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By: Howard Schneider | Reuters May 5, 2020
From: stltoday.com
WASHINGTON — Overall U.S. bankruptcy filings fell in April compared to the year before, a possible sign the massive Federal Reserve and government response to the coronavirus pandemic may have helped stave off economic damage, or at least provided enough hope to families and firms to try to wait it out.
In a potential warning sign, however, filings of the Chapter 11 bankruptcies used by companies to restructure their debts jumped 26% to 560 last month, from 444 in April, 2019, according to data compiled by Epiq Systems and provided by the American Bankruptcy Institute.
The 2,270 Chapter 11 filings through April is the largest four-month total since 2013.
Overall, bankruptcy filings by households and companies fell sharply to 38,428 from 71,303 a year ago, a decline of 46%.
ABI's executive director, Amy Quackenboss, said in a statement that the steps taken by the federal government beginning in March "have likely staved off bankruptcy filings to date."
Those measures included loans to help small businesses stay afloat, one-off emergency payments to families, and unemployment benefits expanded to be both more generous and available for the first time to groups of people like self-employed entrepreneurs and contractors.
Banks have been encouraged by the Fed to give strapped customers leeway with loan payments, landlords urged to do the same by local governments, and many utility firms have suspended disconnections for overdue bills during the crisis — all steps that may help keep family and business finances intact for now.
Like recent economic data, however, the true picture may only emerge over time, as social distancing rules are eased, firms see whether customers return, and laid-off workers have a more accurate sense of whether they will be asked back to their old jobs.
The small business loans, for example, are designed to cover about two months of payroll, though it remains uncertain whether business will be back to normal by then for thousands of restaurants, hotels and others in the hardest-hit sectors.
From: The Philadelphia Tribune By: Amy HaimerlMay 4, 2020https://www.phillytrib.com/news/health/coronavirus/when-does-a-small-business-file-for-bankruptcy-and-more-questions/article_4513950c-b99f-5677-a5a8-6b57526f0b17.html
If you’re facing serious financial problems, you may be considering filing for bankruptcy. In many cases, bankruptcies were an apt solution for people who have been struggling financially. While filing bankruptcy is often the last resort for debtors, it’s also possible that they may not realize what alternatives there are. Indeed, there are less drastic courses for bankrupt debtors to get rid of their debts than to file for bankruptcy.
Stop Harassment
It really depends on what your main motivation is for filing a bankruptcy petition. If you’re just after bankruptcy protection in the automatic stay to stop debt collection harassment, you can get some relief from over-zealous creditors or collection agencies by exploring the provisions of the Fair Debt Collection Practices Act.
Reorganization outside Bankruptcy Court
If you feel that, as a debtor, you have enough income and property you can liquidate to use for debt payments, you can then arrange a repayment plan with your creditors that will allow you to pay off debts in installments and perhaps even negotiate to pare down your debt amount to something more manageable. This alternative might actually be more appealing to a creditor who will likely not be able to collect if you file bankruptcy under Chapter 7 (liquidation), which will likely render all or most of your assets exempt. If you can convince your creditors that you do have the means to pay over a certain period of time or a reasonably smaller amount, this is an easier course than going through the bankruptcy process.
Help from a Credit Counselor
If you wish not to face your creditors or debt collectors by yourself, you can approach a credit or debt counseling agency. Credit counselors can help debtors fix their finances without engaging in bankruptcy proceedings. In any case, if you do end up deciding to declare bankruptcy, you would still need their services since you’d be required to finish a credit counseling course before filing. You can check out Oregon’s list of agencies that have been approved by the US Trustee. Not all agencies that advertise credit or debt counseling services are legitimate. Make sure you do your due diligence.
How can a credit or debt counseling agency help you? It can develop a debt management plan similar to the repayment plan you would have to create in a Chapter 13 bankruptcy case. The main advantage of taking this course is that you get to avoid having a personal bankruptcy in your credit report, which means that your credit score won’t take the hit it would if you filed for bankruptcy. Going this route, of course, means that you won’t enjoy the protection that a bankruptcy filing provides. This means that you’ll likely have to fully pay back the amount of money you owe, and you won’t be accorded the same flexibility that Chapter 13 filers get when they miss a payment.
