Are you looking for guidance on how to deal with oppressive debt? You may be thinking that you need a big-time law office to protect you and your assets. That may be the case in some legal situations, but when it comes to a consumer bankruptcy, you need a local bankruptcy attorney to handle your case.
If you are looking for information on the bankruptcy process you need a Northern Kentucky, Dayton, or Cincinnati bankruptcy attorney. Local attorneys will have the ability to provide more accurate legal advice regarding the nuances of bankruptcy laws and how the Bankruptcy Court in your district applies those laws. It is possible for a bankruptcy debtor to file without representation, but bankruptcy can be a difficult legal area to navigate. You should never assume that your case is an easy one.
When other avenues have failed to solve your financial problems, credit card debt continues to grow, you have creditors harassing you, wage garnishment has been ordered or you are facing foreclosure or repossession, it may be time to find out about the different types of bankruptcy. For more information visit our bankruptcy practice page.
The Bankruptcy Code allows debtors who qualify to file a bankruptcy case. Typical consumer debtors may be eligible for filing chapter 7, chapter 13, or chapter 11 in some circumstances.
Chapter 7 bankruptcy is a liquidation. The trustee in the case is responsible for determining what assets the debtor has, whether there is any equity above and beyond what the debtor can protect through state or federal bankruptcy exemptions and collecting and distributing the proceeds to creditors who file a proof of claim. Most chapter 7 bankruptcies do not result in a distribution to creditors. This is usually due to a thorough investigation by debtor counsel prior in preparation of the bankruptcy case.
A chapter 7 debtor must qualify to file based on their income. The income received in the six months prior to filing is averaged to determine if the debtor is above or below the median income for their state and household size. If the debtor is above the median income there is an additional calculation called the “means test” that considers necessary expenses of the debtor. If, after the necessary expenses are deducted from the income, there is enough money left to pay a reasonable percentage to unsecured creditors, the debtor will not qualify for chapter 7.
Whether there is a distribution by the trustee or not, the chapter 7 will result in a discharge of certain debts. Credit card, medical, deficiency balances after surrender of secured collateral, some tax debts are examples of debts that may be discharged. However, there are some obligations that cannot be discharged. Domestic support obligations, property settlements through divorce, recent tax debt and student loans are types of debt that may not be discharged in chapter 7.
A chapter 7 has limited benefit if a debtor is trying to keep a home or vehicle that is in default. Depending on the circumstances a debtor will delay a foreclosure while trying to work out a loan modification with the mortgage company. In the case of a default on a car loan it may be possible to “redeem” a vehicle for the value of the vehicle rather than what is owed. However, this may require a replacement loan or lump sum of cash.
A chapter 13 bankruptcy is a repayment plan, or a “wage earner’s plan”. There are many reasons a debtor will choose to file a chapter 13 instead of a chapter 7. If the debtor’s income is too high and there is disposable income left over after calculating income and necessary expenses the court will find the debtor ineligible for a chapter 7 and require a payback of a percentage of the debt over a three-to-five-year period.
If the debtor has assets, they would lose in chapter 7, and therefore a chapter 13 is an avenue to keep those assets while paying back at least the value of the non-exempt asset over the life of the plan. The debtor must pay the greater of the value of the non-exempt equity or the disposable income, whichever is higher.
There may also be benefits a debtor could take advantage of in a chapter 13 that they would not have at their disposal in a chapter 7. A debtor in default on a home loan may catch up on the arrearage over the life of the plan while paying the regular monthly payment if their income is sufficient to do so.
If a debtor intends to keep a car subject to a lien the car must be paid off during the plan. If the car was purchased more than 910 days prior to filing the debtor will pay what the car value is at time of filing rather than what they owe. In addition, the interest will be adjusted to what is called “Till” rate which is prime plus a risk factor. The benefit here for some clients could be significant if the debtor had rolled in negative equity in the car loan through a trade in or if the interest rate is high, such as those seen in title loans and buy here pay here lots.
Another benefit of chapter 13 is the dischargeability of property settlement agreements through a divorce decree. In contrast, as domestic support obligations are never dischargeable, arrearages on these obligations, as well as past due tax debt, can be paid off in full during a chapter 13 plan.
A chapter 11 is what is referred to as a “reorganization’. It is typically thought of a business bankruptcy. The usefulness of the chapter 11 for a consumer debtor is when a debtor does not qualify for a chapter 7 due to high income and does not qualify for chapter 13 because the amount of the filer’s debt is higher than the limit allowed in a chapter 13.
If you are seeking legal advice on what type of bankruptcy is right for you, please contact Finney Law Firm for a free consultation with local Northern Kentucky, Dayton, and Cincinnati bankruptcy lawyer Susan Browning, (513)797-2857.
Insurmountable debt is a stressful life event to handle. Thankfully, the Federal bankruptcy laws provide an outlet to escape this pressure when other avenues have failed. Making the decision to begin the bankruptcy process can be an even scarier prospect. If you have committed to solving your financial problems by filing for bankruptcy it will be useful to know how to be prepared for your first visit with a local bankruptcy attorney.
A consultation with a bankruptcy practitioner will be the first step in preparing for your bankruptcy case. Each attorney will have their own methods for conducting this meeting and the extent to which you will be required to provide documentation ahead of time. At Finney Law Firm the initial contact is typically a 30 minute free consultation, either in person or by phone, where basic information will be gathered by the attorney regarding income, expenses, unsecured debts and secured debts, and assets. A basic understanding of these ___ is all that is required during this conversation as the attorney will gather more extensive details and documents after being retained. However, it can be helpful to obtain a copy of your free credit report before the consultation. The goal of this meeting is to give the debtor information regarding the types of bankruptcy available and to determine on a basic level if bankruptcy is an option, are there other options, and whether the debtor qualifies to file. These determinations may change as more information is gathered from the debtor.
Questionnaire and document gathering
Once the practitioner and debtor determine whether to file for chapter 7 bankruptcy or chapter 13 bankruptcy, a questionnaire will be provided to the debtor as well as a list of required documents. Diligent and thoughtful preparation at this stage is essential to a successful case filing.
