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Business Bankruptcy Questions

in Bankruptcy

Business is tough right now, especially small business.  Sometimes it’s hard to know whether to keep trying or to throw in the towel. Here are three things we can examine to determine whether a business bankruptcy will work for your business or not. 

How much of the business debt is secured? 

How much of the debts is secured vs unsecured generally guides us in how much we can help the business.  Business liens are tricky and can limit how the debts can be paid or reorganized.  Some liens can be crammed down but others stick around unless certain conditions are met.  

Is the debt tax related?

If you’re an employer and you haven’t been withholding taxes from your W-2 employees, you’ve got a problem.  When you take that money you’re taking on the role of a fiduciary for that cash that belongs to your employee (and technically, Uncle Sam). 

If you’ve propped up your business with your employees tax contributions you’ve exposed the corporate officers to severe penalties and made them personally responsible for the taxes not paid to the government.  

The same can be said for sales tax money.  If you’ve been propping your business up with unpaid sales tax liabilities, you’ve got some real trouble.  

Are you paying debts to insiders? 

If, in the last year, you’ve repaid relatives or decision makers on their liens against the business, these can be recovered by the trustee under a rule that limits what’s known as a preference.  

You’ve got to be extremely careful when filing a business bankruptcy against an LLC.  You might be opening the corporation and it’s directors and family members up to lawsuits to recover money for creditors.  

If your business is struggling and you need to discuss your options, call the attorneys at Harmon and Gorove to see how we can help you solve your financial puzzle.  

Distressed Debts

in Bankruptcy

Bankruptcy is supposed to make all the stress go away.  We’ve talked over and over again about how wonderful bankruptcy is and how it melts stress like butter.  When you file and get your discharge, you’re supposed to be in the clear.  What happens though, when you’re in the clear and then out of nowhere, someone comes knocking wanting to collect on an old debts?

Getting a collection notice on a debt that was supposed to be discharged is a stressful situation.  Sometimes people make mistakes or attorneys get lost in the shuffle but more often than not, that debt collector is just in the wrong. 

Chances are, the debt collector bought your debts without having any idea that you’d filed bankruptcy.  This is what we call, distressed debt.  Distressed debt is when companies who can’t collect on debts often sell them, in packages, to debt buyers.  Debt buyers pay 5-10 cents on the dollar for debts and usually just get a list of debts.  If they collect on 10% of the debts, they usually make a good return on their money.  

Fight it.

If you get a phone call or letter from some crummy debt collector, fight it.

The first thing you should do is find out who they bought the original debt from That will usually be listed on the collection letter.  The next step involves getting your bankruptcy paperwork.  First and foremost, find your discharge paperwork.  Once you have that in hand, send the creditor a copy.  Usually just saying you filed bankruptcy will scare off most people like this

You’ll want to get proof that you sent them this information so send it USPS certified.  Keep a copy of the letter you sent them and your bankruptcy papers.  Again, remember, they usually have no idea you filed bankruptcy so this will usually make everything go away.  

But they won’t stop

You called their bluff and sent them the paperwork you needed to send.  They should have gone away.  After All, it’s the law, but some of these guys are insufferable and just won’t listen.  That’s when you call in the big guns.  

First, call us.  We’re always happy to help and we love to smack these guys down.  They’re disregarding our hard work and the discharge order from the judge. Most judges don’t take kindly to people ignoring their orders.  We’ll call them and remind them that you were discharged.  That’s their last warning.  

Our next step is to file a motion for sanctions against the collector that’s violating your discharge order.  We’ll help you do this.  We will file the order in the court that your original case was filed in and then we’ll go to work.  We’ll submit evidence to the judge and once we do that you’re entitled to damages, including any fees you have to pay us for taking this on.  

Establishing the case for damages

If this happens, it’s best to take meticulous notes about the outfit that keeps calling you.  Keep track of all the money you’ve had to spend to fix this problem.  The better record you keep, the easier it is to prove your damages if it goes that far.  

You need to keep an eye on your credit report and make sure that the discharged debt hasn’t been placed on there again.  If they have, they’ve opened themselves up to additional damages.  

Long story short, we love what we do and we love helping people.  We’re always here for you to help you with your bankruptcy related issues.  If you have an issue, give us a call and let’s see how we can figure this out together.  

