Category Archives: Chapter 11 Bankruptcy

Do I Need a Chapter 11 – Small Business Bankruptcy?

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A Chapter 11 bankruptcy filing is used to reorganize a business that you may want to continue to operate after the U.S bankruptcy court is finished. Chapter 11 may or may not be the best resolution for your business.

If you are running a small business and considering chapter 11 Business Bankruptcy, your business is likely organized as either an LLC (Limited Liability Company) or an S-corporation. There is a reason for these designations. It means there is not supposed to be any personal liability to you, above what you have already invested in the business. If somebody sues the business, and you have followed organizational and corporate rules, your personal assets should not be at risk. Think of it this way. If you own stock in IBM and somebody sues IBM, they don’t get to take your personal assets, just the value of your stock.

The same laws that protect IBM, also protect you from liabilities of your LLC or corporation. As long as you have not signed a personal guarantee and have followed the corporate or organizational rules, a creditor should not be able to sue you personally. Over the years the courts have established some exceptions to this rule making it easier to pierce the corporate veil. If you think you might have personal liability from your s-corp. or LLC, you should schedule a free consultation with an experienced bankruptcy attorney here.

If you are confident you do not have personal liability, it is important for you to delineate personal form corporate debt. If the debt belongs exclusively to your LLC or S-Corp. and there are no corporate assets to satisfy it, the creditor has no right to execute on your personal assets. The creditor is simply out. This is why we pay interest to borrow money. Sometimes the debt cannot be repaid and the lender is left holding the bag.

If a creditor is unable to collect against an LLC or an S-Corp, there may not be a need for a formal chapter 11 declaration that the LLC or S-Corp is not paying the debt. It may be as easy as not paying. However, there are many things that will need to be done to make sure you are not exposed to personal liability. It may also be the case that you need a personal bankruptcy to disclose the corporate debt and protect your personal assets. It is better to be safe than sorry. GET FREE HELP TODAY, by scheduling a free consultation with a great bankruptcy lawyer.

Doctors Facing Bankruptcy

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Doctors Facing Bankruptcy IMAGEIt’s not just the unemployed or underemployed that are still dealing with the ripple effects of the financial crisis. According to CNN Money Magazine, “as many doctors struggle to keep their practices financially sound, some are buckling under money woes and being pushed into bankruptcy.” The American Bankruptcy Institute’s health care committee, chaired by Bobby Guy, has recently noted a spike in bankruptcy filings by physician practices. Guy told CNN Money that there was a period in early 2013 when there were eight filings in a row, which before would have been considered unusual.

But it’s not doctors working in large hospitals or practices that are necessarily facing financial insolvency. Chapter 11 bankruptcy for physicians is more common when the doctor has a small private practice. Guy told CNN Money that “the weak economy has taken a toll on doctors’ revenue as consumers cut back on office visits and lucrative elective procedures.” There is also the issue of “shrinking insurance reimbursements, changing regulations, and the rising costs of malpractice insurance, drugs, and other business necessities” for a doctor’s practice, according to CNN Money.

It’s not only doctors who are affected by their practices closing—Chapter 11 does, of course, affect the filer first and foremost, but in areas where there’s only one small doctor’s practice, its closing can severely affect the community. “Having a cancer practice closer,” for example, “can be debilitating to a community,” according to CNN Money. An oncologist in Connecticut, who had had a successful solo practice for years, told CNN that his revenues began to fall when “reimbursements for treatment and drugs” starting shrinking. While he referred his patients to larger area hospitals, his practice closing likely had a severe affect on them as well. And it’s not just specialists facing bankruptcy. Primary care doctors “face similar challenges,” according to CNN Money. Fewer patients able to afford care means less profits for doctors.

If you or someone you know is a doctor who is facing financial insolvency, bankruptcy may be the best option. Don’t go through it alone. Contact a dedicated Arizona bankruptcy attorney today.

Reasons to Convert your Bankruptcy Case

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When you file a case for bankruptcy, your attorney will advise you whether you should file a Chapter, 7, 11 or 13 under the federal Bankruptcy Code. There are different advantages and rules to each type of bankruptcy plan. However, even after you have filed the case, it doesn’t have to be set in stone.