Debtors find this process tedious, but the Bankruptcy Code requires a debtor and debtor’s counsel to take these steps to provide as accurate and thorough information as possible.
Income details will include paystubs, profit/loss or proof of other income from the last six months through filing and tax returns for the previous three years. All income of the debtor, including any side jobs, are included in the bankruptcy filing. Documents pertaining to any assets owned are gathered by the debtor and provided to the attorney such as bank statements, car titles, security agreements, deeds, mortgages, contracts, leases, insurance policies and appraisals. All assets are listed in the bankruptcy regardless of whether they are owned free and clear or have a lien attached. Details regarding financial activity of the debtor are disclosed, including transfers of assets for the last four years (and in some cases ten years), payments of money to family, friends, and creditors over the last year and divorce decrees, to name a few.
Your attorney will need to know where you have resided in the last two to three years prior to filing to determine where you can file and what state or federal exemptions may be used to protect your assets.
If you have not done so already, you or your attorney will obtain a copy of your credit report. A credit report is rarely a reflection of all your debt. Some creditors do not report to credit reporting agencies. Additional details, including but not limited to, medical bills, student loans, domestic support obligations (such as child support and alimony), property settlement obligations in a divorce decree, contracts and prior bankruptcy filings must be provided to supplement the credit report. All debts must be listed in the bankruptcy petition regardless of who it is owed to or whether you intend to continue paying them after bankruptcy.
The last step prior to filing your bankruptcy case is to take an online credit counseling course provided by an accredited agency. The cost of this course varies by provider but averages around $20.00. After completion, the provided will send a copy of your certificate to you and your attorney for filing with the petition.
Filing and Post-filing
After all documents are gathered and payment is made in full to your attorney (the bankruptcy court requires attorneys to be paid in full prior to filing), the bankruptcy petition is prepared, thoroughly reviewed by debtor and attorney together, and signed by both.
If the debtor is filing a repayment plan under chapter 13, this will undergo the same process. A payment plan provides the trustee, the Court, and the creditors with details regarding the percentage of repayment to unsecured creditors, treatment of secured creditors and collateral securing those debts, intention to continue or discontinue leases and other contracts and the debtor’s proposed monthly payment.
The petition (and payment plan, if applicable) is filed electronically, a trustee will be appointed, and a date is set to have a hearing called a “341 Meeting of Creditors”. At this point, these hearing are being held telephonically due to the pandemic. Although it is uncertain, this procedure is likely to continue.
Many documents provided to your attorney will be given to the trustee for review prior to the hearing. After verifying your identity through social security card and picture identification, the trustee questions the debtor on the record regarding the information provided in the petition. These hearings are generally not lengthy and are streamlined in the questioning. Your bankruptcy attorney will prepare you for the questions and attend the hearing with you.
A chapter 13 will have an additional hearing to determine whether a proposed chapter 13 plan is confirmed by the court. These hearings are usually not attended by the attorney and debtor unless concerns and objections to the plan have not been resolved prior to the hearing.
The creditors in your case have sixty days after your bankruptcy filing to object to discharge of the debt you owe to them. If no objections are filed in this time period, a discharge will be issued on all dischargeable debts in a chapter 7. In a chapter 13 a discharge is not issued until all payments have been made under the proposed and confirmed plan.
If you are ready to begin your journey to financial stability, contact Susan Browning at Finney Law Firm, 513.797.2857, for a FREE consultation.
Despite recent improvement in the economy the circumstances of the last year have taken their toll on the financial stability of American households. Many are unable to manage their finances as they did before. Bankruptcy may be an option for those individuals dealing with overwhelming debt. This blog will explain the ways in a Chapter 13 bankruptcy may be a benefit. This type of bankruptcy is also called a “wage earner’s plan” as it requires some type of regular income to make the monthly payment over the life of the plan.
Debtors who seek the protection of the bankruptcy court must begin by providing information regarding unsecured debts, secured debts, income, expenses, and assets to their attorney in order to obtain proper legal advice on what chapter of bankruptcy is appropriate for them. In addition, this information is necessary to fill out the required bankruptcy forms. Your attorney will provide a list of documents to gather including but not limited to car titles, security agreements, life insurance policies, bills, tax returns, pay stubs, proof of other income, bank statements, and deeds and mortgages. This is the most difficult part of filing bankruptcy as it can be time consuming and frustrating. It is also the most important part of filing if you want proper legal advice regarding your financial situation and suitability to file bankruptcy.
Chapter 7 is what most debtors would prefer to file due to the lower attorney fees and shorter amount of time the case is active. However, chapter 7 is not a solution for every debtor.
Chapter 13 is a repayment plan where the debtor pays a certain percentage back over a three to five year period. This chapter is beneficial for debtors who have too much income to file a Chapter 7, debtors who may lose assets that are not protected by state or federal exemptions, or there may be some benefit the debtor can obtain by filing a Chapter 13 instead of a Chapter 7.
A credit report will be helpful when meeting with a bankruptcy attorney. Anyone can pull a copy of their credit report for free once a year at www.annualcreditreport.com. Even though this is not always a complete list of your creditors it will be a good place to begin. The debtor will then supplement with bills and in some cases their memory of what they owe.
After an attorney reviews your information and documents, a determination will made as to what chapter is advisable to file, if any.
What will follow is further updating of documents and information, and a final meeting to review, refine and sign the bankruptcy documents before filing with the Bankruptcy Court.
Filing chapter 13
When filing a petition with the Bankruptcy Court, whether it is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the court imposes an automatic stay that prevents creditors from collecting from the bankruptcy debtor. This is usually the point where the debtor feels a great deal of relief as their phone stops ringing and collection attempts have ceased.
If a debtor files a Chapter 13, a repayment plan will also be filed. This plan details how unsecured creditors will be treated during the course of the Chapter 13. Some creditors have a priority over others and will be treated differently than non-priority unsecured creditors. This includes child support and alimony which must be brought current and taxes which must be paid in full through the plan. In addition, it will propose how to treat secured obligations such as car loans and mortgages.
