Can Filing For Bankruptcy Protection Save My Small Business?

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Let’s answer the top-line question right out of the gate: yes, filing for bankruptcy protection can most certainly save your business. The benefits of the bankruptcy laws do not exist solely for big companies. In fact, they can apply with equal effectiveness to save your small business when it runs into financial difficulty. Here is how.

A Quick Sketch of Business Bankruptcies

Bankruptcy is a judicial process by which a debtor seeks legal protection from financial obligations to creditors. For businesses, a bankruptcy generally takes one of two forms, referred to by the chapter of the United States Bankruptcy Code that governs them:

• Chapter 7 business bankruptcies accomplish a partial repayment and (effectively) a cancellation of debts through the supervised liquidation of a business’s assets;
• Chapter 11 business bankruptcies accomplish the judicially-supervised reorganization of a business’s debts so that the business can continue to operate.

People unfamiliar with bankruptcy law sometimes harbor the misconception that bankruptcy means the death of a business. In fact, the Bankruptcy Code exists principally to give individual and business debtors alike a “fresh start.” Far from killing a business, going through a Chapter 11 bankruptcy, in particular, accomplishes something much closer to a “rebirth.” The reorganized company emerges from bankruptcy free of crushing debt burdens, able to continue operating on terms that give it at least a reasonable shot at long-term success.

The Chapter 11 Bankruptcy Process

Seeking Chapter 11 bankruptcy protection as a small business begins with filing what is known as a “petition” in the United States Bankruptcy Court located in the jurisdiction where the business resides. That filing alone triggers one of the most powerful protections the law offers for a business: an “automatic stay” (or “freeze”) that prevents the business’s creditors from taking action to collect on debts. This freeze gives the business the time and breathing room it needs to reorganize its debts in a fair and reasonable manner, according to the process dictated by the Bankruptcy Code.

In conjunction with filing its petition, the business must also file “schedules” that essentially disclose the details of its financial condition, and in particular, to whom it owes money and in what amounts. These are the business’s creditors, and they, too, have rights under the Bankruptcy Code. Specifically, they get to form a “committee” – if they so choose – that has a say in the terms on which the debtor can reorganize.

Filing a bankruptcy petition also transforms a Chapter 11 business debtor, in a sense, into a special legal entity called a “debtor-in-possession.” The business continues to operate, but subject to special duties to its (now-“frozen”) creditors dictated by the Bankruptcy Code. Those duties limit the debtor’s ability to take some actions without permission, such as borrowing money or selling assets, and obligates the debtor to take others, such as preparing and filing monthly financial reports of its operations, assuming or rejecting “executory” contracts, and responding to claims by specific creditors.

The ultimate aim of a Chapter 11 business bankruptcy is court and creditor approval (called “confirmation”) of a “plan of reorganization” that addresses the business’s obligations  of each of its “classes” of financial stakeholders, including creditors and equity holders. The plan typically proposes to adjust terms and conditions of the business’s debts, management, and (sometimes) ownership in a manner that allows for the business to emerge from bankruptcy as a viable enterprise. A plan may, for example, propose to extend debt repayment dates, allocate certain business proceeds to the repayment of debts, or adjust equity ownership interests. For a court to “confirm” a plan of reorganization, at least one class of creditors with an “impaired” claim (that is, whose rights as creditors get affected under the proposed plan of reorganization) must accept the plan, as reflected in a vote of approval by holders of at least 1/2 of the number of allowed claims in that class, who also hold at least 2/3 of the amount of allowed claims in that class.

Upon confirmation, the business “emerges” from Chapter 11 bankruptcy, no longer a debtor in possession, but a business with a “fresh start”, free of its old debts and subject instead to the terms of the confirmed plan.

Small Business Chapter 11 Bankruptcies

The Bankruptcy Code specifically addresses cases involving bankruptcies of small businesses. Under the Code, a small business debtor is one with total “non-contingent liquidated secured and unsecured debts” of $2,566,050 or less, which either has no creditor committee or for which the creditor committee is not active. Small businesses that qualify for this treatment must follow specific procedures, and submit to close supervision by a “trustee” appointed by the Bankruptcy Court, to demonstrate they have a solid business plan for reorganizing and that they have a realistic shot at confirming a plan of reorganization. In return, they get an exclusive 180-day period to propose that plan of reorganization. (Ordinary Chapter 11 debtors get only 120 days of “exclusivity” before other stakeholders can propose their own plans that are usually far less-favorable to the business than what its existing management proposes.)

