Is My Business Protected if I File Bankruptcy?

by Damon Duncan

Running your own business can have its ups and downs. As a bankruptcy lawyer I have clients come into my office all the time who have a business that has not performed as well as they had hoped or planned. In those initial slow stages they have obtained a great deal of personal debt to help get the business off the ground. However, although that business was slow to start it may be on the uptick and have a bright future. If that’s the case they want to know if they can keep their business and still file for personal bankruptcy. The answer to that question really depends on the financial health of the business.

The first thing to decide when looking into a personal bankruptcy when you own your own business is whether or not it is a smart financial decision to continue to run the business in its current form. To help make that determination it is important to look at two different types of documents. The first are monthly profit and loss statements and the second is a balance sheet.

The profit and loss statements are able to give us an idea of whether or not the business is actually making money each month. A profit and loss looks at the gross income of the business each month and then deducts out the different expenses that business has. The bottom line number is the net profit or loss of the business. If we are able to tell over a prolonged period of time that the business isn’t making any money and is, instead, losing a lot of money, it may be time to shut the business down.

The second important document to look at in determining whether a business should continue moving forward is a balance sheet. The balance sheet looks at the assets and liabilities of your business on a specific date. Assets would include things like your furniture, accounts receivables and inventory where your liabilities would include things such as credit card and personal loans as well as other accounts payable. When you subtract the liabilities from the assets you will know the true value of the business. This value, if a corporation, will also determine the value of the stock in the corporation.

One area to be careful on when looking at balance sheets is the “goodwill” valuation of the business. We see that clients too often will overvalue the “goodwill” of their business. They may have been directed to do this by an accountant but for bankruptcy purposes we want to get a true value of your business. If you recently started your business and don’t have a large brand name then there is probably little “goodwill” in your business.

So knowing how to properly get a value for your business you can better determine if you should continue to run the business or shut it down. If you choose to shut the business down then list any debts that you personally guaranteed in your personal bankruptcy so those debts can be wiped out when you receive a bankruptcy discharge.

On the other hand, if you choose to continue to run the business then you can still list down any debts that you personally guaranteed in the bankruptcy. However, you would need to look over the loan documents to ensure that does cause a default on any loans your business has in its name.

If your business does not have too much equity in it and it is not causing you to lose money each and every month then you can protect your business and continue to run it even if you file a personal bankruptcy. However, we always tell potential clients it is very important to fully discuss your options with a qualified bankruptcy attorney before making a final determination on whether to continue running a business or not.

Are My Assets Protected in Bankruptcy?

by Damon Duncan

One of the biggest fears people have who are considering filing for bankruptcy is whether or not their assets or property are protected. The short answer is most, if not all, of your assets will be protected in bankruptcy.

When people come into my office I frequently hear stories about how they read online or another person told that they would lose their property if they filed bankruptcy. That’s not true. Let me explain.

The federal bankruptcy laws in conjunction with state laws allow each debtor (person filing bankruptcy) to exempt (or protect) property. There is a long list of different types of exemptions. Those exemptions allow you to shield or protect specific pieces of property. Some of the most common exemptions are the motor vehicle exemption (used to protect automobiles), a homestead exemption (used to protect your residence), household goods and furnishings exemption (used to protect the property within your home) and a “wildcard” exemption that can be used to protect any type or property. These are just a few – there are dozens of different types of exemptions though.

The common misconception about people losing their property in bankruptcy probably comes from the rare circumstances when someone does lose property. This typically only happens when you have what is called “non-exempt equity.” This means your property is worth more than you are able to protect. In that situation, you can either work out some kind of payment arrangement with the Trustee to pay back the non-exempt equity or you can surrender the property to the Trustee and let them try to sell it. Sometimes it makes more sense to surrender or give up a piece of property if it’s not worth a lot.

 Again, the vast majority of my clients never lose property within their bankruptcy. If losing assets or property is stopping you from considering filing bankruptcy I would encourage you to reach out to an attorney and set up a free consultation to see if your property can likely be protected.

What is the Creditors’ Meeting?

By: Damon Duncan

The creditors’ meeting or “341 meeting” refers to a meeting required under 11 USC § 341 of the Bankruptcy Code.  The bankruptcy code states that the U.S. Trustee will conduct a meeting of the creditors within a reasonable time after a person or entity files bankruptcy.  This applies to all types of bankruptcy cases including Chapters 7, 11, and 13. 

In most cases, the creditors’ meeting is held within 30 – 45 days of the date of the bankruptcy filing.  The meeting is often held at the federal courthouse, another federal court office, or the Trustee’s office.  The debtor is required to attend the creditors’ meeting.  If the debtor does not appear at the creditors’ meeting, the bankruptcy case can be dismissed.