Judgment Proof
If you’re at a point in life where you have no means at all to pay your debts, your creditors cannot collect even if they get a judgment against you. The law ensures that you are allowed to meet the basic necessities of life so your creditors can’t take away what little you have to live on. You probably won’t be jailed for an unpaid debt, unless it involves taxes or child support. As soon as you do get enough income or assets from which your creditors can collect, any judgment against you will be enforced and you have to start paying.
Looking for Debt Solutions? Consult an Oregon Bankruptcy Attorney Today!
If your owed debts have become overwhelming to the point that you’re considering bankruptcy, the best step to take is to talk to a bankruptcy lawyer. People who want to get out of debt can have their cases reviewed by bankruptcy lawyers so they can be advised on the most fitting debt settlement solution. Bankruptcy filings entail time, effort, and money. While the bankruptcy discharge and protection are distinct benefits, they also come with stigma and a mark on your credit record.
Find out whether declaring bankruptcy or an alternative solution is the right move for you. Call us at Northwest Debt Relief Law Firm to speak with one of our experienced Oregon bankruptcy attorneys.
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The post Bankruptcy Alternative appeared first on Vancouver Bankruptcy Attorney | Northwest Debt Relief Law Firm.
Every part of the country has been affected by the coronavirus. Like restaurants, arenas and other locations where people assemble for business or pleasure, most courts have been closed. If you are in the midst of a bankruptcy proceeding, your case might be delayed, handled telephonically or be otherwise disrupted due to the pandemic. Furthermore, Read More
Subchapter V, which is not a new chapter of the Bankruptcy Code, but a subchapter within Chapter 11 of the Bankruptcy Code, holds the possibility of improving the likelihood of reorganization for a viable small business debtor by reducing the time, the expense and eliminating certain legal impediments to confirmation of a Chapter 11 plan reorganizing a debtor. 1. The purpose of this new section of the Bankruptcy Code is to allow business debtors and certain individuals engaged in business with debts below $ 7,500,000 to reorganize their obligations under Chapter 11 without the need for obtaining the consent of a class of “impaired” creditors as required under basic 2. Subchapter V is for the small business debtor who must be an entity engaged in commercial or business activity with aggregate non-contingent liquidated secured and unsecured debts of $7,500,000 or less, excluding debt owed to affiliates or insiders. Congress increased the cap to $7,500,000 for the next year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act from $2,725,625.00.3. Non-contingent debt refers to a debt that is owed at present without any contingent acts needing to occur first.4. Contingent debt is one in which there is a 'triggering event' or some condition precedent for the debt to exist.5. United States Trustee Quarterly Fees have been eliminated. Other than the initial filing fee, fees are essentially eliminated, making the process much less expensive to the petitioner.6. Creditor committee requirement has been eliminated (only formed for cause in Subchapter V cases)7. Cram Down has been simplified. In Subchapter 5, if the creditors can’t agree on the petitioner’s proposed plan, an application can be made to the Bankruptcy Court Judge to order the plan approved. -Cram Down standard-The success of the proposed plan need only be more attractive to the unsecured creditors than would a conversion to a Chapter 7 liquidation plan (creditors get $1 more under Subchapter V)8. Documents needed to file under Subchapter V-the entity will require the business’ most recent balance sheet, statement of operations, cash flow statement, a federal income tax return (or a sworn statement that such a document does not exist). 9. Plan must be submitted for approval within 90 days. However, the Bankruptcy Court may extend this deadline “if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable.” (in the COVID-19 environment, courts are likely to grant extensions liberally)10. Disclosure Statement not required. The Act eliminates the requirement that a disclosure statement is filed, thereby reducing costs to the debtor and streamlining the plan confirmation process. However, the debtor must include in the plan certain information customarily included in a disclosure statement, such as a short history of the debtor, a liquidation analysis, and financial projections reflecting the ability of the debtor to make the payments required by the plan11. Trustee-under