Legal Advice for Small Businesses That Need Bankruptcy Protection

Small business owners know when they need help. It is one thing to operate on a shoestring. It is another to realize you cannot possibly support your current debt load and financial obligations to vendors and other “trade creditors” as things stand. Owners who reach that moment of realization should, immediately, seek the advice of an experienced business bankruptcy attorney.

The steps small business owners take pre-bankruptcy can have a significant effect on the outcome of a Chapter 11 case. If you want your business to survive the bankruptcy process, which it absolutely can in most cases with the right planning and approach to a Chapter 11 filing, then get the legal advice you need as soon as possible. Contact an experienced, seasoned business bankruptcy practitioner who can begin plotting a course through the Bankruptcy Code for your business, so that it emerges free of its unsupportable financial burdens and viable for the long-term.

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After Filing for Bankruptcy Can I Buy A House?

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The question can be taken on several levels.

To take it literally: Yes, you can buy a house if you pay all-cash so you don’t need a mortgage. Of course, that applies to very, very few individuals who declare bankruptcy under Chapter 7 (or sometimes Chapter 11) of the U.S Bankruptcy Code.

On another level, the answer is: NO. You cannot be considered for any new loan when you are in the process of declaring bankruptcy. You must wait until your bankruptcy is “discharged,” which means that the court rules that the “debtor” no longer is responsible for certain debts and that creditors no longer can try to collect them. After that, you are legally permitted to seek a mortgage.

Here we address what the question really means for the individual who has declared bankruptcy and been successful in having his or her debts discharged; Will you ever be able to get a mortgage with a bankruptcy on your credit record? A mortgage, after all, is the largest loan most individuals ever get in their lives.

Some bankruptcy realities

Start with the post-bankruptcy realities:

• Your credit rating takes a big hit. No question about it. There isn’t much that can go on your credit record more negative than bankruptcy.
• That bankruptcy will remain on your credit report for 10 years after which it must be erased.
• On a positive note, a successful declaration of bankruptcy usually leaves an individual in a much stronger and more promising financial position. All the years of monthly struggle to meet credit card and other payments, often taking more than half of monthly income, are over.
• How you use this new opportunity for building your financial future will determine, in the end, whether or not you regain your credit—including enough credit to qualify for a home mortgage. One thing is certain. You will have to be patient, exercise some discipline, and adopt some new tools for financial planning.

Some necessary steps

Here are some steps:

Become friends with your credit report. Become familiar with your credit report and stay on top of it. Bankruptcies can introduce some confusion into your credit report. For example, be sure that debts that the court has discharged are not still listed on your credit report. Be sure some confusion of names has not introduced someone else’s credit information in your report (yes, it happens). Be sure that credit information about your former husband or wife is not still on your report because of former joint accounts. You have a right to a credit report for each of the “big three” credit agencies (TransUnion serviced the Central U.S., Experian).  Here is a tip: get your free credit report from one of the agencies every four months to keep much closer track of your credit.

Build up your credit step by step.  How can you do this when you can’t get a credit card or loan? Two frequently recommended initial steps are to 1) get a secured credit card, one tied to your savings account so that if you miss a payment it is taken from your account, and 2) get an installment loan such as a car loan, which is “secured” by the seller’s right to reclaim the car.

Pay your bills on time, every time. Nothing rebuilds your credit so effectively as paying all your bills on time. That new credit card or installment loan can turn into a negative for your credit if you are late with payments. Bankruptcy leaves you in a better position to do this because other debts have been discharged. Now, you have a chance to begin keeping an honest, consistent budget—the bedrock upon which all other financial planning stands. Before you make an expenditure or a commitment to a series of payments, you check your budget to be sure you can handle it. Here’s a tip: Be sure to consider not only immediate or monthly payments but larger annual payments such as taxes. You don’t want them to come along and bust your budget, introducing new financial stress.

