Receivership as an Alternative to Bankruptcy

By William E. Winfield, Esq.

Attorneys and clients considering financially challenged businesses should not forget to consider the benefits Receivership, both as a potential tool for collection of outstanding obligations or enforcement of contracts, but also as a vehicle for financial restructuring.

Receivers are typically appointed by the Court in a litigation proceeding at the request of a creditor, co-owner of a business or reap property, or by any adverse litigant.  A party who may be contesting or litigating ownership or control of an asset  over which Receivership is being sought may be wise to consider consensual receivership as a solution to the dispute and means of financial restructuring.

  • The advantages of a Receivership over bankruptcy include:
  • The ability to choose the fiduciary and discuss outcomes and strategies in advance
  • Lower administrative costs than in bankruptcy
  • Faster administration than in bankruptcy
  • Judicial Supervision by local Superior Court
  • Ability to preserve going concern value that would be lost in a bankruptcy liquidation

In addition to these advantages parties should consider tools the Receiver has which can facilitate continued operation of a business or rehabilitation of an asset before sale, such as the power to:

  • Issue Receivership certificates to fun needed services to benefit the Receivership estate
  • Assume or reject existing contracts.
  • Pursue litigation on behalf of the Receivership estate.

While there is no automatic stay protecting against other suits, the appointing Court will typically protect the Receivership estate from lawsuits that would interfere with the smooth administration of the Receivership estate.

Sometimes disgruntled parties seek to remove a Receiver by filing a voluntary or involuntary bankruptcy proceeding but the Bankruptcy Code provides the Bankruptcy Court with discretion to leave the Receiver in control of asset in order to do what is best for the estate. Bankruptcy Judges rarely remover property from Court Appointed Receivers who have already invested time in protecting assets.

William E. Winfield is an attorney at Schneiders & Associates. He has been practicing in creditors’ rights and debtors remedies for 30 years and is board certified in Business Bankruptcy by the American Board of Certification.  He is also available for appointment as a Receiver.

Effects of Bankruptcy on an Inheritance

By Rennee R. Dehesa, Esq.

If you are expecting an inheritance but considering personal bankruptcy, you might be concerned about what will happen. Whether an inheritance gets pulled into an ongoing bankruptcy proceeding depends on the size and form of the inheritance, the type of bankruptcy filed, and the timing of the death of the person leaving the inheritance relative to the filing of the bankruptcy proceeding.

Size and Form of the Inheritance

The word “inheritance” is most often associated with money; however, many estates consist of far more than cash. The nature of the item inherited can determine whether it is pulled into the bankruptcy estate of the recipient. For example, a vacation cabin on the lake that is passed down to multiple family members is going to be treated differently by the bankruptcy court than a few shares of stock willed to an individual.

Type of Bankruptcy

There are two different chapters under which most debtors file for personal bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 case, the bankruptcy trustee can typically take the inheritance and liquidate it in order to pay off creditors, unless the debtor has an exemption they can use to protect it. In a Chapter 13 case, the debtor is more likely to be able to keep the inheritance, but he or she could see the repayment obligations to creditors increase.

Timing Issues

Whether an inheritance is part of the bankruptcy estate, and thus reachable by creditors, depends largely on when the bankruptcy was filed relative to when the person who left the inheritance passed away.

If the person who left the debtor the inheritance died within 180 days of the bankruptcy, the inheritance is part of the bankruptcy estate. There are two important things to note about this rule. First, it is the date of death, not the date that an inheritance is received, that matters. Second, the 180 days count both backward from the date of filing and forward from the date the bankruptcy is closed.

If you are currently going through a bankruptcy without the assistance of an attorney, or you are considering filing a bankruptcy and you have received notice of an inheritance (or even if you think you might be inheriting something in the near future), it is important to seek advice from an experienced bankruptcy attorney.  Contact an attorney at Schneiders & Associates, L.L.P. today.

What Is Exempt Property in Bankruptcy?

By Rennee R. Dehesa, Esq.