Subchapter V, a trustee is automatically appointed, but the debtor retains control of its assets and operations. trustees have the authority to investigate the debtor’s financial affairs. The trustee’s primary function is to facilitate a consensual plan among the debtor and its creditors, almost like a mediator would facilitate a settlement in litigation. [the trustee’s duties will include facilitating the development of a consensual reorganization plan, appearing at major hearings in the case, and ensuring that a debtor commences making timely payments under a plan]-Under the supervision of the Department of Justice, approximately 250 Subchapter V trustees – mostly attorneys and accountants – were selected out of over 3,000 applicants. Most Subchapter V trustees had recently received their first case assignments when the COVID-19 pandemic hit.12. Timing of Subchapter V Filing. Small businesses should carefully consider the timing of a Subchapter V filing: the Borrower Application Form promulgated by the U.S. Small Business Administration indicates that applicants presently subject to a bankruptcy proceeding are ineligible for the Paycheck Protection Program (PPP). 13. Requirements to file Subchapter V. To be eligible for relief under Subchapter V, a debtor (whether an entity or an individual) must be engaged in business and one-half or more of the debt must have arisen from business, as opposed to personal, activities. Finally, single asset real estate debtors are ineligible for relief under Subchapter VPlan Term -Consistent with current practice in Chapter 13 cases, a reorganization plan will customarily be three years in length but may be as long as five.14. Impaired Class. Under Subchapter V, a plan can be confirmed without the vote of an impaired accepting class, providing that the plan does not discriminate unfairly and is deemed “fair and equitable” as to each class of claims. To meet the “fair and equitable” requirement under the Bankruptcy Code, Subchapter V requires that all of the debtor’s projected disposable income during the length of the plan be applied to plan payments.15. Disposable Income. Subchapter V defines “disposable income” as income received by a debtor and that is not reasonably necessary to: (1) maintain and support the debtor or a dependent; (2) satisfy domestic support obligations that first become payable after the bankruptcy case is filed; or (3) continue, preserve, or operate the business.16. Elimination of the Absolute Priority Rule. Subchapter V eliminates the Absolute Priority Rule, under which a debtor cannot retain an ownership interest in its assets unless all creditor claims are paid in full or the debtor contributes new value to fund the Plan. Under Subchapter V no “new value” contributions are required as a condition of the debtor’s asset retention. 17. Modification of Loans Secured by the Principal Residence Under existing law, loans secured by a debtor’s principal residence may not be modified under a bankruptcy plan. Under Subchapter V if the proceeds of a business loan were used to finance a debtor’s business, the loan may be modified. However, the claim of a secured creditor who loaned money to a debtor to acquire the debtor’s residence, may not be modified18. Discharge. If the Bankruptcy Court confirms a consensual plan, a debtor is entitled to a discharge upon confirmation. If the Bankruptcy Court confirms a nonconsensual plan, a debtor receives a discharge after completing all payments due within the first three years of the plan, unless otherwise ordered. If all such payments are made, the debtor would be relieved of liability except for future payments due under the plan.
JHS
COVID-19 – HELP FOR HOMEOWNERS AND RENTERS
CORONAVIRUS ASSISTANCE INFORMATION
July 11, 2019 – the following is information from the Federal Housing Finance Agency. FHFA is closely monitoring the coronavirus national emergency’s effect on the housing finance market and continues to update policies and guidance to ensure its regulated entities – Fannie Mae, Freddie Mac (the Enterprises), and the Federal Home Loan Banks (FHLBanks) – are fulfilling their mission of providing market liquidity during this difficult time.
I will post new information as I find more resources to assist homeowners and renters adversely impacted by COVID-19.
Help for Homeowners:
If your ability to pay your mortgage is impacted, and your loan is owned by Fannie Mae or Freddie Mac (use the “loan lookup” tools: https://www.knowyouroptions.com/loanlookup for Fannie Mae or https://ww3.freddiemac.com/loanlookup/ for Freddie Mac to find out), you may be eligible to delay making your monthly mortgage payments for a temporary period, during which:
- You won’t incur late fees.
- Foreclosure and other legal proceedings will be suspended.
