What Does Bankruptcy Actually Do?

If you don’t know where to start or what to ask about filing for bankruptcy, start here.

First of all, if you have more debt than you can pay – you are probably eligible for some form of bankruptcy protection.

Second, that last sentence used the term, “bankruptcy protection”, because the idea that people who owe more than they can pay need to be protected from their creditors is at the very heart of the bankruptcy process. Filing a bankruptcy is absolutely the fastest way to stop harassing phone calls, bills in the mail, threats of lawsuits, wage garnishments. Ultimately, a bankruptcy filing can be the first big step towards peace of mine and a good night’s sleep.

Third, bankruptcy is a process that can last anywhere from a few months to a number of years – depending on the chapter of bankruptcy that you file. At the root of this process is disclosing all of your assets and liabilities, some basics about your financial condition and then a conclusion as to how best to put you (and, to a much lesser extent, your creditors) in the best position to move forward. The best part of this conclusion is that it is generally made by you and your lawyer before the case is even filed.

Fourth, the biggest part of filing a bankruptcy is figuring out what your specific options will be and how best to utilize those options to put you in the position you want to be in. This is where a good lawyer comes into play. You want to keep your assets and lose your debt, which is the goal of a well planned bankruptcy filing. The alternative, losing your assets and keeping your debt, does happen but not generally in cases filed by good counsel for clients who honestly and willingly disclose everything they are asked to disclose.

If you have more specific questions, there are hundreds of posts on this blog that should answer most of them. Otherwise, give me a call or send me an email. I am always happy to answer the questions that can really keep you up at night.

Elaine

How to Tell if You’ve Been Sued

How to Tell if You’ve Been Sued

In Oklahoma it is pretty easy to tell if you’ve been sued. Most Court dockets can be viewed online. What that means is that you can do a quick search and find all cases (for at least most Counties) in which you have been named as a party. Now, I will caution you, nothing is perfect; but OSCN is pretty close. Yes, occasionally a name gets misspelled and doesn’t turn up in a search, yes, in cases with a huge number of parties, not all of them get indexed correctly, but for the most party, you can tell in just a few clicks whether or not you have been sued by just about anybody.

The website is http://www.oscn.net which stands for the Oklahoma Supreme Court Network; and this is what it looks like.

Oklahoma Supreme Court Network Main Page

In the right hand column, about half way down, you will see “Case Search”. Click it and go to the main search page.

Then, you just fill in the blanks. The top box is COURT SELECTION with a drop down menu that lets you pick the County you are interested in searching. If you leave this blank, it will search all Counties – which can be a bit time consuming if your name is John Smith.

The next option is SEARCH BY PARTY. You need to enter your name as you think it would be listed on a lawsuit. So, if your name is Timothy Scott Brown, and you go by Scott, you might want to search for (Last Name) Brown (First Name) Timothy and then do a second search using Scott as your first name.

A simple mistake with this website is assuming that the wildcard symbol is *. It isn’t. The wildcard is %. So, if you want to search for Timothy and for Tim, enter Tim% in the First Name box and it will search for all first names starting with the letters Tim – so you will get Tim, Timothy, Timmy, Timila, etc.

You can also scroll down to the bottom of the page and limit your search by date range. This is helpful if you want to just see if someone has sued you since the first of the year, for instance. So, if you are concerned about a collection suit, or that your Spouse might have filed for Divorce; and you don’t want to sort through the traffic tickets in your younger days, the personal injury case when some idiot ran a red light and hit you a few years ago or that foreclosure case from the 2010 housing crash.

Remember, this isn’t perfect. Also, remember that like all web search engines, it takes some getting used to, so do run some trial and error searches to make sure you are getting things right. In other words, if you do a search on your name and don’t see your divorce from 2007, you are probably doing something wrong.

This is, however, a great tool for calming those nagging worries.

Elaine

Is Your Business Failing?

The pandemic has been tough for everyone, but it has been brutal for a lot of small businesses. If your numbers aren’t coming back, and you don’t know how much longer you can hold on – here are some things to think about.

First, if a CPA does your taxes, call. They know your numbers, they know your systems, they know a lot about running a business, and they can be objective when you can’t.

