Corporate bankruptcy can become very expensive, and the cost of corporate bankruptcy when compared with other non-bankruptcy alternatives, like a General Assignment for the Benefit of Creditors, is a disadvantage of seeking corporate bankruptcy protection. Fees vary depending on the quality of the law firm performing the corporate bankruptcy work and the complexity of the case, but many corporate bankruptcies, particularly in Chapter 11 proceedings, can easily cost 5-20% or more of the total assets of the company. This amount is likely to be a lower percentage for large corporate bankruptcies and a higher percentage for small corporate bankruptcies, due to the high fixed costs inherent in the Chapter 11 process and the complexity of the work required. Consequently, Chapter 11 bankruptcy proceedings are often less expensive relative to the total assets of the corporation for large bankruptcies than they are for smaller bankruptcies. In general, Chapter 7 corporate bankruptcies are also less expensive than Chapter 11 bankruptcies, mainly because the proceedings are often much shorter and do not involve the extended management required in operating the business of the debtor. Nova Law Group recommends that most small and mid-sized companies consider a General Assignment for the Benefit of Creditors rather than a Chapter 11 corporate bankruptcy, unless there is sufficient legal reason to file a bankruptcy case. If you would like to consult with an attorney regarding your corporate insolvency needs, a Nova Law Group attorney would be happy to assist you.
Archive for November, 2009
How Much does Corporate Bankruptcy Cost?
Thursday, November 5th, 2009Chapter 11 Corporate Bankruptcy Information
Thursday, November 5th, 2009Chapter 11 bankruptcy is technically available to both businesses and individuals for the reorganization of debt, but it is almost never used by individuals for this purpose due to the substantial expense of such reorganizations. As a result, this article focuses on the use of Chapter 11 reorganization proceedings to manage corporate debt, and some considerations to make regarding Chapter 11 bankruptcy versus other types of reorganization.
Chapter 11 is the corporate reorganization chapter of the bankruptcy code and is designed to allow for the continued operation of the debtor’s business when this is needed to maximize its value for creditors. Chapter 11 typically allows the debtor to remain in control of its business as the “debtor in possession,” although it must get approval from the bankruptcy court to carry out most major transactions after filing. Many corporate debtors are able to emerge from a Chapter 11 bankruptcy months or years after filing and operate as a viable business once more.
Within a few months of the filing of a Chapter 11 bankruptcy petition, the debtor in possession typically proposes a corporate reorganization plan to creditors and the court for confirmation. Interested creditors vote on the plan, and if sufficient votes are present, the plan can be confirmed by the bankruptcy court. Debtors in possession normally have a time period in which they have the exclusive right to propose a corporate reorganization plan, often 120 days. After that time, creditors may also propose corporate reorganization plans for possible confirmation. When confirmed, the plan will dictate the elements of the corporate reorganization process. If a debtor in possession is no longer able to comply with the plan, the plan can sometimes be modified, or the debtor can convert the Chapter 11 restructuring into a Chapter 7 liquidation bankruptcy.
Filing Chapter 11 bankruptcy has many advantages for the debtor in possession and its management. The debtor in possession is allowed to gain access to below-market rate financing through the ability to grant new debt higher priority than other similar pre-existing debt. In addition, the bankruptcy court can allow the debtor to cancel contracts and other executory obligations if the termination of these obligations would benefit the bankruptcy estate. Generally the management team of the debtor in possession stays on board to manage the company, as they are typically the most familiar with the debtor’s business operations.
If you own or manage a business and are considering a Chapter 11 bankruptcy filing, Nova Law Group is pleased to offer you a free consultation to discuss the legal needs of your organization.
Chapter 7 Corporate Bankruptcy Information
Thursday, November 5th, 2009Chapter 7 bankruptcy can be used by debtor corporations, partnerships, limited liability companies, and certain other types of organizations to liquidate the assets of the company and distribute any proceeds to creditors. In essence, Chapter 7 bankruptcy is used to permanently wind-down the assets of a distressed company or to sell all, or substantially all, of the corporate assets. It should be noted that businesses in Chapter 7 do not receive a discharge at the end of the bankruptcy case, but rather merely become judgment proof at the end of the case, unlike real people in an individual Chapter 7 proceeding. This means that a Chapter 7 debtor company cannot go back into business immediately after the conclusion of the bankruptcy case if it obtains new assets, as creditors can target these assets until the expiration of any statute of limitations period on the claims.
Chapter 7 bankruptcy is an appropriate solution to permanently end the operations of a distressed business. Chapter 7 is not an appropriate solution where the board or officers decide that the business should be operated for an extended period of time to achieve maximum monetization of business assets for creditors. If continued operations are essential to maintaining the value of the business assets, then a Chapter 11 bankruptcy filing or a General Assignment for the Benefit of Creditors are the more appropriate contexts to resolve the distressed financial situation of the business.
When a Chapter 7 corporate bankruptcy case is filed by the debtor, a Chapter 7 trustee is appointed by the court to liquidate the debtor company. The court-appointed trustee may, but need not, hire any professionals or employees of the company to wind-down the debtor’s business. While Chapter 7 bankruptcy trustees generally are familiar with winding down company operations, they are not always experts in the particular aspects of the debtor’s business. This frequent lack of expertise relevant to the business of the specific debtor can lead to inefficiency in the administration of the debtor’s assets and difficulty liquidating the estate within a time frame that provides maximal monetization of a debtor’s assets for creditors. Consequently, where the best monetization of the debtor’s business can be obtained by a trustee with specific expertise in the debtor’s industry, Nova Law Group recommends considering a General Assignment for the Benefit of Creditors, where the debtor selects the assignee (role of trustee) itself.
How Much does a General Assignment for the Benefit of Creditors Cost?
