Can a Bankruptcy Filing Help You Save a Business?

Can a Bankruptcy Filing Help You Save a Business?

If your business is facing hard times, you may be inclined to shut it down, declare bankruptcy and give your creditors what you can. But bankruptcy can often be a way to save a business, particularly if the market’s starting to turn and you just need some time to get into the black. A Chapter 11 bankruptcy petition can do more than simply make your monthly payments more affordable. It can buy you that precious time without a lot of cash going out, where you can finally right the ship.

The Benefits of a Chapter 11 Bankruptcy Filing

When you seek to reorganize your business debt under Chapter 11, you’ll get the immediate and immense benefit of the automatic stay. The automatic stay prevents creditors from calling, writing or taking legal action to collect on any debt, other than through the bankruptcy process. You won’t have to deal with continual calls or threatening letters, and all legal proceedings will be suspended until your bankruptcy filing is complete.

In addition, once you file for Chapter 11 protection, you’ll have a certain amount of time to work out new payment arrangements with all of your creditors. Often, you can negotiate new arrangements that involve the waiving of fees and penalties, and work out payments that significantly reduce your monthly outflow.

You’ll usually be allowed to continue regular business operations while in Chapter 11, but you will have some restrictions on business activity without permission of the bankruptcy trustee or the court. For example, you may be prohibited from taking on new debt or buying or selling certain assets without the approval of the bankruptcy court.

It is never too early to consider these options. Chapter 11 is risky and expensive but may well be worth it. A high percentage of small businesses in Chapter 11 will fail, but with proper advance planning, the chances of success are much higher.

Contact Neuner & Ventura, LLP

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

Representing Clients across South Jersey

Can I Save My Home from Foreclosure with a Bankruptcy Filing?

Bankruptcy Filing

If you are behind in your mortgage payments and fear that a foreclosure proceeding may be imminent, or if you are already facing foreclosure action, you may be considering filing for bankruptcy protection, so that you can save your home. It’s more than a question of if you can save your home, though. You also want to consider whether it’s in your best interests to try to save your home. Here are some factors to consider.

A Bankruptcy Filing Will Suspend a Foreclosure Action

You can temporarily suspend all legal action, including foreclosure proceedings, by filing for bankruptcy protection. With a Chapter 7, you can often keep a certain amount of equity in your home while forfeiting other assets, but you won’t be able to keep your home and discharge the mortgage. With a Chapter 13, you can restructure payments on your home to make them more affordable.

Reasons For and Against Trying to Save Your Home from Foreclosure

The first question you need to ask yourself is whether or not you can realistically afford your home. If not, there’s no point in trying to save it. You’ll be better suited by trying to sell it for fair market value, even if that’s less than what you owe. In such a situation, you may be able to dispose of the property through a short sale. This will discharge any remaining liability for mortgage payments, but may cause you to recognize income on your taxes, though the Foreclosure Tax Relief Act may minimize the impact.

If you have equity in the home, though, it may be a good idea to try to save it. If you file bankruptcy and discharge other debts, you may be able to bring your mortgage current and keep it that way, provided you don’t incur new debt.

Another question to ask yourself—is it more important that you have reliable transportation or that you have a nice home. If you work from home, transportation is not as important, but if you need a vehicle to get to your job, you may be better off downsizing your living arrangement.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

The Different Grounds for Non-Dischargeability of Debts in a Bankruptcy

The general goal in a bankruptcy proceeding, is, as much as possible, to discharge debts, so that you no longer have a legal obligation to repay them.

Some debts, such as child support, most taxes, student loans, or alimony are automatically non-dischargeable. This means the creditor does not have to do anything to avoid discharge of their debt. Other debts, however, can get discharged unless the creditor disputes the discharge their debt by filing a Complaint for Non-Dischargeability which starts what is known as an “adversary proceeding” (a bankruptcy-specific term for a lawsuit filed inside a bankruptcy case). As a general rule, such a Complaint must be filed within 60 days of the first date scheduled for meeting of creditors in your bankruptcy case.

The Types of Non-Dischargeability Actions that May Be Filed

There are a number of grounds under which a creditor could file for non-dischargeability of debt:

  • You obtained the debt through false or fraudulent pretenses, such as misrepresenting your income or other debt at the time you applied for credit
  • You bought luxury items in excess of the amount allowed under the bankruptcy laws within 90 days of the filing
  • You took out cash advances in excess of the amount allowed by the bankruptcy laws within 70 days of the bankruptcy filing
  • You used dischargeable debt to pay a non-dischargeable obligation—For example, if you use a credit card to pay for child support or taxes, you will likely not be able to discharge that credit card debt.

As a general rule, creditors tend to file objections only with respect to the debt owed them. However, if there is evidence that you have perpetrated a fraud on the bankruptcy system by hiding assets or income, or by transferring money or assets to family or friends, a creditor may ask the bankruptcy court to disallow the discharge of all your debts..