Help For Renters
If you are a renter and live in a rental unit financed by Fannie Mae or Freddie Mac, you have access to their respective Disaster Response Networks. These networks offer support from HUD-approved housing counselors, such as a personalized recovery assessment and action plan, financial coaching and budgeting, and ongoing check-ins. Contact your property manager to see if you are eligible. Fannie Mae’s renter hotline number is 1-877-542-9723 and Freddie Mac’s renter hotline number is 1-800-404-3097.
Additional resources: Consumers can also visit consumerfinance.gov/coronavirus for up-to-date information and resources to protect and manage their finances.
Beware of Scams
During times of crisis, there is an increased risk of scams and fraud. Protect yourself by asking questions, reading the materials provided to you, and avoiding any solicitations requiring up-front cash payments. If you think you may have been a victim of a scam and your concerns with Fannie Mae, Freddie Mac, or a Federal Home Loan Bank involve fraud, please contact the FHFA Office of Inspector General (FHFA OIG) at 800-793-7724 or visit the FHFA OIG’s website
MUSINGS FROM DIANE:
This is a very scary time for everyone, especially those who live paycheck to paycheck. One hiccup and they are behind on their rent or mortgage and facing eviction. Throw in COVID-19 and the nightmare begins. Afraid to go to work (assuming you can)? You are not alone. The government is trying to find ways to help everyone who needs it, but they are not equipped to deal with the millions who need assistance. Existing programs are overwhelmed and at the point of breaking. New programs are in the works, but it will take months (or years) before they are ready to offer the assistance that is really needed now (remember the mortgage workout programs that were developed years after the mortgage crisis). There is no easy answer to this nightmare. Everyone has to do their best and use their common sense. Don’t fall for scams (there are and will be thousands. of not hundreds of thousands). Don’t be afraid to ask for help. Don’t take advice from those who have a reason to lie to you (like a politician who offers medical advice – he only wants to be reelected). Be smart.
The post COVID-19 – Help for Homeowners and Renters appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy & Foreclosure Attorney.
April 29, 2020
From: JD Supra
By: Kathleen Muthig; Haynsworth Sinkler Boyd, P.A.
As the COVID-19 pandemic marches on, more homeowners than ever are seeking assistance from their lenders.
The American Bankruptcy Institute reported on April 24, 2020 that over 3.4 million homeowners have entered into COVID-19 related mortgage forbearance plans. This is a significant increase since April 3, 2020, when just over one million homeowners were utilizing COVID-19 related mortgage forbearance plans. Undoubtedly, COVID-19 and the resulting Coronavirus Aid, Relief and Economic Security (CARES) Act have changed the landscape of consumer bankruptcy cases, especially with regard to the treatment of mortgage debt. Below are 10 changes that Creditors should be aware of in Chapter 13 and Chapter 7 cases.
1. COVID-19 relief payments are excluded from definition of “income.”
Payments made under federal law related to COVID-19 are excluded from the disposable income requirement of confirmation in the Bankruptcy Code and the income calculation for eligibility under Chapter 7.
2. Chapter 13 plans may exceed five years.
If the Debtor is experiencing hardship due to COVID-19, then a Chapter 13 Plan confirmed before March 27, 2020, may be modified to extend the repayment period up to seven years after the first payment was due under the Chapter 13 Plan after confirmation. Under the Bankruptcy Code, Chapter 13 Plans are limited to a length of five years. If a plan is modified from five years to seven years, and a Creditor’s arrearage is paid over those seven years, the Creditor will receive less monthly arrearage payments in the modified plan than under the original confirmed plan.
3. Second Moratoriums.
Some Chapter 13 Trustees have agreed to consent to second moratoriums and longer time periods in order to bring cases current, even without the existence of a qualifying hardship under the CARES Act provisions.
4. Practical changes to Bankruptcy Court procedures.
U.S. Bankruptcy Court for the District of South Carolina Judges Duncan and Waites entered an Operating Order 20-08 setting forth procedures in light of COVID-19. The Order includes a requirement for Debtors to make all mortgage payments to the Trustee on claims secured by a first priority security interest in the Debtor’s principal residence. Chapter 13 Plans in which mortgage payments are paid to the Trustee, instead of directly to the Debtor, are called “Conduit Plans.”
