Category Archives: Chapter 13

Protecting Yourself When Your Business Has to Shut Down

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Protecting yourself when your business has to shut down is important, since you may be personally liable for your business debts, even after you close your small business.

Protecting Yourself When Your Business Has to Shut Down

If you’re considering closing down your struggling business, you may be concerned about personal damage control: how do you end the business without being pulled down with it? If you are responsible for the debts of your former business, your creditors may sue you personally in an attempt to collect on those debts.

Often, business owners are confused as to whether they are personally responsible for business debts since those debts often do not appear on their personal credit report. But debt does not need to appear on a credit report for you to be personally responsible for it. Protecting yourself when your business has to shut down becomes a top priority when you are personally liable for the debts of your former business.

Sometimes a business owner, operating their business as a sole proprietorship, accumulates a lot of personally-guaranteed debt while trying to keep the business operating. Where the business owner has accumulated too much debt, they may need bankruptcy relief.

Let’s look at three options for bankruptcy relief in a situation like this: 1) A no-asset Chapter 7 case, 2) An asset Chapter 7 case, and 3) A Chapter 13 case.

No-Asset Chapter 7 for a Fast Fresh Start

After putting so much effort and hope into your business, once you accept the reality that you have to give up on it, you may want to clean it up as fast as possible. And in fact, a regular Chapter 7 bankruptcy may be the most consistent with both your gut feelings and with your legal realities.

IF everything that you own—both from the business and personally—fits within the allowed asset exemptions, then your case may be fairly simple and quick. A no-asset Chapter 7 case is usually completed from filing date to closing date in about three months. If none of your assets are within the trustee’s reach, then there is nothing to liquidate and distribute among your creditors, a process that can take a long time.

But this assumes that all your debts can be handled appropriately in a Chapter 7 case—the debts that you want to discharge (write off) would be discharged and those that would not are the ones that are not dischargeable under bankruptcy law. Non-dischargeable debts often include certain taxes, support payments, and perhaps student loans.

Asset Chapter 7 Case As a Convenient Liquidation Procedure

If you do have some assets that are not exempt, that alone may not be a reason to avoid Chapter 7. Assuming that those are assets that you can do without—and maybe even are happy to be rid of, if they came from your former business—letting the bankruptcy trustee take and sell them may be a sensible and fair way of putting the past behind you.

That may especially be true if you have some debts that you would not mind the trustee paying out of the proceeds of selling your non-exempt assets. You can’t predict with certainty how a trustee will act, but this is something to keep in mind.

Chapter 13 to Deal with the Leftover Consequences

Even if you’d prefer putting your closed business behind you quickly, there may be fallout from that business that a Chapter 7 would not deal with adequately. For example, if the business left you with substantial tax debts that cannot be discharged, non-exempt assets that you need to protect, or a significant mortgage arrearage, Chapter 13 could provide you with a better way of dealing with these kinds of creditors. Deciding between Chapter 7 and 13 when different factors point in different directions is where you truly benefit from having a highly experienced bankruptcy attorney help you make that delicate judgment call.

Schedule a telephone call to discuss your situation with NJ bankruptcy attorney Jennifer N. Weil, Esq. at (201) 676-0722, schedule your own consultation on my Setmore page, or email weilattorney@gmail.com.

How long does bankruptcy take?

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217183023_b3c20b9d5a_zHow long does bankruptcy take? Most people just want to get their bankruptcy over with so that they can move on with their lives, free of their burdensome, bad debts.

But what many people don’t realize is that so much of the timeline depends on them – how long it takes them to get the paperwork requested by their bankruptcy attorney, how long it takes them to pay off the attorney fees and the court’s filing fee, and whether it might be best to wait for a period of time before filing to avoid a bankruptcy disaster.

How Long Does Bankruptcy Take: The Paperwork

Your bankruptcy attorney works for you, but she cannot prepare the bankruptcy paperwork without the information required to complete that paperwork. This means you’ll need to give your attorney the items that she asks for, such as your pay stubs and/or other income information, tax returns, bank statements, etc. Here is a link to a list of several things that your bankruptcy attorney may need to prepare your case.

You can help expedite the bankruptcy process by gathering all of the information that your bankruptcy attorney needs to prepare your case. The most important thing in any bankruptcy case is the careful evaluation of the case facts and careful preparation of the bankruptcy paperwork. If something might go wrong during your bankruptcy case, your bankruptcy attorney will want to know about it (and handle it, if possible) before your case is filed, not after!

How Long Does Bankruptcy Take: Paying Off Attorney Fees and Court Fees

Chapter 7 bankruptcy, which is the most common type of bankruptcy filing, requires that attorney fees and the court filing fee be paid in full, in advance, prior to filing. Not all clients have the entire fee available all at once. I can’t speak for other bankruptcy attorneys, but I will take payments over time before filing while working on a client’s case. Then, once the fees are all paid off and the bankruptcy paperwork has been prepared, checked over, and signed by the client, the bankruptcy case can be filed.

By contrast, Chapter 13 bankruptcy allows for an attorney fee to be paid over time through the bankruptcy plan, which allows for payments to be made to creditors over 3 to 5 years.

How Long Does Bankruptcy Take: Waiting to File to Avoid Bankruptcy Disaster

Sometimes, a client might need to file bankruptcy fast to avoid wage garnishment or a bank levy. But sometimes, a client might need to wait for some time before filing the bankruptcy case in order to avoid what I’m calling “bankruptcy disaster.”