Now, you can save again. With your debts discharged, your paycheck is yours, again. An essential step in building toward a major purchase like a home is to save. By far the most effective strategy is to make weekly or monthly savings automatic by one of the many systems for transferred a percentage of your pay to savings. It is less important to make some big deposits than to make them regular. If letting some of your paycheck “go” to savings, rather than things you would like to buy, remind yourself that savings are simply the ability to buy bigger and even more enjoyable things later, like a new home. If you can save enough for a 20 percent down payment on a house, it is very persuasive to a bank. It speaks to your new and consistent financial management. You will definitely want to make those mortgage payments because if default on the mortgage your house is sold by the bank and any equity (such as that created by the down payment) goes first to pay the mortgage.

Shop for both a home and the right mortgage

When the day you can qualify for a mortgage arrives you will deserve a lot of “credit”—and not just financial. It is exciting to shop for a home, but you have learned financial planning and budgeting, so you also will shop for a mortgage. One issue may be the duration of the mortgage. The longer the repayment period (such as 30 years), the smaller the monthly payments but the more you pay, in the end, for your home. A fixed-rate mortgage protects you against rising interest rates; but if interest rates decline, you may have to refinance for the lower rate. The opposite scenario is a variable rate mortgage, with lower payment when interest rates go down—but rising monthly payments when interest rates go up.

Begin the right way

If you reach the day after your bankruptcy when you have rebuilt enough credit to get a mortgage, then the bankruptcy process will have succeeded for you. It all begins with the right outcome of your declaration under Chapter 7 and for that, you want highly experienced lawyers that specialize in individual bankruptcies.

For 35 years, the trusted Philadelphia firm of Cibik & Cataldo, P.C., has provided bankruptcy legal services to enable more than 20,000 personal bankruptcies to be completed in a superior, cost-efficient, and personally respectful way. Thousands of clients in Philadelphia and surrounding areas have benefited from the work of bankruptcy attorneys Michael A. Cibik, Esq. and Michael A. Cataldo, Esq., both certified by the American Bankruptcy Certification Board. That provides you with an objective standard when making your choice of counsel on any financial and bankruptcy matters.

Be sure to check back here regularly for information, insights, and update on how the often-stressful, life-altering, but potentially transformative challenge of your bankruptcy can be handled by a law firm that specializes in individual bankruptcies.

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Famous People Who Have Filed for Bankruptcy

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Making financial commitments and incurring debts is a normal part of life for any ambitious person. These debts and financial obligations can become a burden for even the most successful people. When the burden becomes too heavy, smart people seek relief by filing for bankruptcy protection. Indeed, several famous people ranging from entertainers to politicians, have filed for bankruptcy to get out of tricky financial situations.

Toni Braxton

Toni Braxton was a highly prolific and successful R&B star of the 1990s, but several chart-topping hits and Grammy Awards did not save her from financial difficulties. Apparently, she did not make much from her first music releases and was always in debt. Compulsive spending and career-related financial problems forced her to seek bankruptcy protection in 1998. She continued to record hit songs, but poor returns from the music made her declare bankruptcy again. It was only in 2013 that she cleared her bankruptcy problems.

Kim Basinger

The Oscar-winning actress ran into a legal dispute when she breached a commitment to perform in the movie Boxing Helena. The courts ordered her to pay Main Line Pictures $8.1 million in damages. This financial setback forced her to file for bankruptcy. However, the filing was not enough as some of her assets were liquidated to generate funds. Nevertheless, her acting career continued to thrive with starring roles in films such as The Nice Guys and Fifty Shades Darker. She eventually settled the dispute with the production company out of court.

Donald Trump

While Trump has never declared bankruptcy as an individual, several of his business interests have filed bankruptcy protection. Trump’s hotel and casino investments filed for bankruptcy protection several times between 1990 and 2009. He settled these cases, by relinquishing some percentage of the ownership or surrendering management responsibilities to the creditors. Trump views filing bankruptcies as a strategic business move to protect his investments.

Mark Twain

Mark Twain left an indelible mark on the American literary landscape, but even he was not immune to financial problems. His financial woes resulted from a wrong investment decision related to his publishing business. Twain’s publishing business also endured cash flow problems. He declared personal bankruptcy in 1893 but soon recovered after writing and publishing several bestsellers.