If your bankruptcy attorney advises you that you should convert your current bankruptcy case to an alternate plan, you can do so simply by filing a notice of conversion with the court as well as following up with the other changes that will be necessary.

One of the reasons that you may be advised to convert your case is if you are unable to keep up with your Chapter 13 payments. Then you may be advised to change it to a Chapter 7 debt relief case. The great thing about converting your case is that any new debt that you have accumulated may be able to be included in the new filing.

Your case can also be involuntarily converted from a Chapter 7 plan to a Chapter 13 plan if you are determined to have enough income to repay your debts through a Chapter 13 plan. This is one of the reasons that it is imperative that you divulge all of your assets and income to your attorney when you are considering filing a bankruptcy case.

Going through a bankruptcy can be very emotional and stressful. Remember, you do not have to go through the process alone, nor should you. You need to consult with an experienced and knowledgeable Arizona bankruptcy attorney who can walk you through the entire process as well address any questions that you may have about your options or the process itself. Your attorney will make sure that your best interests are represented at all times.

New Bankruptcy Laws Possible in Arizona

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New bankruptcy laws may be enacted soon in Arizona, according to VerdeNews.com. The new laws have been proposed by the head of the House Judiciary Committee in an effort to “update Arizona’s dated and sometimes anachronistic bankruptcy laws,” according to VerdeNews.com. There wouldn’t be anything in the new laws that would allow individuals to seek protection from creditors, however, because “those are set in federal law.” That same federal law, however, allows each state to determine just what assets a person filing for bankruptcy can keep, and Representative Eddie Farnsworth, the lawmaker seeking change for Arizona laws, said that the “list for Arizona is long overdue for an overhaul.”

An example of this is that if a person in Arizona files for bankruptcy, law allows him to keep “one kitchen table and one dining room table with four chairs each.” Other permissible items, according to VerdeNews.com, include “three living room lamps, one radio alarm clock, one vacuum cleaner, and a choice of one television set, radio or stereo.” Yet the total value of all these cannot exceed $4,000. This law doesn’t allow for the inclusion of family heirlooms. “One person may have a hutch from their great grandmother that they want,” Farnsworth said. His revision to the law would give more flexibility to people filing bankruptcy when it comes to deciding which specific pieces they’d like to keep when breaking up their home.

Arizona was one of the hardest-hit states in the economic recession, experiencing more personal bankruptcy filings than the average state. Yet those numbers are dropping, according to Arizona Bankruptcy Court statistics. The district including Phoenix, Tucson, and Yuma, for example, had 22 percent less bankruptcy filings in 2012 than in 2011—from 35,072 total filings in 2011 to 27,298 total filings in 2012.

That doesn’t mean, of course, that all residents in Arizona are in the clear. If you or someone you know is considering bankruptcy, the most important first step is to seek the counsel of an attorney. Don’t go through it alone. Contact a dedicated Arizona bankruptcy lawyer today.

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Can Anyone File Bankruptcy?

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In a manner of speaking, yes, anyone can file for bankruptcy. What chapter of bankruptcy you qualify for depends on your specific situation. In October 2005, a massive change took place in the U.S. bankruptcy code. Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) as a response to the belief that too many people were taking advantage of Chapter 7 bankruptcy. The result of this new law is to force people who can afford to repay some of their debt to file for bankruptcy under Chapter 13 instead of Chapter 7.

Chapter 7:

In a sense, anyone—even businesses—can file for Chapter 7 bankruptcy protection. There are no minimum or maximum debt limits to be concerned with. However, before you can file a Chapter 7 bankruptcy you must be able to pass the infamous Means Test. The Means Test is used to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the bankruptcy code. If there is a presumed abuse, the case must either be converted to a Chapter 13 or it will be dismissed. Most people who cannot file a Chapter 7 bankruptcy because their income is too high end up filing for Chapter 13.

Chapter 13:

There are a few key limitations about who can file for Chapter 13 bankruptcy. For one, businesses are not able to file a Chapter 13 bankruptcy. Additionally, neither can people with too much debt. Currently the debt limits are $1,081,400 in secured debt plus $360,475 in unsecured debt (taxes whether dischargeable or non-dischargeable are included in the unsecured debt limit calculation). If you make too much money to pass the means test and have too much debt to file a Chapter 13 there are still some options for you.