A bankruptcy disaster can happen when a bankruptcy case is filed and something goes wrong that could have been handled before filing if only the bankruptcy attorney had known about the problem. An example of a pending bankruptcy disaster is where the client took out a cash advance on a credit card before, but close to the time of, the bankruptcy filing. In such a case, the credit card company can file a motion against the client arguing that the cash-advance debt should not be discharged in the bankruptcy because it was taken out close to the time of filing. This type of situation causes the client far more in extra attorney fees and worry than it would have if it had been handled before filing.

Answering the question, how long does bankruptcy take, requires careful evaluation of all facts by an experienced attorney. There are other types of situations where it would help to wait to file a bankruptcy case in order to handle a potential bankruptcy disaster waiting to happen – every case is unique, so it’s smart to give your bankruptcy attorney all the facts for them to evaluate and to make recommendations for you.

If you have bankruptcy questions in New Jersey, call (201) 676-0722 or schedule your own phone consultation at my Setmore page.

Are you eligible for Ch. 7 or Ch. 13 bankruptcy?

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Eligibility for Ch. 7 or Ch. 13 bankruptcy can turn on who is filing the bankruptcy, the type and amount of debt, the amount of income, and the amount of expenses.

Who is filing the bankruptcy:

Only a human being (or a human being and his or her spouse) can file a Chapter 13 case. Neither a partnership nor a corporation can file a Chapter 13 case, but it can file a Chapter 7, whether or not the business owner also files one individually.

The type and amount of debt:

If your debt is primarily consumer debt (a dollar amount of more than 50%), then you have to pass the means test to qualify for a Chapter 7. Under Chapter 7, there is no restriction on the amount of debt you can have in order to qualify. But, Chapter 13 is restricted to cases where the person filing has a maximum of $383,175 in total unsecured debt and $1,149,525 in total secured debt.

Amount of income:

If your income is no more than the median income for your family size and state, then you can easily pass the means test to qualify for a Ch. 7. Chapter 13 requires regular income, which the Bankruptcy Code defines as income that is “sufficiently stable and regular” to enable you to “make payments under a [Chapter 13] plan.” This makes sense because you will be making regular monthly payments for the duration of your Ch. 13 case. A Ch. 13 case will last three years if the income is less than the median income applicable to your family size and state; if the income is at the applicable median income amount or more, the Ch. 13 case will last five years.

The amount of expenses:

In Ch. 7, if your income is not below the median for your state, then you must complete a highly technical test involving some, but not necessarily all, of your expenses to see whether you pass the means test and thus whether you are eligible for a Ch. 7. In Ch. 13, a similar, but often more complicated, calculation largely determines the amount you must pay monthly into your plan to satisfy the requirements of Ch. 13.

Choosing between Ch. 7 and 13 can be simple. But there are at least a dozen major differences among them, differences of which you may not be aware. So when you come in to see me or another attorney, be clear about your goals but also be open-minded about how to reach them. You may well have tools available that you didn’t know about.

For bankruptcy in Northern New Jersey, call: (201) 676-0722 or schedule a consultation at my Setmore page.

How bankruptcy can help save your small business

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Bankruptcy isn’t just for winding up after the end of a business.  It can help keep your business around for longer.

Bankruptcy saves a lot of companies.  Companies can get out of a lot of debt, restructure their operations, and save a lot of jobs.  If you own and run a small business, bankruptcy may be able to save your job, too.

Let’s assume you have a small, simple business.  One so simple that you did not form a corporation or any other kind of legal entity when you set it up.  And let’s assume that you don’t have any partners – that is, you have a sole proprietorship.

In a sole proprietorship, you and your small business are treated as a single unit—unlike a corporation, which is legally separate from you and which owns its own assets and has its own debts.  In the right circumstances, a sole proprietorship can be easier to handle in a bankruptcy.

A Chapter 7 liquidation is seldom a good option if you own a business that you want to keep operating during and after the bankruptcy.  You can discharge your debts in return for liquidation—the surrender of your assets to the trustee to sell and distribute to your creditors. Except that in most Chapter 7 cases everything you own is protected–“exempt”—so that you lose nothing or very little. But if you own an ongoing business, you are likely to have some non-exempt assets.  So the Chapter 7 trustee could take some important parts of your business to sell off or otherwise shut down.

Instead, a Chapter 13 case— sometimes called a “wage-earner plan”—is much better designed to enable you keep your personal and business assets.  You get immediate relief from your creditors under the automatic stay, and for a much longer period of time, usually with a significant reduction in the amount of debt to be repaid.  So Chapter 13 can help both your immediate cash flow and your long-term prospects.  It is also a good way to address tax debt, which is often an issue for struggling businesses.  Overall, it can be a relatively inexpensive tool that combines the discipline of a court-approved payment plan with the flexibility of continuing the operation of your business.

Please understand that when you own ANY kind of business, solving your financial problems will be more complicated.  This is because you are  not dealing merely with the size and timing of a paycheck, but instead with all the financial and practical aspects of running a business.  In addition,  timing issues are often more important in business bankruptcy cases and they require more pre-bankruptcy planning to plot out the best path for you.  So, no matter how small your business, be sure to get thorough legal advice as soon as possible.

Photo by Ruben Schade.