Source: Bankruptcy News Briefs 9/23
Inheritance Questions? Ask Ventura Attorney Dan Higson. Most people in the United States will receive some form of inheritance in their lifetime. This circumstance often combines the grief of losing a loved one with a feeling of financial relief. In this chaotic situation, it is important to consider how to correctly handle the acquisition of an inheritance.
Before you start spending large amounts of the inheritance, allow for a cooling-down period to consider your options and avoid mistakes caused by strong emotions or hastiness. You should assess both short-term and long-term goals such as retirement plans, and figure out how to maximize your newfound wealth.
Develop an inheritance plan that outlines your financial goals and identifies potential problems that could arise. You should also try to think about previous financial issues and bad habits you may have had in the past.
One of the most important priorities is to make an emergency account. This should consist of a sum of easily accessible money that accounts for at least 3-6 months of living expenses. This can cover many problems that arise such as loss of employment and medical bills.
Next, you should pay down existing debt, such as loans, mortgages, and credit cards. Paying down these debts quickly keeps you from paying more money in the long-term because of the interest that accrues as time passes.
You can also use inheritance money to contribute to your retirement plans, such as a 401K or IRA.
Have some fun! It can be beneficial to set aside 5-10% of the inheritance for personal spending. It’s much harder to reach your long-term goals if yougive yourself no leeway in the meantime.
If you have any remaining questions about how to spend your inheritance, contact us as Hathaway Law. We would be glad to help you decide how best to capitalize on your inheritance.
The desire to protect your assets may be a major reason why you’re looking into bankruptcy, but there are a few types of transfer that are illegal to perform right before filing. Here are some examples:
Transferring property into someone else’s name, such as a friend or family member. If you attempt to protect your assets by transferring them to someone else within a year before the bankruptcy filing, the bankruptcy court may be able to reclaim the property and even deny the bankruptcy discharge.
Selling your assets for less than market value, especially if the items are not exempt from the bankruptcy. For example, selling your used vehicle for a reduced price shortly before filing for bankruptcy could be considered an illegal transfer.
Paying off family loans. Payments of loans to family members within 90 days before filing for bankruptcy may be confiscated and returned to the testate. The reasoning behind this policy is that paying back family loans leaves other creditors at a disadvantage.
Here we’ve listed three types of illegal asset transfers, but others exist as well. If you have any questions about what you can and can’t transfer before your bankruptcy filing, contact the legal team at Hathaway Law today.
If you own a small business and are experiencing financial distress, there are several bankruptcy options available to you. Although some require the company to be dissolved, others allow you to restructure and eliminate your debts while keeping your business afloat.
Chapter 7 bankruptcy is an option for debtors that cannot afford to restructure and continue their business. During this process, a trustee is appointed and assets are sold to pay the creditors as much as possible. Partnerships, limited liability companies, and corporations can all file Chapter 7, and depending on the circumstances, it isalso available to sole proprietors of small businesses.
Chapter 13 bankruptcy is a restructuring option available only to businesses owned by an individual. However, Chapter 13 has a debt limit. If the owner owes more than $383,175 in unsecured debt or $1,149,525 in secured debt, he or she cannot file Chapter 13.
But what about Bankruptcy for Small Business Owners? Chapter 11 bankruptcy is another option for small business owners. Since it is risky, complex, time-consuming,and expensive, many debtors do not give this option the consideration it deserves. Chapter 11 is the only bankruptcy option for small businesses that wish to restructureand maintain operations if they are owned by a partnership, limited liability company, or corporation. It is also the only option for debtors who wish to restructure but exceed the monetary limits of Chapter 13 bankruptcy.
You may have seen Chapter 11 bankruptcy in the news, since many big-name companies such as K-Mart and United Airlines have utilized it. However, most Chapter 11 filings are undertaken by small businesses unknown nation-wide. Through Chapter 11, the company restructures its finances through a plan that is approved by the bankruptcy court. The plan reduces obligations and alters payment terms to make the debt more manageable, and can help the business owner balance income and expenses, regain profitability, and remain in operation. The debtor can also downsize the business by selling some inconsequential assets.
