In recent times, bankruptcy has emerged as a major financial issue. With the economic condition not being in a very good shape, many people are finding themselves caught up in debt traps. While declaring bankruptcy isn't an ideal solution for such financial woes, it can definitely put an end to constant harassment by creditors. A bankruptcy attorney can be of great help in this regard. If you are a resident of a good sized city, there will be a local Bankruptcy Attorney that can help you to get out of your debt trap.
Bankruptcy refers to the legal condition of an organization or a person who is not in a position to repay the debts to the creditors. Bankruptcy petition can be filed by the creditors, as well as the debtor him/herself. In recent times, bankruptcy has emerged as a way of avoiding harassment by the creditors, over the repayment of due debts.
When it comes to bankruptcy in United States, Chapter 7 happens to be one of the most frequent forms. It administers the liquidation process under bankruptcy laws in United States. As it is, people who reside, own property or have a business setup, in United States can file a bankruptcy petition in a court. An individual can keep certain exempted properties. The value of such property which may be claimed varies as per the rules and regulations of each state. The other properties, which are not covered as exempt may be sold by the trustee in charge for repaying the creditors. In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property.
Chapter 7 also covers bankruptcy issues of business organizations as well. So, if a business organization is in heavy debt and is not able to repay this debt, ten it can file a bankruptcy petition in court. In this case, the business is supposed to cease its operations until continued by an appointed Trustee. A Trustee as per Chapter 7 is appointed without delay, and is given powers related to the examination of the financial affairs of the business. A Trustee is also responsible to repay the creditors by selling the assets or properties of a business and using the proceeds there from.
However, bankruptcy proceedings can involve a lot of paperwork and long procedures. As someone considering declaring bankruptcy you do not necessarily have to hire an attorney to pursue your bankruptcy petition, hiring a Bankruptcy Attorney, could eventually prove to be of great help. He or she can take care of all the proceedings and paperwork. Moreover, he/she may also work towards, minimizing your losses as well.
However, before you hire a Bankruptcy Attorney, you should always see to it that you have checked his or her credentials properly. The difference between a seasoned attorney and one that is very new, could be huge. You want someone with the experience and expertise required to get you out of your current financial situation and on the road to a clean financial slate.
In general, most people filing, or interested in filing, bankruptcy as a small business owner would likely choose between Chapter 13 and Chapter 11. Chapter 7 bankruptcy is usually not a welcome option for the sole proprietor. The main reason is that Chapter 7 bankruptcy would likely require that the business be shut down. With that said, most business owners would prefer the relative simplicity and ease of a Chapter 13 case rather than the complexity of Chapter 11. Additionally, the higher cost of Chapter 11 usually creates an additional incentive to utilize the benefits of Chapter 13. However, for some business owners, particularly those looking to adjust secured debts, Chapter 11 may be the best option, even with the added cost. Lastly, the creation of the "small business" Chapter 11 can help those business owners with limited liabilities with a streamlined process.
Eligibility for each Chapter
Chapter 13
To be eligible to file for bankruptcy under Chapter 13, the individual must have "regular income." This requirement means that the debtor maintains sufficient income to make payments under the Chapter 13 plan. In addition, the Bankruptcy Code limits a Chapter 13 debtor to unsecured debts of $360,475 and secured debts of $1,081,400. Should the individual's debts fall outside this level, the debtor must file for Chapter 11. This debt level limitation is equally applicable in cases of joint (married) debtors.
Chapter 11
In general, any "person" who may be a debtor under Chapter 7 may also be a debtor under Chapter 11. Although most people think of the various, large corporate cases, Chapter 11 can also be used for small businesses, sole proprietorships, and individuals. A husband and wife may also be eligible to file a joint Chapter 11 petition.