Unsecured debts such as medical bills and credit card debts will be paid pennies on the dollar with the balance being discharged at the end of the plan. Unfortunately, student loans will be paid pennies on the dollar as well but, as of now, are not discharged at the end of the plan.
The calculation of how much these creditors will be paid depends on the debtor’s disposable income after calculating monthly income and reasonable monthly expenses. If the debtor has assets with equity that was not protected by exemptions, the debtor must pay back the greater of the disposable income or the amount necessary to pay back the unprotected equity.
Some benefits of filing a Chapter 13 include catching up on a mortgage in default, cramming the principal owed on a car loan down to the value of the car rather than what you owe (if purchased more than 910 days prior to filing) and possibly reducing the applicable interest rate. Even though child support and alimony obligations are never discharged in bankruptcy, property settlements are dischargeable in a Chapter 13, not in Chapter 7.
After calculating what will be paid to unsecured creditors, mortgages, mortgage arrearages, car loans, taxes, and/or domestic support obligations a monthly payment will be proposed.
After filing Chapter 13
After filing a Chapter 13, a bankruptcy trustee will be appointed and a 341 Meeting of Creditors will be scheduled. This meeting allows the trustee and creditors to ask questions of debtor and debtor counsel regarding the petition and the plan. These meetings are currently being held telephonically due to the pandemic but that may change in the future. The debtor must make the first monthly payment within thirty days of filing the petition and continue monthly thereafter.
If the trustee or creditors have concerns about the plan provisions the debtor is given time to amend the plan. If the plan is accepted without any objections it is presented to the court for approval. In the alternative if there are outstanding objections to the plan it will be brought before the Bankruptcy Court at a confirmation hearing to make a determination whether it will be approved.
Once the plan is confirmed, the debtor continues with payments for the remainder of the plan period and updates their attorney, the trustee, and the court of changes to their financial situation.
A further benefit of Chapter 13 bankruptcy is that it may be dismissed at any point by the debtor, whereas, a Chapter 7 may only be dismissed with court approval.
At the end of the plan period, if all payments have been made, the debtor receives a discharge of unsecured debt, other than student loans, a mortgage in default should be current, and car loans included in the plan will be paid in full.
If you would like a free consultation with a seasoned bankruptcy attorney, contact Susan Browning at Finney Law Firm, (513) 797-2857. Our firm provides service to Cincinnati, Northern Kentucky and the Dayton areas. As a convenience to our clients, bankruptcy consultations can be held by phone.
In the last year, our country has seen layoffs, shutdowns, job loss and shuttered businesses due to the pandemic. The government has provided some assistance by way of stimulus checks, increased unemployment payments, and moratoriums on evictions and foreclosures. This has temporarily eased concerns of those struggling financially and delayed their seeking legal advice for debt relief. It has served to stave off, what is anticipated to be, a flood of bankruptcy filings. Unfortunately, these are temporary solutions to a long-term problem.
As moratoriums end and stimulus checks are spent, debtors are searching for a resolution to their economic woes. This article provides basic information on Chapter 7 Bankruptcy as a possible solution. If you would like more information on consumer bankruptcy, please visit our law firm bankruptcy practice page at https://finneylawfirm.com/practice-areas/bankruptcy.
Types of bankruptcy filings
There are several types of bankruptcy a debtor can file: Chapter 7 (Liquidation), Chapter 9 (Municipalities), Chapter 11 (Business Reorganization), Chapter 12 (Family Farmers), Chapter 13 (Wage Earners), and Chapter 15 (Foreign debtors/ Courts . After almost two decades of being a chapter 7 Bankruptcy Attorney, the clear preference for clients is filing a chapter 7. The reason for this is that chapter 7 is cheaper and quicker than other types of bankruptcy filings. However, it is not without its risks and downsides.
What is a Chapter 7 bankruptcy?
Chapter 7 is a “liquidation” bankruptcy. A bankruptcy trustee will examine your income, expenses, assets and debts. In order to qualify, you must be below a certain income level for your household size. If you are not below this threshold, the case may have to be converted to another chapter of bankruptcy. The trustee reviews the assets you own and what they are worth. After the trustee subtracts what you might owe to a secured creditor from the value of the asset, the balance is considered your equity.
State and/or Federal exemptions are available to protect certain necessary assets up to a certain dollar amount. These exemptions are applied to your equity in each asset. If no equity remains after this calculation, then you are not at risk of the trustee liquidating that asset. If equity does exist after the calculation, the trustee can sell the asset and pay your creditors a percentage of what you owe to them. Most chapter 7 bankruptcy filings do not end in liquidation and are considered “no asset” cases. In the event assets may be liquidated a debtor must be prepared to lose the asset or look at other options such as Chapter 13.
Chapter 7 requirements
Before filing a bankruptcy case a debtor must take a credit counseling course. After the bankruptcy filing a debtor must take financial management course. If you seek the assistance of bankruptcy attorney, you will be tasked with gathering information and documents to assist the attorney in filling out the bankruptcy petition and schedules. The petition and schedules will include information on all of your income, expenses, assets, and debts. After these documents have been reviewed with the debtor and attorney and filing fees have been paid, the petition will be filed with the bankruptcy court. A trustee will be appointed and a 341 Meeting of Creditors will be scheduled.
Chapter 7 procedures
Roughly six weeks after the filing of the case, the debtor will attend the 341 Meeting of Creditors (currently held telephonically). It is a short hearing where the trustee reviews your petition and clarifies its contents on the record. If you have retained counsel, they will attend this hearing with you. Creditors are allowed to attend this hearing and ask questions of the debtor regarding the debt or any collateral that secures the debt. Following this meeting, the creditors have 60 days to object to your discharge. If no objections are filed, the debtor will receive their discharge a few weeks later.
Chapter 7 outcome
Chapter 7 can discharge many forms of debt such as credit card, medical bills, debt from repossession, foreclosures, and payday loans to name a few. However, student loans, recent taxes and marital support or settlement debts cannot be discharged in a Chapter 7. It is possible to keep a car or home that you own if it is protected under the appropriate exemption and you are current on payments to the secured creditor.