If you are considering filing for bankruptcy, you may be concerned that you are going to have to give up virtually all of your personal property.  Luckily, this is not the case.  You can keep some of your property thanks to Federal and state property exemptions.  Property exemptions exist so that a debtor can have the basic necessities for living and earning a livelihood.  Stripping someone of all their assets would make it nearly impossible for them to be successful in the future.  In Chapter 7 bankruptcy, taking advantage of exemptions usually means that the property will not be sold to satisfy creditors.  In Chapter 13 bankruptcy, the more exempt property you have the less you will have to pay creditors.

There are different types of property exemptions provided for by Federal and state law.  Some exemptions apply to the specific property regardless of its value.  Others apply to the entire value or part of the value of an asset.  If property is totally exempt, the debtor can keep it and it is not considered by the bankruptcy court.  If property is exempt only up to a certain amount and the value of the property is more than the exemption, the property may need to be sold by the bankruptcy trustee and the balance of the value considered part of the bankruptcy estate.

The Federal bankruptcy law provides exemption for the debtors homestead, personal property such as a car and household goods, personal injury awards and retirement accounts. All of this property can be exempt up to a certain amount.  The wildcard exemption allows a debtor to choose any property as exempt property (up to a certain amount).   When it comes to state property exemptions, it is important to realize that state bankruptcy laws are not uniform across the country.  The state law that applies to a particular bankruptcy case depends upon the debtors domicile or state of residence.  Depending upon the state of the debtors domicile, they may be entitled to Federal and state exemptions, or, one or the other.

Bankruptcy is a complicated area of the law and each case should be handled by a qualified attorney. Call us today to speak with a Schneiders & Associates, L.L.P. bankruptcy attorney who can provide you more information about whether bankruptcy is a good option for you.

What to Expect At Your Bankruptcy Consultation

By Rennee R. Dehesa, Esq.

Each year, many Americans looking for a fresh start turn to bankruptcy for relief from their debt obligations. If you’re considering filing for bankruptcy, meeting with an experienced attorney is one of the best ways to determine whether it’s the right solution for you.  Once you have scheduled an initial consultation, you may receive a questionnaire from the attorney’s office to be filled out prior to the meeting. This early assessment will generally ask you about your outstanding debts, monthly expenses, assets and income so your attorney has a full picture of your financial health and can advise you on the best course of action. Before your meeting, you will want to start gathering any and all documents pertaining to any active or past due accounts, bank statements, paystubs, child support or spousal support orders as well as any documents that may relate to legal action or judgments you have against you.

During your initial meeting, the attorney will carefully examine the questionnaire, relevant documentation and likely ask a series of questions about your finances to determine whether you qualify for bankruptcy and what type of bankruptcy (Chapter 7 or Chapter 13) is ideal.  The bankruptcy attorney will review your income, on a long and short term basis as well as your expenses to make sure that your expenditures would be considered reasonable by the court.  Finally, the attorney will look at your assets and debts.  It is important to have up to date information about your debts at this time, which is why most attorneys encourage you to bring your most recent credit or loan statements.  An attorney will also look at your assets to determine which, if any, may qualify for exemptions.

Many individuals considering bankruptcy are embarrassed and feel some reluctance when discussing their financial situations. It’s important to remember that full disclosure is absolutely necessary when working with your attorney.  Based on the information that you’ve provided before and during the meeting, your attorney will inform you on some of the basics of bankruptcy, offer advice as to various options, including whether it is in your best interest to proceed with the bankruptcy petition.

Contact a bankruptcy attorney at Schneiders & Associates, L.L.P. to schedule an initial consultation so we can review your situation and recommend the best course of action for you.

Bankruptcy & the Automatic Stay

By Rennee R. Dehesa, Esq.

For individuals behind on their bills struggling to make ends meet, it may seem that creditors know no bounds; they call at all hours of the day, send menacing letters, freeze bank accounts and can even garnish wages. If you find yourself in this predicament, you should contact a bankruptcy attorney who can immediately cease these actions through a concept in bankruptcy law known as the automatic stay. As soon as an individual in the United States files for bankruptcy any lawsuit and collections actions against the party and their property must cease. This automatic stay may help you stay in your home by stopping foreclosure proceedings, keep the electricity on and even stop wage garnishment.

