Tag Archives: bankruptcy

You DON’T Make Too Much Money to File for Bankruptcy

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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.

Elaine

Things to Discuss with a Bankruptcy Attorney

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Before you talk to a bankruptcy attorney, you should consider the following:

  1. The type of bankruptcy that may be appropriate for your situation (Chapter 7 or Chapter 13)
  2. Whether you qualify for the type of bankruptcy you are considering
  3. How much you will have to pay to file for bankruptcy
  4. How you can afford the cost of the bankruptcy process
  5. Whether you have any debts that will not be discharged through bankruptcy
  6. Whether any of your assets might be sold to repay creditors
  7. What kinds of credit counseling are required by the bankruptcy process
  8. 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 dowlinglawoffice@aol.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.

Elaine

What Does Bankruptcy Actually Do?

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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

Is Your Business Failing?

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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

Why Your Business Probably Won’t File for Bankruptcy

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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 

Safer in Bankruptcy — the Wrap Up

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At the conclusion of a bankruptcy an Order is entered called the discharge.  It is the discharge that functionally eliminates the debtor’s personal liability (meaning his legal responsibility for paying) the debt incurred prior to the bankruptcy filing.  In many ways the discharge is the wrap up of the whole bankruptcy process, and it makes everything that happens before it final and permanent.

The downside of the discharge is that it also means the debtor is once again outside the safety of the bankruptcy court and back in the real world — although without all the baggage that caused the bankruptcy filing in the first place.

Clients are thrilled when they get their discharge.  It is OVER!  I am free!  I am frequently a bit wistful, because I know that when something else happens (and life is always happening), the debtor may be less comfortable inside the bankruptcy; but the debtor is far safer.  Inside of a Bankruptcy the Debtor is protected by the Automatic Stay and the Confirmation Order (if in a reorganization chapter).  Those things mean procedural protections and, most importantly, time, to deal with whatever life throws at you.

We have a false feeling of control over our lives.  Really what makes debt and bankruptcy both so scary is the sense of being out of control — but we are used to that.  We aren’t used to bankruptcy so it feels scarier, when in many cases it is far safer.

We are living in the most uncertain times that any of us have lived through, and we are all going to have to learn new survival skills.  I hope that for you bankruptcy won’t be one of them, but if it is, try to be less anxious rather than more.

Elaine

The Paycheck Protection Program and Bankruptcy

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The SBA has a really amazing Corona virus relief program, the Paycheck Protection Program.   It is called a loan program, but it appears to be intended as grants.  Basically, the SBA will give small businesses money to make payroll for two months.  It looks pretty sweet.

There is one problem.  One of the questions on the application is:

Is the Applicant or an owner of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?  (Emphasis added).

Ignoring the obvious, which is what the heck does most of this even mean?  Declared ineligible by whom?  Disbarment?  I mean, a lot of lawyers are applying for this; but not that many.  Suspended by a Federal department or agency?  Suspended from what? I’m sorry, but nothing about this question really makes sense.  So, I suppose I shouldn’t be surprised to see this bankruptcy language tacked on to the end.

So, what the heck does “presently involved in any bankruptcy” mean, anyway?  I have no clue.  None.

Taken literally, this would exclude every business who is listed as a creditor in anybody’s bankruptcy.  Somehow, I don’t think that is what it means.  If you check the Statute this may mean that the debtor cannot be a debtor in possession in a bankruptcy.  For all intents and purposes that means the Debtor cannot be in a Chapter 11 reorganization, but the question on the loan application is broader than that.  Oh, and the application says on its face, that answering yes to this question means that your loan will not be approved.  So, getting comfortable with what you think it means might be important.

Regardless of what the statute is supposed to say, or what it means or what the question means; the consensus among lawyers I have discussed this with is that if the business, or the owner of the business, is a debtor in any chapter of bankruptcy at the time a PPP application is completed, odds are very good that the application will be denied out of hand.

So, now what?

An applicant who is a debtor in a chapter 7 or chapter 11 is probably out of luck.  There is no right to dismiss a chapter 7, and if you are in a chapter 11, dismissing it so that you can get two months payroll out of the SBA is almost certainly not a good idea.

The real issue is if the applicant (or the owner of the applicant) is a debtor in a chapter 13 bankruptcy.  In that case it should be possible to dismiss the chapter 13, collect the PPP, spend the PPP on approved expenses, apply for forgiveness of the amount spent on appropriate expenses, and then refile a new Chapter 13 in order to finish out your plan of reorganization.  How much time this will take depends in large part on the local rules for your court.  However, if the money is worth it to you, talk to your lawyer.  You may be able to get a dismissal in a few days.

Elaine

Bankruptcy is Becoming a Virtual World

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Friday I did my first initial consult with a prospective bankruptcy client by video conference.   A little over two hours later, we were done; and I thought the format was functional enough that it can replace a face-to-face, take off half a day to go meet the lawyer, traditional, in-office meeting.

The next step will be passing paperwork back and forth via my secure portal.  Of course, without a scanner, regular mail is an option as well.

Currently, most bankruptcy courts are allowing for the signing of the documents necessary to file a bankruptcy to be done remotely.  I am hopeful that we will be able to establish sufficiently secure procedures that we will be able to retain this.