Comparing Chapter 7 to Chapter 13 bankruptcy filings
In comparison to Chapter 7, Chapter 13 bankruptcy is a repayment plan over a period of three to five years. It is intended for debtors who have enough income that they can pay back a percentage of their debts over a period of time, who may have non-exempt assets they could lose in a Chapter 7 liquidation, or who may get some benefit in a Chapter 13 that they cannot get in a Chapter 7.
Filing a bankruptcy is not always the answer or the only answer in some situations, however, if you are seeking a fresh start by filing for bankruptcy, contact bankruptcy lawyer Susan Browning at (513) 797-2857 for a FREE consultation. Our firm boasts practicing lawyers in Cincinnati, Dayton, and Northern Kentucky who can guide you through the bankruptcy court process.
Since the coronavirus pandemic began, our economy has seen a myriad of changes. Due to the shutdowns early on many businesses had to shutter their doors. Some were unable to reopen or continue business operations. The ones that could remain open are saddled with overwhelming debt including overdue mortgages and leases.
With foreclosure and eviction moratoriums coming to an end in many states, it is expected to see more businesses close up shop. However, there may be an answer in the form of bankruptcy.
What is Chapter 11 Bankruptcy?
The Bankruptcy Code allows debtors, whether as individuals or a business, to file a Chapter 11 case to reorganize their debts. Chapter 11 is mostly known as a solution for business debtors. However, it can also be a remedy for individual debtors who have income too high to file a Chapter 7 and are who are above the debt limits for filing a Chapter 13 bankruptcy.
There are several types of Chapter 11 cases including the typical Chapter 11, Small Business Chapter 11, the new Small Business Reorganization Act Chapter 11 (SubChapter V) and a single-asset Chapter 11.
This article will focus on the standard Chapter 11 case.
Filing the Petition
A Chapter 11 bankruptcy case begins with the filing of a bankruptcy petition. This petition will include a listing of the debtor’s secured and unsecured debts, unexpired leases and contracts, income, and expenses, as well as a listing of the debtor’s assets.
This bankruptcy filing creates an automatic stay to protect the debtor from collection by secured and unsecured creditors. Creditors can request relief from stay from the court if cause exists to do so. A hearing will be held to determine whether the request for relief from stay will be granted.
Once the Chapter 11 debtor files the petition they are known as a debtor in possession. The debtor in possession will maintain control and possession of assets and continue operations while under the watchful eye of the United States Trustee and the Bankruptcy Court. At the outset of the case the debtor must close open bank accounts, opening new ones for the bankruptcy process, as well as procure insurance for assets of the estate. The debtor must provide monthly operating reports for the business. The debtor in possession has many responsibilities similar to that of a trustee including objecting to creditor claims and pursuing preference and fraudulent transfer actions.
A Chapter 11 trustee is not appointed unless there is a cause to do so, such as debtor misconduct or inability to perform the duties of a debtor in possession.
The United States Trustee has an active role in the Chapter 11 process to ensure the debtor in possession performs their duties properly. A fee is paid to the US Trustee quarterly based on distributions to creditors. In addition, the US Trustee nominates a creditor committee to assist in oversight of the debtor in possession and the plan.
A meeting of creditors will be held with the debtor, US Trustee and creditors that choose to participate. This allows the debtor an opportunity to explain the plan and gives the US Trustee and creditors an opportunity to question the debtor about the petition and plan.
Disclosure Statement and Chapter 11 Plan
Following the filing of the bankruptcy petition, the debtor will file a disclosure statement. The disclosure statement gives the court and creditors background information about the debtor and its business operations, such as income and expenses, debts, and information about debtor’s business model. It is meant to persuade the creditors that the proposed plan will be manageable based on the anticipated future operations of the debtor’s business.
The disclosure statement must provide adequate information for the creditor to develop an informed opinion about the viability of the debtor’s plan. The court must approve the statement.
Once the disclosure statement is approved, a Chapter 11 plan will be filed. The Chapter 11 plan will inform the court and the creditors how the debtor is proposing to classify and treat the creditors’ claims. Some of the permissive provisions that may be part of the plan include spreading out the terms of repayment, and in many cases much longer than the five years allowed in Chapter 13 cases. Loans can be re-amortized at a lower interest rate, stripped off, or may be crammed down to the value of the secured property (except for residential property that is debtor’s primary residence).
A debtor has the exclusive right to file a plan in the first 120 days after the petition. This period may be extended with approval of the court. At the end of this exclusivity period, competing plans can be submitted by creditors. Creditors must also provide disclosure and submit ballots to creditors.
The plan must be served on the US Trustee, SEC, and any creditors who request a copy along with ballots in an attempt to encourage acceptance of the plan. The debtor has 180 days after filing to gain acceptance of the plan. This time frame may also be extended by the court.
If the debtor changes the amount or terms of a debt owed to a creditor, these creditors are considered “impaired” and may vote on whether they approve of the plan.
Modifications may be made to the plan at any time prior to confirmation. Any previously consenting creditor is deemed to accept the modified plan if no objection is raised.
Voting and Confirmation
For a creditor to vote on the plan, their claim must be scheduled by the debtor or a proof of claim must be filed by the creditor. This same process applies to any equity security holder of the debtor except that a proof of interest is filed by the holder.
Only impaired classes may vote on the plan. An impaired class is one that is not being paid pursuant to original contract terms. Impaired classes do not include administrative claims or priority claims.
A class is deemed to have accepted the plan if more than half of the claimholders accept the plan and the accepting creditors make up at least two-thirds of the total claim dollar amount in that class. At least one impaired class must accept the plan for the plan to be confirmed.
A confirmation hearing will be held by the bankruptcy court to determine if the plan will be confirmed. The court must determine if the plan was proposed in good faith, is feasible, is not likely to result in liquidation and satisfies all other bankruptcy code requirements. The court will take up any objections to confirmation of the plan at the confirmation hearing.
