proper legal help with the right debt relief solution. Unfortunately, many potential filers go to bankruptcy lawyers without any idea what their financial situation is like.
Hiring a lawyer specializing in bankruptcy law is actually the most prudent first step to take if you want to declare bankruptcy. The bankruptcy code has different types of bankruptcy, so your lawyer will help you understand which bankruptcy chapter you should file bankruptcy under. If you’re filing personal bankruptcy, you’ll get legal advice on whether to opt for liquidation or reorganization. You can rest assured that you’ll be making informed decisions as well as avoiding any violation of bankruptcy laws.
Making Lists
Filing bankruptcy with the bankruptcy court requires that you have a clear picture of your finances, so before you file for bankruptcy protection, take the time to gather the relevant data. If you want to petition for bankruptcy to rid yourself of financial problems and get out of debt, there are a couple of lists you need to make before filing.

  • All debts you’ve been unable to pay – secured and unsecured debts, as well as dischargeable and non-dischargeable debts.
  • All your exempt and non-exempt assets with their respective current values.
  1. List of Debts

Bankruptcy Information Filing for bankruptcy definitely requires that you furnish a list of all your debts and creditors. You must include all debts, every secured debt such as a car loan or a mortgage, and every unsecured debt such as medical bills and credit card debt. Name every creditor as well and how much you owe each one. Also include debt collection agencies that have contacted you. This way, your bankruptcy attorney can formulate a strategy for dealing with all the debt collectors involved in your bankruptcy case.
In a bankruptcy filing, certain debts like child support and student loans cannot be discharged. It’s important to include them even if you cannot discharge them since they directly impact your disposable income. You also have to indicate to your lawyer if you have a lawsuit filed against you or if there’s a possibility that somebody might file one against you.

  1. List of Assets

Disclosing all your assets is necessary to the bankruptcy process, so when declaring bankruptcy, you need to disclose everything, including ones that you can claim as bankruptcy exemptions. Unfortunately, some assets such as furniture, vehicles, and real estate are not that easy to assign value to. Here are some things bankruptcy attorneys advise their clients to do so they can give a good estimate of an asset’s value.

  • Furniture and other personal items – Price them as you would for a yard sale. Go to Craigslist and eBay to see how much similar items are worth. Don’t let your sentimental attachment to them cause you to overprice.
  • Vehicles – Go to Edmunds.com to check how sellers are pricing your car model. Make sure to consider your own car’s mileage and condition when you price it.
  • Real estate – Price your property as you would for an absolute auction or go online to see how much similar properties in the area are selling for. You could also simply look at your current tax bill and base your price on the county’s property value administrator’s estimate.

Other Pertinent Bankruptcy Information
Besides the assets, debts, and creditors lists, you also need to figure out the following data:

  • Your entire household’s monthly income.
  • Your household’s monthly expenses (get the average of the last three months.)

Want Legal Advice for This Legal Process? Contact a Texas  Bankruptcy Attorney Today!
Bankruptcies can give bankrupt debtors the fresh start they need. For help with bankruptcy proceedings, call us at Allmand Law Firm, PLLC to schedule a free legal consultation with one of Texas’s experienced bankruptcy attorneys.
The post Bankruptcy Information You Need appeared first on Allmand Law Firm, PLLC.