Small Business Chapter 11
Recognizing that many small business owners do not qualify for Chapter 13, but want to be able to reorganize such small business debts, the Bankruptcy Code now allows for streamlined procedures in Chapter 11 for certain business entities. A small business, for Chapter 11 purposes, is a person or business engaged in commercial or business activities whose total debts do not exceed $2,343,300. This designation of a "small business" must be stated in the initial bankruptcy petition.
Benefits of Each Chapter
Chapter 13
Overall, Chapter 13 gives the individual debtors, including small business owners, the same opportunity to reorganize their debts that large business have under Chapter 11. However, this reorganization is completed through a less complex and expensive procedure. As with Chapters 7 and 11, all debtors that file for Chapter 13 bankruptcy are afforded the benefit of the automatic stay. This stay prevents any collection, foreclosure, lawsuit, or garnishment activity against the Chapter 13 debtor. While the Chapter 13 debtor must file a reorganization plan, it is only the debtor that may propose and create the debt repayment plan.
Also, in Chapter 13, like Chapter 11, the individual debtor maintains possession and control of any business interests. As such, the debtor has the exclusive right to sell, lease or otherwise use business assets, as long as such actions are in the normal course of business operations.
Unlike Chapter 11, in Chapter 13 a creditors' committee is not appointed. Also, the plan does not require that any creditor consent to the reorganization plan in Chapter 13.
Many individuals are attracted to Chapter 13, if not forced out of a Chapter 7 because of a failed means test, because of the ability to alter secured debt. For example, a car loan can be altered if the borrower is behind on the car payments to allow for (1) repayment of past payments owed and (2) restructuring the loan to conform to market value even when the loan balance far exceeds the true value of the car. Similarly, on home loans, Chapter 13 allows the debtor to make up past due payments over the term of the plan (3-5 years). However, in Chapter 13, like Chapter 11, a debtor cannot adjust the terms of a loan secured by the debtor's principal residence. As to non-primary-residence property, the Chapter 13 plan can restructure the debt so long as full payment is made within the plan period (3-5 years).
As to claims, unlike Chapter 11, a Chapter 13 debtor does not have to obtain approval from its creditors to approve a plan. The debtor simply has to provide a plan that the court approves.
Chapter 11
In Chapter 11, a sole proprietor is able to continue business operations, and run the business as previously done. The debtor is able to obtain financing, sell assets, lease property, and do all that the business normally would do, but for the bankruptcy. While Chapter 11 can be quite expensive due to the extensive reporting, filings, and other procedural matters involved, one real benefit unavailable to Chapters 7 and 13 debtors is that secured debt can be adjusted extensively. For example, a rental property that that has a principal balance far below the current market value (quite common in this economy) can be adjusted to conform to that market value. The payment terms do not have to fall within a 3-5 year plan window. Again, while Chapter 11 can be expensive, this simple ability to adjust non-primary-residence secured debt may be worth the additional expense.
Small Business Chapter 11
The benefits of the "small business" Chapter 11 is strictly procedural. Congress has simplified the procedure to allow for companies that are not Blockbuster or GM to partake in all the benefits of Chapter 11. The advantages include a simplified plan form for most courts, not requiring a committee of creditors in most cases, a shortened monthly operating report, and an extended exclusivity period to file a plan (180 days vs. 120 days).
Conclusion
In most bankruptcy cases where an individual business owner is considering whether to file a Chapter 13 or Chapter 11, the decision is clear. Chapter 13 will be most beneficial due to the increased costs and procedures of Chapter 11. However, in cases of a qualified "small business" with real property outside of a principal residence, the small business Chapter 11 may be a benefit that can save the business owner substantial money over the course of the bankruptcy and in the future.
If you have any further questions in small business bankruptcy, contact the Henshaw Law Office today at (408) 599-1305.