All creditors listed on the debtor’s bankruptcy petition are provided written notice of the creditors’ meeting, and the notice is usually received by the creditors within a few days of the debtor’s filing.  As a result, the creditors or their representative, often an attorney, are provided sufficient time to prepare for the meeting.  The creditors’ meeting is an opportunity for any creditor to confront the debtor and ask questions.  In most consumer bankruptcy cases, very few creditors actually attend the creditors’ meeting and question the debtor.  When a creditor does appear, it is often a domestic support case for child support or alimony where the creditor is concerned if they will receive ongoing support payments.   

The creditors’ meeting also provides the U.S. Trustee an opportunity to ask the debtor questions about the bankruptcy petition that was filed with the Court.  The debtor is placed under oath before the Trustee or the creditors begin their questioning.  The Trustee will confirm that the information listed on the bankruptcy petition was reviewed by the debtor and that the information is accurate to the best of the debtor’s knowledge.  In most consumer Chapter 7 bankruptcy cases, the Trustee will have very few questions for the debtor unless the case is complex.  In contrast, the Trustee may have a significant number of questions in a non-consumer or business Chapter 7 bankruptcy case where there are numerous assets that may be sold for the benefit of the creditors.  In Chapter 11 and 13 cases where the debtor will be making payments to the Trustee and the Trustee will be paying claims to creditors on behalf of the debtor, there is often a significant number of questions.  The Trustee and the creditors want to confirm the proposed plan of payments is realistic and viable for the debtor. 

As mentioned earlier, the creditors’ meeting is required by the bankruptcy code, but it is also an opportunity for the creditors to be heard.  Just as each debtor is given the opportunity to have their debts discharged, each creditor is given the opportunity to question the debtor in a legally prescribed manner.

Will Bankruptcy Stop Me from Obtaining Student Loans?

By: Damon Duncan

In this competitive market, a college degree is a must and an advanced degree is often required.  Many workers are going back to college so they can retain the skills necessary to keep their current job or to prepare themself for another more lucrative field.  As a result, a person with considerable debt may find themself in a position of needing to file bankruptcy but concerned with the impact bankruptcy may have on their credit and their ability to obtain student loans for their education.  This concern is even greater when the individual wants to assist a college-bound child by co-signing on student loans.

For most federal student loans, the bankruptcy filing should have no impact on a person’s ability to obtain the loan.  Since the loan is need-based, the bankruptcy is usually not considered when the application is reviewed.  If a person is behind or in default on an existing federal student loan, the application for a new loan may be denied regardless of the bankruptcy. 

If it is a private student loan through a bank or other lending institution, the credit score and the bankruptcy is taken into consideration.  The impact bankruptcy has on the decision to issue student loans varies by creditor.  It is important to be candid with the financial aid representative and let them know about the bankruptcy filing.  The lending institution will find out about the bankruptcy, so there is no need to try and hide it.  The financial aid representative may also be able to help by suggesting lending institutions that are more receptive to individuals that have gone through bankruptcy.  Often an explanation of why the bankruptcy was filed, e.g. medical bills, divorce, or other catastrophic event may be helpful.

In some cases, the lending institution may rather see the bankruptcy on the credit report than large amounts of debt or continued late payments.  In other words, bankruptcy may actually be a benefit.  The elimination of the debts may put the borrower in a better position to make payments on the student loans.  Again, a candid communication with the financial aid representative is usually helpful.

Role of Trustee

By Damon Duncan

A bankruptcy trustee plays an important role in the success of your bankruptcy.  The trustee’s role is different depending on the type of bankruptcy you plan on filing.  In a Chapter 7 Bankruptcy, which is a discharge of most of your debts, the trustee acts as a representative for all of your creditors.  This mainly becomes an issue when there is non-exempt (or unprotected) property in the bankruptcy estate.  Nonexempt property is any property that you own that has not been protected by state exemptions. If there is excess cash or excess property that has significant equity and can be easily sold, it is the bankruptcy trustee’s job to liquidate the property and disperse the proceeds among your creditors.

            The Chapter 13 trustee, on the other hand plays a role similar to a financial advisor.  The trustee analyzes your proposed Chapter 13 plan, and first determines whether it is feasible, and then if there is anything else that can be tweaked within the plan to make your payments more manageable.  A Chapter 13 Trustee also investigates and determines any creditor objections to any claims that may be included in your bankruptcy.   The Chapter 13 trustee is also the one that pays all of your creditors.  You make a monthly payment to the trustee, who then disperses this amount to all of your creditors.  If the trustee is not paid every month then he/she will no longer pay your creditors and you will be kicked out of the plan.

            In both types of personal bankruptcy a trustee must approve your case before you can complete the bankruptcy.  This is why the trustee plays such an important role in the bankruptcy process.