Thursday, November 5th, 2009Typically the assignee of a General Assignment for the Benefit of Creditors will charge between 5-10% of the value of the assignment estate in exchange for its services. This fee varies however, and can often range from as low as 1% to as much as 20%, depending on the size of the assignment estate and the complexity of the resolution of the assignor’s business. Our opinion is that General Assignments for the Benefit of Creditors almost always cost substantially less than the administration of a Chapter 7 or 11 bankruptcy proceeding, and this is a large advantage of utilizing general assignments over corporate bankruptcy.
What Can I do When my Home is in Foreclosure?
Wednesday, November 4th, 2009If your home is in foreclosure, you have many options, both legal and non-legal. This section is designed to explore the basics of some options that either delay foreclosure, or prevent the foreclosure from proceeding permanently. This article is not designed as a comprehensive demonstration of foreclosure strategy and litigation, but is rather a description of some constructive responses to foreclosure. If you would like to consult with an attorney regarding your situation, a Nova Law Group attorney would be happy to provide you with a free consultation to discuss your legal options.
Common Legal Options to Avoid or Delay Foreclosure:
- Filing for Chapter 7 Bankruptcy: This generally delays foreclosure proceedings about 2-3 months while the creditor files a motion for relief from stay to continue the foreclosure. Some creditors will wait until the bankruptcy case is over, rather than file a motion for relief from stay, in which case the foreclosure might be delayed 3-4 months instead. We strongly advise consulting an attorney in this situation, as a bankruptcy that is filed at the wrong time will provide absolutely no delay whatsoever during the foreclosure. In addition, Nova Law Group does not advise clients to declare Chapter 7 bankruptcy merely to delay foreclosure proceedings.
- Filing for Chapter 13 Bankruptcy: If a debtor can make the payments for the home under the bankruptcy plan, then Chapter 13 bankruptcy can theoretically allow the debtor to keep the home entirely. Even if a debtor does not complete the plan due to unexpected circumstances, the good faith attempt by the debtor to pay under the plan will delay foreclosure many months or years. The substantial challenge in using Chapter 13 bankruptcy to delay or avoid foreclosure is that the debtor must be able to afford the plan payments, which means the debtor must be able to pay the creditor on the loan. Chapter 13 is usually appropriate as a foreclosure avoidance method when the debtor has missed multiple back payments on the home and cannot bring the mortgage current, but can afford to make payments going forward, perhaps due to recently finding a job or recovering from physical injuries. Nova Law Group does recommend filing for Chapter 13 bankruptcy to avoid or delay foreclosure, as long as the filing represents a good faith attempt on the part of the debtor to resolve his debts.
- Consumer Protection Litigation: The federal government and the states have passed legislation protecting borrowers from unscrupulous acts on the part of lenders and other creditors. Many lenders fail to comply with the requirements of these federal and state consumer protection statutes, and these lending violations can lead to damages and injunctive relief against lenders in some instances. In some cases, this type of litigation can delay foreclosure or bring a creditor to the table for negotiations. Some common consumer protection statutes that lenders violate are the TILA (Truth in Lending Act), the HOEPA (Home Owner Equity Protection Act), the RESPA (Real Estate Settlement and Procedures Act), and numerous state statutes governing lending and foreclosure procedures. While all of the above statutes are frequently violated by creditors, not all of our clients will be able to pursue these options or have a valid good faith legal claim to challenge a foreclosure proceeding. If you would like to explore whether these options apply to your situation, a Nova Law Group attorney would be happy to discuss whether any of these options might be available to you.
Common Non-Legal Options to Avoid or Delay Foreclosure:
- Bring the Loan Current: This option is the best option, but also generally not a viable option for most people in foreclosure. However, if you are able to bring the loan payments current, including any fees and costs the lender has incurred over the course of the foreclosure, then you are legally allowed to do so until 5 days before the foreclosure sale. After this period, you must pay the entire loan balance to stop the sale.
- Work out a Deal with the Lender: Many lenders hate foreclosure just as much as you do. For the most part, lenders do not want to own your house. Lenders only want their money and to be paid regular payments as agreed. If you can propose a viable plan to bring the loan current, or at least pay regular on-time payments going forward, most lenders will negotiate. However, you should negotiate with the lender yourself or hire an attorney to negotiate on your behalf. Do not ever hire a “mortgage consultant” or anyone trying to give you a “quick fix” to your mortgage problems, as these businesses are frequently scams. Even the reputable companies in the industry cannot do anything that you or a good lawyer cannot.
- Execute a “Short-Sale”: A short sale is a sale to a third-party buyer where the proceeds from the sale are not enough to cover the debt you owe on the home. The lender must approve a short sale, because it is basically agreeing to receive less than the money you owe it on the home. Some lenders will agree to this arrangement when it seems that the alternative is a long and expensive foreclosure, but you will have to find a buyer for the home. If you intend to execute a short sale, it is our strong advice that you consult an attorney, or you could remain liable for any money still due the lender on the sale. In our firm’s opinion, short sales are almost never the best option to resolve a foreclosure on your home.
- Execute a “Deed in lieu of Foreclosure”: A deed in lieu of foreclosure is a transaction where you essentially give the keys back to the lender and walk away. Like a short sale, if you plan to execute a deed in lieu of foreclosure, we advise you to consult with an attorney, or you might still be liable for any debt owed the lender if the lender cannot recoup its losses on the home. Our firm rarely, if ever, advises clients to execute a deed in lieu of foreclosure, as this is almost never the client’s best option.
Our firm hopes that you find the above discussion informative and that it helps you have a greater understanding of your legal options. If you would like to discuss any of these options with an attorney, feel free to contact Nova Law Group to discuss whether any of the above options might apply to your situation.