Discharge, Administration, and Final Decree
A discharge in Chapter 11 operates very differently than in Chapter 7 and 13. Confirmation of the plan alters the relationship between creditors and debtor. It places debtor in the position of replacing the old contract obligations owed to creditors with new contract obligations. A discharge is generally received after confirmation unless the debtor is an individual. An individual debtor must complete payments before receiving a discharge. In addition, as is the case in Chapter 7, some debts under the code are non-dischargeable.
Modifications may be made to a plan after confirmation but must meet the guidelines under the bankruptcy code. The case must not be substantially consummated which means debtor has begun payments or transferred property under the plan provisions.
The debtor must administer the case as well as provide reports to the court. Once the case has been fully administered, the debtor will request a final decree from the court.
If you or your business are struggling financially and would like more information regarding bankruptcy laws and the bankruptcy process please contact Susan Browning, 513.943.6650 at the Finney Law Firm for a FREE CONSULTATION.
In the current post-covid climate many homeowners are finding themselves in a position they never would have imagined: facing foreclosure and a looming sheriff sale. During the pandemic, job loss, layoffs, shutdowns, and illness caused payments to be missed.
The government response was to put moratoriums in place to prevent homeowners from losing their residence. As these moratoriums are being lifted in some places, despite the Center for Disease Control’s continuation order, mortgage companies are once again filing or reinstating foreclosures. This blog will provide information about how you may be able to save your home in the bankruptcy context as Dayton, Northern Kentucky, and Cincinnati foreclosures are on the rise. If you would like further information, please visit our bankruptcy page.
Before Filing for Foreclosure
I receive frequent calls from potential clients seeking a foreclosure attorney because they have been served with a summons and complaint for foreclosure. In some cases, there may be defenses to your foreclosure available. Foreclosure defense can be a very complex area of law, especially when there are Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) violations at issue.
Option 1: Mortgage Company Violations
Mortgage companies must follow certain guidelines under state law when foreclosing on your home. If you feel like your mortgage company has violated your rights in the foreclosure process or in servicing your loan, please seek legal advice. However, if you have been advised that there are no viable defenses to your foreclosure other options may be at your disposal.
Option 2: Short Sale or Deed-In-Lieu
In the case where you no longer have the income to pay your mortgage, you may have the option of a short sale or deed-in-lieu. Keep in mind as you explore these options that they may have forgiveness of debt consequences associated with them.
Option 3: Mortgage Modification
In every case where a potential client is facing foreclosure, I begin by recommending that they submit the necessary paperwork to request a mortgage modification with their mortgage company. This will include a statement of hardship explaining what circumstances led to getting behind on your payments. The client may qualify for payments to be reduced or delinquencies to be added to the back end of the mortgage. Sometimes a modification may solve the homeowner’s issues without anything more.
Option 4: Chapter 13 Bankruptcy
If the modification process is not fruitful and the client has sufficient income, it is possible that a chapter 13 could be filed with the Bankruptcy Court to catch up the mortgage arrearage over time while paying the regular monthly mortgage. A chapter 13 bankruptcy plan can last from three to five years depending on your income and the amount of time needed to pay the delinquent payments. Even if the court has issued an order for foreclosure and a sheriff sale has been scheduled, a chapter 13 bankruptcy can stop the sale.
Filing a chapter 13 bankruptcy may also be beneficial to resolve other debt issues the client may have including medical bills and credit card debt. Most times these unsecured debts will be paid just pennies on the dollar during the bankruptcy process. Chapter 13 can also provide a method to pay back taxes and automobile loan delinquencies.
If you are facing foreclosure and would like to speak to an experienced attorney to assess whether you can save your home, please contact the law office of Finney Law Firm at 513-797-2857.
Many of my clients have issues with medical debt, credit card debt, student loans, repossessions, etc. These are the typical types of debt that I encounter. Occasionally I have a client who has none of those debt issues but has one particular area of concern: A suspended driver’s license due to driving without insurance.
This client has usually had an automobile accident and at the time they, knowingly or unknowingly, had no insurance coverage. The plaintiff in this scenario must get coverage for the accident from their own insurance carrier. In turn, the insurance carrier turns to the debtor to recoup that loss.
Most times the debtor cannot pay this debt due to low income and the insurance company for Plaintiff puts a hold on the debtor’s driver’s license. This is supposed to create such an inconvenience to the debtor that they will be encouraged to repay the debt. However, what I see happening is the debtor can no longer operate normally in their daily life, cannot get to work, puts others out in order to get rides, or lives in fear of being pulled over on a suspended license. This debtor could get caught in a Catch-22 where they cannot get to work due to the license suspension and therefore cannot make money to get their license back. To add insult to injury, the Bureau of Motor Vehicle (BMV) will require reinstatement fees to be paid in addition to satisfying the debt to the insurance company.
There is light at the end of the tunnel for this debtor. With a few caveats, this is a type of debt that is dischargeable in bankruptcy. Not only is the debt to the insurance company dischargeable, but the reinstatement fees are also discharged.
Once a bankruptcy case is filed, the debtor is given a copy of portions of the bankruptcy petition as well as Notice of Bankruptcy filing. The client will take the paperwork to the BMV who will send the paperwork to Columbus. The BMV in Columbus will respond as to what will be required to reinstate the license in addition to the bankruptcy paperwork. The additional requirements usually entail procuring an SR-22 from an insurance company (this is proof of meeting the insurance requirements of the state) and depending on how long your license has been suspended, retaking the driver’s test. If you already have your SR-22 and do not have to take the test, you could have your license back same day.
There are, however, a few exceptions to the general rule of dischargeabiity. If the debtor was intoxicated at the time of the accident the debt may not be dischargeable. Also, if the conduct of the debtor was proven to be intentional, dischargeability could be called into question.
If you are experiencing an economic downturn and cannot make progress on paying the debt to reinstate your license, contact Susan Browning (513.797.2857) at Finney Law Firm for a FREE consultation.
Many prospective clients of the firm are experiencing actual or threatened utility cutoffs due to income disruption caused by the COVID 19 crisis. Many calls to our office are exploring bankruptcy as an option to address their predicament. This article addresses alternate solutions and whether bankruptcy is a good option for utility disconnections.