There are some special provisions for small businesses during Chapter 11 bankruptcy that can help them speed up the process and reduce expenses. A “small business case” involves a “small business debtor” who is engaged in business activities and owes no more than $2,490,925 in total claims. This sum excludes obligations to family members. Outlined below are some of the special procedures for small business Chapter 11 cases:
No Creditor’s Committee. In most Chapter 11 cases, a creditor’s committee is appointed to represent unsecured creditors. This committee can hire lawyers andother professionals at the debtor’s expense, greatly increasing the cost of filing.
No Disclosure Statement. A disclosure statement is usually prepared by the debtor and submitted to the bankruptcy court for approval. It provides extensive information about the debtor and the restructuring plan and can be expensive to prepare. If the disclosure statement requirement is waived, it can reduce costsand expedite the process.
Additional U.S. Trustee Oversight. For Chapter 11 cases involving small businesses, the United States Trustee’s Office oversees bankruptcy cases on behalf of the Department of Justice. More oversight gives more leeway during the case.
Longer Exclusive Period to Propose Plan. In some bankruptcy cases, creditors file competing Chapter 11 plans that include the liquidation or takeover of the debtor’s business. The debtor usually has a 120-day period to propose their plan and maintain exclusive rights to it. For small businesses, this period is extendedto 180 days, reducing the risk of having to litigate competing plans.
Plan Deadline. There is generally no deadline for filing a Chapter 11 plan unless the court assigns one. However, in small business cases, the debtor has 300 daysto provide a plan, unless the court allows an extension.
Additional Filing and Reporting Duties. Small businesses must fulfill additional requirements, such as recently prepared balance sheets, statements of operationsand cash flow, and federal tax returns.
If you are a small business owner experiencing financial distress, you might want to consider Chapter 11 bankruptcy as an option to keep your business afloat. The legal team at Hathaway Law would be happy to help you decide if this is the right action for you. We can guide you through every step of the process, and make sure you do everything in your power to keep your business up and running. Nothing gives us greater pleasure than to help small businesses turn around their situation and onceagain become a strong, crucial part of their local economy. Call Dan Higson to speak to an attorney about Bankruptcy for Small Business Owners.
Being in debt is stressful enough without the constant calls and pestering of debt collectors. Will Bankruptcy Stop Debt Collector Harassment? A benefit of filing for bankruptcy is that the creditors and debt collectors will be required to stop all collection efforts against you. This is called “automatic stay”, and it is a powerful tool to help you through the bankruptcy process. Automatic stay affects much more than just debt collector calls. Here is a list of some of the other benefits:
If you are behind on utility bills and the company is threatening to disconnect your water, electricity, gas, or phone service, automatic stay will prevent utility disconnection for at least 20 days.
The foreclosure of a home mortgage will temporarily stop.
If you receive public benefits and were overpaid, usually agencies can collect payments from your future checks, but automatic stay prevents this from happening.
Filing for bankruptcy stops multiple wage garnishments.
Filing stops the IRS from issuing a tax lien or seizing property or income.
Automatic stay does not affect a variety of other issues. The IRS can still audit you, issue tax deficiency notices, and demand payments. Child support and alimony lawsuits will continue unhindered. Criminal proceedings will not be stopped, even if they include debt-related crimes. Certain types of pension loans are unaffected by automatic stay. You may still be evicted from your home if the landlord has already passed judgment. Also, a creditor can get around automatic stay by requesting that the bankruptcy court remove it. This will most likely occur if bankruptcy is filed immediately before a major collection is due, such as the foreclosure of a house.
If all you want to do is stop debt collection calls, there is another option. Under the Fair Debt Collection Practices Act, you can send a written request that you want the collection agency to cease all communication with you. As a result, all agency employees are prohibited from contacting you, except to tell you that collection efforts have ended or that you are about to be sued. However, this solution only helps against debt collectors, not the creditors themselves.