Chapter 11:

In rare cases a person must file a Chapter 11 because they cannot file either a Chapter 7 or Chapter 13 bankruptcy. If a person does not pass the means test because they make too much money and they have too much debt to file a Chapter 13 then they must file a Chapter 11. Because a corporation cannot file a Chapter 13 bankruptcy if they are looking to reorganize their debt they must file a Chapter 11.

Contact our law firm to see what chapter of bankruptcy will best help you.

U.S. To Export Bankruptcy Code to Mexico?

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Arizona, because of proximity, is sometimes more affected by happenings in Mexico than other northern U.S. states. Yet when it comes to bankruptcy of Mexican companies, the effects are felt nationwide. In late June, Mexican glassmaker Vitro SAB, according to Reuters, is “heading to a U.S. appeals court to save its restructuring at home from an assault by U.S. creditors.” This is one of the first times that the U.S. bankruptcy code could be transported beyond the nation’s borders.

Chapter 15 is a clause in the U.S. bankruptcy code that was added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. According to U.S. Federal Bankruptcy Court, “it is the U.S. domestic adoption of the Model Law on Cross-Border Insolvency” set out by the United Nations. Its purpose it to provide “effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country.” It’s meant to promote cooperation and establish legal certainty for trade, among other things.

The issue with Vitro stemmed from a Dallas bankruptcy court ruling that “refused to enforce the company’s Mexican restructuring against U.S. hedge funds.” Reuters analysis purports that the “restructuring plan violated a bedrock rule of U.S. bankruptcy by rewarding shareholders before repaying creditors in full.”

In today’s global market, when a company anywhere in the world files for bankruptcy protection, ripples are felt across the market. The U.S. is, of course, affected when major international importers and exporters go insolvent. And subsequently, U.S. business markets are affected adversely as well.

If you or someone you know has been affected by an international company’s insolvency, or have questions about how the system works, contact a dedicated Arizona bankruptcy lawyer today.

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Why Does the Bankruptcy Court Require a Filing Fee?

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Simply put the filing fees of bankruptcy exist to help offset the courts’ cost of processing a bankruptcy. The filing fee for a Chapter 7 bankruptcy is currently $306. The filing fee for a Chapter 13 bankruptcy is $281 and the filing fee for a Chapter 11 bankruptcy is $1,213. The filing fees are subject to change. In November 2011 the Chapter 7 and Chapter 13 filing fees rose by $7.
One thing that your filing fee covers is the trustee. Per §330(b)(1) of the U.S. Bankruptcy code $60 is to be paid to the trustee from the filing fee. Now if you have any nonexempt assets you might end up paying your trustee a lot more than just $60 but he’s guaranteed at least that much from your filing fee.
Your filing fee covers the cost of mailing a Notice of Bankruptcy to each of your creditors. The bankruptcy court itself sends notice of your bankruptcy filing to all of your creditors. A hard copy of the notice of bankruptcy is mailed from the Bankruptcy Noticing Center in Virginia to each of your creditors.
Lastly your filing fee covers the cost of maintaining a bankruptcy courthouse. For instance, downtown Phoenix, Arizona has a very large bankruptcy courthouse. This courthouse is staffed with employees ranging from; judges, clerks, janitors, and security guards. Let us help you find out which chapter of bankruptcy is right for you!

Ch. 13 vs. Ch. 11

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There are many similarities and many differences between Chapter 13 and Chapter 11 of bankruptcy. Chapter 13 bankruptcies are available for individuals and sole proprietorships but not corporations. Chapter 11 bankruptcy is available for businesses and individuals with very large amounts of debt.

Why would an individual file a Chapter 11 instead of a Chapter 13? Typically it is because the filer is exceeds the Chapter 13 debts. Currently the debt limits for Secured debt are $1,081,400.00 and $360,475.00 for unsecured debt (please note that these limits are adjusted periodically for inflation). Secured debts connected to some kind of a property. i.e., a home, car, boat, land, etc. These debts are considered “secured” because should you stop making payments on the loan, the lender can seize the property connected to the loan. Unsecured debts are not linked to any kind of property, and include student loans, credit cards, medical bills, and payday loans. These debts are considered “unsecured” because the lender cannot repossess or foreclose a piece of property if a borrower stops making payments.