Second, before you raid your retirement accounts, think long and hard about how much you want to risk for your business. Too often I see people who have emptied their retirement accounts to pay some bills, instead of pulling the plug and filing for bankruptcy; and a year later they are in my office to file for bankruptcy with the same stack of bills all over again, only this time with no retirement savings. Remember, in Oklahoma, as long as you pay your taxes, no one can take tax qualified retirement accounts from you – creditors can’t, even if they sue you and take a judgment, and a Bankruptcy Trustee can’t.

Third, put together a total list of liabilities – for you and for the business. Be as brutally honest as possible about which accounts you are personally liable for and which ones you aren’t.

Fourth, picture where you want to be in five years. Do you have a path to get there?

Finally, call a Bankruptcy lawyer, feel out whether or not you should consider a Chapter 11 filing to restructure the business. Too often small business owners make that decision too late. A Chapter 11 filing, even the new Sub Chapter V is expensive; and there has to be enough business left to save.

The one thing I can promise you is that there isn’t a bankruptcy lawyer in this Country who isn’t sympathetic right now. The pandemic hasn’t been good for us either. So, don’t be afraid or embarrassed. Just call.

Elaine

Are the Courts Open?

As Oklahoma is in the process of reopening after the Caronavirus shut down, it is a reasonable question to ask if the Courts are open.  The answer is — well, that depends?  Which courts and what do you mean by open?

The Federal Court system, which includes the Bankruptcy Courts, has had a paperless filing system in place since 2006.  That means that as a practical matter, the Courthouse no longer accepts paper, and filing by computer doesn’t violate social distancing, so filings have gone on as usual — well, sort of.  I am now reviewing and signing documents by remote using videoconferencing and electronic signatures, but actually filing the documents is the same as it was six months ago.

The Federal system has also moved to allow for telephonic hearings, and it has postponed jury trials and large evidentiary hearings.

The State system, however, is not so simple.  The State courthouses have been closed to the public for more than a month.  Filing of pleadings in existing cases and of new cases continues — by mail, email or fax.  In civil matters, the only hearings being conducted are emergency matters.

All of that is in the process of changing, but every County is proceeding according to its own rules and its own schedule.

What my clients want to know is can they still be sued, what happens if they have a pending answer date, when can a house in foreclosure be set for Sheriff’s Sale?

Those answers aren’t easy, but in most cases court clerk’s offices have been accepting new lawsuits for filing.  However, answer dates have been extended by order of the Supreme Court.  Sheriff’s sales have not been happening, but I am seeing them being reset.  Cleveland County has one set in early June, for instance.  So, if you have had a house in foreclosure, it is worth it to keep an eye on your mail, the court’s online docket and your County Sheriff’s Sale list.

Elaine

Small Business Owners and Guaranties

Typically, small business owners generally wind up being liable for most (if not all) of the business’ debt.  The biggest reason for this is that it is rare for anyone to lend money to a truly small business without requiring that some individual be on the hook for repayment.  Now, I realize that small business can have a broad meaning — according to recent SBA loan programs, the LA Lakers qualify; but when talking about really small businesses with limited assets, limited funding and a one or two tier management structure; most lenders want to know that some body is liable for the debt.  The most common way of making that happen is requiring that the owner sign a personal guaranty for the debt.  This means exactly what it sounds like, the business owner is guarantying that the debt will be paid by the owner if the business fails to pay it.

The second most common way that business owners wind up being liable for debt is carelessness.  All too often when an account is opened with a vendor or something is signed for, the business owner simply scrawls his (or her) name on the signature line.  Well, when you sign your name, you are generally committing yourself personally to the repayment of whatever you just signed for.  The way around this is to always sign for things using your business capacity — Jane Doe, as President of Jane’s Business, Inc. or as Manager of Jane’s Business, LLC. or in some other way indicating that the signature is solely on behalf of the business entity and not the individual.

The exception to this is that if the business is not an entity registered with the State (like a corporation, LLC or partnership), there is no one who can be liable for the debt other than the business owner.  In that case the business owner IS the business.  This is called a sole proprietorship or a d/b/a (doing business as).