How long does Bankruptcy stay on my Credit Report? Will Bankruptcy Affect My Credit?
Wednesday, November 4th, 2009One disadvantage of a bankruptcy filing is that the credit of the debtor will be negatively affected for a long period of time, but not forever. While the length of time that creditors consider a bankruptcy filing in making a credit determination varies, the following provides the “conventional wisdom” regarding the effect of bankruptcy on credit determinations. Most creditors consider a Chapter 7 bankruptcy filing in making credit decisions for a period of 7-10 years, and a Chapter 13 bankruptcy filing for a period of 4-7 years. The more years that have passed since a bankruptcy filing, the fewer creditors consider it a factor in their decision-making. In addition, on-time payments to creditors after bankruptcy can affect your credit positively, helping to combat the negative effects of a bankruptcy filing. In addition, a home foreclosure is generally considered by creditors for a period of about 4 years, and this is a useful comparison when evaluating the negative effects of bankruptcy on credit. Fortunately, if you are in foreclosure and then declare bankruptcy, the time periods do not stack. In other words, if you file a Chapter 7 bankruptcy while in foreclosure or not in foreclosure, the effect on your credit is the same.
Can my Employer Fire Me for Declaring Bankruptcy? Will I lose my Job?
Wednesday, November 4th, 2009Federal law requires that no private or government employer fire you because you have filed for bankruptcy. If a government or private employer violates federal law against bankruptcy discrimination and fires you anyway, you can sue them in state court or federal bankruptcy court. Additionally, government employers are prohibited from considering your bankruptcy filing when you apply for a job, although unfortunately, private employers can. If a private employer denies your job application (as opposed to firing you which is prohibited), you probably have little recourse. Fortunately, many employers do not consider credit when making employment decisions, and government employers are prohibited from doing so.
Does my Spouse have to File for Bankruptcy if I do?
Wednesday, November 4th, 2009There is no requirement that a married couple file jointly for bankruptcy. Both spouses can file for bankruptcy separately or jointly, and they need not file bankruptcy at the same time. Some of our clients choose for one spouse to file bankruptcy, usually in cases where the filing spouse is liable for most of the debts, or when the non-filing spouse has excellent credit to protect. The analysis below attempts to cover some of the major legal issues that apply to discharge in the marital bankruptcy context. Additionally, this analysis will focus only on bankruptcy effects in community property states, like California.
The general rule in community property states regarding spousal liability for debts is that any debts accumulated during the marriage are the debts of both spouses, regardless of whether only one spouse signed the agreement. Debts that were incurred prior to the marriage are generally the separate debts of the spouse who originally incurred them.
Given the general rule, most debts accumulated during marriage are debts of both spouses, whereas most debts accumulated before marriage are debts of one spouse. In situations where only one spouse is liable for the debt, it generally does not make sense for the other spouse to declare bankruptcy to remove a debt for which he or she is not liable. However, in situations where both spouses are liable for the debt, the analysis is much more complex, and an attorney should be consulted. If both spouses are liable for a debt (called a “community debt”), then both spouses must file for bankruptcy or the non-filing spouse will still be liable for the debt. However, because all of the filing spouse’s property is still community property and the filing spouse’s discharge prevents creditor attachment to the community estate, it is possible that all community property (including all property of the filing spouse and the non-filing spouse) may be protected by only the bankruptcy of the filing spouse. In other words, the filing of one spouse may protect all community property, including the community property of both spouses, as long as the community exists (the spouses remain married). However, the separate property of the non-filing spouse can still be targeted by creditors, and should the spouses later divorce, no property of the non-filing spouse would be protected as the community estate would cease to exist. If the above situation applies to your case, it is highly recommended that you contact Nova Law Group and seek the advice of an attorney, as the law in this area is quite complex.
What Property can I keep if I File for Bankruptcy?
Wednesday, November 4th, 2009Most people filing for bankruptcy are able to keep the vast majority of their personal property, and sometimes, real property such as the family home as well. While the actual determination of what property a debtor can keep is very complex and beyond the scope of this article, the following analysis is designed to give readers an idea of what property they can normally claim as exempt in bankruptcy (property that can be kept). It should also be noted that the property a debtor can keep varies substantially based on whether a Chapter 7 or a Chapter 13 bankruptcy is filed.
Chapter 7 Bankruptcy:
Personal property, like clothing, furniture, games, automobiles, art, musical instruments, and other personal effects can almost always be kept. The one major exception to this general rule is if the item is very valuable and you have far less debt on the item than it’s worth (in bankruptcy terms, your non-exempt equity in the item is high). An example of an item that you might not be able to keep is a $40,000 BMW that you own free and clear. However, if you own the $40,000 BMW, but still owe $45,000 on the car to the lender, then you might be able to keep it, because you have more debt on the car than it is worth (i.e. no non-exempt equity in the car). Another exception is if the property is security for a debt. If a creditor has a security interest in your personal property as collateral for non-payment of the creditor’s debt, seek the advice of an attorney.
Real property, generally known by the more common term “real estate,” is treated very differently in bankruptcy than is personal property. In a Chapter 7 bankruptcy case, the debtor will not be able to discharge most debts that are secured to the home, like mortgages, and will have to remain current on the mortgage in order to keep the home. This is because a Chapter 7 bankruptcy case discharges the liability to pay the debt, but not the lien on the home, which still allows the lender to foreclose on the home in the event of non-payment. On a more positive note, the amount of equity a debtor can claim as exempt in a home is generally much higher than the exemption amounts for personal property. This means that some debtors can keep their homes even if they have substantial equity in the property (owe less than the home is worth), as long as they remain current on the mortgage.