Larry King

Long before Larry King became the king of talk show, he had faced criminal charges that led to financial difficulties. His troubles started with a former business partner accused him of stealing $5,000. Even though the charges were eventually dropped, his career suffered as he was out of work for over four years. This chain of events forced him to declare bankruptcy in 1978 to protect himself from creditors who were claiming more than $300,000. He reignited his career with the Larry King Show on radio before switching to cable TV and hosting Larry King Live, which ran for over 20 years.

50 Cent

Forbes once ranked 50 Cent among the five top-earning hip-hop artists with a net worth of over $150 million. However, poor investment decisions and a big lawsuit that set him back $5 million forced him to file Chapter 11 bankruptcy in 2015. He estimated his debts to be in the range of $10 to $50 million while his assets were around $20 million. 50 Cent managed to settle the debt problems in 2016 by committing to pay $23 million to his creditors over five years.

Henry Ford

Henry Ford might be the most famous industrialist of the 20th century, but it was not always smooth riding for him. Ford’s troubles began when his Detroit Automobile Company failed to make enough car sales to sustain operations. He filed for bankruptcy in 1899. However, he was to bounce back with Ford Motor Company, which became one of the most successful automobile manufacturers globally.

Teresa Giudice

The reality TV star was not just inventing financial problems for TV as seemed be in financial trouble in real life. She first declared bankruptcy in 2009, together with her husband. This was only the beginning of her legal problems. The creditors claimed that they had not declared all their assets leading to a charge of bankruptcy fraud. The couple was convicted of fraud and served time. Giudice cleared her bankruptcy fraud problems in 2016 but is still paying her back taxes.

Marvin Gaye

The Prince of Soul was electric on stage, but even his musical brilliance could not save him from financial troubles. His financial problems emanated from unpaid alimony costs amounting to $600,000. These debts coupled with low performance income forced him to seek bankruptcy protection in 1976. However, his award-winning hit, Sexual Healing, topped the billboard and went a long way into solving his financial problems.

Meat Loaf

Meat Loaf’s financial troubles resulted from disputes with producer and business partner Jim Steinman. The pair had so many disagreements that at one time, Meat Loaf was the subject of 45 lawsuits claiming over $80 million in damages. He decided to file Chapter 11 bankruptcy protection to stop the record label from making frivolous suits. They eventually resolved the problem in the early 1990s. Meat Loaf later relaunched his music career with a highly successful album.

Isaac Hayes

Hayes’ had trouble with a bank that advanced loans to his production house Stax Records. The bank claimed over $6 million, forcing him to seek bankruptcy protection in 1976. However, he still lost personal property and rights to all future performances and royalties. Hayes later reinvented himself by being the voice of a character in South Park, which was highly successful on Comedy Central. The show has been on TV since 1997 and has been nominated for over 15 Emmy Awards.

Need a bankruptcy lawyer?

Anyone can experience financial troubles that need bankruptcy protection. It helps to work with a reliable partner who is well versed in bankruptcy law. Cibik & Cataldo, P.C. are bankruptcy lawyers with over 40 years’ experience of serving Philadelphia clients. Our bankruptcy attorneys counsel clients on legal protections for different types of personal and business financial problems.

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What is the Small Business Reorganization Act? (SBRA)

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For years, small business debtors struggled to reorganize effectively after filing for Chapter 11 Bankruptcy. However, the signing into law of the Small Business Reorganization Act of 2019 (SBRA) aims to address some of these issues. SBRA (aka new Chapter 11v) will strike a balance between chapters 7 and 11 bankruptcies for small-business debtors. As such, it will make small business bankruptcy processes faster and less expensive.

Apart from lowering the cost of filing for Chapter 11v bankruptcy, the act also streamlines the reorganization plan confirmation process. As a result, small businesses can survive bankruptcy and retain operational control.

What is the Small Business Reorganization Act (SBRA)?

Legal commentators had long lamented the high costs and complexities of chapter 11 bankruptcy and the toll it took on small businesses’ ability to reorganize successfully. In response, Congress legislated and passed the Bankruptcy Code amendments called the Small Business Reorganization Act (SBRA). President Donald Trump signed SBRA into law on August 23, 2019 and was enacted on February 19, 2020.

The Difference between Chapter 7 and new Chapter 11v

Before SBRA, struggling businesses that considered bankruptcy faced two options: Chapter 11 or Chapter 7.