3 weeks 2 days ago

COVID Has Exposed Many of Our Neighbors to an Ugly Financial Reality
The next 12 to 18 months is going to be financially difficult for many of our neighbors
tenants
Our new normal is homeschooling, face masks and self-isolation.  What few are talking about is the financial consequence of COVID-19.  Many of our neighbors are faced with difficult choices – pay the mortgage or buy food and pay utilities?
But, I thought Congress provides resources to help those who are not receiving a paycheck
You are correct – the law is called the Paycheck Protection Program (PPP), under the CARES Act.  Employers (that includes those who are self-employed) can apply for loans to keep workers on the payroll, but the employees still have to work if the employer requires it.
The application process is difficult and not a guaranty to receive any funds.  It took me (a lawyer) hours to help my self-employed daughter fill out the forms and to understand the strings attached to the funds. Good news – she finally received her money, but only after two months of waiting.  Fortunately, her partner was paying the basic living expenses, but still she is way behind on her other bills.
Childcare:
Returning to work is fine, so long as you do not have children who need adult supervision.  Childcare is difficult to find right now.  The parent has the additional concern about the steps the childcare provider is taking to protect the children from being exposed to the virus.
Unemployment:
tenantThe CARES Act provided federal funds for those on unemployment ($600 per week), plus whatever the state pays.  In many cases that meant the worker received far more by staying on unemployment then going back to work.  As of May 1, 2020, more than 30 million Americans have filed for unemployment insurance since the COVID-19 crisis hit the U.S.  (author’s opinion – Congress really did not think that one through.)  Important note – unemployment income must be claimed on the worker’s tax returns.
Rent:
Many low-income renters are unemployed, waiting for unemployment to come in, but faced with a monthly rent bill.  Federal and statewide eviction moratoriums were put in place (generally three to six months).
This moratorium is on the tenant being evicted, it does not excuse the tenant’s obligation to pay rent.  At the end of the moratorium the tenant is supposed to come up with the missing rent, or be evicted.  The problem will be exacerbated because the moratorium is based on COVID-19 timetables that are “too short” and don’t consider predictions from medical experts that the pandemic could persist into the fall and beyond.
Landlords:
Many landlords depend on the rents to pay their own bills.  The moratorium puts them facing their own default of the mortgage and possible foreclosure, resulting in their own eviction.
Homelessness:
tenantEvictions lead directly to homelessness, which increases the burden on the taxpayer and the various agencies that help those without a place to live.  Crime will increase because people become desperate to just survive.
What about other bills?
In addition to worrying about where to live, the worker is also faced with demands from credit card companies, vehicle payments and other debts.  By this time they are so desperate that many have shut down emotionally.  They are not seeking help from those who can look at the big picture, rather are looking only at how to survive today.  That is completely understandable, if you cannot get through today, why should you care about tomorrow?  The answer – because tomorrow will always come.
Education is the key:
tenantOur job is to help the worker step back from their current focus and talk about the future.  Life will change.  There will be a cure for virus.  People will go back to work.  Landlords will need tenants.  Car dealers will need buyers.  Mortgage companies will need borrowers.
I want to help the worker plan for their future.  But, I am not the only one offering their help, there is a new breed of selfish attorneys who don’t care about their clients.  They are only on this earth to take as much money from their clients as possible, while offering little to no education.  They even have false reviews created by employees, and Internet companies.  Use your common sense when talking to anyone who may have ulterior motives (take your money).
tenants

MUSINGS FROM DIANE:

tenants
When you hear “we are all in this together” stop and think – are we really?  One person buys something or pays a bill, that money is used to buy more products or pay more bills.  Round and round goes that dollar.  So, yes, we are all in this together.  I am ignoring the wealthy who don’t worry about how to pay their mortgage or buy food for their family.  Instead, I am talking about the other 90 percent of our community.  Congress did its best to come up with an idea about putting money into the hands of those who really need it, but much of that money was detoured into the hands of the wealthy.  We must be responsible for ourselves and look for our own way out of this situation.  Be smart about your choices and stay away from the “quick fixes” – they are scams.

How Can I Help You?
The post COVID Has Exposed Many of Our Neighbors to an Ugly Financial Reality appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy & Foreclosure Attorney.


3 weeks 3 days ago

New Law Governing the Paycheck Protection Program – June 5, 2020
SBA issues rules and guidance regarding the amended Paycheck Protection Program.
Legislation signed June 5 lowered to 60% from 75% the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven.  Plus, extended the covered period from eight weeks to 24 weeks, after loan disbursement.

paycheckNew rules, guidance, applications coming
(reprint from Journal of Accountancy) The SBA, in consultation with Treasury, will “promptly” issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing the amendments to the PPP made in the new law, the statement said. In addition to confirming that June 30, 2020, remains the last date on which a PPP loan application can be approved, the new rules will implement the following changes:

  • Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers that have already received PPP loans retain the option to use an eight-week covered period.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time-equivalent (FTE) employees for borrowers that are unable to return to the same level of business activity the business was operating at before Feb. 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and Dec. 31, 2020, by the secretary of Health and Human Services, the director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to worker or customer safety requirements related to COVID-19.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in FTE employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on Feb. 15, 2020, and unable to hire similarly qualified employees for unfilled positions by Dec. 31, 2020.
  • Increase to five years the maturity of PPP loans that are approved by the SBA (based on the date the SBA assigns a loan number) on or after June 5, 2020.
  • Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

paycheck protection

MUSINGS FROM DIANE:
What no one discusses is that if the loan is forgiven, these funds cannot be deducted on your tax returns.  Otherwise, this would be ‘double dipping’.  The company gets PPP money to pay its’ employees, then the company’s obligation to repay the loan is forgiven, in total or partially.  Therefore, the company receives a windfall if the company deducts the same employee costs on their taxes as overhead.  Talk to your CPA and make sure to disclose any “free money” from any stimulus funds.

How Can I Help You?
The post Paycheck Protection Program – New Changes appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy & Foreclosure Attorney.