5. Payment deferments due to COVID-19 in conduit plans.
Chapter 13 Creditors will need to work with the Chapter 13 Trustees and the Debtors to agree upon and seek Court approval for modifications to the Plan due to COVID-19. Creditors should be mindful to file a timely Notice of Payment Change if the loan payments due are modified under Bankruptcy Rule 3002.1.
6. Payment deferments due to COVID-19 in plans where Debtor is paying mortgage payments directly to the Creditor.
Chapter 13 Creditors will need to work directly with Debtors to agree upon a loan modification, forbearance, or deferment. Again, Creditors must file a timely Notice of Payment Change pursuant to Rule 3002.1.
7. CARES Act foreclosure relief for federally-backed loans.
A servicer of a federally-backed loan may not initiate any foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale for sixty days from March 18, 2020. Note that this stay is separate from any state-mandated stay of foreclosures, like the one currently in place that prohibits foreclosures until May 1, 2020, in South Carolina.
8. CARES Act forbearances.
Borrowers with federally-backed mortgage loans can request a forbearance from mortgage payments for up to 180 days if they have been affected by COVID-19. The Act also provides for separate forbearance rights for owners of multi-family property (five or more units) and provides protection for tenants from eviction if the owner applies for a forbearance.
9. CARES Act eviction relief.
A Landlord of a “covered dwelling” may not file an action for eviction or charge additional fees for nonpayment of rent during a 120-day period beginning on March 27, 2020. A covered dwelling is one where the building is secured by a federally-backed mortgage loan or one that participates in certain federal housing programs. Note that this stay is separate from any state-mandated stay of evictions, like the one currently in place that prohibits evictions until May 1, 2020, in South Carolina.
10. CARES Act student loan relief.
For covered student loans, the CARES Act suspends payments and waives interest from March 13, 2020, through September 30, 2020. Many Chapter 13 Plans provide for the Debtor making student loan payments outside the Plan, so the CARES Act relief is vital to Chapter 13 Debtors, because a moratorium or deferment in the Plan would not affect those payments owed outside of the Plan.
When Does a Small Business File for Bankruptcy? And 8 More Questions
The coronavirus is expected to permanently shut millions of small businesses in the next several months. Here are issues for owners to consider.
Jerry Stetina, chief operating officer of A to Z Total Heating and Cooling outside Detroit. The firm filed for bankruptcy protection under a new law for small businesses.
Jerry Stetina, chief operating officer of A to Z Total Heating and Cooling outside Detroit. The firm filed for bankruptcy protection under a new law for small businesses.Credit...Sylvia Jarrus for
The New York Times
By Amy Haimerl
May 1, 2020, 5:00 a.m. ET
All the forecasts point in the same direction: A wave of small-business bankruptcies is coming.
More than 40 percent of the nation’s 30 million small businesses could close permanently in the next six months because of the coronavirus pandemic, according to a poll by the U.S. Chamber of Commerce.
“It’s a crisis that will impact our economy for generations,” said Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small business. “We’re going to lose so much of the small-business sector.”
Commercial bankruptcies in the first quarter of 2020 ticked up 4 percent from a year earlier, according to data from the American Bankruptcy Institute. But many of those filings were made before the pandemic, when the economy was healthy. Right now, some owners are waiting to find out if they will receive federal stimulus aid before deciding whether to file for bankruptcy protection.
Many of them may just disappear. But for others, a bankruptcy law that took effect in February, the Small Business Restructuring Act, could help them survive the pandemic.
Before that law, if a struggling small business wanted to restructure its debt, its only option was Chapter 11, which is the commercial bankruptcy code. It allows a company to negotiate with creditors for better terms — a process known as debt restructuring — and in some cases dismiss debt. The goal is for the company to get a fresh start.
But the Chapter 11 process is long and expensive, and a recent report by the Brookings Institution found that it is better suited to large firms. The new rules, known as Subchapter 5 because they are part of Chapter 11, give firms with less than $2.73 million in debt the power of reorganization with a few key simplifications. Two main changes: A judge can enforce a restructuring plan even if creditors don’t like it, and the owner can continue running the business.