One of the most important decisions you’ll face when you start your own business is how to organize it. There are benefits and challenges involved in each type of business model, and here we’ll look in-depth into one of the most popular solutions: incorporation.
It may help you understand what a corporation is if you think of it as an artificial person. By incorporating a company, you separate the business from its owners. Regardless of what happens to the employees, the shareholders, the directors, or anyone else involved, the corporation continues to exist in perpetuity. It only ceases to exist if the directors and shareholders make a decision to dissolve it.
In a sole proprietorship or general partnership, anything that affects the owner may affect the business. Personal debt or liability of an owner allows creditors to pursue the assets of the business, whether or not the debt involved the business at all. Similarly, bankruptcy of an owner will directly hinder the business. Upon the death of a business owner, the company is usually dissolved, sometimes against the wishes of surviving partners. If the business is incorporated, these issues can be avoided and the business can continue without disruption.
Sometimes a business owner realizes that they need to step away from their company and give their responsibilities and assets to another person. In a partnership, generally a partner cannot transfer his or her interests without the consent of all other partners. If a partner decides to leave a partnership against the others’ wishes, the partnership automatically dissolves. Incorporation allows for the transfer of interest from one person to another without the usual unanimous consent of all other shareholders. A small business may want to maintain the ability to determine when and where transfers occur, and incorporation allows for this option too. But the incorporation can also protect the business from being dissolved if a minority shareholder decides to leave without cause.
One of the most beneficial aspects of incorporation is limited liability against the shareholders. Similar to the way a shareholder’s debts do not transfer to the incorporated business, any financial distress of the corporation does not transfer to the shareholders. If an incorporated business is unable to pay a debt, the creditors cannot attack the assets of the owners or partners. The only liability a shareholder has from a failing business is what they have invested into the company. Although risk is a necessary part of any successful business, anything that minimizes the risk to investors makes the business more attractive.
A major downside of incorporation is the change in how taxes are handled for the business. In a sole proprietorship or partnership, the taxable income of the business flows directly to the owners and is taxed based on their personal income bracket. Since a corporation is considered an individual entity, the income is taxed first under a corporate tax. Money that is then distributed within the company undergoes a second tax based on personal income brackets. The marginal tax rate for a corporation can be significantly higher than that of a sole proprietorship. However, small businesses can avoid this double taxation with a few options. Incorporating as an S-corporation or filing as a Limited Liability Company (LLC) allows the income to flow directly to the shareholders without being taxed twice.
On the other hand, incorporating has been shown to reduce you likelihood of being audited by the IRS. Since sole proprietors are more likely to file their tax returns incorrectly, in the recent years the IRS has began scrutinizing such filings more closely. It is important to be very careful when filing your taxes, and as a corporation, you most likely need to hire professional help for the process to ensure that everything is filed correctly.
One of the benefits of incorporating is more psychological in nature. By adding INC or LLC to a company name, it gives the idea of permanence, credibility, and stability to the business. This can help motivate and the people working for the company, and also assure clients and customers of the quality and professionalism to be expected from the business.
Why Should I Incorporate My Business? The legal team at Hathaway Law can help you decide if incorporating is the right step for your business, and can also help make sure every step of the process is done correctly and efficiently. Call today!
This question doesn’t have a simple answer, because it depends both on what kind of debt you have and what type of bankruptcy you file. There is a huge difference between secured and unsecured debt, and the bankruptcy process is completely different between the Chapter 7 and Chapter 13 types. Chapter 7 is a liquidation bankruptcy, where your debts are cancelled but many of your assets will be seized. Chapter 13 focuses on helping you repay your debt by reorganizing it into a more manageable payment plan. It is important to figure out exactly which debts will be cancelled before you file, so you can choose the type of bankruptcy that’s right for you and don’t have any surprises down the line.