Step by Step

in Bankruptcy

Bankruptcy is one of those things that requires a step or two to complete.  In this post, we’ll outline the 4 main steps that everyone goes through in a normal bankruptcy.  

Step 1

The first step is for you to get your initial consultation.  Here at Harmon and Gorove, we offer a free initial consultation and evaluation.  You shouldn’t have to pay hundreds of dollars just to find a solution that doesn’t work. Afterall, if you had that kind of extra money laying around, you wouldn’t want to spend it having someone tell you how they can’t help you.  During this initial consultation, we’ll need you to submit some paperwork.  Paystubs, bills, your credit report and your taxes are all very helpful things to bring in to your consultation.  It will save you time and heartache down the road if you come in with all your ducks in a row.  It speeds up the bankruptcy process for everyone, you and us.  

Step 2

If bankruptcy is right for you and you want to proceed, we may need to see you another time.  You’ll need to come in and sign off on everything, including our agreement to represent you.  You’ll also need to bring in any paperwork you didn’t submit at our initial consultation. This is the final step before we file the case and get you some relief.  

Step 3

We begin the filing process.  Once you have signed off on everything and paid your filing fees, we file your case.  We do this electronically, it happens pretty fast.  Once we hit submit, we can have you a case number within minutes.  Once you’re armed with that case number, the automatic stay applies (it’s awesome) and it stops everyone’s collection attempts dead in their tracks.  From then in, anytime a creditor calls you, you give them your case number and tell them to call us.  

Step 4

In step 4, we work on all the things that happen after we click, submit.  Your next step is the “meeting of creditors.” This is also known as a “341” hearing.  While it is a meeting of creditors in the true sense, most of the time, no creditors show up.  This occurs sometime between 30 and 45 days after the filing happens. While they have traditionally been held at the courthouse, they are currently being held telephonically.  That means you can call in from wherever you are and take care of everything in your pajamas if you want. We’ll be there with you, either in person or on the phone.  You’ll answer any questions posed to you and then you’ll be free to go.   

Wrapping it up

Your hearing may only last a few minutes.  In fact, most are over in 10 minutes or less.  The trustee will conclude the hearing and then they’ll let us know if they need any other documentation from us.  If they do, you can get it to us and then we can move on.  From this point, if you filed a Chapter 7, you’ll be discharged within the next 120 days or less.  If you filed a Chapter 13, we’ll move to confirmation of your case and get you started down the right path.  Filing bankruptcy is easier than ever if you’ve got the right attorney.  We are there for you every step of the way.  

Car Repo Options

in Bankruptcy

Bankruptcy is the fastest way to stop any type of repossession effort.  If you’re behind on your car you can stop a repo dead in its tracks in most cases.  If you’re going to file a Chapter 7 you’ll likely need to be current for the Chapter 7 to work without a hitch. Once you are current, you can reaffirm that debt and keep making payments on the car. Chapter 7 eliminates other debts that may be keeping you from making your car payments to begin with.  

The process of reaffirmation is an agreement between you and your lender on your car.  It basically makes the bankruptcy as though it didn’t happen, at least in relation to your car.  The lender gets you back on the hook for your car and you keep making payments just like before.  The only difference is, you’ve gotten rid of all the things that were keeping you from being able to make your payments to begin with.  

If you’re filing a Chapter 13, you don’t have to be current on your car.  Chapter 13 is its own solution in and of itself.  If you’re behind, the plan can be written so you can pay back the arrearage and keep making your payments.  You get to keep the car and they get what they’re really after, their money. One thing you don’t want to do though is wait.  If you know they’re looking for your car, you need to file NOW.  It’s much easier (and cheaper) to keep your car and get the case filed than it is to go back and get it back after a repo.  Once you know your car is in danger of being repossessed, you need to get in touch with us ASAP so we can stop it from ever happening.  

One thing you need to remember is, you don’t have to be 3 months behind on your car for the lender to repo it. Under a lot of contracts, if you’re even a day late you have defaulted on the contract and they can begin the proceedings.  You aren’t guaranteed anything outside the contract.  Will they repossess on day 1, not likely.  Ideally, they want you to pay, but that doesn’t mean they won’t come after the vehicle.  Once you get notification of a pending repossession or you know you can’t make payments, you need to contact us.  Remember, your rights begin to diminish with every moment you wait after you know you can’t pay anymore.  

