Types of Business Bankruptcy - Get The Facts Before You File

Types of Business Bankruptcy – Get the facts before you file!

Provided by Tony Arnest

As an entrepreneur, you will need unlimited energy, tunnel vision and free time. Sometimes, even when you have all of this, your business does not succeed. Your business may become a financial nightmare and thus you will need to have information about bankruptcy for business.

When your business begins to fail, you must let go of your dream. Once reality sets in, you will want to know what alternatives you have. While you could simply shut down your business and take care of the debt yourself, you will want to understand bankruptcy for business. This is another avenue you can go down when the business is just not profitable.

Unfortunately in October of 2005, the courts enacted new bankruptcy laws that made filing bankruptcy for business more difficult. Nevertheless, it is still an option. Bankruptcy is a complicated topic. While this article will not go into all the details about bankruptcy filings, it does review some key points.

Three Types of Bankruptcy For Business

The type of bankruptcy you file depends on your business entity. If you have a corporation, an LLC or a partnership, then you can file for either a Chapter 7 or Chapter 11 bankruptcy. However, if your business is a sole-proprietorship then there is no separation between you and your business. You can file for Chapter 7, Chapter 11 or Chapter 13 bankruptcy. With all three types of bankruptcy, a court will appoint a trustee to your business. This individual oversees not only the bankruptcy process, but also all of your major business dealings to make sure everything goes smoothly and check for fraud.

Most sole proprietorships file Chapter 7 bankruptcy because it erases most, if not all of your business debts. The court then liquidates all of the business assets and uses the profits to pay off creditors. Of course, there are certain criteria that you must meet to file this form of bankruptcy for business. First, you must be sure that you fall within the monthly income restrictions. These are different in each state but if your income is too high then you will have to take a means test. This will decide if your monthly disposable income is enough to allow you to file Chapter 13 bankruptcy or if you are still can file Chapter 7.

In Chapter 11 bankruptcy you will work with a trustee to reorganize your business to repay your creditors. The bankruptcy court will decide if your business is to repay these debts in part or in whole. This bankruptcy for business process is both extensive and expensive.

Chapter 13 bankruptcies require that your secured debts be less than $922,975 and that your unsecured debt be more than $307,675. In this form of bankruptcy you will work with a trustee to find a way in which to pay back your debt, either in whole or in part, over an agreed on period of time.

This is a long, involved process that you can hopefully avoid. But if you cannot, make sure you know all of your options when you are considering bankruptcy for business.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy.  This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

Tony Arnest - Types of Business Bankruptcy

How Bankruptcy Can Help With Foreclosure Problems

How Bankruptcy Can Help With Foreclosure Problems

Tony Arnest

The media is full of stories about the skyrocketing rates of foreclosure. And notwithstanding the current defacto moratorium on foreclosures by several large lenders, often, people believe they can save their home and they scramble to find the best possible way to prevent their home from being taken away. Not uncommonly, however, the handwriting is on the wall—the home will be lost--and the homeowner's chief concern is how to move on without causing further harm to his or her economic status. In either situation -- keep the home or move out -- bankruptcy can be an incredibly useful tool in dealing with foreclosure.

What is foreclosure? In California and most other states, a foreclosure starts when you fall behind on your payments for several months. Your lender sends you a Notice of Default giving you a period of time to cure the default--typically three months. If you haven't caught up by the end of the default period, you are notified that the property will be sold at public auction--on a date scheduled roughly 20 to 30 days later. If you still haven't adequately dealt with the problem by that date, the property is sold and you can't get it back unless your state laws provide a redemption period--one last grace period for you to recover the house by paying off the loan being foreclosed on.

Some people facing foreclosure manage to work out a settlement with their lender under which the payments they've missed get tacked on to the end of the loan period. Others get their lenders to agree to a short sale--that is, you sell the property for whatever you can get for it and the lender writes off the difference between what you owe and the sale proceeds. Unfortunately, the short sale--and a foreclosure sale if it comes to that--can make you liable for taxes on the debt written off by the lender. In other words, the IRS may consider the debt you don't have to pay the lender as income subject to taxation.

Bankruptcy may provide some relief. At the point you are faced with the forced sale of your property, you will undoubtedly start thinking about bankruptcy if you haven't before. Bankruptcy may help you keep your home or, if that's not in the cards, at least get you out from under your mortgage free of tax liability for debt write offs. By delaying the foreclosure process, it can also help you save you some money to deal with the aftermath of your bankruptcy.

When you file bankruptcy, the foreclosure process comes to a halt (called the "automatic stay") and remains that way until your bankruptcy case comes to an end or the lender obtains court permission to proceed (called "lifting the stay").