The third way that owners become liable for business debt is because they fail to maintain the business in good standing with their State.  In Oklahoma the Secretary of State requires that corporations and LLC’s file annual paperwork with the State and pay a small fee in order to remain in good standing.  If a business owner allows the corporation or LLC to fall out of good standing, then personal liability may attach for debts incurred in the meantime.  The ability to remove that personal liability by reinstating the corporation or LLC depends on a number of factors.

If you own a small business, and it has incurred more debt than it can easily keep up with, you need to know what your liability is for that debt.  If you don’t know, consult a legal advisor.  You will also want to make sure that your corporation or LLC is in good standing with the State.  Don’t just assume that your Accountant has taken care of that when preparing your taxes each year.  It is easy to go to the Secretary of State’s website, search for your name and verify your status.

Elaine

 

Why Your Business Probably Won’t File for Bankruptcy

Chapter 7 is the most commonly filed chapter of bankruptcy — but it is very rarely filed by a Corporation, Partnership or LLC.  We can all name lots of businesses that have filed Chapter 11 bankruptcy.  Traditionally, that has been a large, expensive, complex reorganization.  Exxon, most of the Airlines, General Motors, Sears, J.Crew.  It is a long list.  I will bet, however, that you can’t name a single Corporation that has filed a Chapter 7 Bankruptcy.

The reason for that is actually quite simple.  Lots of business owners would love to file a Chapter 7 for their wholly owned LLC and walk away from the business debt — except they can’t.  You see only an individual (that means a human being) can get a discharge in a Chapter 7 bankruptcy.  That means that if a corporation or an LLC files a Chapter 7 bankruptcy, it gets to turn over all of its assets to the Trustee to administer for the benefit of its creditors, but it doesn’t get out of its debt.  Now, it comes out of the bankruptcy with no assets with which to pay any of its bills — but it still legally owes the money.  So, you spend a lot of money, you turnover the business assets to the Trustee, you expose the owners and managers of the business to potential liability — and get absolutely nothing in return.  Not generally a great plan.

Instead, what generally happens, is that the business owners liquidate the assets themselves.  They have to stay within certain legal parameters, but they do have some control over how the assets are liquidated and how the proceeds are distributed.  Also, they can pay themselves a reasonable amount of money for doing it.  Then, they shut down the Corporation or the LLC.  Of course, since most small business debt is guaranteed by the owners (one way or another) the owners may then need to file their own Chapter 7 bankruptcy, but they are eligible for a discharge.  Also, this doesn’t mean that the owners inherit the unpaid business debts. If the owners weren’t originally liable for the debt, they don’t become liable for it.  It is just rare for small businesses to incur any significant debt without a personal guaranty from someone.

Of course, since February of 2020 there is now a viable small business reorganization subchapter.  So, it is now much more viable to reorganize a small business in a bankruptcy, if remaining in business is a viable option.  If it isn’t, however, it is rare to shut down a small business in a Chapter 7 Bankruptcy.  There are better ways to deal with the business entity outside of bankruptcy then inside.

Elaine 

Buying Time to Stay Afloat

The most valuable tool for saving a business in turbulent times is frequently — time.  I read an article yesterday explaining why oil will be $100 a barrel by the end of the year — that is less than eight months from now.  Whether that prediction is true or not, oil isn’t likely to go a whole lot lower.  So, how do you hang on until the world changes again?

You know where your cash flow goes.  How much more profitable would you be, or just how much longer could you last, if you could change where your cash flow goes?

If you could not pay the debt — at least for a while?  If you could break leases without penalty?  If you could change all the things we are trained to believe we can’t change?  Well, except for taxes.  Let’s not get carried away here.

How much time would you need to redirect your company’s resources?  Can your welders make something else?  Can your trucks move something else?  Can your people do something else?

If you need time, if you need to drastically remodel your cash flow, if you need to redesign your business or just your business model — do the unthinkable.  Call a Bankruptcy lawyer.  We don’t just end businesses.  We can help reinvent them.

Elaine

 

Should You Apply for a Forbearance?

Lots of creditors are offering forbearance deals right now.   The thing to remember about a forbearance is that it doesn’t erase the debt — and that can be either a useful tool or an anchor around your future neck.

The first thing I will tell you about any forbearance agreement is to read it — all of it.  Ask questions, especially about the pay back and especially about interest rates and fees.  What will it ultimately cost you?  Then consider what it is that you are forbearing and what are your other options.