COVID 19 has had far reaching and unprecedented financial effects on our communities. Due to layoffs, furloughs, and shutdowns, we have seen a showing of togetherness and unity (community concern) as our leaders have come to the aid of those less fortunate and provided financial assistance. We have seen income assistance by way of unemployment payments, PPP, and COVID stimulus payments. In addition, we have seen moratoriums on foreclosures, evictions and utility disconnections. Fortunately, the two former have been extended until the new year. However, many areas are seeing the end of a moratorium on utility shutoffs and an increase in disconnection notices. The purpose of this blog is to make the consumer aware of what options may be available in and out of the bankruptcy arena.
Kentucky Utility Shutoffs
In Kentucky, the moratorium put in place on March 16, 2020 has been lifted as it applies to non-residential customers effective, October 20, 2020. However, the Kentucky Public Service Commission is requiring utility companies to provide payment plans of at least six months to residential consumers who are behind due to COVID-19. For those of you facing arrearages please contact your utility company to set up a payment plan. In addition, these links will connect you with Kentucky Community Action and Kentucky Cabinet for Health and Family Services where you will be directed to further resources.
Ohio Utility Shutoffs
Ohio, however, has lifted the moratorium as to utility disconnections and customers are beginning to receive shutoff notices. This has prompted a spike in phone calls to our office regarding what can be done prevent disruption of utility service. If utility arrearages are your main concern, it makes sense to attempt to remedy the situation outside of bankruptcy first and leave bankruptcy as your last resort. First, contact your utility provider to inquire as to whether they offer a payment plan and what those payments might entail. If the plan provided is not feasible for your budget, consider contacting a local social services agency to determine if you qualify for their assistance programs. These links will connect you to Ohio’s website for Home Energy Assistance Program as well as their list of social service agencies by county.
As we all know, there is a sense of urgency when you receive a disconnection notice for your utilities. If you find that you are not receiving the assistance you need, do not qualify for assistance or have insurmountable additional debt, bankruptcy may be an option. Utility arrearages may be included in bankruptcy as a dischargeable debt. One caveat is that once you file for bankruptcy, you will be required to place a deposit with the utility company to begin a new account. In many cases, this is a small amount to pay in comparison to the mounting utility bills some debtors face.
If you are experiencing financial hardship and would like further information about the bankruptcy process, please contact Susan Cress Browning (513.797.2857) at Finney Law Firm, LLC for a FREE CONSULTATION. I will discuss your financial situation with you to determine what options you have and what is the best direction to take to resolve your debt issues.
In our final blog in the series, we explore a new Bankruptcy solution now available to small businesses called the Small Business Reorganization Act – or Subchapter V to a Chapter 11 Bankruptcy.
Finally, More Favorable Relief for Small Businesses
There have always been economic fluctuations in operating a small business that have necessitated relief under the Bankruptcy Code. However, this has historically proven to be a lengthy and expensive process. Legislators recognized these deterrents to small business debtors getting a fresh start and drafted a new Subchapter to the Bankruptcy Code to improve the process and allow more small business debtors to take advantage of its provisions.
The enactment of these provisions, which pre-date COVID-19, are timelier and more appropriate than the drafters could have ever thought possible. With shutdowns, social distancing, and mask orders, now more than ever, we are seeing small businesses struggle, especially in the restaurant and food service industry.
Small Business Reorganization Act- Subchapter V
The Small Business Reorganization Act became effective February 19, 2020. The purpose of the Act was to streamline the process making it less expensive, and easier and quicker for small businesses to file for Chapter 11 Bankruptcy.
To take advantage of Subchapter V, the debtor must qualify as a small business debtor and must be engaged in commercial or business activities. It is likely that this definition would include the winding up of a business as well as the continuation of business in Chapter 11. This requires that at least 50% of the debtor’s debts come from commercial or business activity.
In addition, there is a debt limit that a debtor must not exceed in Subchapter V which is set at $2,725,625 million. However, the Coronavirus, Aid, Relief, and Economic Security Act (“Cares Act”), effective March 27, 2020, changed this to $7.5 million for one year following the effective date. This amendment will allow even more debtors to take advantage of the new Subchapter V provisions.
The filing procedure of a Subchapter V case is different from a standard Chapter 11 case. The debtor must make an election upon bankruptcy filing to take advantage of the provisions. Parties in interest may object to the debtor’s election of Subchapter V status.
Once a debtor becomes a Debtor in Possession, controlling the assets and operations of the business, it has powers of a trustee. A Debtor in Possession must provide its most recent balance sheet, statement of operations, cash-flow statement, and federal tax return.
A Debtor in Possession, or senior management, must file a monthly operating report, procure insurance, attend meetings and hearings, and file statements of financial affairs including required schedules.
A disinterested Subchapter V Trustee is appointed to facilitate, provide oversight, and monitor the case. Some of the Trustee’s duties include: Facilitating in the development of a consensual plan; Appearance at status conferences, confirmation, modification hearings, hearings on valuation of secured property and sale of estate property; reviewing and objecting to Proofs of Claim; accounting for property received by the estate; opposing discharge in proper cases; and, filing final reports.
These duties are expanded in a case where the Debtor in Possession is removed due to fraud or misconduct.
Some procedural benefits to Subchapter V are that no creditor committees are formed and no disclosure statements and hearings on disclosure statements are required unless ordered by the court.
The United States Trustee is not paid by the debtor in Subchapter V; rather, the Subchapter V Trustee is paid for services by the debtor as an administrative expense.
Initial Status Conference
The court will hold an initial status conference within 60 days after filing. The debtor, debtor counsel and Subchapter V Trustee must attend, and creditors may elect to attend. The purpose of this conference is to further the expeditious and economical resolution of a case under Subchapter V.
A debtor is required to file a report 14 days ahead of the first status conference, detailing what efforts have been made to procure a consensual plan agreeable to the creditors.