Transparency can save the day

in Bankruptcy

Filing bankruptcy is usually considered a personal decision.  However, if done incorrectly, it can have far reaching ramifications that can sweep your entire family up in its wake.  The biggest mistake people make is transferring assets or repaying debts to family members prior to filing bankruptcy.  This type of behavior can expose your family to investigation by the bankruptcy trustee. As in all aspects of the law, transparency is key.  

Dragged in, unaware

While I was waiting my turn for a bankruptcy hearing a few weeks ago I couldn’t help but overhear the discussion going on between a local attorney (with a bad reputation), their client and the trustee.  The trustee had noticed a serious discrepancy in the petition versus the testimony the client gave.  As I watched, it unfolded much like a scene from shark week.  As the client and his incompetent attorney threw more proverbial “chum” in the water, the trustee became more and more aggressive.  

The trustee’s investigation was quickly honing in on transfers the debtor had made to family members before they filed their case.  Some of the cases involved repaying debts to their family members while others appeared to just be straight up gifts.   The worst part about the whole situation was the “sale” of an RV to a family member that appeared to be a coordinated effort to keep the RV out of bankruptcy.

By the time the trustee was done, he was calling for a horde of documents to be produced, a further examination of the finances of the debtor and appearing to challenge the dischargeability of the debts.  In other words, things went off the rails for the debtor very quickly and transparency could have potentially kept things on track.  

The long arm of the (bankruptcy) law

The bankruptcy law is there to give debtors who fully disclose their situation a wonderful break to restart their lives.  If you’re open and transparent with the trustee, you’ll usually end up coming out smelling like roses.  

The law gives the trustee an enormous amount of power to go after property and assets that debtors try to hide from the trustee and their creditors.   Bankruptcy seeks to give everyone a fair shake, debtor and creditor. When you try to hide assets, you’re denying creditors their fair shake.  

If you make a payment on existing debt to an ordinary creditor, that creditor is subject to a 90 day look back.  That means that the trustee can recover anything that is deemed preferential that was paid 90 days before the bankruptcy filing.  If the payment was made to a family member, the lookback is a full year.  

In other words, if you paid a family member off, the trustee can sue your family member to recover the money you paid them in a chapter 7 bankruptcy.  

Preferences matter

Most people find it hard to understand why payments on genuine debts can trigger trustee lawsuits to retrieve the money.  The debt is real, they say.

A lot of people can’t believe that payments on legitimate debts can trigger the trustee’s pursuit of the payments.  The issue isn’t that you’ve paid a real debt. The issue is you prioritize debts.  If you’re paying one creditor, be it a family member or your local credit union, but you’re not paying other debts, that’s called a preference.  In bankruptcy, preferences are against the law.  Every creditor must be treated the same.

Gifts cause problems

Legally speaking, a gift to a family member is called a fraudulent transfer.  You’re giving the family member something and getting nothing in return.  Technically that leaves you poorer than before and that technically damages your creditors.  If you start giving too much stuff away to family members, you’re setting them up to be sued by the trustee to recover those assets 

I’ve never seen a bankruptcy trustee try to take back ordinary birthday or Christmas gifts but if you start handing out cars, boats, houses or businesses, you’re probably going to create some issues. 

We take care of family

Everyone wants to take care of our family, that’s in our nature.  If you’re looking at filing bankruptcy, you need to wait until afterwards to start taking care of your family again.   After the bankruptcy you are free to pay back any creditor you want without consequence.  In other words, you can take care of those who are taking care of you.  Once you get your discharge, you can give anything you have away.  

Tell the truth

Transparency is key and my biggest concern as I sat there was, did the debtor tell his attorney everything? Did the attorney not list everything in the petition?  Did the trustee find out some other way.  

If the debtor didn’t believe his attorney when he was told to disclose everything, they made a terrible decision and brought the trouble on themselves.  Even if they don’t end up getting their family sued, they might not get a discharge.  

The petition you file asks lots of questions.  Many of them seek to find the truth about your finances.  They ask about payments to creditors and transfers of property to others.  If you don’t tell your attorney what’s going on, we don’t have much sympathy for you.  