Chapter 13 Bankruptcy:
In a Chapter 13 bankruptcy the debtor generally maintains control of all of her personal and real property, as long as she can make the payments under the bankruptcy plan. This is an advantage of utilizing Chapter 13 bankruptcy, as long as the debtor can make the plan payments over the 3-5 year period of the plan—a very challenging task. It is also possible to give up some property in a Chapter 13 bankruptcy and keep other property. Generally this is done where the debtor can afford to make payments on some property under the plan, but not all of the property.
What Debts are Discharged in Bankruptcy? What Debts Survive Bankruptcy?
Wednesday, November 4th, 2009Most clients find that a bankruptcy discharge eliminates the vast majority of the debt the client owes to creditors. While some debts survive a bankruptcy filing, most clients are able to drastically reduce or eliminate their debt entirely through bankruptcy. It should also be noted that the types of debts that are dischargeable in bankruptcy vary somewhat in a Chapter 7 as opposed to a Chapter 13. The lists of dischargeable and non-dischargeable debts below are not designed to be comprehensive, but rather are a useful starting point to determine what general debts are dischargeable in a client’s bankruptcy case under most circumstances.
Examples of Dischargeable Debts (Debts that can be eliminated):
- Credit Cards
- Bills for Professional or other Services (including medical and legal bills)
- Debts that are Unsecured (e.g. Personal IOUs and Most Business Debts)
- Deficiency Judgments
- Most lawsuit Judgments (except drunk driving or sometimes malicious acts)
- Some tax debts (income taxes that became due more than 3 years before filing)
- Amounts owed on Property (but lien still exists, so lender can still foreclose usually)
Examples of Non-Dischargeable Debts (Debts that cannot be eliminated):
- Student Loans (except in very rare circumstances involving extreme hardship)
- Most types of Taxes (Some income tax debts, property taxes, some government fines)
- Debts where you Defrauded the Court or Creditors
- Debts from Embezzlement, Larceny, or Breach of Fiduciary Duty (If creditor objects)
- Debts arising from your Willful and Malicious Actions (If creditor objects)
- Debts for Luxuries incurred within 90 days of your Filing (if they exceed certain amount)
- Debts you Obtained through a False Statement of Financial Condition (If creditor objects)
In addition to the above types of dischargeable and non-dischargeable debts, some types of debts are dischargeable in Chapter 13 bankruptcy, but not in Chapter 7 bankruptcy.
Examples of Debts Dischargeable Only In Chapter 13 Bankruptcy:
- Marital debts in accordance with a divorce settlement agreement
- Debts you Incurred to pay non-dischargeable taxes
- Court fees
- HOA dues incurred after your Bankruptcy Filing
- Debts you Borrowed from your own Retirement Plan
- Debts not discharged in a previous Bankruptcy
While the above lists are not comprehensive examples of all debts that can be dischargeable and non-dischargeable in bankruptcy, we hope that this discussion will lead to informed choices regarding your legal options regarding your debt. If you choose to seek legal counsel regarding a debt or have further questions, a Nova Law Group attorney will be happy to assist you.
Can I Transfer Property to Friends and Relatives before I File Bankruptcy?
Tuesday, November 3rd, 2009Clients often ask our lawyers if they can transfer valuable property to friends and relatives right before filing bankruptcy and not list it on their bankruptcy papers. This question has a simple answer, which is probably the answer you expected—you cannot. The bankruptcy code requires that all gifts and other transfers of property for the previous 2 years be listed in your bankruptcy papers, which you must sign under penalty of perjury. Knowingly failing to list a property transaction in your bankruptcy papers is a felony. In addition, if the bankruptcy court finds that you defrauded your creditors in connection with your bankruptcy case, it can refuse to discharge any or all debts in your case. In other words, transferring property to friends or relatives (or anyone else) for the purpose of concealing it from your creditors is a very bad idea.
In contrast, a completely legal way to retain most property in connection with your bankruptcy case is to claim it as exempt and list it in your bankruptcy papers. In our professional opinion, much of the property that clients are sometimes tempted to conceal can be legally claimed as exempt under one of the state or federal exemption rules, and therefore, can be saved in a completely legal manner.
In summary, concealing transfers of property prior to your bankruptcy case is illegal and a very bad idea. However, most personal property can generally be claimed as legally exempt in a bankruptcy case, and this is a legal, ethical, and smart method to retain your personal property after bankruptcy.
What is a Budget Counseling Requirement?
Tuesday, November 3rd, 2009The bankruptcy code requires that all debtors obtain personal financial management counseling (also called “budget counseling”) prior to receiving a discharge in the bankruptcy case. After you declare bankruptcy, but before you obtain any discharge in the case, you must obtain a certificate indicating that you received this approximately 2 hour long seminar. Nova Law Group recommends that this personal financial management counseling occur with the same organization that performed your credit counseling before the filing of your bankruptcy case, although this is not required. In any event, you should select an organization that is listed on the United States Trustee’s website as being a certified service.
Budget counseling must be obtained within 45 days of the first meeting of creditors, but after the filing of your bankruptcy case. Failure to present evidence of a certificate of budget counseling to the court will likely result in the dismissal of your bankruptcy case without a discharge.
What is a Credit Counseling Requirement?
Tuesday, November 3rd, 2009The bankruptcy code currently requires that all people filing for bankruptcy receive mandatory credit counseling from a certified credit counseling agency before filing. Credit counseling is required even if it is unlikely to culminate in a workable plan for the client, and the bankruptcy code requires that this credit counseling be obtained by the client within the 6 month period preceding the bankruptcy filing. Additionally, Nova Law Group advises that clients not obtain credit counseling the same day as a bankruptcy filing; it is preferable to obtain the counseling at least one day in advance of the bankruptcy filing date.