Contact Neuner & Ventura, LLP

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

Representing Clients across South Jersey

Debts for Willful and Malicious Injury

Our bankruptcy laws were enacted to provide debtors with the opportunity for a fresh start. But what if the debts you incurred were the result of intentional acts of misbehavior, even criminal acts? What if you assaulted someone, or if you were grossly negligent and caused serious injury to another person? Should you be able to rid yourself of that obligation by filing for bankruptcy protection?

From a long time, certain debts, for “willful and malicious injury,” have not been eligible for discharge. For almost the entire 20th century (from 1904 to 1998), the “willful and malicious” exception was liberally applied. If it could be shown that the act or behavior was intentional, the debtor could not discharge the obligation.

In 1998, though, the U.S. Supreme Court clarified what was malicious or willful. In Kawaahuau v. Geiger, the debtor was a doctor who was found liable for malpractice and filed for bankruptcy protection because he had no malpractice insurance. The question was whether his intentionally or recklessly not carrying such insurance, leading to an inability to collect for his medical negligence made the malpractice judgment non dischargeable. The Supreme Court said no: “nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury”. Other courts, including the Third Circuit Court of Appeals have said that an act done intentionally which is substantially certain to cause injury, and for which there is no justification or excuse will be treated as willful and malicious. In other words, an intent to cause harm can be inferred and proven form such circumstances.

The “willful and malicious” exception does not apply to mere carelessness. But intentional torts (eg assault or battery, theft) or some act that is illegal will most likely fall within it.

This is something you should discuss with a qualified bankruptcy attorney.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Debts for Embezzlement and Violations of Fiduciary Duty

Though many unsecured debts may be discharged in a federal bankruptcy proceeding, some obligations, such as child support, student loans and certain tax debts, are difficult or impossible to discharge. Debts brought about by embezzlement or breach of fiduciary duty are also often among those that cannot be discharged. A recent opinion by the U.S. Supreme Court has provided some clarity as to when violation of fiduciary duty prohibits the discharge of a debt in bankruptcy.

In Bullock v. Bankchampaign, NA, (2013), the Supreme Court justices ruled that, for breach of fiduciary duty to prevent the discharge of debt, it must be shown that the debtor must have either known that his or her behavior was a violation of a fiduciary duty, or must have acted with gross recklessness as to whether or not the behavior was improper.

In the Bullock case, the party who sought to discharge the debt was the trustee of a trust created by his father. Over a period of years, he borrowed money against an insurance policy in the trust, using it for his own benefit. However, he always repaid the loans with interest. Nonetheless, he was sued by his brothers, who were beneficiaries of the trust, and was found liable for self-dealing. The jury rendered a verdict in favor of his brothers, and granted them a monetary award. The debtor could not pay the judgment and filed for bankruptcy protection.

In its ruling, the Supreme Court of the United States concluded that the debtor had been held to the wrong standard—that breach of fiduciary duty requires a knowledge of or reckless disregard for whether the loans were a breach of fiduciary duty. They found no evidence that the debtor had either.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail . We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Risking the Loss of a Discharge because of Dishonesty

Signing a documentThe bankruptcy laws were put in place to give honest but unfortunate debtors a chance to return to financial stability. When you enter into bankruptcy, you are entering a fishbowl of sorts. All aspects of your financial life will be subject to examination by a trustee, the court or creditors. As a consequence, there are a number of circumstances where you can risk losing a discharge or having your discharge denied because of misrepresentation or dishonesty. As a general rule, once you have been denied a discharge, you may never again be able to pursue a discharge of any debts you had at the time of the denial.

Here’s how you can risk the loss or denial of a discharge.

  • You lie or make a false statement in any document or proceeding during the bankruptcy process. This can include falsification of assets or income, as well as misrepresentation of debts. When you file a petition in bankruptcy, you essentially make an oath that the representations you make during the process will be true and accurate. If it turns out that you made false statements of fact, or that there were material omissions in your filing, your discharge can be denied or withdrawn.
  • You conceal, destroy, alter or intentionally dispose of information relevant to your financial condition. This includes the destruction of documents that would indicate ownership of property or access to assets.
  • You transfer, remove, conceal, alter or destroy property that may be seized by the bankruptcy court to pay one of your creditors. This rule applies to all such acts within one year before the bankruptcy filing and after the filing.
  • You cannot explain the deficiency or loss of any assets.
  • You refuse to comply with any legitimate order issued by the bankruptcy court.

These problems can be solved or avoided through careful attention to detail and qualified, ethical advose of a bankruptcy attorney. Such advice is very important.

Contact Neuner & Ventura, LLP

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

Representing Clients across South Jersey

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.

How Will Bankruptcy Affect Your Present or Future Employment?

Will a Bankruptcy Filing Have an Effect on Your Current or a Future Job?

Paying bills onlineIf you are experiencing financial difficulty, you may be considering a bankruptcy filing. If you are in financial services, or a similar field, you may fear that you will be terminated if your employer discovers that you filed. You may also worry that a bankruptcy filing, as a matter of public record, will disqualify you for certain jobs in the future.