It’s important to note that the automatic stay does not apply to all financial obligations. For instance, even after you file for bankruptcy, the IRS can still audit you or demand a tax return. The agency cannot, however, place a tax lien on your property or seize your bank account. You will also still be required to pay child support or alimony during this time period and any collections efforts for this type of support will not cease during the automatic stay.

The automatic stay in no way resolves your debts, it just places any debt collection actions on hold as the bankruptcy trustee works on your case, determining how your various debts will be settled or repaid as part of your payment plan.

Secured creditors may petition the court to lift the stay, if they have good cause. For instance, say you are on the verge of having your car repossessed for back-payment and the bank learns that you are no longer carrying insurance on the car (a necessity when financing a vehicle), they may ask the court to allow them to proceed with the repossession as this may be the only way to protect the property which they still own.

If you have filed for bankruptcy multiple times within the past year, the automatic stay may be reduced in time (it lasts for just 30 days if you are filing for the second time within a year) or never go into effect at all (if you’ve filed three or more times in a year). Contact a bankruptcy attorney at Schneiders & Associates, L.L.P. who can help you better understand how filing will impact your current financial situation and help you complete all necessary forms. 

Reaffirmation Agreements: Negotiate a Better Deal and Rebuild Your Credit after Bankruptcy

By Rennee R. Dehesa, Esq.

Choosing whether to enter into a reaffirmation agreement with your secured creditors is one of the most important decisions you will make during the course of your bankruptcy. The pros and cons must be carefully weighed.

On the one hand, reaffirming a debt affords you a level of certainty, knowing your property will not be repossessed or foreclosed, and providing clarity regarding the payoff balance, monthly payment, interest rate and terms. Additional benefits include the potential to negotiate a better deal during the reaffirmation process and the opportunity to rebuild your credit. Once you re-assume your obligation and make timely payments, those payments will be reported to the credit bureaus thus setting the course for improving your credit in relatively short order.

On the other hand, reaffirming a debt means re-obligating yourself to make those installment payments. Any default on your part could subject you to any and all collection activities, including garnishing your wages.

Once you decide to move forward with reaffirming your secured debt, you must take steps to ensure the reaffirmation agreement is in writing, and signed by all parties and approved by the bankruptcy judge. Simply checking the “reaffirm” box on your bankruptcy Statement of Intention is not sufficient and will not result in a positive signal on your credit profile, nor will it result in any improvement in your credit score.

You and the creditor must execute a formal reaffirmation agreement which documents that you can manage the reaffirmed payment amount. Your attorney must also sign the agreement and state that he or she believes that the reaffirmation agreement is in your best interest. Absent a written reaffirmation agreement, you have no legal obligation to pay and therefore any payments made will have no effect on your credit report.

There is a silver lining, even in bankruptcy. Throughout the reaffirmation process, you may be able to negotiate more favorable terms. Reaffirmation is a new contract between you and the creditor, and need not mirror the terms of your original agreement. Many debtors have successfully negotiated for reduced payoff balances, lower interest rates, or lower monthly payments on contracts for vehicles, furniture, mortgages and home equity lines of credit.

Some lenders are more willing to negotiate these terms than others. While some stubbornly cling to a “non-negotiable” policy, others will see the value in retaining you as a customer and continuing to collect your monthly payments, rather than repossessing and liquidating the underlying collateral for the loan. You never know until you ask, and it is probably best if you have an attorney handle the negotiations on your behalf.

You may cancel a reaffirmation agreement within 60 days after the agreement is entered or your bankruptcy case is closed, whichever comes first. Once you enter into a reaffirmation agreement, it is critical that you fulfill your obligations under the new contract. Doing so will protect your property from repossession, and rebuild your credit score so you can recover from your bankruptcy as quickly as possible.

If you are facing a financial hardship and would like to explore the option of a bankruptcy filing, please contact the knowledgeable bankruptcy attorneys at Schneiders & Associates, L.L.P. for a consultation.

Timeline for Filing Bankruptcy

by Rennee R. Dehesa, Esq.