However, if the problem is created by a crummy lawyer, I have to see innocent debtors face the music.  

Crummy Lawyers fail in several ways.

  1. They fail to explain how serious the issue of transparency is
  2. They fail to recognize transfers that were avoidable
  3. They fail to insist that their client fully answer questions
  4. They fail to consider a Chapter 13 for clients who could potentially expose their family to lawsuits.

 

This day in court is unusual, so don’t let that scare you.  As long as you’re open with me, we’ll find the best course of action for you. Remember, transparency is key.

8 Things Finance “Experts” get Wrong

in Bankruptcy, Credit and Credit Cards

Personal finance “experts” love to run around spouting off about bankruptcy and other issues they don’t know much about.  While many of them do promote best practices when it comes to finance, many of them share blatant falsities about bankruptcy like this guy does.  

Number one, they often don’t even know basic facts about bankruptcy.  It’s complicated, so many people just spew what they think they know about bankruptcy and pass it off as legitimate advice.  

Number two, these so called “experts” make bankruptcy sound like it should be your last choice.  We have written about why bankruptcy should never be treated as a last resort. Instead, bankruptcy should be considered alongside a number of tools to help you improve your financial position.  Instead, they just continue to spread misconceptions and myths.   

So, considering I’ve been practicing bankruptcy for 11 years and I’ve handled more than 2,000 cases, I’ve got a few things to discuss that these finance “experts” should know.  

1. In 97% of bankruptcy cases the debtor loses nothing. 

Chapter 7s are considered a liquidation bankruptcy.  In theory, if you have a valuable asset that is unencumbered by liens, the trustee can sell that asset to recover money for your creditors.  The problem is, most Chapter 7 clients, don’t have enough assets to sell for two reasons.  First, most assets either have liens on them or aren’t really worth much and second, you have generous exemptions here in Georgia.  

2. If you have any assets, you can just file a Chapter 13 and keep them. 

If you do have assets and they could potentially be at risk in a Chapter 7, you can just file a Chapter 13 and then they’re protected.  You simply repay the value of the items you wish to keep at an extremely low interest rate and then you emergen from your bankruptcy with a discharge.

3. The means test just determines which chapter you are eligible for.

The means test doesn’t keep you from filing bankruptcy. Period. It’s just there to make sure that wealthy or high income people don’t abuse Chapter 7s. Even if the means test determines you don’t qualify for a 7, you can still do a 13 and pay back only a fraction of your debt. 

4. Credit scores improve immediately. 

We have written about this and we want to state it again.  Studies by the Consumer Financial Protection Bureau have shown that your credit score starts going up the month you file bankruptcy.  Yes, a bankruptcy can stay on your credit report for up to 10 years, but as we say so often, time heals all wounds and your bankruptcy will matter less and less as time goes on. 

5. You can get a loan, even in if you’re still in your bankruptcy

Filing bankruptcy changes how much you’ll pay for credit.  It doesn’t mean you can’t get credit at all.  People in Chapter 13s routinely take out (court approved) debt to buy cars in the event of an accident.  Just because you’ve filed bankruptcy doesn’t mean you’re not able to get credit at all. 

6. Stress is a health risk

We have only recently begun taking mental health seriously in our country. Stress, particularly stress related to money, can take a substantial toll on our mental and PHYSICAL health.  Stress leads to bad choices, mental health problems and unhealthy habits like drinking or drug use to cope.  Bankruptcy can help you get your financial house in order and lowers stress, immediately. 

7. Bankruptcy frees up cash to pay debts that can’t be discharged

Some debts can’t be discharged.  It’s just the way the bankruptcy code is written.  The bright side of this is, you’re freeing up cash you can use to pay off those debts by filing bankruptcy.  

Bankruptcy isn’t the last resort. ever.

Bankruptcy offers a quick, legal and certain fix for debts that have swamped you.  Every day we see people who have spent their retirement savings or strung along debts that have kept them from being able to start over.  Bankruptcy should always be in the discussion when it comes to eliminating overwhelming debt.  After all, cutting $5 lattes is a good practice to keep yourself on a budget but it isn’t going to fix a mountain of uncontrolled debt, no matter how many “experts” try to claim it will.