Archives for December 2015

How debt buyers and creditors get judgments when they do not have a right to sue, and what you can do about it

Most bad consumer debt is sold off to “debt buyers” who make a good living buying bad debt for pennies on the dollar then collecting it. As a recent New York Times article points out, these creditors have been able to get judgments on debts that are too old to sue on. Worse, when the judgment debtors tried to stop this practice by a class action lawsuit, they were thrown out of court because of a clause in the original loan agreement that forced all disputes into arbitration. Courts have rejected the argument that by going to court themselves, the debt buyers waived their right to rely on this clause.  “Sued Over Old Debt, and Blocked From Suing Back” 12-22-2015

There are some important take-aways here.

  1. Read the credit agreements and understand what you are agreeing to. Some credit cards give you a limited time to “opt out”. Arbitration looks simple and less expensive, but in fact you may be giving away important rights.
  2. Keep your own records of what you have paid or charged. You may need them later.
  3. When faced with collection, demand proof and keep good records of all contacts, letters or communications. Debt collectors are required to provide proof of the debt if you ask in writing. Because they have bought the debt in large bulk purchases, they likely do not have the original documents.
  4. Watch the statute of limitations. In New Jersey, creditors have 6 years from the date of the last payment after default in which to sue. Even a $1 payment after that time has passed could start the clock running all over again.
  5. If sued, seek legal advice and seriously consider filing an Answer IN WRITING, FILED WITH THE COURT. YOUR ANSWER MUST BE IN THE HANDS OF THE CLERK BEFORE THE STATED DEADLINE EXPIRES. Calling the collection attorney does not protect your rights. A qualified attorney can advise you about the rights and defenses you have. These might include
    1. Plaintiff does not own the debt and is not qualified to sue me.
    2. Plaintiff is not entitled to use the courts to sue me. (In New Jersey out of state businesses must file certain reports in order to sue in our courts)
    3. The statute of limitations has expired. (See above and check the law in your state)
    4. If Plaintiff is owed money, the amount claimed is wrong. (This will require production of account records and possibly the loan agreement. You need to carefully assemble your records to show what you think is due)
    5. NOTE,  THESE ARE ONLY EXAMPLES: you are entitled to demand proof, but you may not have a valid claim to the above defenses or you may have other rights and defenses. Always seek legal advice and assistance, even if it is only a consultation.
  6. When dealing with debt collectors, keep careful written records of who contacted you, when and how, and what they said. You may have a counterclaim against the debt collector, but again, proof is key. Do not hesitate to record the conversations, but be sure to tell them, at the beginning of the recording, that you are recording. Not doing this can result in criminal liability in your state or the state where the caller is at.

For many people, debt collection is more likely to be a symptom of bigger problems. You should consult with a qualified attorney about how you can use Chapter 7 bankruptcy to discharge debts you cannot afford to pay, or Chapter 13 to pay what you can afford over time.

Using Bankruptcy to Save Your Business

Small business ownerYour business can run into hard times for a variety of reasons. Sometimes, it’s just not a viable business and it’s probably best to just close it down. But if you know that you have a good business plan, a solid market and the skill and knowledge to make it work, but are facing a temporary cash flow challenge or simply need to restructure, bankruptcy can help you get relief from creditors and take the steps to rescue your business.

Business Reorganization under Chapter 11

If you want to keep your business in operation, you can file a petition under Chapter 11 of the Bankruptcy Code. The business owners can continue to operate under bankruptcy court and more loosely under creditor supervision until the business is sold, a reorganization or liquidation plan is approved, or until the case is dismissed or converted to a Chapter 7 liquidation. Chapter 11 is intended to allow businesses in financial trouble to try to preserve or recover value that would not be there if the business simply shut down or was liquidated in Chapter 7.

Once a Chapter 11 bankruptcy petition is filed, creditors are prohibited from calling, writing, filing suit or engaging in legal action to recover a debt, except through the bankruptcy proceeding. In addition, while the reorganization plan is being worked out, the business may not be required to pay all its outstanding debts, allowing the business time to gather resources to move forward. In most instances, the owners of the business are allowed to continue to operate the business during the formulation of the reorganization plan. However, the bankruptcy court will typically prohibit certain actions without its approval, such as:

  • Sale or purchase of assets, other than in the ordinary course of business
  • Continued use of cash, accounts receivable, or other “cash collateral” which has been pledged a collateral under a loan agreement. These arrangements are quite typical. In this situation, you will need to get the lender’s consent or court approval as the first order of business. This will require showing that you can make ends meet and possibly turn a profit.
  • Hiring or paying attorneys, accountants or other professionals without getting court approval
  • Paying back salary or wages, or other debts owed when the bankruptcy is filed. This is usually part of what we call the “first day” motions.
  • Entering into new loans or secured financing agreements, such as mortgages, or new financing.