A frequently asked question that I receive (from my NJ clients) is whether a client can keep their home if they are filing a Chapter 7 or Chapter 13 Bankruptcy. The answer is: It depends
Whether a debtor can retain his/her residence in a bankruptcy depends on several factors. The factors may include the approximate value of the house, net value of the house, mortgages on the house, whether the debtor can afford future payment of the house. The gross value of the house really does not affect the ability to retain the house. Let's go through some examples:
Debtor owns a house worth $1 million:
It may appear that there would be no way a debtor can keep their house in bankruptcy. Suppose there is a mortgage balance of $950,000; that was to be sold and all closing costs were to be paid, such as real estate commissions, filing fees, legal fees, etc., there most likely would be nothing left over. In effect, this house has no value to creditors or the estate. Under that scenario the debtor would keep his/her $1 million provided he/she could maintain it.
Not everyone keeps their homes in bankruptcy. One must pay their mortgage payments to keep their house just as they would before they filed bankruptcy.
Debtor owns a house worth $80,000
The debtor has no mortgages on the house, debtor would lose that house in bankruptcy. The house would be sold to pay creditors. Why? There is equity in the house and this asset has value.
It should be noted that the above two examples are assuming that the debtor filed Chapter 7 bankruptcy (liquidation) as opposed to Chapter 13 bankruptcy (reorganization). It is presumed that the federal bankruptcy exemptions are being utilized versus the state exemptions.
In Chapter 13 reorganization, as far as keeping your house, the general rule is this: If you can afford to keep your house, you may keep it. There are exceptions to this and always exceptions to the exceptions, but this is the general rule. Conceptually, if you can afford to pay for the equity of your home out of future income, you will be able to keep your home.
For example, it is determined that the debtors house has a net value after closing costs, etc., has a value of $50,000. That is the amount that if the debtor's home was sold for this amount, the creditors would get approximately $50,000. In Chapter 13 reorganization, the debtor is basically saying to the Court, Trustee and Creditors - If I sell my house you are only getting $50,000 so I will pay you the $50,000 with future income. A win-win for all. The creditors get the same amount they would get in a Chapter 7 liquidation and the debtor gets to keep their home.
The above examples are very general and are meant to explain concepts and analysis of what an attorney goes through with their clients to determine if it is feasible for a debtor to file bankruptcy and keep their home. There are many more variables and other factors that are equally important in this determination but I have limited the analysis to explain that it is possible to keep your home and file bankruptcy.
Bottom line is this: you do not want to make a determination yourself whether you can keep your home when filing for bankruptcy because frequently debtors will be incorrect in their assessment. You should always contact an attorney who specializes in bankruptcy who practices in your jurisdiction - the attorney is also best to advise you on whether you can keep your home in bankruptcy.
This analysis should only be used with the federal exemptions not the state exemptions - to determine which set of exemptions apply, you should contact an attorney who specializes in bankruptcy in your jurisdiction.
The numbers of bankruptcy cases that are filed are at an all time high. This is the situation all across the nation and many homeowners are continuously having to face the loss of their homes. Consequently, the federal government has come up with certain programs and plans and managed to change a few regulations in order to alleviate the sufferings of homeowners stuck in such demanding situations.
Under the newly designed bankruptcy reform guidelines, homeowners can file for bankruptcy to get out of debt and in certain cases, allowed to retain some parts of their property. Cases filed under the original Chapter 7 bankruptcy law allow homeowners to get rid of all their debts, but it does not allow them to keep their homes unless all the payments are made in total and in accordance with the original conditions of the preset mortgage agreement.
An additional workable alternative for the homeowners is opting and filing for Chapter 13 bankruptcy. In this situation, the payment plans, as specified by the bankruptcy court, allow homeowners to repay all their debts over a period of several years. However, in order to keep their property, all the payments must be made in full and on time. If the sum that needs to be paid every month is exceeding the amount that the debtor is to afford, the property still remains vulnerable to foreclosure.
One more for homeowners who are facing or can face foreclosure is a plan designed by the Federal Housing Administration department, known as Hope for Homeowners. This program has been specially created for the assistance of people and homeowners who are making an to bankruptcy.