1. Chapter 7

Upon filing, the court creates a bankruptcy estate comprised of a debtor’s nonexempt property. The U.S. Trustee then appoints a trustee and tasks him or her with liquidating the assets of the debtor (bankruptcy estate) and distribute the proceeds to creditors. It’s not an option for a business that hopes to survive bankruptcy and retain operational control over its affairs.

2. Chapter 11

Under chapter 11, a debtor retains control over his or her business operations and restructures all debts through a court-approved plan. However, the operational control that the debtor maintains is contingent on increased oversight from the U.S. Trustee and the bankruptcy court.

The debtor’s plan to repay debts is subject to the bankruptcy court’s stringent requirements. What’s more, the court must confirm (approve) everything before allowing the debtor to exit bankruptcy. Throughout the bankruptcy period, the debtor must obtain the court’s approval of non-ordinary business transactions. They must also comply with all the monthly reporting requirements of the U.S. Trustee. A plan of reorganization had to be voted on by the creditors after filing a comprehensive disclosure statement for reorganization.

As a result, many small businesses could not afford chapter 11 costs, and they found the requirements challenging to keep.

Why the Need for SBRA?

The new Chapter 11v SBRA strikes a balance between chapter 11 and chapter 7. Under the Chapter 11v some debtors could retain control over their daily business operations while reorganizing. Fortunately, they won’t be subject to the costly requirements in regular chapter 11. In short, many of the amendments of the SBRA will streamline the plan confirmation processes and potentially reduce their total costs.

Provisions of the Small Business Reorganization Act (SBRA)

The new Chapter 11v SBRA contains several key provisions intended to simplify and streamline the small business reorganization process and reduce costs. They include the following:

Appointment of a Trustee

The U.S. Trustee will appoint a trustee to each small-business debtor case whose functions and duties are similar to those of a chapter 13 trustee. They will also help ensure the reorganization process stays on track. While the small business owner will have authority over the daily operations, the trustee will perform specific oversight functions such as payments administration under a confirmed plan.

No Creditor Committees

It further provides that there will not be an appointment of a committee of creditors unless the bankruptcy court orders one for cause. It will decrease the costs associated with the regular chapter 11 since, after the appointment of a creditor committee, it can decide to hire its professionals at the expense of the debtor.

No Disclosure Statement

SBRA does not require disclosure statements. However, the debtor’s plan must include information generally found in a disclosure statement, such as a liquidation analysis, summary of historical operations, and projections that demonstrate an ability to make all payments under the proposed plan.

No Potential Competing Plans

The SBRA permits only debtors to file plans of reorganization. Thus, the debtor reserves the exclusive right to file their plan within 90 days from the bankruptcy petition date, unless extended for cause.

No Absolute Priority

Debtors need not observe the absolute priority rule that generally prohibits business owners from retaining equity unless creditors are paid in full. What’s more, the confirmation of plans is possible despite the objection of one or more impaired creditor classes.

To obtain such conformation through a “cramdown,” the debtor need only demonstrate that their plan is fair, equitable, doesn’t unfairly discriminate, and it provides for the contribution of all the projected disposable income of the debtor.

Discharge Provisions

After the confirmation of a debtor’s plan with the consent of the affected creditors, they will receive a discharge of their debts upon plan confirmation.

Deferral of Administrative Expense Payments

Debtors can differ administrative expense payments over the life of the reorganization plan for up to five years. These expenses are typically due on the effective date of the reorganization plan.

Residential Mortgage Modification

The SBRA authorizes small business debtors to modify residential real estate mortgages to the extent that loan proceeds go into the business. Such relief was previously unavailable.

The Bottom Line

For years, the benefits of the regular Chapter 11 reorganization were elusive to small business debtors due to their size, their limited financial resources, as well as the requirements and expense of filing for bankruptcy. The Small Business Reorganization Act (SBRA) attempts to remedy a lot of these challenges to ensure successful small business reorganizations.

The Chapter 11v SBRA’s elimination of potential competing plans and disclosure statements will prevent contested hearings that only prolong the reorganization process while increasing costs for debtors. It also relaxes the requirements to confirm plans over creditors’ objections provided they are fair, equitable, and don’t discriminate unfairly.