When a client attends credit counseling, the credit counselor will attempt to work out a viable plan for repayment of the client’s debts outside of bankruptcy. In some cases, this is likely to be an exercise in futility, but all clients must go through the process before filing for bankruptcy. Typically a credit counseling meeting takes 1-3 hours, and at the end of the meeting, the counseling agency will give the client a certificate demonstrating completion of the program. It is this certificate that the bankruptcy court will require you to present to prove that you went through the counseling before filing for bankruptcy. Without this certificate, the court will likely dismiss your case.
A list of certified credit counseling agencies can be obtained on the website of the United States Trustee. Nova Law Group recommends that clients make certain that the credit counseling agency chosen is an agency that is certified on the U.S. Trustee’s website.
Will Bankruptcy Stop Creditors from Calling Me? How do I Stop Creditor Harassment?
Tuesday, November 3rd, 2009Many of our clients initially consider filing bankruptcy because they want to stop bill collectors and other creditors from harassing them at work or home. Creditor harassment is illegal and can be stopped, and there are many options that accomplish this result.
Bankruptcy will stop creditor harassment immediately. If a creditor ignores your bankruptcy filing and disregards the automatic stay, there are severe consequences for the creditor, including hefty fines and contempt of court charges. If a creditor calls you after your bankruptcy petition is filed and attempts to collect a bill, simply inform the creditor of your bankruptcy filing, including the case number and filing date and the creditor should back down. If a creditor persists in harassing you in violation of federal law, contact a lawyer immediately.
While bankruptcy will stop creditor harassment, you don’t need to declare bankruptcy to stop creditors or bill collectors from contacting you. The Fair Debt Collection Practices Act also prohibits many types of creditor harassment and applies to bar creditor communications with a debtor in most contexts.
In summary, no client should ever have to cope with creditor harassment, and illegal harassment can be stopped both in and out of bankruptcy. If you have been the victim of creditor harassment, Nova Law Group will be happy to consult with you regarding your legal options.
Is Bankruptcy Confidential? Will my friends know that I filed for Bankruptcy?
Tuesday, November 3rd, 2009Many clients of our firm are concerned that their friends, relatives, or business associates will learn of their bankruptcy and have a negative reaction. It is our professional opinion at Nova Law Group that these concerns are unwarranted in the context of the vast majority of bankruptcy filings. In other words, except in the most unusual of circumstances, it is likely that no one you care about will learn of your bankruptcy filing unless you tell them.
Bankruptcy filings are technically matters of public record, and in theory, someone you know could go down to the courthouse and search for non-confidential information involving your filing. Confidential information, like your social security number, is not available as a public record for security reasons. The public nature of bankruptcy filings makes it possible, although extremely unlikely, that a friend, relative, or business associate of yours would find information regarding your bankruptcy case. Most people have better things to do than stalking the local courthouse to uncover potential information regarding possible bankruptcy filings of their friends and relatives. This would be an enormous waste of free time, and many people don’t know that information regarding bankruptcy filings is even available. As a result, although it is theoretically possible that someone you know could learn of your bankruptcy filing, it is very unlikely that they ever would.
Perhaps the only exception to the above rule is that a friend, relative, or business associate of yours will be aware of your bankruptcy case if that person is also your creditor. When you file bankruptcy, all of your creditors will receive notice from the court regarding your bankruptcy filing and how to protect any rights they may have regarding payment from the bankruptcy estate. Accordingly, friends, relatives, and business associates who are also creditors of yours will know about your bankruptcy filing.
In our experience, in the very rare instances when a personal connection of our client finds out about the client’s bankruptcy case, it is generally not an issue. Most people understand that bankruptcy exists for a reason—to get people on their feet again, and that the vast majority of bankruptcy filers are hard-working people who have just hit very challenging times. Many of our clients are reluctant to discuss bankruptcy with friends, relatives, and colleagues, only to find that these same people are generally compassionate regarding the client’s situation. In the humble opinion of our firm, we believe that people who reach an educated decision to explore bankruptcy options are taking charge of their financial situation and the cards life has dealt them. These choices should be viewed as positive empowerment on the part of the client and a demonstration of resolve to work through the client’s debt problems toward a constructive solution. In our view, any negative stigma to these positive decisions is almost always misplaced, and is a reflection only of ignorance relating to bankruptcy’s purpose. Our firm commends our clients for taking affirmative steps to resolve their debts and move on to a fresh start in life.
What is the Means Test? How do I pass the Means Test?
Tuesday, November 3rd, 2009The “means test” is a computation designed to determine whether some higher-income bankruptcy filers should be forced to file a Chapter 13 plan rather than a Chapter 7 plan. This means that some higher-income people who fail the means test may not have the choice to file a Chapter 7 bankruptcy case.
While the means test prevents some high-income people from filing for bankruptcy under Chapter 7, most people filing for bankruptcy either do not need to take the means test, or pass the means test and can file a Chapter 7 bankruptcy case anyway.
Any person filing for bankruptcy who earns less income than the median state income for the state in which he lives, adjusted for the number of dependents in his household, does not need to take the means test. In other words, if you make less than the median income for your state, adjusted for the number of your dependents (children, elderly grandmother, etc.), then the means test will not prevent you from filing a Chapter 7 bankruptcy case. There are many other factors you may have to meet to file a Chapter 7 bankruptcy case, but the means test will not present a problem for you. However, if you earn more income than the state median, then you must proceed to the second step and see if you pass the means test.
The actual means test calculation is very complex and is beyond the scope of this article, but the simple way of looking at the test is to compare your total income from all sources with your total expenses and see if there is anything left at the end of the month. In other words, if you are a high-income filer, but you have almost no money left at the end of every month after paying your reasonable expenses, then you might pass the means test and be eligible to file Chapter 7 bankruptcy. However, if you have a lot of money left after paying your expenses, then it is likely that you will not pass the means test. If you fall into this second category of people, it is highly-advised that you consult with a lawyer, as there are legal arguments that can still be made on your behalf should you choose to file a Chapter 7 bankruptcy case. It should be noted that you can still file for bankruptcy under Chapter 13 even if you do not pass the means test.