The most common type of personal bankruptcy is Chapter 7. Often referred to as “liquidation bankruptcy,” “personal bankruptcy,” or “straight bankruptcy,” the purpose of a Chapter 7 bankruptcy is to allow an individual or business to cancel outstanding debts and liquidate certain property in an orderly fashion. The average Chapter 7 personal bankruptcy takes approximately 5-6 months to complete.

There are really two phases to the Chapter 7 personal bankruptcy process. The first phase involves preparing to file for bankruptcy, while the second phase involves actually filing your bankruptcy case. Both phases are described below.

Preparing to File for Bankruptcy

1.  Make sure bankruptcy is right for you: This step involves analyzing your outstanding debts and assets and making sure that a Chapter 7 bankruptcy is the right step for you. Most people considering bankruptcy have probably already gone through a preliminary review of their finances. But it is still important to sit down and make sure you haven’t missed anything. A bankruptcy attorney can assist you with this process.  You shouldn’t be alarmed if you don’t currently have any assets (e.g., your bank account balances are at or near zero)—most personal bankruptcy filers are in the same situation.

2.  Determine your eligibility for bankruptcy and what property exemptions you might qualify for: Not everyone is qualified to file for personal bankruptcy. If your current earnings are substantial, you may not qualify. Likewise, if you have substantial liquid assets, you also might not qualify. An experienced bankruptcy attorney can help you determine if you are eligible to file. In addition to determining your eligibility to file for Chapter 7 personal bankruptcy, it is important to figure out if any of your assets will be exempt from liquidation. In other words, it’s important to determine what property and assets (such as your home) you will be able to keep after the bankruptcy is complete.

Filing for Bankruptcy

The second phase in the personal bankruptcy process is the actual filing of your bankruptcy case. Below are the steps involved during this stage:

1.  Complete and file the bankruptcy filing forms: A Chapter 7 personal bankruptcy filing begins by completing and filing a Bankruptcy Petition and related informational forms. A personal bankruptcy attorney can help you complete the forms required to initiate your bankruptcy case. Once these forms are filed, a Bankruptcy Trustee will be appointed to review your case. It is important to be accurate and truthful on all of the bankruptcy forms because they will be reviewed by the Bankruptcy Trustee and possibly the Bankruptcy Judge. The purpose of the bankruptcy filing forms is to provide the Trustee with information about the debts you owe, your current income and any assets you have. If you have debts that are secured by collateral (car loan, mortgage, loan on personal property), you will need to explain in the bankruptcy forms how you intend to deal with these debts. Your options are generally to relinquish the collateral (give up a car with heavy loans), renegotiate the debt or continue paying the debt as agreed.  Depending on your particular situation, one of these options may be preferred over others.

2.  Creditors meeting: After your case is filed, you will need to come to court once to meet with the Trustee and any of your creditors who choose to appear at the meeting. In the average personal bankruptcy, most creditors do not attend the meeting.

3.  Wrap up and discharge: If everything goes smoothly, the Court will discharge your un-secured debts and you will be out of bankruptcy within 5-6 months from your initial filing. If your case is very straightforward—no assets and only unsecured debts—you could complete the process in as little as 3 months.

If you aren’t sure whether bankruptcy is a good option for you, make an appointment today for a free consultation and I will happily review your financial situation with you to help you determine your options.

Bankruptcy and Your Small Business

By Rennee R. Dehesa, Esq.

Financial hardship is difficult for any individual but for business owners, it can be particularly stressful as the line between personal and business finances may become blurred. You may have racked up a lot of personal credit card debt and may be considering filing for personal bankruptcy, but you are concerned about how bankruptcy will affect your small business. Or, your business could be struggling and you may wonder how a business bankruptcy will impact your personal finances.

First, you need to know about the three most common types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Under a Chapter 7 bankruptcy, which is a liquidation, assets are used to pay debts, and any remaining debts are “wiped out”. A Chapter 7 filing can be utilized for both individuals and businesses. A Chapter 11 or 13, which are also available for individuals and businesses, commonly referred to as reorganization, allows debtors with a regular income to set up a new timetable for paying off creditors, while keeping their assets.