3 weeks 6 days ago

Subchapter V (New Bankruptcy law subchapter) and Who May be a Debtor?

In re Charles Christopher Wright, Case No. 20-01035-HB (Bankr. D.S.C. April 27, 2020), the Bankruptcy Court in South Carolina addressed the issue of who may be a “debtor” under new bankruptcy law Subchapter V (the new fast track bankruptcy chapter for small businesses).

The issue before the Court was whether business debt without an ongoing business was sufficient to meet the requirement of engaging in commercial or business activities under Subchapter V of the Bankruptcy Code.

The Debtor, Mr Wright, was an individual involved in two previous Chapter 11 business bankruptcy filings and as a result he retained personal liability for significant business debts. At the time of Mr. Wright’s personal bankruptcy filing, both of his business entities had stopped doing business . Mr. Wright’s bankruptcy petition listed business debt of more than $395,816.29 and consumer debt of $220,882.42. The United States Trustee assigned to the case argued that since the businesses were not active, Mr. Wright did not qualify to be a debtor under Subchapter V.

The Bank Code, Section 11 U.S. Code § 1182(1), defines a “debtor”(for purposes of Subchapter V) as a person engaged in commercial or business activities that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 of which not less than 50 percent arose from the commercial or business activities of the debtor.

Mr. Wright clearly met the requirement under Subchapter V because more than 50% of his total debt was business or commercial debt.

The issue before the Court was whether the Debtor met the requirement of being “engaged in commercial or business activities” despite the fact that both businesses had closed prior to his personal bankruptcy filing.

The Bankruptcy Court held that the business activity requirement had been met and allowed the case to proceed under Subchapter V. The Judge held that Subchapter V is not restricted to a person who, at the time of filing of the petition, is presently engaged in commercial or business activities and who expects to continue in those same activities under a plan of reorganization.

Bankruptcy Courts are courts of equity and the goal of bankruptcy is to help individuals and businesses reduce, reorganize or eliminate their debt.

The view expressed by the Wright Court will encourage more individuals and businesses to file under new Subchapter V.

This ruling could also assist businesses that have closed as a result of the corona virus and have not reopened, but want to reorganize.

Individuals or businesses who are considering a small business bankruptcy filing under Subchapter 5 and have questions should contact James Shenwick (212) 541-6224; jshenwick@gmail.com.


3 weeks 6 days ago

Bracing for the next phase of the coronavirus recession: BankruptciesJune 9, 2020

Art Van Furniture, Bar Louie and True Religion all sell different products, but they all have one thing in common: Each has gone bankrupt this year, as the coronavirus-induced recession that started in February flattens businesses large and small.

Recent data show 722 companies sought bankruptcy protection around the U.S. last month, a 48% increase from the year-ago period. Chapter 11 filings also jumped in April and March, as states started imposing business restrictions amid the coronavirus outbreak.

 "This is a sign that already weak companies are succumbing to the lockdown recession," Chris Kuehl, an economist with the National Association of Credit Management, which tracks bankruptcies, said in a research note. Businesses that were struggling before the pandemic "are starting to get in some real trouble," he added

Among those long-distressed companies finally tipped into bankruptcy by the economic fallout from COVID-19: Gold's Gym, Hertz, J. Crew, J.C. Penney and Neiman Marcus.

 Altough Congress has passed relief programs designed to help businesses survive shelter-in-place orders, including the Paycheck Protection Program and Economic Injury Disaster loans, the aid won't help floundering companies for long, one expert said.

 "As this relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy," said Amy Quackenboss, executive director of the American Bankruptcy Institute.

Some analysts expect a wave of bankruptcy filings, particularly in hard-hit industries like retail and the energy sector, which has been slammed by falling oil prices and plunging demand during the virus. Boeing CEO Dave Calhoun also has predicted that a major U.S. airline will go bankrupt this year.

Of course, bankruptcy doesn't necessarily spell doom. Court supervision is designed to help companies shed or restructure their debt, restructure their business, and emerge from Chapter 11 as a streamlined, more competitive company. For other companies that have recently gone under, such as Pier 1 and Modell's Sporting Goods, bankruptcy is the end of the road.

Meanwhile, companies with healthy revenue streams, options for cutting costs and access to credit will rebound, predicted investment strategists Indranil Ghosh and Gina Sanchez. Although car sales have slumped, for instance, automakers are expected to bounce back as pent-up demand recovers and as many people shun public transportation due to virus concerns.

 "Car manufacturers have been discounted in recent years due to falling ownership rates among the young, but they may regain lost ground due to COVID," Ghosh and Sanchez said. "Car traffic in China is back to 90% of normal levels whereas public transport is still only at 50% because consumers feel safer in their car."