Ultimately, by lowering reorganization costs and simplifying plan confirmation processes, the Chapter 11v SBRA aims to provide a suitable option for small businesses that wish to reorganize.

When you feel like your small business debts have taken control of your life, Philadelphia bankruptcy attorneys Cibik & Cataldo, P.C., can help you find the right bankruptcy option. Contact us or call us today at (215) 735-1060 and start your journey to financial freedom.

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Repossession Laws in Philadelphia, Pennsylvania

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Thousands of Pennsylvanians owe money to a bank, finance company, or creditor. The lender, when providing funds, often has a security interest in property owned by the borrower — a phenomenon known as collateral.

Having this security interest provides protection to the creditor in the event the borrower doesn’t repay the loan, allowing them to repossess (or take back) the collateral. Two of the most common forms of secured borrowing are for vehicles and real estate. Read on to learn more about repossession laws in Philadelphia, Pennsylvania.

How can a creditor lawfully repossess property and how can borrowers protect themselves?

Creditors are not allowed to just walk into the borrower’s home and take property. Retrieving collateral must be done peacefully. This means that the borrower can tell the creditor “no” and deny them access to their home. In fact, if the creditor persists after being told “no,” they are breaking the law. If this point has been reached, the creditor must go to court.

This may buy the borrower some time to stop the proceedings, but if the creditor is successful, it’s also possible that the amount owed will increase. Moreover, property can’t be taken back without a written and signed security agreement that has a clear identification of the collateral in the event of non-payment. If the law is broken, the borrower can sue the creditor in a court of law.

Does the creditor have to give a warning prior to a repossession?

In most cases, no warning is required, but there are two exceptions. If the collateral is a mobile home, it cannot be repossessed without a 30-day written notice and an opportunity to catch up payments and fees associated with contract violation to prevent repossession.

The borrower can prevent repossession of a mobile home even after the 30-day warning has passed, but it may cost more in court costs and attorney fees. In other cases of collateral, excluding a vehicle, a 21-day notice is required to give the borrower the opportunity to catch up on their payments and prevent repossession by the creditor.

What happens after repossession?

After the creditor repossesses the collateral, they’ll likely try to sell it. However, the borrower must be given written notice of the location and time of sale. Especially in the case of real estate, it’s a good idea to attend the sale to ensure it was done in the best possible manner to get the best outcome. This is because the sale will be applied to the debt, so it is in the best interest of the borrower to make sure that it’s done right.

If the collateral is sold during an auction, the borrower can take interested parties and get written bids for the creditor. Even through this process, prior to sale, it is possible to retain the property if the past-due payments are made or an agreement is made with the creditor. If the collateral was a vehicle, the borrower can get their personal property back from it after repossession.

What happens if the sale isn’t enough to cover the debt?

If the collateral is sold, but not enough is paid to pay off the debt, the borrower may still have to pay the amount due, even if the property was voluntarily given up. For example, if the borrower owes $15,000 on a vehicle, but the creditor only gets $12,000, the borrower may still be liable for the last $3,000.

If the repossession is done legally and the borrower doesn’t pay the balance, the creditor has the legal right to sue the borrower for payment. If the borrower is sued, legal consultation is important because there’s a very short time period to respond. If the repossession is not done legally, the borrower may not have to pay the balance and may have the right to sue the creditor.

Can creditors repossess other property?

No. Creditors can only repossess the agreed-upon collateral. However, if the creditor sues the borrower and wins the case, a sheriff or constable can come take other property to repay the debt.

How can repossession be avoided?

To begin with, borrowers need to be aware of their financial situation. Thus, the most important step to avoid repossession is to avoid becoming overwhelmed financially. When purchasing something that requires a collateral, the borrower needs to ensure they can cover the payment if there are income fluctuations. Just as importantly, the borrower needs to know how much they can afford to buy. This means that the borrower must be resistant to pressure to purchase something outside of their range, such as a fancier vehicle that will significantly increase the balance. The same is true when buying real estate. If the borrower can only afford and only needs a 2-bedroom house, they shouldn’t get a 3-bedroom house. Borrowers also need to be aware of the interest rate and additional fees, as well as the reason for the additional fees.