What is the Difference between Chapter 7 and Chapter 13 Bankruptcy?
Monday, November 2nd, 2009The differences between Chapter 7 and Chapter 13 bankruptcy are numerous, but this article is designed to cover some of the biggest differences between a filing under each. The following provides a comparative analysis of the some basic distinctions between each bankruptcy chapter as applied to some typical concerns of debtors.
What Property do I have to Give Up in Bankruptcy?
Chapter 7: Generally all property that is not covered by a bankruptcy exemption must be given up to pay off the debtor’s creditors. It should be noted that there are many exemptions under State and Federal law to be claimed and that frequently many debtors are able to keep all property of minor to moderate value. Some notable exceptions are homes or cars with substantial equity (but not those without equity or minor equity), expensive luxury goods, investments, and anything of high value not covered under an exemption. Talk with an attorney to see if the property you want to protect can be exempted. If an exemption is available, then you will not need to give it up in bankruptcy.
Chapter 13: Generally the debtor gets to keep all of his property, as long as he can make the plan payments allocated the specific creditor in question over the term of the bankruptcy case. This is a major advantage of Chapter 13 bankruptcy, as the debtor gets to keep control of the property as long as he can afford the payments. However, the debtor must continue making all payments under the bankruptcy plan as ordered by the court. If at any time the debtor fails to make payments on the property, control of the property may be lost depending on the situation. In addition, debtors are entitled to claim the same exemptions as they would be entitled to take in a Chapter 7 case.
How Long does Bankruptcy under each Chapter Last?
Chapter 7: Normally lasts 3-4 months from filing until discharge.
Chapter 13: Normally lasts 3-5 years, assuming the completion of a successful plan by the debtor. It is very difficult to make plan payments for 3-5 years and only the most diligent of people will be able to accomplish this task, as it requires living very modestly for a very long period of time. This is a disadvantage of Chapter 13 bankruptcy.
How much will Each Type of Bankruptcy Cost?
Chapter 7: Fees and costs change, but you can generally expect bankruptcy under Chapter 7 to normally be about 30-50% of the cost of a similar Chapter 13 case.
Chapter 13: See above. More expensive than Chapter 7 bankruptcy due to the complexity of the case and the number of attorney hours required.
Can I file for Chapter 13 Bankruptcy?
Monday, November 2nd, 2009This section is designed to provide guidance regarding eligibility to file a Chapter 13 bankruptcy case. Please note that people who do not qualify to file a bankruptcy case under Chapter 13 of the bankruptcy code may still be able to file bankruptcy under Chapter 7 of the code.
The most important consideration when a client decides she would like to file a Chapter 13 bankruptcy case is whether or not she has the income to propose a confirmable Chapter 13 plan. The essence of Chapter 13 bankruptcy is a commitment to pay your creditors back over a long period of time, usually 3 to 5 years, and your proposal to repay the creditors is called the “plan.” Similarly, a “confirmable plan” is basically a plan where the debtor has enough income to pay all types of creditors which the bankruptcy code says must be paid in full, and some portion, although not always, of creditors who need not be paid in full. Creditors who must be paid in full in a Chapter 13 case include: child support not owed state agencies; Chapter 13 trustee fees; most tax debts; and secured debts that will outlive your plan (like most mortgages).
While the exact calculation for proposing a plan is extremely complicated and beyond the scope of this article, the simple way of calculating whether or not you can propose a confirmable plan is to do the following: add up all income earned or received from all sources; add up all of your expenses on everything that you intend to keep after filing bankruptcy, including cars, homes, food, utilities, etc.; add up all payments that you would have to make to creditors that “must be paid in full” (described above) and divide by 36 or 60 (3 or 5 year plan); add 10% to your expenses for the Chapter 13 trustee’s fee; and now compare your income to the sum of all the expenses listed above. If you’re income is still higher than the sum of all of the above expenses, then you can possibly propose an eligible Chapter 13 plan. However, the list above is by no means an accurate representation of every step in determining your eligibility for Chapter 13, and you should definitely seek the counsel of an attorney if you want to consider filing a Chapter 13 case. The list is only designed as a rough estimate to determine your eligibility, and the actual computation is much more complex. If it seems like you may be able to propose a confirmable plan, then you can move on to the final steps for determining eligibility to file Chapter 13 bankruptcy.
To file a Chapter 13 bankruptcy, you must have secured debt of under $1,010,650 and unsecured debt of under $336,900. These numbers change regularly however, so consult with an attorney to ensure that accurate numbers are used. A “secured debt” is basically a debt whereby the creditor can seize the property itself if you don’t pay. Examples of secured debts are car loans and most home loans. An “unsecured debt” is a debt where the creditor can sue you if you don’t pay, but can’t take away any of your property directly. Examples of unsecured debts are your personal debt to Aunt Mary Jane, your unpaid dentist bill, parking tickets, credit card debts, medical bills, and so on.
To propose a confirmable Chapter 13 plan, you must also pay your creditors at least what they would have received if you had filed for Chapter 7 bankruptcy. One of the advantages of a Chapter 13 bankruptcy is that you generally get to keep even valuable property with substantial equity, if you can afford to make the payments. This provision ensures that creditors aren’t in a worse position because you filed for Chapter 13 bankruptcy than they would be in Chapter 7 bankruptcy.
If it seems like you meet all or most of the requirements posted in this section and are interested in filing a Chapter 13 bankruptcy case, then we recommend you consult with an attorney regarding the possibility of filing. Nova Law Group is pleased to provide you with a free consultation to consider these options in greater depth.