Debtor and Trustee may hire a professional to assist in the case. However, Trustee, debtor attorney and any other professionals must be disinterested.
A distinct change for debtor attorney is that they may be owed up to $10,000 in pre-petition fees without being considered a conflict of interest. However, these fees may only be paid as a general unsecured creditor. If debtor paid the attorney an avoidable preference the attorney is disqualified from representation.
The court will set the confirmation hearing, deadlines for acceptance or rejection of the proposed plan, objections to confirmation and filing Proofs of Claim.
A plan of reorganization must be filed by the debtor within 90 days of filing.
Only the debtor may propose a plan. This differs from Chapter 11 where creditors may propose a competing plan after the exclusivity period ends.
There is no disclosure statement or hearing required unless ordered by the court. However, a statement of the history of operations of the business is required in the plan when submitted. In addition, a liquidation analysis, and projections of disposable income available to pay the plan are required to determine its feasibility.
A proposed plan may be a consensual plan if all classes of creditors consent to the plan. This requires that more than 50% of the creditors in each class approve the plan and those creditors represent at least 2/3 of the total dollar amount in the class. A consensual plan must pay administrative and priority claims on the effective date of the plan. If a creditor fails to file a timely ballot it, is deemed to have accepted the plan.
If a consensual plan is not accepted, then the debtor may propose a cramdown plan without approval of any creditors.
The cramdown plan will propose to pay debts to be discharged over a three to five-year period. Long- term debts may be paid over a longer time but will not be discharged. Priority debts and administrative claims may be paid over the three to five-year plan period. Unsecured creditors may receive a percentage of their claim or they may receive nothing.
Secured creditors’ claims can be crammed down to the value of the collateral. The remainder of the claim will become an unsecured claim. However, secured creditors can elect treatment that requires that their claim be paid in full, but they receive no interest.
One of the biggest changes in bankruptcy law is the ability of a debtor to modify a mortgage on their principal residence if the loan was not used to purchase the property and was primarily used for business purposes. In this situation, the loan would be secured only to the extent that the value of the residence supports it. The balance will be deemed a general unsecured claim. This may be particularly relevant in SBA loans that require a lien on personal residence.
The debtor may modify the plan at any time prior to confirmation.
For the court to confirm a plan it must be fair and equitable and must not unfairly discriminate.
A consensual plan requires that all classes must vote in favor of the plan. For a class to accept the plan, more than 50% of creditors in the class and at least 2/3 of the monetary claims in that class must vote to accept.
If any or all classes fail to approve the plan, the debtor may propose a cramdown plan. This plan is funded with projected disposable income despite whether the debtor is an individual or business entity. Projected disposable income is the income a debtor has that is not reasonably necessary for the maintenance and support of debtor and dependents, including payment of domestic support obligations, and that which is necessary for the continued operation of the business. In the case of a business filing, projected disposable income is the income of the business beyond what is necessary for the continuation, preservation, or operation of the business. There is more room for discretion in this analysis based on individual circumstances and businesses than in other bankruptcy chapters.
The projected disposable income is paid for a three-year period or such longer time as the court may determine, not to exceed five years.
Feasibility is determined by the ability of the debtor to make the payments. The debtor must be reasonably certain to make the payments. In addition, there must be set remedies in the event debtor fails to make the required payments.
Creditors can object to confirmation of the plan.
In a consensual case, the Subchapter V Trustee is terminated when the plan is substantially consummated. This is generally when property has been transferred and distributions have begun. The debtor will make payments to the creditors.
In a nonconsensual plan, the Trustee will make payments to the creditors, unless the plan provides for the debtor to do so, and the trustee will continue as the trustee in the case.
A consensual plan may be modified at any time prior to substantial consummation if creditors do not reject the modified plan and it meets all other confirmation requirements.
A cramdown plan may be modified at any time prior to the last payment made by the debtor if it meets all other confirmation requirements.
Only the debtor may modify the plan.
Discharge in a Subchapter V case depends on whether the confirmed plan was consensual or a cramdown plan.
In a consensual plan, discharge will be issued upon confirmation of the plan for both an individual and a business entity. However, if the plan is a liquidation of most or all the debtor’s assets, the business would no longer operate, and the debtor would not be eligible for discharge in a Chapter 7, then a discharge will not be entered.
Discharge will be granted despite whether any creditor filed a Proof of Claim or accepted or rejected the plan. Debts owed to governmental units and certain taxes will not be discharged by an individual or business entity.
Discharge will not be granted to an individual when the debt is for certain taxes, fraud, larceny, breach of fiduciary duty, domestic support obligations, and/or unscheduled claim, just to name a few.
In a cramdown plan, the discharge will be entered as soon as practicable after the three to five-year period. Only the debts scheduled to be paid in the three to five-year commitment period will be discharged. Long term debts will not be discharged.
In a cramdown plan an individual may not discharge claims based on fraud, domestic support obligations, larceny, breach of fiduciary duty, unscheduled claims, certain taxes etc. Due to the language of the statute it is unclear whether a business entity may discharge debts of this type.
Remedies for default will be spelled out in the confirmed plan. In a consensual plan, the creditors have agreed and possibly negotiated for default terms. In a cramdown plan, the court and Subchapter V Trustee determine whether the default language is acceptable.
Default provisions could include sale of non-exempt property, conversion to Chapter 7 if assets are available for liquidation, dismissal if conversion would add no value to the estate, and debtor may be removed as Debtor in Possession, and/or relief from stay may be granted for pursuit against secured property.
When plan is consensual, dismissal results in the confirmed plan replacing old obligations and creditors must pursue their rights under those new terms.
In a cramdown plan where dismissal occurs, creditors and debtors return to their pre-bankruptcy status including costs and fees accumulated during the pendency of the bankruptcy.
With these distinctions made between the new Small Business Reorganization Act Subchapter V and other bankruptcy options it is hopeful that this Act will be a new tool in the small business debtor’s arsenal to navigate the bankruptcy process and alleviate debt concerns.
In reading the above, you will note that this process can be quite complex. This article is written to outline those complexities and to give contrast to the other types of bankruptcy relief in the other three parts of the blog.