Congress recognized that this tool could be a lifeline to small businesses trying to get through an economic shutdown. So as part of the federal stimulus program, it expanded eligibility to firms with up to $7.5 million in debt. That change means Subchapter 5 could help up to 70 percent of all businesses that might file for bankruptcy, Brookings estimated.
“A number of small businesses who are prone to just giving up could be saved,” said Bob Keach, who leads the bankruptcy practice at Bernstein, Shur, Sawyer & Nelson, a law firm in Maine.
A to Z Total Heating and Cooling in suburban Detroit was one of the first companies in the country to file for bankruptcy protection under the new rules. The family-owned firm has been operating for nearly four decades, but business really took off in the past few years. The company struggled to manage the growth.
Its primary problem? Labor. The company’s two dozen employees weren’t enough to keep up with demand, and Jerry Stetina, A to Z’s chief operating officer, said it couldn’t find additional workers. That meant the firm got bogged down paying overtime on top of the typical $35 hourly wage — and tapped out cash reserves.
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“I know it sounds really crazy, but the process of growing put us in the situation we’re in,” he said.
Then a mild winter hit Michigan this year, and fewer customers called for new furnaces or repairs. What little work the employees did have was shut down by the coronavirus. But they didn’t want to give up: Mr. Stetina could see a strong summer season; A to Z just needed a bridge to get there.
“People will live without heat, but they won’t live without air-conditioning,” he said. “Our phones are ringing now with questions about A.C. start-ups to get ready for summer.” When A to Z exits bankruptcy, the company plans to hire a controller to better handle its finances.
ImageA to Z said it had needed a bridge to get to what it expected to be a busy summer season.
A to Z said it had needed a bridge to get to what it expected to be a busy summer season.Credit...Sylvia Jarrus for The New York Times
Here are some of the main questions to consider if you are thinking about a bankruptcy filing for your small business.
How do I know when to call it quits?
Business owners must search their hearts and assess their balance sheets.
“The first question to ask is: ‘Do the owners want to keep this going?’” said Kimberly Ross Clayson, whose firm, Clayson, Schneider & Miller in Detroit, advises small-business clients.
If your heart isn’t in it, call a lawyer to help you wind down operations. But if you still think your business can become viable, a Chapter 11 bankruptcy might be the right call.
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Initially, Mr. Stetina of A to Z was scared to call a lawyer. He knew the stigma around bankruptcy and was worried what clients might think even though A to Z planned to restructure, not discharge, debt. Once he did call, he said, he wished he had done it earlier.
“A lot of big businesses have been doing it for years, and it’s some of the reason that they are in business still,” Mr. Stetina said.
How do I know if restructuring would help?
Write a business plan for a post-pandemic business world. How will your business operate? Where will revenue come from? What new expenses — for marketing, infrastructure and more — will you incur to help your business pivot? If you can write a business plan that shows a positive balance sheet after bankruptcy, restructuring might work.
“Chapter 11 bankruptcy is designed to fix people’s balance sheets,” Mr. Keach, the Maine lawyer, said. “It allows you to restructure some debt, eliminate other debt. It doesn’t generate revenue for you.”
Should I take out a loan or file for bankruptcy?
Every business owner’s situation is different. But a general rule is: If you can’t identify enough future revenue to pay off the debt, borrowing may make matters worse. Some business owners no longer have any personal resources to draw on and may not receive federal stimulus funding.
“Don’t borrow blindly and say, ‘It will all work out,’” said Ms. Clayson, who is a federal trustee for Subchapter 5 claims. “If you are thinking a credit card is how you will open your doors and bridge yourself to the next stage, then you really need to be thinking about how viable your business is.”
If you find yourself considering nonbank lenders with high interest rates, it’s time to call a lawyer, she said.
Do I have to file for bankruptcy to close my business?
No. If you can pay off your creditors or negotiate a deal with them, you don’t need to file for bankruptcy protection. But you will want a lawyer to draft agreements.
Also: Don’t forget about withholding taxes. When times are tight, many small-business owners who manage their own payroll dip into that pot of money they set aside at each pay period and use it for other expenses.
“If you have unpaid withholding taxes, the business owner becomes personally liable,” Ms. Clayson said.
