- What are the types of bankruptcy?
The three most utilized types of bankruptcy under the Bankruptcy Code are Chapter 7 liquidations, Chapter 11 reorganizations/liquidations, and Chapter 13 individual reorganizations. Chapter 7 liquidations can be filed by individuals and corporations. Chapter 11 is reorganization for businesses or individuals of high net worth (or individuals that do not qualify for Chapter 13 reorganization). Chapter 11 can also be used by businesses who want to control the orderly liquidation of its assets (for example, through a sale).
- Who can file for bankruptcy?
A bankruptcy case can be filed by any person, a married couple, a corporation, partnership, LLC, or any other business entity. Bankruptcy can also be filed by a business trust.
Bankruptcy is not limited to people who have no assets, who have judgments against them, or who are behind on paying their bills. This is a common misperception, although most people who file for bankruptcy relief are in the midst of financial difficulties. The same is true of corporations, partnerships and other business entities. It is not necessary that they be out of business or in default to their creditors. Indeed, there are many strategic circumstances during which one might threaten to file or actually file a bankruptcy case before circumstances are dire. Some examples include in response or defense to threatened or pending and expensive litigation, as a resolution of tax liabilities, or to simplify divorce proceedings by resolving debt issues.
Bankruptcy is only one of the tools in our firm’s “toolbox.” We specialize in helping individuals and businesses with financial problems. Please contact Margulies Faith LLP if you have any questions about whether bankruptcy or another alternative is the correct option for you.
- What are my non-bankruptcy options?
There are many options people have to avoid filing for bankruptcy. The attorneys at the Margulies Faith Law address individual and business entities factual situations to provide both non-bankruptcy and bankruptcy options and solutions. Various options may include debt negotiation, selling assets, or restructuring debt.
- When is the right time to meet with a bankruptcy attorney?
The decision of whether or not to file a bankruptcy case is a serious one. Often we find other solutions to a client’s problem. As experienced bankruptcy, debt-resolution, and work-out attorneys, a bankruptcy filing is only one of the tools in our toolbox. There are occasions when bankruptcy is or is not the right tool. Once it becomes clear that a bankruptcy filing should take place, the question of the best time to file arises. We carefully assess all factual and legal issues of each client on a case-by-case basis in order to ensure the best outcome. The more time for planning that is available, usually the more options the client has. For example, if a foreclosure or execution by a judgment creditor are just days away, then options may be less than if planning with an experienced attorney had taken place weeks or months prior to these imminent events. By meeting with a lawyer at The Margulies Faith Law soon than later does not necessarily mean there will be more costs to the client, and often there is a great deal of benefit and savings to the client.
- Will I lose my assets if I file for bankruptcy?
When an individual or married couple files for bankruptcy relief, all of their assets become property of the bankruptcy estate. Before any assets can be administered by the court, the person(s) filing for bankruptcy relief are entitled to exempt (or withdraw from the bankruptcy estate) certain assets. Through careful pre-bankruptcy planning, we can minimize or eliminate entirely the risk that any assets will be lost by virtue of a bankruptcy filing.
- Will filing a bankruptcy affect my credit rating?
Of course, the answer to this question is yes. However, in our vast experience as attorneys representing people with severe financial problems, we have found that this question is simply the wrong question to ask. Most who consult with a bankruptcy lawyer already have significant amounts of debt, are well behind on their obligations, and/or have judgments or tax liens recorded against them. As a result, their credit rating is already low or will soon be negatively affected by imminent default to their creditors. It is unlikely that any lender or leasing company will advance credit to such people due to their current financial circumstances. Among the thousands of people we have represented in bankruptcy cases over the years, we have never interviewed a client for whom the credit rating was a deciding factor. There are many more important factors discussed with clients, such as future savings, retirement planning, protection of assets, and debt relief.
- Can I continue to operate my business during or after a bankruptcy?
The answer depends upon which type of bankruptcy is filed. Chapter 11 of the Bankruptcy Code enables business operations to continue after the bankruptcy is filed. Chapter 11 is available to individuals and to businesses.
Our firm has experience and expertise in filing Chapter 11 for individuals as well as for businesses. Chapter 11 is most appropriate for individuals who have significant debt problems but also have significant equity in assets, such as their home or their business, which they wish to preserve. For businesses, Chapter 11 is intended to enable a transition from pre- to post-bankruptcy operations, though special financial reporting is required of businesses and individuals in Chapter 11. Essentially, they are required to provide monthly profit/loss statements and statement of cash flows. Because a business in bankruptcy does not pay its pre-bankruptcy creditors until the court permits it to do so (typically many, many months later), cash flow often improves immediately upon filing for bankruptcy.
In Chapter 7 for a business, a business is liquidated and operations do not continue. Relief is typically provided immediately as notice of the bankruptcy is provided to all the business creditors.
- How long will a bankruptcy show on my credit report?
We are not specialists in consumer credit issues or credit ratings, however, experts in this area have advised us that the rule is between 7 and 10 years. We recommend to clients that they consider that their credit will be impaired for 10 years. We can suggest ways that clients can begin to rehabilitate their credit immediately after a bankruptcy filing.
- How will bankruptcy affect my business?
Trade creditors are often less willing to provide credit to a company once a bankruptcy is filed, though this is not a blanket rule. Often, trade creditors are willing to provide new credit because they are entitled to priority status as a result of post-bankruptcy sales. We have devised strategies designed to help maintain relationships with suppliers. A company in Chapter 11 bankruptcy has additional administrative tasks, such as the opening of new bank accounts and providing, on a monthly basis, profit and loss statements and statement of cash flows reports to the Office of the United States Trustee. Our firm has devised creative ways of easing the burdens in Chapter 11 for our clients.
- How does one exit from bankruptcy?
In a Chapter 11, the business or individual “exits” from bankruptcy by confirming a Plan of Reorganization. The Plan establishes new contractual relationships between the entity in bankruptcy and its creditors. The bankruptcy Plan may provide for different repayment terms than existed prior to filing for bankruptcy. As an example, if a bank loan requires monthly payments of principal and interest at a rate of 9% with maturity in two years, the Plan may change these terms to allow for interest-only payments every six months, with a balloon payment due in five years.
- Do you do debt negotiation?
Yes, Margulies Faith LLP does debt negotiation. A bankruptcy filing is only one of the tools in the firm’s toolbox. We always recommend and do what we believe is best for the client. Debt negotiation is appropriate in certain circumstances and inappropriate in others. Over the years, we have represented hundreds of clients in successful debt negotiation.
- What are some of the pre-filing mistakes people or business entities make?
The most common mistake is waiting to meet with an experienced bankruptcy and work-out lawyer to determine your bankruptcy and non-bankruptcy options. More advance time usually means more options. Others simply try to represent themselves, however, fixing mistakes made by no representation or poor representation usually is more costly than doing it right the first time.
If a decision is made to file a bankruptcy case, then there are several pitfalls often made. Some decide they want to accumulate debt in hopes of having it restructured in bankruptcy. Others ignore their personal or businesses current situation, and pay back various obligations to family members, friends, certain venders, or other insiders of a business (such as, officers, directors, shareholders, members, etc.). Others make the mistake of ignoring existing lawsuits. All pitfalls or mistakes can be very costly.