It’s also important that borrowers communicate problems with creditors. If creditors know ahead of time, they’re more likely to be lenient to help resolve the issue, such as extending repayment or refinancing the loan. It’s also possible that creditors will allow the borrower to repay the back debt over periods of new payments, such as an additional 10% on top of the regular payment for 10 months. In some cases, a Chapter 13 bankruptcy is the best option to avoid repossession and resolve credit problems. However, this requires a specialized lawyer. There are many different options and the borrower must decide the best one for their specific situation.

Regardless of the situation, the law changes frequently, not only at the federal level, but also at the local level. Moreover, each case is different and should be approached as such. While general information, such as found in this blog, is invaluable, it doesn’t take the place of legal advice regarding specific situations. If you’re facing a repossession, contact us to see how we can help you protect your property and rights.

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Reasons for Filing for Bankruptcy

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Sometimes, the best option you’ve got is to file for bankruptcy. In many cases, deciding to engage in bankruptcy quickly is a good decision in order to prevent wage garnishment, foreclosure, or repossession. This decision can help you keep more property and reduce the debt you owe.

Home Foreclosure

One of the top reasons to engage in bankruptcy is home foreclosure. Once filing for bankruptcy, an automatic stay is issued where lenders and creditors are not allowed to continue collection actions. This means that foreclosure proceedings cannot continue under the stay. However, there are differences in the Chapter 7 bankruptcy and Chapter 13 bankruptcy in this respect.

In a Chapter 7 bankruptcy, there is no mechanism to help you keep your home and the stay can be lifted through a motion filed by the lender. Thus, under a Chapter 7 bankruptcy, the relief is temporary. On the other hand, if you file a Chapter 7 bankruptcy prior to the end of the foreclosure, the mortgage debt is wiped out and you won’t owe the balance. In a Chapter 13 bankruptcy, you can set up a plan to catch up your past due payments and keep your home.

Repossession of your Vehicle

The automatic stay doesn’t just benefit you regarding home foreclosure, but also helps to protect your vehicle. In a Chapter 13 bankruptcy, you have the opportunity to catch up missed payments by including them in your plan. Regardless of the type of bankruptcy — Chapter 7 or Chapter 13 — you may have the opportunity to retain your vehicle if the repossession was recent.

Moving to a State where Exemptions are Less Favorable

When you file for bankruptcy, it’s commonly believed that you’ll lose everything. This isn’t the case. In bankruptcy, you don’t have to give up all of your property and the rules are different based on the state you live in. Therefore, if the exemption laws in the new state are less favorable to you than those in your current state, you should go ahead and file. State exemptions are dependent upon your “domicile” and, in most cases, if you’ve moved recently, the exemptions from your old state will be used.

Eviction

While it’s a temporary relief, if you rent and your landlord is evicting you, filing for bankruptcy will put a stop to the eviction in most cases. However, if your landlord already has a judgment for possession, filing for bankruptcy will make no difference.

Stopping a Lawsuit

If you’re being sued for breach of contract, car accident damages, medical debt, or credit card debt, filing for bankruptcy will put a stop to the suit. In some cases, filing for bankruptcy will not stop the lawsuit, but, generally, it makes no sense to defend yourself in multiple lawsuits if you can have a judge discharge the debt in bankruptcy.

Starting a Job with Higher Income

To qualify for a Chapter 7 bankruptcy, you have to pass the means test, which is based on your income. The means test considers your average income over the six months prior to filing. If your income is higher, you’re less likely to pass this test. If you’ve started a job with a higher income and it’s more than what’s required to cover your expenses, it’s more likely that it’ll be recommended that your case is converted to a Chapter 13 bankruptcy.

Expectation of Receiving Property Soon

In most cases, you can keep property in which you get an ownership interest after filing for bankruptcy. There are exceptions though. For example, inheritances and lottery winnings must be reported for up to 180 days following filing for bankruptcy. So, if you are going to file for bankruptcy, it may be beneficial to file prior to getting property.

Medical Expenses, Credit Cards, Student Loans and Overspending

It’s no secret that medical expenses can add up quickly and, frequently, people can’t pay them. In fact, medical expenses is one of the top reasons for filing for bankruptcy. However, not all of the people that file for bankruptcy due to medical expense reasons are those without medical insurance. Similarly, not all credit card debt is caused by lack of financial responsibility.