If all the qualifying aspects are met and complied with, the applicants are given a 30-year fixed mortgage rate, characteristically at lower interest rates which are spread over longer periods of time. This normally tends to lower the monthly mortgage payment rate. The Hope for Homeowners program is a defined volunteer program for both the borrowers and lenders, and all the parties that are must fully agree to the terms and conditions of the Hope for Homeowners program in order to be considered as qualified.
The Hope for Homeowners program, included in the Bankruptcy Reform, has been since September 30, 2010 to all those homeowners who commenced their mortgages prior to January 1, 2008, have been living in the property, consider it as their primary place of residence and have paid all their monthly payments. The factors for qualification specifies that the mortgage payment must 31 percent of the household monthly income and the applicants must not have defaulted on any debts in the past.
There is no single winning solution for every homeowner's bankruptcy woes. Every requires a solution; however, with the reforms promulgated by the federal government, the options to an average homeowner have considerably increased. Most importantly, in many cases, the homeowner is able to retain his or her property, something that would have been without the aforementioned reforms.
Just like anything else in life, if you are planning a drastic change you should probably inform those who will be affected. The importance of keeping people informed is a requirement in some circumstances. A "letter of intent" is used in these situations. This letter informs companies or the public that future legal proceedings will occur.
Although it is not a legally binding document, it is related to legal actions that will take place in the near future. Letters of intent related to bankruptcy are required from those who choose to file. For many individuals who are facing financial hardships, bankruptcy is the best way to overcome these difficulties and make a fresh start with their finances.
A letter of intent should be sent to all creditors warning them of future legal proceedings. It is important for creditors to know when a debtor is going to file for bankruptcy, as it directly affects the manner in which they will be repaid as well as the time period in which they can expect to be repaid.
If you are filing for Chapter 7 bankruptcy, there is a chance that some of your possessions may need to be sold in order to repay creditors. Your letter intent should describe what assets of yours will be kept and which will be sold, as creditors will want to be informed of this information. These letters should be sent within 30 days of filing for bankruptcy. A lawyer is typically used to ensure that these letters get to all the right places and contain the proper, and correct, information.
Lawyers are a strange group of people with very different sensibilities and image of themselves than most ordinary people. In many ways they are like doctors and actors, as they are treated with such high regard because to the ordinary guy they seem to know a lot about a subject that is mostly foreign to the rest of us. We also seem to have this hidden fear of lawyers and believe that we can't go up against them because they are so much smarter than us and have such a big education and if we make them mad they will sue us and it will cost us a fortune while it will cost them nothing.
A lot of these fears are well founded, and lawyers in general have an arrogance about them that reflects these fears. But, nobody can run from the truth and it is important that if you engage a lawyer and they do the wrong thing, you need to have the confidence and conviction to get justice for yourself and your cause.
If you hire a bankruptcy lawyer and he or she fails to perform for you yet still collects his fees, there is nothing wrong with asking for some or all of your fees to be returned. If the lawyer refuses, there are many things you can do to fight back.
You can file a complaint with the State Bar Association and other local oversight organizations as well as consumer protection agencies. You can also go on the Internet and write a review on any or all of the many review web sites such as CitySearch and others. Don't take is sitting down, fight for what's yours. One thing any business man especially lawyers need to protect is their reputation, and that is something you have some control over.
Don't be afraid if you make an honest but disparaging comment about a lawyer on review site that you will be sued and forced to remove it. These guys are not God's, they just think they are, so don't let them take advantage of you. Fight back if you don't get what you paid for.
It's hard enough dealing with all the garbage associated with filing bankruptcy, let alone having to pile on a bad experience with a lawyer. You will have only yourself to blame though if you don't do your homework and find out everything you can about the lawyer before you hire him. Also, you will have only yourself to blame if that lawyer screws you and you don't do anything about it.
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