Can I file for Chapter 7 Bankruptcy?
Monday, November 2nd, 2009This section is designed to describe the major categories of people who can file for bankruptcy under Chapter 7 of the bankruptcy code. While not all people are permitted to file for bankruptcy under Chapter 7, most people can if they choose to do so.
There are many categories of people who will always be allowed to file for Chapter 7 bankruptcy under the code, barring fraud or the most unusual of circumstances. Some categories of people who are almost always allowed to file under Chapter 7 include:
- Debtors who have primarily business debts to discharge as opposed to personal debts.
- Debtors who meet the status of a disabled veteran under the statute.
- Debtors who earn less than the median income for the state, adjusted for both the number of dependents in the debtor’s household and also averaged over the six months leading up to the bankruptcy filing.
In addition to the categories of people listed above, some filers who do not meet any of the above listed tests can still file for Chapter 7 bankruptcy under the code. The most common reason that a person might not meet the standard tests is that the person earns more than the median state income and has primarily consumer (not business) debts. In this case, the person would need to pass what the bankruptcy code calls the “means test.”
The means test was designed to determine whether any given debtor can pay back some of the debt he owes over time in connection with a Chapter 13 plan. As a practical matter, the means test is designed to force some debtors who prefer to file a Chapter 7 bankruptcy case into Chapter 13 instead, where they will be required to pay back a portion of what they owe to creditors over 3 to 5 years. The application of the means test is a highly-complex calculation involving certain income and expenses applied in different proportions to calculate your payment ability, and it is advised that you contact an attorney if you fall in this category of people and want to file a Chapter 7 bankruptcy case. If you pass the means test, you will likely be able to file a Chapter 7 bankruptcy case. If you fail the means test, then you may be required to file a Chapter 13 bankruptcy case instead.
In addition to the above tests, there are a few additional factors which determine eligibility to file a Chapter 7 bankruptcy case:
- A person cannot file a Chapter 7 bankruptcy case if he obtained a discharge in a separate Chapter 7 case within the past 8 years, or a Chapter 13 case within the past 6 years, unless you paid at least 70% of your unsecured debts in the prior Chapter 13 case.
- A Chapter 7 bankruptcy case cannot be filed if a prior Chapter 7 or Chapter 13 case was dismissed in the past 180 days due to the violation of a court order or your request for dismissal after a creditor requested relief from stay from the court.
- A Chapter 7 bankruptcy case can be dismissed after filing if it is found that the debtor has defrauded his creditors or seeks to defraud the bankruptcy court.
The law regarding eligibility to file a Chapter 7 bankruptcy case can be very complicated, and it is highly recommended that the advice of an attorney be obtained before proceeding with filing. This is especially true in the event that a filer exceeds the median income for the state and wants to file Chapter 7 bankruptcy nonetheless. Note that should a filer be unable to file for bankruptcy under Chapter 7, he may still be able to file for bankruptcy under Chapter 13.
How long does Bankruptcy Last?
Sunday, November 1st, 2009The length of any bankruptcy case generally varies based on the chapter of the bankruptcy case and the complexity of the case. Typically, most individual Chapter 7 bankruptcies last about 3 to 4 months from the time of filing to the time that discharge is granted. A Chapter 13 bankruptcy case lasts much longer than a Chapter 7 case, and typically extends 3 to 5 years from the time of filing before a discharge is granted.
High-Speed Rail Litigation and Public Utilities Code Section 185038
Sunday, November 1st, 2009There are times when I seriously wonder if the California State legislature has considered the ramifications of a specific bill that becomes law. California Public Utilities Code Section 185038 is one such statute.
In connection with Nova Law Group’s litigation practice, our firm represents plaintiffs Halstead Nursery Inc. and Russell Peterson in active litigation against the High-Speed Rail Authority and the Peninsula Corridor Joint Powers Board. Our lawsuit seeks to obtain a declaration of the rights and obligations of each of the parties to a Trackage Rights Agreement, signed in 1991 between the PCJPB and Southern Pacific Railroad (now owned by Union Pacific Railroad). It is our position that the Peninsula Corridor Joint Powers Board has no contractual right to grant the High-Speed Rail Authority any right of way to the track going up and down the SF peninsula, including the Santa Clara County Line and the Peninsula Main Line, among others. Our clients brought a declaratory relief action to define the rights of defendants in connection with the contract.
One of the foremost considerations made by an attorney when bringing a lawsuit is a decision of venue, or in other words, which court will hear the action. In the Peterson/Halstead Nursery v. HSR/PCJPB case, our firm brought suit for our clients in San Mateo County Superior Court, because this choice of venue would be most convenient for the vast majority of the parties to the case. All of the plaintiffs were San Mateo County residents. Half of the defendants were San Mateo County residents. A large portion of all of the contested land exists in San Mateo County. Most of the contracts were entered into in San Mateo County. In fact, basically all evidence, of every kind, was present in San Mateo County.
Given the overwhelming prevalence of parties and evidence regarding the litigation in San Mateo County, one would think that venue would appropriately be in San Mateo County as well. According to defendant HSR however, this is not the case.
Defendants claim that venue for any action against the California High Speed Rail Authority (HSR) must only be had in Sacramento County. They claim that Public Utilities Code Section 185038 mandates that all actions, regardless of whether or not HSR is the only defendant or one of many, must be had in Sacramento County. Instructions to obtain my legal response in connection with our opposition to Defendants’ Motion to Change Venue are posted at the end of this article, but I think it is interesting to consider the public policy ramifications of defendants’ interpretation of Public Utilities Code Section 185038.