There are two types of bankruptcy--Chapter 7 and Chapter 13:

Chapter 7 bankruptcy. Chapter 7 is the most popular type for getting rid of debts. However, a Chapter 7 bankruptcy typically lasts for only four months--after which the foreclosure can resume. And if the court grants the lender permission to continue the foreclosure while your bankruptcy case is pending, you have even less time. In short, Chapter 7 won't prevent an ultimate foreclosure--although for the time the process is delayed you can live in your home for free and amass a savings that can help you find a new dwelling. In addition to getting rid of unsecured debt, such as credit card and medical debts, Chapter 7 bankruptcy will also get rid of your mortgage debt and exempt you from tax liability for the loss incurred by the lender in the foreclosure sale.

Chapter 13 bankruptcy. Chapter 13 bankruptcy is a different animal altogether. You can actually defeat the foreclosure by proposing a plan to pay off mortgage arrears over time. For example, assume you are $10,000 behind on your mortgage. You file a Chapter 13 bankruptcy and propose a plan under which you will make current payments on your mortgage and additionally pay off the $10,000 arrears at a rate of $277 per month over three years, thereby keeping your home and avoiding the foreclosure sale.

While Chapter 13 bankruptcy may seem like an ideal solution, you may not be able to propose or afford a plan that the court will approve. This is because certain debts such as child support and back taxes must be paid in full during the life of the plan, and you must have enough steady income to meet your daily expenses as well as the arrears and other debts you are required to pay off under your plan.

Since a repayment plan under Chapter 13 plan isn't always practical, and since Chapter 7 will only provide a temporary delay from the foreclosure sale, how should you proceed? If you come to terms with the fact that you'll have to move--a bitter result to be sure but sometimes unavoidable--you can at least view bankruptcy as the best way to get out from under your mortgage debt and tax liability as well as a way to save you some money that will help you weather the psychological and economic shocks that lie ahead.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy.  This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

How Bankruptcy Can Help With Foreclosure Problems,

Tony Arnest, Esq.

Debts You Can't Discharge in Bankruptcy

Debts You Can't Discharge in Bankruptcy 
Tony Arnest 

   In my practice, one of the most frequent questions I get is "what debts in a bankruptcy cannot be discharged?"   While there are always a few exceptions, here is how it generally shakes out:

   Bankruptcy offers a "fresh start" when you find that you're overwhelmed by your debts. People seek bankruptcy relief for a variety of reasons. For some, it stems for poor financial decisions that did not go as planned, and for others, it comes as the result of unforeseen circumstances, such as job loss, illness or catastrophe, which can affect otherwise financially responsible individuals. However, the Bankruptcy Code tries to strike a balance between a debtor's need for a "fresh start" and the fact that some debts must be repaid (referred to as “non-dischargeable debts.”)  The result is that there are some debts that won't be discharged in your bankruptcy case.

What's a Discharge?

In both Chapter 7 (the liquidation bankruptcy) and Chapter 13 (re-adjustment or repayment of debts bankruptcy), the bankruptcy court may grant you a discharge from your debts. This means that you'll have no further responsibility for the discharged debts, and your creditors can take no further collection actions against you.

HOWEVER, NOT ALL DEBTS ARE INCLUDED IN A DISCHARGE

Certain debts can't be discharged in bankruptcy. The Bankruptcy Code list several categories of such debts:

In a Chapter 7 case, the most common types of debts that can't be discharged are:

·         Taxes and tax liens

·         Student loans

·         Alimony and child support (domestic support obligations)

·         Debts obtained through fraud, false pretenses or false representation

·         Debts you failed to schedule in time to allow creditors to file proofs of claim (unscheduled debts)

·         Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny

·         Debts for willful and malicious injury

·         Debts for fines or penalties to governmental units

·         Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while you were intoxicated

·         Condominium or cooperative association fees or assessments

·        

If your bankruptcy case is under Chapter 13, you won't be discharged from the following types of debts:

·         Child support and alimony (domestic support obligations)

·         Student loans

·         Fines and restitution

·         Certain taxes, such as withholding taxes if you had employees, or taxes connected to fraudulent tax returns or tax evasion

·         Debts incurred through fraud

·         Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny

·         Debts for willful and malicious injury

·         Judgments in wrongful death or personal injury cases arising from your intoxication

·         Unscheduled debts

·         Debts incurred after filing your case, which weren't included in your Chapter 13 plan

·         Debts that are non-dischargeable under other laws, for example amounts owed for certain health education programs

·         Interest owed on non-dischargeable debts

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy.  This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

Debts You Can't Discharge in Bankruptcy,
Tony Arnest, Esq.