The second thing to consider is how your business is set up. If you are a sole proprietorship, and are simply operating the business in your own name, then there is no way to separate your personal assets and liabilities from those of your business. Therefore, any business assets (in excess of the exemption you are allowed) could be surrendered as a part of the bankruptcy. Also, any receivables of the business or other potentially valuable business property could be claimed by creditors in a bankruptcy.

If your business is operated under a separate entity, such as an LLC (limited liability company), an LLP (limited liability partnership), or a corporation, the shares of your business that you own are assets. If partners are involved in the business, the bankruptcy trustee who represents the interest of the creditors could become a de facto substitute partner and force a liquidation of the business. If your business is an LLC, a new law in effect for 2013 may impose liability on you if you file bankruptcy and there are other members of the LLC who do not.

If your business is struggling, but you are personally doing fine financially, you may consider a business bankruptcy. If you aren’t interested in keeping your business open, you may consider filing a Chapter 7, which will simply liquidate the business. A Chapter 7 is probably best if the business is not going anywhere, does not have significant assets, or if the debts are so completely overwhelming that it’s not possible to restructure them. Keep in mind that vendors and other creditors may have obtained a personal guarantee from you, in which case, you may be personally on the hook for your business’s liabilities, even if you do file bankruptcy for your company. Personal guarantee clauses are common on many credit applications and commercial leases.

If your business is fundamentally sound, but because of excessive debt, bad contracts, or other unfortunate circumstances faces significant liquidity issues, a Chapter 11 may be appropriate. A corporate reorganization can be complex and requires a significant time investment from the owners and managers who have to work with creditors and attorneys. It can also be expensive and the success rate on a Chapter 11 for small business is low.

You may also believe that bankruptcy is your only option, but that may be incorrect. Creditors are faced with an exorbitant volume of defaulted accounts and as a result are more inclined to negotiate with troubled borrowers on their accounts. You can establish great payment plans, or if you have some cash to work with try to settle your entire debt for pennies on the dollar!

If you are considering business or personal bankruptcy, it’s important to carefully assess your individual circumstance and consult with a bankruptcy attorney who can advise you of all your options and help you navigate the process.

Bankruptcy and Its Impact on Your Children

By Rennee R. Dehesa, Esq.

Filing for bankruptcy often represents the last gasp following a period of mounting stress and emotional turmoil. If you have reached the point of seeking relief in bankruptcy court, you have probably investigated and exhausted every available option to keep your finances intact. In addition to financial considerations, you should carefully think through how filing bankruptcy will affect your children.

Who Owns What?

The line between your assets and your child’s assets can become blurred in the context of your bankruptcy case. If you established a bank account for your child, but did not take the necessary steps to set it up correctly, it may not be protected from creditors during your bankruptcy because the money in that account may be deemed your money and not your child’s. Parents typically encounter this problem if the account was established only in the parents’ names, and not the child’s name, or if the parents have used the account to pay their own bills. To protect your children’s account from your bankruptcy, the account should be established under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.

College Tuition Assistance

If you are currently contributing money toward your child’s college fund or tuition payments, your bankruptcy filing could put a stop to it. When a debtor files for bankruptcy, creditors and the court strive to limit how much your monthly expenses are, to preserve as much “disposable” income for repayment as possible, and may place a higher priority on debt repayment than your child’s education. Bankruptcy courts allow for “necessary” expenses, including housing, food and utilities; however, your child’s educational expenses may not be considered essential. The amount of any such payments may be added to your disposable income available to repay your debts under Chapter 13, or may disqualify you for Chapter 7 under the means test calculation.

Bankruptcy and Child Support

Child support payment obligations are not eligible for bankruptcy discharge, and children are protected from bankruptcy regardless of whether a parent is behind in making the payments. Under Chapter 7 bankruptcy, child support payments are considered a top priority when assets are liquidated to raise cash for creditors. Under Chapter 13, the required child support payments are addressed in the repayment plan. Ideally, the bankruptcy itself will make it easier for the parent to keep current with support obligations by reducing other payment obligations.