Bankruptcy
Knowing the Bankruptcy Basics
The Bankruptcy Code provides protections, called “exemptions,” that will allow you to protect almost all of your assets. While the specific protections are too numerous to discuss in detail, suffice it to say that you would not have suspected that each debtor can protect over a million dollars in IRAs or 401(k) money, or over $8,000 of household goods such as furniture, appliances and the like. The federal protections are very generous for most ordinary wage earners. So, while you can get debt relief, you can also protect your assets.
Beware of Bankruptcy Code Abusers
You may have heard about changes to the Bankruptcy Code, in 2005. Many sources, including debt collectors, try to paint these changes as restricting relief to bankruptcy, but they do nothing of the sort. The main changes were designed to try to catch “abusers” of the system (which, in our opinion, were few and far between). But the bottom line is that bankruptcy-related relief from debt will be available to you, one way or the other if that is what we recommend. It is only if you have substantial debt that you would have to consider a Chapter 11 bankruptcy like many corporations files.
Chapter 13 Advantages
Car Loan Updates / Possibility of a 'Cramdown' or Upside Down Car Loan
Due to many factors, including the higher initial cost of vehicles, increased interest rates over the last few years and flat resale values for cars, many cars are now "underwater" …. another way of saying this is that the car loan is "upside down". Meaning, that if you go to sell or trade the car in, the amount of your loan is higher than the value of the vehicle. Therefore, if you do buy another car, you will have to take out a loan that is most likely more than the initial value of the car, keeping the cycle of the "upside down" purchase going.
If your situation is as described above, there may be a bankruptcy (partial) solution to the problem. In some cases, where this "negative equity" exists, we can modify the car loan on very favorable terms … true, you need to file a Chapter 13 Bankruptcy case to do so, but if you are willing to kill off other (bad) debt like credit cards and other personal loans in the process, this can many times be very beneficial.
Give my office a call to discuss your specific situation.
Chapter 7 Bankruptcy
If you are being threatened with suit or are in collections from credit card debt, medical bills, or personal loans, a Chapter 7 Bankruptcy may be able to help. Although called a "liquidation bankruptcy," most likely all of your assets will be protected by the Bankruptcy Code. In the event that an asset is not protected, an appointed trustee would be entitled to sell those assets and distribute the money to your creditors. Exempt assets that fall under protection from liquidation varies depending on the use of state or federal (Bankruptcy) law. In this jurisdiction (Pennsylvania), we have the option to use either series of protections, and many times that is a substantial benefit, especially if all of your assets are jointly owned. With the help of Kercher Law, you can obtain a discharge of your debt in exchange for the potential sale of unprotected assets. Most people are well within the limits of federal asset protections. Pennsylvania law differs but may also be helpful in some cases. These protections are fairly complex and should not be navigated without the assistance of Kercher law.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy cases require filing a petition with the bankruptcy court. The basic idea is to negotiate deals with your creditors and propose a (partial) repayment plan that can vary in length of time and in the payment scheme. These cases can be tricky to navigate and you absolutely need an experienced bankruptcy attorney to assist. You must have good control over your income and expenses because the reporting requirements to the Court are fairly stringent….that being said, most creditors tend to cooperate because the alternative is the liquidation of your business which would result in your general creditors receiving virtually nothing. It is very useful in ‘calling off the dogs’ for a period of time while you can put together a plan to get out of financial trouble. And, most importantly, once you file, ALL collection activity against your company ceases by operation of the Bankruptcy Code, even if you are being chased by IRS or the State. Contact Kercher Law today at 610-264-4120, to see how we can help you with your Chapter 11 bankruptcy.
Bankruptcy Relief for Small Businesses and LLCs
If you own a small business struggling with debt, bankruptcy may provide some relief. Filing for bankruptcy may help, but it will depend on many factors. Whether your company is a sole proprietorship, general partnership, corporation, or limited liability company, you may benefit from filing bankruptcy. Kercher Law can advise you on the best situations if you believe to be personally liable for some of your business' debts. Another thing to consider is if you want to keep running your company or you want to close, as well as how much and what types of debts you have incurred.
Payment of Tax Debt
You can pay down tax debt, generally, without any further interest or penalty. This can be a substantial advantage. I have had many clients who have entered into Installment Agreements with the IRS but have not gotten anywhere with those agreements because the IRS is allowed to add a penalty of 11 percent per year, on top of the interest (which depends on the prime rate).
So, even in years where the prime rate is very, very low, e.g., 3 percent, you are still paying 14% per year on your tax debt. Imagine the cost of money when interest rates are more “normal,” such as 6-8 percent… the actual cost of paying back the IRS will mount to some 17-19 percent per year, basically an unsustainable payment in most cases, and one you should NOT do in most cases.
Asset Mix and Income
You may not have a choice in selecting whether a Chapter 7 or Chapter 13 bankruptcy applies if you are a substantial wage earner. The 2005 changes to the Bankruptcy Code require our office to review your financial information (income and expenses) under a rather complicated “Means Test.” Suffice it to say that the preparation, review and analysis of this “test” are not to be tried by someone not familiar with bankruptcy law. A fundamental review can be found on the website of the Office of the United States Trustee. Please note that the opinions and statements in that Web site are those of the government and we may or may not agree with their interpretations of the new law.
Another reason why you might not be able to choose which Chapter to file bankruptcy under is when your assets have substantial value more than the debt against those assets. Because of the complexity of these calculations, it is impossible to explain on this page. Briefly, however, it is still possible to keep assets even though they have substantial value in Chapter 13 cases.
Credit Score
Most Kercher Law
clients who have had reasonably good credit scores before falling into financial difficulty have been able to regain their credit scores fairly quickly even while actively involved in a Chapter 13 case, achieving scores of 650-670 within 18-24 months. They also can get financing for vehicles or even refinanced mortgages.