Should I file for Chapter 7 or Chapter 11?
Think of Chapter 7 as a funeral and Chapter 11 as a do-over.
Chapter 7 is used for both individual and business bankruptcies when the goal is to wipe out debt. The debt can go away, but you may also lose your assets.
If you wanted to restructure your business debt, you would consider a Chapter 11 bankruptcy and, more specifically, Subchapter 5 for small businesses. But you can always try to negotiate with creditors outside of a formal bankruptcy.
“The only reason you need to use Chapter 11 at all is to deal with recalcitrant creditors,” Mr. Keach said. “If creditors won’t negotiate with you, bankruptcy allows you to cram down a plan of restructuring.”
There are other forms of bankruptcy filing: One, Chapter 13, is used for personal reorganizations, when you want to try to keep your assets and renegotiate the terms of your debt. Another, Chapter 12, oversees businesses in farming and fishing.
Will I lose everything in bankruptcy?
It depends on what personal guarantees you made. Most small-business owners put up their home or some other asset as collateral for start-up loans. In fact, the Small Business Administration requires that as part of its non-Covid-related lending.
If you used your house as collateral, it’s possible you would be forced to sell it as part of a Chapter 7 settlement. Under Chapter 11, you may have more luck.
Must I file both personal bankruptcy and business bankruptcy?
Possibly, but not necessarily. It depends on whether you are closing the business or trying to restructure, and what liabilities you have.
If you are trying to restructure, the goal is for your lawyer to negotiate with your creditors and create a plan that lets you avoid a personal bankruptcy. But if the creditors don’t like the deal, they could come after you for any debts you personally guaranteed. In that case, you might be forced to file for personal bankruptcy.
How does the new Subchapter 5 work?
Here is the main thing to know: Like all bankruptcies, it has a magic power called the “automatic stay.” Filing for bankruptcy stops creditors from collecting from you.
“It buys you time,” Mr. Keach said.
And time is everything. For example, take a restaurant that was having its best year before the pandemic, but then its revenue disappeared. A Subchapter 5 bankruptcy could help the company by halting creditor collections and allowing owners to renegotiate terms.
“What it might allow is, with a couple of exceptions, a built-in moratorium on rent,” Mr. Keach said. “You could propose a plan where you could literally not pay anything toward old debt for four to six months as long as your projections show that you have positive projected income after that.”
In exchange, business owners will need to use their net operating income — what’s left after the usual expenses like rent, payroll, cost of goods — to pay creditors for the next three to five years.
Can I ever open another business?
Yes. Securing funding may be more challenging, but it’s not impossible.
“My favorite clients have always been those who are already on to their next idea,” Ms. Clayson said. “This is the American way. You can start over. This isn’t a black mark.”
Published: April 28, 2020
From: Overton County News
The Trump Administration has put a timely halt on the ability of the government to garnish Social Security benefits to pay for defaulted student loans for an indefinite period during the COVID crisis, reports Association of Mature American Citizens [AMAC].
Seniors are the fastest growing segment of the population with outstanding student loan debt. Research conducted by Consumer Financial Protection Bureau [CFPB] shows that, “In 2018, Americans over the age of 50 owed more than $260 billion in student debt, up from $36 billion in 2004, according to the Federal Reserve. Nearly 40% of borrowers aged 65 and older are in default.”
Bob Carlstrom, president of AMAC Action initiative, said, “Forty-five percent of unmarried Social Security recipients and 21% of married couples rely on their benefits for at least 90% of their income. Garnishing that fixed income for student loan debt can have a particularly devastating impact on their lives.”
In a statement issued Wednesday, March 25, Carlstrom expressed AMAC’s appreciation for the decision to suspend the garnishment of Social Security benefits.
“We commend the administration and the Secretary of Education for suspending the ability of the federal government to garnish the Social Security income of beneficiaries for payment of student debt during this challenging time,” Carlstrom stated. “The Secretary has indeed responded to the concerns and pleas of many members – and non-members – of AMAC. This action is a good first step on this issue.”
Social Security benefits are off limits to nearly all creditors, but not the federal government, which can garnish Social Security benefits for certain debts, including federal student loan debt cosigned by retirees.