Promptly after a Chapter 11 filing, the United States Trustee will schedule a meeting with the business owners and the bankruptcy attorney. The UST will require proof that all taxes are being paid, that required insurance is in place, and will investigate whether the Chapter 11 has a reasonable chance of success.

In a Chapter 11, the business is under constant scrutiny. Accurate books and records need to be maintained. Monthly operating reports need to be filed. Many other requirements need to be met. Many deadlines to act come into play. The first 2 weeks of a bankruptcy are a very busy time and the demands on counsel and management continue after that.

Having an Exit Strategy

In a Chapter 11 bankruptcy, you have various “exit outcomes”. Given the expense of these cases, having an exit strategy up front is very important. Do you want to run the business for a short while to finish up profitable contracts or find a buyer for it as a “going concern”? Or do you want to reorganize, and exit bankruptcy with a new set of restructured debt obligations under a Reorganization Plan?

Is it worth it?

Chapter 11 bankruptcies are always far more expensive that other types of bankruptcy. Failure can leave the business and its owners worse off than if they had not filed. You need to plan and realistically assess the “cost of winning” against the expense and risk. Chapter 11 when successful can save viable businesses, pay creditors more than if the business just shut down, and save employees’ jobs. Failure can leave a pile of new debt, some of which may have to be paid by the business owners.

The Reorganization Plan

Reorganization is one Chapter 11 outcome. Basically, the debtor (business owner) works with legal counsel to put together a proposed plan to restructure business operations. The plan must be approved by creditors and by the court. As a general rule, the debtor has the exclusive right to submit a reorganization plan during the first four months after filing. This time can be and will usually be extended, but Once that period is over, creditors may propose their own reorganization plans. Creditors may also ask the court to convert the Chapter 11 to a Chapter 7. There are many tests that must be passed to get a plan confirmed. In the end, success is often a product of careful and skillful negotiation to demonstrate to creditors that they are better off with the company “alive rather than dead”

Chapter 11 is far more complex than this brief summary. But for the right business or individual it may be well worth the effort.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. To set up an appointment, call our office at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Using Bankruptcy to Close a Business

Closing Business Operations with a Chapter 7 Bankruptcy Filing-Part One

The Personal Implications of a Business Bankruptcy Filing

Business Closed SignWhen your business is failing, and there’s no reasonable expectation of turning things around, you can simply shut your doors, but it won’t put an end to the stress and anxiety you are experiencing. The calls and letters will keep coming, and you may be named as a defendant in legal action to collect the debts of the business. Filing for bankruptcy protection can help you close down your business and minimize creditor harassment in the process. Here’s how it works.

Chapter 7 Liquidation Proceedings

With a bankruptcy, you have the opportunity to permanently discharge certain debts in exchange for allowing the bankruptcy court to sell some of your assets to reimburse your creditors. If you are a sole proprietor or operate your business as a general partnership, you will be personally liable for the debts of your business. Accordingly, if you don’t want creditors of the business to make claims against you personally for the debts of the business, you will need to file a personal Chapter 7 petition, as well as a Chapter 7 petition for your business.

Even if the business is a corporation or Limited Liability Company, very likely you will have personally signed for the business debt. If the business had a “corporate” credit card, you should assume that you, the business owner, signed the credit card applications personally as well.

When you file a bankruptcy petition, you (but not the business if it is a corporation, partnership, LLC or separate legal entity) will immediately be protected by the automatic stay in bankruptcy. The automatic stay prohibits creditors from calling, writing or taking any legal action (such as filing or advancing a lawsuit) to collect the debt from you, other than through the bankruptcy proceeding.

With a personal Chapter 7 bankruptcy filing, you must qualify by submitting to the means test created by the 2005 revisions to the bankruptcy law. This test would not apply if your personal debt obligations are primarily incurred by or for the business. Be prepared to demonstrate this to your attorney and the bankruptcy trustee.

If you want to save the business and keep it operating, a Chapter 11 reorganization is available, or if the business is a sole proprietorship (not an LLC) Chapter 13 might be available. These are more expensive, and careful attention needs to be paid to the cost and risk of failure vs the upside benefit of saving the business. More about that later.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney.

For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Recognized Quality & Experience