1 month 13 hours ago


The Small Business Reorganization Act of 2019 (the "SBRA"), which went into effect on February 18, 2019, provides for simplified small business reorganization for individuals and business entities under the new subchapter V of chapter 11. Subchapter V resembles the provisions of chapter 12 for family farmers, but incorporates also some of the provisions that apply in a regular chapter 11.  The legislative purpose of the SBRA was to provide for a fast track for small businesses to confirm a plan of reorganization with the assistance of a subchapter V trustee. 

EligibilityFor the new subchapter V provisions to apply, the debtor needs to elect so on its petition. To be eligible for subchapter V, the debtor must be engaged in "commercial or business activities" and 50 percent or more of its debt must arise from its commercial or business activities. 

Debtor in PossessionSubchapter V provides for the debtor to remain in possession of its assets and to operate his or its business with the rights and powers of a trustee unless the Court orders otherwise.  
Upon the election under subchapter V, the debtor generally must file the following financial documents:        1. most recent balance sheet        2. statement of operations        3. cash-flow statemen        4. federal income tax return  
During the case, the debtor must file periodic reports which contain information regarding:     1. the debtor’s profitability     2. reasonable approximations of the debtor’s projected case receipts and cash disbursements    3. comparisons of actual case receipts and disbursements with projections in earlier reports     4. whether the debtor is in compliance with Bankruptcy Code postpetition requirements     5. whether the debtor is timely filing tax returns and paying taxes and administrative expenses when         due Subchapter V TrusteeA subchapter V trustee is to be appointed in all subchapter V cases.  The role of the subchapter V trustee is to monitor the case and to assist the parties in achieving a consensual subchapter V plan. The subchapter V trustee is to make the plan payments to the creditors under confirmed nonconsensual plans. 
Subchapter V permits, but does not require, the debtor to make adequate protection payments through the trustee. 
Subchapter V Plan 
Only the debtor may file a plan in a subchapter V case.  The plan must be filed within 90 days after the filing of the case unless the court extends the time period. Normally, the information that would typically appear in a separate disclosure statement is to be part of the subchapter V plan. 

The Bankruptcy Court may confirm the plan even if all classes of creditors reject it. Subchapter V also does away with the "absolute priority rule." But to be approved, the plan must comply with the new projected disposable income requirements. Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com


1 month 16 hours ago


The Small Business Reorganization Act of 2019 (the "SBRA"), which went into effect on February 18, 2019, provides for simplified small business reorganization for individuals and business entities under the new subchapter V of chapter 11. Subchapter V resembles the provisions of chapter 12 for family farmers, but incorporates also some of the provisions that apply in a regular chapter 11.  The legislative purpose of the SBRA was to provide for a fast track for small businesses to confirm a plan of reorganization with the assistance of a subchapter V trustee. 

EligibilityFor the new subchapter V provisions to apply, the debtor needs to elect so on its petition. To be eligible for subchapter V, the debtor must be engaged in "commercial or business activities" and 50 percent or more of its debt must arise from its commercial or business activities. 

Debtor in PossessionSubchapter V provides for the debtor to remain in possession of its assets and to operate his or its business with the rights and powers of a trustee unless the Court orders otherwise.  
Upon the election under subchapter V, the debtor generally must file the following financial documents:        1. most recent balance sheet        2. statement of operations        3. cash-flow statemen        4. federal income tax return  
During the case, the debtor must file periodic reports which contain information regarding:     1. the debtor’s profitability     2. reasonable approximations of the debtor’s projected case receipts and cash disbursements    3. comparisons of actual case receipts and disbursements with projections in earlier reports     4. whether the debtor is in compliance with Bankruptcy Code postpetition requirements     5. whether the debtor is timely filing tax returns and paying taxes and administrative expenses when         due Subchapter V TrusteeA subchapter V trustee is to be appointed in all subchapter V cases.  The role of the subchapter V trustee is to monitor the case and to assist the parties in achieving a consensual subchapter V plan. The subchapter V trustee is to make the plan payments to the creditors under confirmed nonconsensual plans. 
Subchapter V permits, but does not require, the debtor to make adequate protection payments through the trustee. 
Subchapter V Plan 
Only the debtor may file a plan in a subchapter V case.  The plan must be filed within 90 days after the filing of the case unless the court extends the time period. Normally, the information that would typically appear in a separate disclosure statement is to be part of the subchapter V plan. 

The Bankruptcy Court may confirm the plan even if all classes of creditors reject it. Subchapter V also does away with the "absolute priority rule." But to be approved, the plan must comply with the new projected disposable income requirements. Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com


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