According to the Federal Reserve, Americans over 50 hold $260 billion in student loan debt. Benefits can be garnished for court-ordered child support or alimony, or for debts owed to the government. For many seniors, however, their monthly Social Security check is both a critical part of, and indeed the safety net, of their income and financial situation.
“We believe Social Security benefits should be protected permanently from student loan default garnishment by any party, including the federal government,” Carlstrom said.
Are you under financial distress and considering declaring bankruptcy? Bankruptcies have long been the answer to debtors looking to have their debts discharged, so find out what your options are in getting the best possible results when you file for bankruptcy.
There are different types of bankruptcy in the bankruptcy code. For personal bankruptcy, it’s generally a choice between Chapter 7 (liquidation) and Chapter 13 (reorganization). If you want the bankruptcy process that will allow you to hold on to as many of your assets as possible, the bankruptcy chapter for you is 13.
If you’re filing for bankruptcy under Chapter 13, understand that you have to propose a repayment plan. To continue with bankruptcy proceedings, this reorganization plan has to be approved by the bankruptcy court. For the payment plan to meet with the court’s approval, it must manifest your best effort to pay your debts. This means that you’ll be using all of your disposable income to pay your non-priority unsecured creditors.
Disposable income pertains to your leftover funds after you’ve covered all your basic living expenses and made your monthly payments on more important debts. These necessary installments include priority debts (e.g. taxes and child support) payments and secured debts (e.g. car loan and mortgage) payments. A secured debt is one that has an asset attached to it. In contrast, non-priority unsecured debts usually pertain to such obligations as credit card debt and medical bills.
Non-Priority Unsecured Debt Payments
How do you calculate your monthly payment on these debts? The main determination falls on whether your income is below or above your state’s median income. Essentially, it involves averaging your monthly income for the six months prior to your Chapter 13 bankruptcy filing and then comparing it with the established state median for households the same size as yours.
If your income doesn’t meet the state median, your best effort probably wouldn’t cover much of the non-priority unsecured debts. This could result in you completing your repayment plan and getting your bankruptcy discharge in just three years instead of the maximum five years. The plan will be based on your household budget and not on your monthly disposable income.
If your income surpasses the state median, you will have to figure out what your disposable income is by subtracting your living expenses as well as your priority and secured debt payments from your regular income. Living expenses can be calculated based on your specific expenses, if not on local or national standards. After you’ve made the deductions, what’s left is your disposable income. With it, you can spend the next five years paying off unsecured creditors in the manner that the bankruptcy court decides.
Debtors with Substantial Assets
There are bankrupt debtors who might not have much of an income but do own valuable assets. It’s possible that bankruptcy isn’t the right debt relief solution for them. In this case, they should look into alternative ways to get out of debt. If you have substantial assets, a bankruptcy judge may express concern that each creditor would receive less from your Chapter 13 payment plan than they would if you liquidate your assets in Chapter 7 since a filer can keep non-exempt assets in a Chapter 13 bankruptcy case, but not in a Chapter 7 filing.
This is why the court will study the value of your non-exempt property along with your disposable income and the total amount of your priority debt. You’ll have to pay the greater amount to your creditors to ensure that you don’t end up with a windfall by filing bankruptcy under Chapter 13 rather than filing Chapter 7.
Considering Filing Chapter 13 Bankruptcy? Contact a Washington Bankruptcy Attorney Today!
If you plan to pay your creditors to hold on to your assets, make sure that you come up with an acceptable reorganization plan by consulting a bankruptcy lawyer. Bankruptcy lawyers can help their clients in Chapter 13 bankruptcy cases create payment plans that will meet with the approval of bankruptcy courts.
It’s best to hire the services of a lawyer specializing in bankruptcy law in order to craft a suitable plan to make payments to debt collectors. You can definitely use the legal advice and assistance throughout the entire experience, from filling out bankruptcy forms to achieving your bankruptcy discharge.
If you need legal help in a bankruptcy case, call us at Northwest Debt Relief Law firm and arrange a free legal consultation with one of our experienced Washington bankruptcy attorneys.
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