Your Current Job

Under the federal bankruptcy laws, any employer is expressly prohibited from terminating an employee, or from engaging in any retaliatory actions based solely on the employee’s having filed for bankruptcy protection. You cannot be transferred, demoted or denied any work-related benefits because you have filed for bankruptcy protection. This is generally true even if you are required to have a security clearance for your job. Experts say that people who have financial problems are at greater risk of being blackmailed. If you have sought protection through a bankruptcy proceeding, you general lower that risk.

The situation is different, though, if you have already been notified of a termination or any other change in your position, and then file for bankruptcy protection. A Chapter 7 or Chapter 13 petition won’t stop or suspend any employer action that began before the bankruptcy was filed.

Future Jobs

Whether you get hired is a bit different. The impact of a previous bankruptcy filing on your eligibility for future employment depends on whether your employer is a public or private entity. The bankruptcy law prohibits federal, state and local government agencies from using bankruptcy to make hiring decisions. No such rule applies to private employers.

Some firms, such as in the securities industry, have policies refusing to hire people who have filed bankruptcy. However, we know clients even in those fields who have gone back to work in those fields.

Whatever the situation, the important thing is how you deal with your bankruptcy. You still have your skills and abilities. If anything, going through the bankruptcy taught you important lessons. If the bankruptcy was caused by circumstances outside your control, or if you attempted to pay debts before resorting to it, these are factors that should be emphasized. It is also a good idea to bring these matters up and deal with them before the employer finds out. Definitely do not hide or lie about the bankruptcy. Lots of people file bankruptcy for good reasons, and move on to successful lives. You should be able to do so as well.

Contact Neuner & Ventura, LLP

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

What Color Is Your Parachute: A Guide for Getting Control of Your Life

What Color Is Your Parachute: Still Relevant after 45 Years

In the aftermath of a bankruptcy, it’s not uncommon to find yourself looking for a new job. Loss of a job, income instability, or lack of income may be the biggest contributing factor to your financial problems. But looking for a job can be a painful, exhausting and “hit or miss” process. There are a lot of self-help books that promise to guide you through the process, but in our opinion, there’s one that stands head and shoulders above the rest: What Color Is Your Parachute, by Richard Bolles, initially self-published by the author in 1970 and now annually updated with the latest information and advice

The Fundamental Premises of the Book

According to Bolles, the traditional method of looking for a job—preparing and sending out a resume, responding to help wanted ads—is “heavily loaded toward failing the job hunter. Instead, Bolles still recommends (as he did in the initial version of the book) that a more successful method is to identify the places you want to work and then approach the people who work in those places that have the power to hire you. He cautions, though, that before you can choose those places, you need to do a lot of personal research and investigation—of yourself—so that you know what you want to do and where you want to do it, both geographically and institutionally.

Even though most of the basic tenets of Bolles’ book have remained unchanged over the last four decades, he has embraced technological changes, such as the Internet and social media. For example, he tells readers in his most recent edition that “Google is your new resume.” He also encourages job seekers to use Twitter, Facebook, LinkedIn and other sites to their benefit, as well as other, more targeted websites, such as Jobs With Friends.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we don’t just “sell” bankruptcies. We try to get our clients back on the road to financial stability and freedom. We know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.
Representing Clients across South Jersey

Avoiding the Means Test in Bankruptcy

When Can You Avoid the Means Test in Bankruptcy?

To qualify to discharge your debts under Chapter 7 today, you must typically submit to the “means test,” a formula designed to determine whether you have the resources to repay your creditors rather than simply ridding yourself of the debt. There are, however, certain conditions where you don’t have to take the means test.

The Business Debt Exemption

Referred to by some as the “business debt loophole,” this provision (set forth in Section 707 (b) of the Bankruptcy Code) states that the means test only applies to debtors with “primarily” consumer debt.

Unfortunately, when Congress enacted the new bankruptcy law in 2005, it did not provide a definition for the term “primarily.” As a practical matter, most courts have simply defined that as a simple majority. Accordingly, if more than 50% of your debts were incurred in a business or for business expenses, you don’t have to qualify under the means test.

Furthermore, the rules are not always crystal clear on what constitutes “consumer debt.” Some obligations, such as your mortgage for a primary home, are almost always considered consumer debt. But other real estate may be for your personal use or it may be considered an investment. Additionally, if a car was used exclusively or even primarily for work, it can be exempted from consumer debt. Credit card debt is customarily viewed as consumer debt, unless you can show that the credit card was used to further a business venture. Many courts hold that taxes are not a consumer debt.

The Disabled Veteran Exemption

You can waive the means test if you are a disabled veteran, under certain conditions. Your disability must be rated at least 30%, you must have suffered the injury in the course of your military duty, and you must have been discharged because of the disability.

The Reserve / National Guard Exemption

If you have been a member of the National Guard, or a reserve soldier in any branch of the U.S. military, and you were called up after September 11, 2001, you may seek an exemption from the means test so long as your debt did not predate the period of your service or arise more than 18 months after it ended.

Needless to say, the Means Test is complex and how it applies to you depends on your circumstances. The above discussion is necessarily general and may not exactly apply to you. Seek qualified legal advice.

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.

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