So for individuals who have invested in several pieces of real estate, you may not be eligible to file a Chapter 13. For instance if you purchased 5 investment property at $250,000 each, then you have at least $1,250,000 in debt and cannot do the Chapter 13. Likewise, if you are someone who has a large amount of medical bills, credit card debt, student loans, and/or IRS debt then you will not be able to file a Chapter 13 if it totals more than $360,475.00. But don’t worry, if you are an individual who is not eligible for a Chapter 13 you may qualify for a Chapter 7 or Chapter 11 bankruptcy.

Judge Rejects Charitable Pledge Claim in Bankruptcy Case

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What happens if you’ve made a charitable pledge to a non-profit organization and then find yourself in a financial position where you need to file for bankruptcy? Can that charitable organization hold you to that pledge – even filing a claim in bankruptcy court for the amount you pledged to give?

That’s exactly what St. Joseph’s Foundation did. They filed a claim against a supermarket chain that had pledged $25,000 per year for 10 years to the foundation, but then filed for Chapter 11. The foundation’s argument was that the chain received benefit from the pledge with all the free media exposure and community goodwill when the pledge was announced. Bashas’ Inc. made the pledge in 2006 and filed for bankruptcy in July 2009. St. Jospeph’s was looking for $155,000, the amount they said the chain owed up until September 2009.

Other debtors objected to the claim and the bankruptcy court rejected it, calling it an “unenforceable charitable pledge”. A federal district court judge affirmed the decision. The foundation filed an appeal with the 9th U.S. Circuit Court of Appeals, but while the appeal was pending, both parties worked out a $50,000 settlement. According to a report in Thomason Reuters News & Insights, no debtors objected this time, but the bankruptcy court rejected the deal, stating that it was “neither fair nor equitable to the debtors’ estate and their creditors.” Returning back to federal district court, the same judge again affirmed the bankruptcy’s court decision, saying “the probability of St. Joseph’s success in the litigation is near zero.” The judge went further to state that “Bashas’ suffers the injustice here for having to waste limited resources defending itself against an exercise in avarice.”

This is an example of why you should not try to file for bankruptcy yourself. If you are considering filing, you should hire an experienced Arizona bankruptcy attorney to protect you and your estate against claims such as this one.

Hostess to Shut Down Operations

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According to the Wall Street Journal, Hostess, “the company behind treats snacked on for generations, is poised to present to a federal bankruptcy judge a plan to shut down 36 plants and sell off the company’s business.” The announcement was made, according to the Journal, after the company’s second-largest union orchestrated a strike that resulted in a shutdown. The shutdown, Hostess announced, “would result in the loss of more than 18,000 jobs and place the fate of more than 30 American brands in jeopardy.” Union president Frank Hurt told the Journal that he “believed there was more than a good chance that a buyer quickly would swoop in to buy the profitable parts of the company and give his union’s members their jobs back.”

Yet Hostess CEO Greg Rayburn told the Associated Press, as reported in AZ Central, that there was no buyer waiting in the wings to rescue the company. Hostess is based in Irving, Texas and originally filed for Chapter 11 protection in January 2012. Yet, unlike many of its competitors, according to AZ Central, “Hostess had been saddled with high pension, wage and medical costs related to its unionized workforce.”

The shutdown isn’t only affecting the company and its workers: according to the East Valley Tribune, “the Twinkies shelves are quickly emptying across Arizona after Hostess announced it was going out of business.” Yet it’s more than cake and icing for the company’s 18,500 workers across the nation, according to KPHO Radio. There are roughly 500 bakery outlet stores across the country as well, which means that about 20,000 people are facing layoffs.

Corporate bankruptcies can lead to personal bankruptcies, and the closing of a corporation as large as Hostess will affect many across the country. If you or someone you know is facing bankruptcy, don’t go through it alone. Contact a dedicated Arizona state bankruptcy attorney today.

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