People frequently tell me that they are afraid that they make too much money to file for bankruptcy. Hogwash. If you have more debt than you can pay, you are going to qualify for at least one chapter of bankruptcy — the question is which one.
Virtually everyone can file either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. There is an income and expense qualifier for filing, generally called the Means Test; but it can’t bar you from the Bankruptcy Court, and it is not just income, it also includes reasonable and necessary expenses.
If you can’t pass the Means Test you are still eligible to file a Chapter 13 Bankruptcy, which is a form of reorganization intended for individuals — as opposed to the more widely recognized reorganization Chapter, Chapter 11, which is really intended for businesses (although, individuals can and do file Chapter 11 cases).
So, if you are putting off saving for retirement or your kids’ college, if you are robbing Peter to pay Paul, or losing sleep over how you will cover the next unexpected expense; it may be time to swallow hard and give me, or another experienced bankruptcy attorney a call. You work too hard not to give yourself a brighter future.
Before you talk to a bankruptcy attorney, you should consider the following:
The type of bankruptcy that may be appropriate for your situation (Chapter 7 or Chapter 13)
Whether you qualify for the type of bankruptcy you are considering
How much you will have to pay to file for bankruptcy
How you can afford the cost of the bankruptcy process
Whether you have any debts that will not be discharged through bankruptcy
Whether any of your assets might be sold to repay creditors
What kinds of credit counseling are required by the bankruptcy process
What information you will have to provide in the course of a bankruptcy
This list is really just the start of what I discuss with my clients at the initial appointment. That is why my initial appointment is generally about 3 hours long. Yep, you read that right — 3 hours, and if you don’t hire me, you don’t pay for it. (If you do hire me, it is included in the fee.)
So, if you don’t know where to start, call me at 405-842-8005 or send me an email at email@example.com. (Yea, I still have the dialup modem that came with that email address — you know, just in case.)
Also, feel free to look around and see if I have posted articles about whatever questions are bothering you. There is a list of recent posts if you scroll down and a search box.
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.
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.
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.
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.
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.
When should you take an early withdrawal from a retirement account?
If you need to do that to buy groceries and keep the utilities on — then, you have to do what you have to do to take care of yourself and your kids. All too often, though, I see people take huge withdrawals from their retirement accounts to pay down unsecured debt, only to wind up a year later still in debt and now with no retirement savings. Oh, and then they have added a small fortune in tax debt, because the withdrawal is almost always taxed at a higher rate than is withheld at the time.
Nobody wants to make a bad situation worse, but if you are going to pay debt with a retirement account withdrawal — at least pay all of it. If you can’t, then talk to a bankruptcy attorney first. After that discussion you may still decide to take the retirement withdrawal, but at least you will know the alternatives. You may have a misunderstanding of how a bankruptcy filing will effect you. You may not know that a Chapter 13 Bankruptcy filing can let you pay as much of your unsecured debt as you can afford to pay over a five year plan only with ZERO interest. You may not realize that your retirement accounts (assuming that they are tax qualified) will be exempt in a bankruptcy (at least in Oklahoma — always, always check the law in your jurisdiction), meaning you won’t lose those funds in a Bankruptcy. You may think you make too much money to file for bankruptcy (you probably don’t but you may not be eligible for a Chapter 7 Bankruptcy).
Everyone needs to make peace with themselves about their current situation and what they have or have not done to address it. Just make sure that you understand all of your options before you sabotage your future by raiding your retirement accounts and incurring tax debt to boot.
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.
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.
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.