If defendants’ interpretation of 185038 is correct, then the legislature would have intended all actions against the California High-Speed Rail Authority to be brought in Sacramento County, regardless of other considerations. This interpretation would stand in stark contrast to the normal venue rule, which can accurately be described as “venue proper to one defendant is proper to all,” or in other words, that plaintiff can choose a court where at least one defendant resides.
The public policy ramifications of this interpretation are startling. According to defendants HSR and PCJPB, if HSR is even one defendant of fifty defendants in an action, then venue must be had in Sacramento County. This is true even if the remaining 49 defendants live in San Diego, New York, Rome, Moscow, London, and Hong Kong. It is true even if there are 200 plaintiffs, who all live elsewhere in California, or across the globe. It is also true even if all property disputed in the action and all contracts giving rise to the litigation are made in counties, or countries, outside of Sacramento or even the United States. In essence, if defendants’ interpretation is followed, then the California High-Speed Rail Authority would be entitled to drag all plaintiffs, defendants, property, evidence, and all other materials hundreds, if not thousands of miles across the state, country, or globe to Sacramento County–simply for the convenience of HSR. Given that venue laws are designed to promote the convenience of the parties, this is an almost comically absurd result. Our clients (and our firm) find it incomprehensible that this could be what the legislature intended, and we are currently involved in active litigation to determine this issue. Whatever the outcome of the litigation, I recommend that the legislature modify the statute to make clear its intent regarding this issue, and to hopefully avoid the preposterous outcome that the California High Speed Rail Authority is currently advocating.
If you are interested in reading Nova Law Group’s legal response to Defendants’ Motion to Change Venue on this issue, it is available on the San Mateo County Superior Court’s website.
General Assignments for the Benefit of Creditors
Sunday, November 1st, 2009A general assignment for the benefit of creditors is an efficient out-of-court alternative to corporate bankruptcy for many businesses. General assignments often provide our clients with superior results when compared to corporate bankruptcy, and are generally the preferred method of liquidation for both our debtor clients and creditor clients alike.
General assignments are created by state law and are very different than corporate bankruptcy proceedings in a federal bankruptcy court. In a general assignment, the debtor/assignor corporation selects an assignee to unwind the corporate business and take control of the assets and liabilities of the company. Once the assignee is appointed and the assets and liabilities of the company are transferred, then the corporate management team, investors, and board members of the company are free to move on with other opportunities. Any personal liability of the corporate management team and its directors is removed after the assignment of assets and liabilities occurs.
How does a General Assignment for the Benefit of Creditors Work?
- The debtor/assignor company signs an agreement with the assignee transferring all assets and liabilities to the assignee, which fulfills the role of an independent trustee in the transaction.
- The assignee in its capacity as trustee has a fiduciary relationship with creditors and monetizes the assets of the company for distribution to the company’s creditors. Additionally, the assignee has the flexibility to run the business as a going concern if operating the company will maximize its value.
- Secured creditors of the debtor/assignor are distributed any assets from the sale of collateral securing their debts, allowing them to forego the expensive and time-consuming process of foreclosing on the collateral.
- Unsecured creditors are allowed to file proofs of claim with the assignee to be paid pro-rata distributions of any amounts owed them by the debtor/assignor.
Advantages of General Assignments for the Benefit of Creditors:
- An assignee is chosen by the officers of the debtor company, as opposed to a bankruptcy trustee appointed by the bankruptcy court.
- Assignments are generally less expensive than bankruptcy proceedings and can be completed over a much shorter period of time, often without court approval.
- Assignments are less formal than bankruptcy proceedings and most actions by the assignee can be accomplished without court appearances or approval. This level of speed and efficiency greatly increases the probability that the assets of the company will be monetized for the greatest value.
About Nova Blog
Sunday, November 1st, 2009Dear Readers,
Thank you for exploring the Nova Law Group website and the Nova Blog. This Blog is designed as a tool for readers to develop a greater understanding of the Personal Bankruptcy, Corporate Bankruptcy, and Litigation topics presented in the site. We hope that you find this information useful and that it allows you to make more informed choices regarding your legal options.
The information contained in this Blog is designed to be helpful and informative, but it is not a substitute for the legal advice of an attorney and does not purport to be legal advice for your individual situation. The law is an ever-changing field, and while we believe that this information is accurate as of the time of publication, the law can, and often does, change. As such, the information on this Blog and the Nova Law Group website is not legal advice and does not establish an attorney/client relationship with Nova Law Group. If you make the choice to consult with an attorney regarding your legal needs, we are pleased to offer you a free consultation to explore your options with Nova Law Group.
Nova Law Group is a firm specializing in Bankruptcy and Litigation. Our firm’s headquarters is located in Mountain View, California, within Santa Clara County. Feel free to browse our website and visit our Contact Nova page if you would like to consult with Nova Law Group regarding your legal needs.
How much does it Cost to File Bankruptcy?
Sunday, November 1st, 2009The filing fee for a Chapter 7 bankruptcy is currently $299 and the fee for a Chapter 13 filing is $274. These fees are subject to change however, as the fees are determined by the court system. Additionally, many courts impose fees for various services provided to debtors, including copying documents, official certificates, additional filings, documents involving adversarial proceedings, and many others. The Trustee may also impose fees on some debtors for services provided, particularly in Chapter 13 proceedings where the Trustee is often paid monthly out of the debtor’s plan.
In addition to the basic fees submitted to the court and the Trustee, many people also choose to employ the services of an attorney to represent them in bankruptcy proceedings and to ensure that all paperwork is done correctly. Nova Law Group offers clients some of the lowest rates in the industry for law firms of our caliber. Our fees typically vary depending on the services provided, the complexity of the issues presented, and the number of court appearances required to represent your best interests. We invite you to attend a free consultation to explore how Nova Law Group can help you meet your legal needs in a cost-effective manner.