Credit cards are offering forbearance plans, and they can be really nice tools.  Ask all the questions, and then ask yourself one more.  What is the likelihood that I will be filing for bankruptcy before I get this account paid in full?  Remember, forbearance agreements are intended to be repaid, but if it is an unsecured debt and you wind up filing for bankruptcy anyway, the balance owed at the time that you file for bankruptcy is not likely to be repaid regardless.  So, doing a forbearance deal with credit card companies can be a useful tool, especially if it frees up cash for you to stay current on your home, your car or your utilities.

I will caution you that borrowing money with the intention of filing for bankruptcy and not repaying it is called bankruptcy fraud, and it is seriously illegal.  So, don’t enter into any agreement with the intention of not following through.  Understand, however, that intentions and future realities can differ for many very real reasons — including the simple fact that we are living in very uncertain times.

Many utilities are offering forbearance options as well.  Do what you have to do to keep the lights and the water on, but do stay informed about the policies and regulations governing shutting off service.  Knowing that can help you negotiate a better deal.  Also, if you wind up filing for Bankruptcy, the utility companies have some special rights.  They can require a new deposit in order to continue providing service after the case is filed.  Of course, you will have to pay for all service as the bills come due after you file as well.

Mortgage forbearance offers are different.  They frequently simply defer a few months payments with the expectation that they will all be repaid in a lump sum at the end of the forbearance period.  Sorry, but that is neither likely nor helpful.  A second option can be to apply for some type of permanent loan modification at the end of the forbearance period.  That would be more helpful (depending on the terms of the modification), but it can be difficult to predict at the beginning of the forbearance period what the likelihood is of getting a favorable modification some months in the future.

Counting on a future modification can wind up with a mortgage account falling further and further behind with not just missed payments but also a host of fees assessed by the mortgage company.

A mortgage forbearance may also add the missed payments to the end of the mortgage term.  Consider carefully how the accrual of interest will effect this.  I am frequently surprised by the number of people who don’t do the math to figure out just how much that forbearance will cost them.  It may still be the right decision, but once your future straightens out a bit, it may be very wise to start making small payments every month towards getting those payments paid sooner.

Another thing to consider is that a Chapter 13 bankruptcy is one of the best tools for getting current on a mortgage.  So, if you take a forbearance agreement hoping that you will get a loan modification or an extended time to get the payments current — and that doesn’t work out.  A Chapter 13 filing can give you up to five years to cure a mortgage arrearage.  A Chapter 13 filing can also deal with credit cards that have forbearance balances and give you limited abilities to get utility services back in good standing.

Always remember, no matter how bad things look, it is always worthwhile to know your options, and that includes knowing what a bankruptcy will or won’t do for you.

Elaine

 

 

 

Small Business Struggles

Despite all the dollar signs flying around in the press, small businesses in this Country are in trouble — pretty much all of them.  Yea, I know about the SBA programs, PPP and EIDL and forgiveable advances — yea, I know.  Small businesses are still in real trouble.  Closures, oil prices, reduced sales, reduced interest, changes in customer habits, ill employees, increased insurance costs.  Small business are just in trouble, and there is no magic wand that is going to fix it all on May 1 or June 1 or even next fall.

I am looking at three strategies.  First, managing cash flow.  Deferring payments isn’t a cure, but it buys time to refocus.  Reducing expenses, cutting deals with lenders.  It all  helps, even if all it does is buy time.  Second, now is the time to confront the fundamentals.  Can this business be profitable in the new world in which we find ourselves?  Can it lure its customers back?  Does its community have the cash flow to buy what it is selling — particularly a problem in the oil patch, right now.  Third, if the business can restructure its debt, reduce interest rates, change payment terms, eliminate a lot of the unsecured debt; does that make a critical difference?

If the answer to that last question is yes, you need to know about the brand new Subchapter V in the Bankruptcy Code’s Chapter 11.  There are some amazing new tools to restructure small businesses that just became available in February, 2020.  It is going to make the difference for a lot of businesses between having a future and not.  The statute was passed last Fall, it went into effect in February, 2020.  Nobody knows what all it can do or not do just yet, but it is a game changer for small businesses caught with too much debt in a sudden downturn.

More on that in the next few days.

Elaine