For the most part, bankruptcy can erase unsecured debt. This includes any debt that doesn’t give the creditor the right to take property if the debtor doesn’t pay. Examples include credit cards, utility bills, medical payments, and any other type of loan that has no collateral requirement. In a Chapter 7 bankruptcy, unsecured debts are discharged at the end of the bankruptcy process. On the other hand, Chapter 13 bankruptcy might require that you include at least a portion of your unsecured debts in the repayment plan that is developed.
Secured debts are trickier during bankruptcy. Since a secured debt includes a piece of property that can be confiscated, that property is most likely going to be seized during the process of relieving the debts. Examples of common secured debts are mortgages and auto loans. During Chapter 7 bankruptcy, you choose to keep property that is eligible from a list of state exemptions. This can include assets such as equity in your home, insurance, retirement plans, personal property such as clothing and furniture, public benefits, and tools for your job.
Some types of debt are extremely difficult to or are even impossible to discharge in bankruptcy. Child support and alimony are obligations that will continue after filing. Only very limited circumstances allow for student loans to be wiped away, since you have to prove that the loans will keep you from being able to support yourself now and in the future. It is also very difficult to eliminate tax debts. Fines caused by breaking the law also most likely won’t be erased.
Will All of My Debt be Erased in Bankruptcy? – The bankruptcy process is long a complex. If you are having trouble with deciding whether it’s the right step for you, which type of bankruptcy to choose, how to get started, or any other step along the way, a competent legal team is an invaluable tool to use. Call Hathaway Law today with any of your bankruptcy questions!
Many people ofter wonder, “Can I Keep My Property if I File for Bankruptcy?” If you decide to file for Chapter 13 bankruptcy, you will keep all of your property. Chapter 13 is a reorganization bankruptcy. Through the filing you and the bankruptcy court come up with a new repayment plan that can help you pay off your debts more easily in a process that takes about 3 to 5 years. Because you still intend to pay off your debts, you get to keep your assets such as your home, vehicles, and other property, as long as you continue to make payments through the plan.
In Chapter 7 bankruptcy, you are asking the bankruptcy court to discharge most of your debts. During this process, the bankruptcy trustee can seize your property, sell it, and use the proceeds to pay off the creditors. Some property is exempt through state laws. Exemptions can include equity in your home, insurance, retirement plans, personal property such as clothing and furniture, public benefits, and tools for your job.
If you have any more questions concerning how bankruptcy will affect your property, call Hathaway Law today!
Many people facing foreclosure ask, “Can Bankruptcy Stop the Foreclosure of My Home?” Chapter 13 bankruptcy is a reorganizational plan that can be a good way to save your home from foreclosure. It will allow you to pay off a mortgage “arrearage” that includes late and unpaid payments over the course of the repayment plan (usually lasting 3 to 5 years). In order to file for Chapter 13 bankruptcy, you will need to have a source of income large enough to meet your current mortgage payment plus the arrearage.
During Chapter 7 bankruptcy, the court-appointed trustee may sell your home to repay creditors if there is enough equity in the property. However, this does not happen very often. More likely, the Chapter 7 process will include the lender continuing with the foreclosure as planned. Not an optimal strategy to use if your main goal is to avoid foreclosure.
If your only concern is stopping the foreclosure of your home, you should consider other options first. You might be able to negotiate with your lender to modify the arrearages, such as accepting partial payments for a certain amount of time, accepting a late payment, or redoing the terms of the loan. It’s also possible to get government help with modifying your loan agreements. The Home Affordable Modification Program (HAMP) attempts to help homeowners in financial hardship get their loan terms modified and their monthly payments lowered.
If you are suffering from financial hardship and the possibility of losing your home, you must be especially careful of scam artists who love to prey on people at their most desperate times. Be very careful when signing any documents, and always get a professional opinion first. Scam artists have been known to provide documents that essentially sign the property title over to them, making you a renter instead of an owner.
If you have any questions concerning your home’s foreclosure and whether or not bankruptcy is right for you, call Hathaway Law today. The legal team at Hathaway would be happy to help you through this difficult time and figure out the best solution for your problem.