If you are struggling financially, please contact me so I can explain solutions available to you in a FREE Consultation. Susan Browning, Finney Law Firm, (513) 943-6650, or email at email@example.com
In Part One of our Ohio Bankruptcy Basics series, we discussed Ohio Chapter 7 Bankruptcy, which can be read at this link. In Part Two of our series, we discussed Ohio Chapter 13 Bankruptcy which can be read at this link.
What is Chapter 11?
Chapter 11 is a reorganization of your debt. There are four types of Chapter 11 cases:
Typical Chapter 11 is filed for a business entity that exceeds the Small Business debt limit or individual Chapter 11 filing that exceeds Chapter 13 debt limits
The new Small Business Restructuring Act (enacted February 2020) small business filing
Single-asset real estate filing
This blog will focus on the typical individual and business filing variety.
Some reasons for filing a Chapter 11 may include the fact that the debtor is over the Chapter 13 debt limits and does not otherwise qualify to file a Chapter 7; the debtor may be an entity which would not be eligible to file a Chapter 13; or, there may some benefit the debtor may obtain in a Chapter 11 that they cannot get in a Chapter 13 or Chapter 7.
An involuntary bankruptcy can be filed by a debtor’s creditors in certain circumstances.
Filing the petition
A Chapter 11 case begins with filing the petition. The debtor in the case stands in a different position than in a Chapter 13 in that the debtor becomes a debtor in possession, meaning the debtor possesses and administers the assets of the case in a fiduciary capacity. While there is not typically involvement of a Chapter 11 trustee except in certain circumstances, the United States Trustee (“UST”) is heavily involved in the case and receives a fee based on disbursements to creditors. The role of the UST is to make certain that the debtor in possession is performing the required duties. The UST also nominates a creditor’s committee to assist in making sure the debtor in possession is perming its duties properly.
A debtor in possession is expected to close open accounts and transfer funds to new accounts when filing for Chapter 11. In addition, the debtor must procure insurance for the assets of the estate. The debtor in possession must also file monthly reports regarding assets, expenditures, and income. Creditors will tend to be very involved in the Chapter 11 process as compared to the typical Chapter 13.
There will be a meeting of creditors where the debtor in possession is required to lay out the broad strokes of the anticipated plan. This will inform the UST of how the debtor intends to treat the creditors in the Chapter 11 plan.
Disclosure Statement and Chapter 11 Plan
A debtor in possession may file a disclosure statement and Chapter 11 plan. There is no set deadline for filing the disclosure and plan; however, some local practices may vary. In the first 120 days after filing, only the debtor in possession may file a plan and disclosure. After this time, creditors may file a competing plan. This is called an exclusivity period. A hearing on the disclosure statement will be set and the debtor in possession gives notice to the creditors and serves the plan on the UST, SEC, and any creditors who request a copy.
The disclosure statement gives an extremely detailed view of how the debtor got where they are, how they will fund their plan, what will be done with assets, and how much will be paid to creditors and in what manner. It must provide adequate information to allow the creditors to vote on the plan. The plan will classify creditors based on being substantially similar. Debtor may treat similarly situated creditors differently but may not unfairly discriminate against other similarly situated creditors. The disclosure will include a liquidation analysis which tells the creditors, court, and UST what the creditors would likely get in a Chapter 7 liquidation case. The disclosure describes anticipated income and expenses, evaluates collateral, liens and provides appraisals on real and personal property. The disclosure statement is a method to garner support for the plan and encourage creditors to vote for confirmation of the plan by proving its feasibility.
In comparison, the plan is a condensed version of the disclosure statement advising all parties of what is being paid and in what manner with more formal legal terms.
Once the disclosure statement is accepted, the plan may be served on all creditors.
Some of the permissive provisions that may be part of the plan include spreading out the terms of repayment, and in many cases much longer than the five years allowed in Chapter 13 cases. Loans can be re-amortized at a lower interest rate, strip off liens, as well as cramdown property to its value (except for residential property that is debtor’s primary residence).
Voting and Confirmation
Once the disclosure statement is approved, the debtor may begin to solicit votes from creditors for the plan to be confirmed. The disclosure statement, plan and ballots are sent to the creditors along with a deadline to accept or reject the plan.
For a creditor to vote on the plan, their claim must be scheduled by the debtor or a proof of claim must be filed by the creditor. This same process applies to any equity security holder of debtor except that a proof of interest is filed by the holder.
The debtor in possession needs to have at least one accepting impaired class vote in favor of the plan to be confirmed. An impaired class is one that is not being paid pursuant to original contract terms. Only impaired classes may vote. Impaired classes do not include administrative claims or priority claims.
A class is deemed to have accepted the plan if more than half of the claimholders accept the plan and the accepting creditors make up at least two-thirds of the total claim dollar amount in that class.
A confirmation hearing will be held to determine if the plan will be confirmed. The court must determine if the plan was proposed in good faith, is feasible, and satisfies all other code requirements. The court will take up any objections to confirmation of the plan at the confirmation hearing.
Discharge, Administration and Final Decree
A discharge in chapter 11 operates very differently than in Chapter 7 and 13. Confirmation of the plan alters the relationship between creditors and debtor. It places debtor in the position of replacing the old contract obligations owed to creditors with new contract obligations. A discharge is generally received after confirmation unless the debtor is an individual. An individual debtor must complete payments before receiving a discharge. In addition, as is the case in Chapter 7, some debts under the code are non-dischargeable.
Modifications may be made to a plan after confirmation but must meet the guidelines under the bankruptcy code. The case must not be substantially consummated which means debtor has begun payments, transferred property under the plan.
Debtor must administer the case as well as provide reports to the court. Once the case has been fully administered, the debtor will request a final decree from the court.
Please look for the next blog four in our 4-part series on the new Subchapter V: Small Business Restructuring Act (“SBRA”) which will be published soon.
If you are struggling financially and would like more information about bankruptcy, please contact Susan Browning, 513.943.6650 at the Finney Law Firm for a FREE CONSULTATION.