Then, there is the First Meeting of Creditors (a/k/a the 341 hearing) which for most consumer debtors is the only time they have to go to the courthouse — except — currently, those are being conducted by telephone.  It has occurred to me that the client I met with by video on Friday and I might go all the way through the bankruptcy process and never be in the same room.

Elaine

What Can I Do NOW — I Can’t Pay My Bills

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One of the worst parts of the Coronavirus shutdown is the uncertainty.  When will it end?  What bills will still have to be paid?  When will they have to be paid?  Will my job still be there?

No matter what the answers are to any of those questions, there are some things you can start doing now to be prepared for whatever the answers are.

Here is a list:

  • Check your credit report;
  • Make a list of everyone you owe money to — names, addresses, account  numbers, contact telephone number, total amount owed, payment amount due;
  • Get your 2019 taxes prepared if they aren’t already (and any missing prior years while you are at it);
  • Review your household budget;
  • Collect pay stubs or other evidence of income for at least six months.

This information will help you deal with creditors when it is time to do that.  It will help you apply for whatever forms of assistance may be available for you.  It will help you prioritize what income you have (now or later); and, if necessary, it will facilitate a bankruptcy filing if that becomes necessary.

Elaine

Mortgage Payments and Coronavirus

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Before you call your mortgage company to find out what they can, or will, do to help you through this current mess we all find ourselves in, there are a couple of things you should know.

First, your mortgage company is going to have lots of options, and the first person you talk to may – or may not – know all of them.

Second, what your mortgage company can do for you will depend in large part on one thing — do they own your mortgage or are they merely the servicer.  You probably have no idea, but it doesn’t hurt to ask when you call.  If you write your mortgage check to Bank of America, they may actually own your loan — which is kind of what you expect.  On the other hand, your loan might be owned by a securitized trust that hires Bank of America to accept and process payments, make sure the taxes and insurance get paid that sort of thing, i.e., service the loan.  If your mortgage company is just the servicer and not actually the owner (or holder) of your note and mortgage, what they can do for you will be determined by their contract with the actual owner (sometimes referred to as the investors, although, that is not technically accurate).

Third, if your mortgage loan is insured by a U.S. Government program, that will also control, at least in part, what options your mortgage lender has.  That means that if you have an FHA insured loan or a VA insured loan or Fannie or Freddie, you can expect there to be regulations from FHA or VA or Fannie or Freddie or USDA Rural housing or whomever that will tell your mortgage company what they can and can’t do and what they should and shouldn’t do.

I know it is confusing, but knowing enough to ask your servicer for specifics can take some of the frustration out of the process.  You may read a news article about things that your mortgage company says it will do for home owners, only to call and be told that what you read in the news doesn’t apply to you.  Ask why it doesn’t apply to you, and then make sure it is right.  Mortgage companies really do make mistakes — often.

The next thing you need to know is to ask follow up questions.  You call your mortgage company, you are out of work until your employer reopens, what can they do for you.   They say they can agree to a 3 month deferment on your mortgage payments.  No payment necessary for three whole months!  Not so fast.  Your next question should be — and then what?  What happens to those three missing mortgage payments?  I can promise you that they won’t just go away.  There are a number of possibilities (including the one that I’m not thinking of, so please don’t assume this is a complete list).

One answer to this that I am already hearing is that after the three month deferment the missing mortgage payments are all due at once — along with the next month’s payment too.  So, the mortgage company won’t expect you to make payments for three months, but it will then expect you to bring those missing payments current at the end of the deferment period.  That is probably not a great option.

Another answer is that the missing payments will be added to the end of your mortgage loan.   That is a better option, but it is also not a great option.  Here is why.  Let’s say that your mortgage payment is $1000 a month on a 30-year-loan (360 months) with interest at 6%, and you are in month 99 (almost through with year 9).  Those three mortgage payments will defer to the end — with interest accruing for the next 21 years.  Now, I was an English major, and someone else should always check my math; but according to my calculations that means when you complete the 30 years of your original mortgage term, you will still owe over $10,000 — all because of those three missed payments.  So, if you are going to do this put yourself on a schedule to pay extra every month.  Then, at least once a year check your payoff against an amortization schedule to make sure you are getting those missing payments paid before the interest gets out of hand.  Oh, also ask how the escrow payments (taxes and insurance) will be handled.  If the lender advances the escrow portion of those payments you could wind up with a significant payment increase in the next year after your next escrow account analysis.

The next option is that you may be eligible for a loan modification at the end of the three months.  If you are, certainly apply for whatever you are eligible for.  Again, I will caution you to read the terms of the proposed modification carefully.  Historically, principal reductions have been rare on mortgage mods.

Probably the best option is for the mortgage company to put you on a schedule after the deferment period to cure the missed payments over a reasonable period of time.  If you can get it done in no more than a year, that is probably your best option.

Ultimately, however, if you and your mortgage lender can’t come to an agreement that you think is in your best interests, you might want to consider what a chapter 13 bankruptcy can do for you.  Chapter 13 is designed to give home owners an affordable means to cure a an arrearage or default on their mortgage.  In a chapter 13 you can take up to 5 years to cure a default, and deal with whatever other debt you have accrued along the way as well.

Elaine