In many cases, hardships are a major cause of not making payments because all money received is needed for essential things, such as food, rent, and utilities. If there’s a financial hardship, many people turn to credit, which can also spiral out of control. Yet, it is also acknowledged that there are some cases where debt is caused by overspending.

This can be caused by inflation, poor budgeting, or lack of attention paid to spending. Another problem is often student loans. You spent all that time getting the education, expecting you could get a job right after graduation, but that often isn’t the case. New graduates find themselves over their heads in student loan debt and unable to repay it and cover essential payments.

Job or Income Loss

Some problems leading to filing for bankruptcy are attributed to job loss or income loss through pay cuts or hours cut. When companies don’t thrive, costs are frequently cut and if you can’t make up the lost income, your only option may be to file bankruptcy. This is because you use your savings in order to cover your essentials, as well as the additional expenses associated with these cuts, such as COBRA.

Emergencies and Divorce

It’s typically recommended to have several months of your essential expenses saved in the case of an unexpected emergency, frequently six months worth. Not everyone can afford to do this and emergencies can happen, well, in an instant. Emergencies can lead to catastrophic financial consequences, leading you to file for bankruptcy. Divorce is expensive, even if you don’t consider the cost of lawyers. It costs money to untangle your lives, which may also lead to bankruptcy.

As you can see, people file for bankruptcy for many different reasons and in many different time periods. If you need help, contact us to find out what your options are regarding bankruptcy.

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Philadelphia, PA 19102
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How Often Has Donald Trump Declared Bankruptcy?

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Donald Trump’s business record seems riddled with unfortunate events. Despite never having filed for personal bankruptcy, reports state that he filed for business bankruptcy at least four times. But, according to Trump, businesses file for bankruptcy often, and it was a financially intelligent move. He added that “hundreds of companies” have done the same thing he did.

Trump Has Filed For Six Business Bankruptcies

Trump, however,  filed for bankruptcy regarding these companies:

• The Trump Taj Mahal in 1991 — Trump financed the completion of the Taj Mahal casino construction with $675 million in junk bonds at 14 percent interest. In 1992, the casino was in debt by $3 billion. Trump ended up owing approximately $900 million in personal liabilities. To keep the casino open, Trump made a deal with lenders by giving up his half of ownership and equity in the entity. He sold his airplane and his 220-foot yacht and agreed to a bank-set limit on his spending if he would lower the interest rate and have more time to make his loan payments.
• Trump Castle Hotel & Casino in 1992 and Trump Plaza Casino 1992 — In less than a year, Trump filed for Chapter 11 protection for two more Atlantic City hotel-casinos. Trump was unable to make the principle and interest payments on bonds. At this point, the Taj Mahal was competing with the hotel-casinos Trump Plaza ($550 million in debt) and Trump’s Castle ($338 million in debt). Trump forfeited a 50 percent share in exchange for better terms on the money he owed.
• Trump Plaza Hotel 1992 — This was the year that Trump filed for bankruptcy protection over the Trump Plaza Hotel. Trump gave up his 49 percent stake in the property to secure better terms from lenders on the hotel’s debt of over $550 million.
• Trump Hotels and Casinos Resorts in 2004 — At this time, Trump had already consolidated his three casinos, and some other properties, under one company. In 2004, He sought Chapter 11 bankruptcy protection for the entity and filed in the area of $1.8 billion of debt. Once more, Trump’s ownership was lessened from 47 percent to 27 percent so that he could get more favorable terms from lenders.
• Trump Entertainment Resorts in 2009 — Trump Hotels and Casino Resorts were renamed Trump Entertainment Resorts (TER) after the 2004 bankruptcy. In 2009, TER filed for Chapter 11  with a debt of $1.2 billion. Trump reduced his ownership to 10 percent and resigned as chairman of the board.

Critics cite that the Trump corporate bankruptcies are examples of his inability to manage, his recklessness, and poor business acumen. Trump answers that criticism by stating he has used federal laws to protect his business interests. This idea is an example, he says, of his business insight and outstanding intelligence. Trump stated in August 2015:

“I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, my employees, myself and my family.”

In reporting from the New York Times, in 2016, Trump put up a small amount of his own money, moved personal debts to the casinos, and was awarded millions of dollars in salary, payments, and bonuses. The Times countered by sharing that the burden of his failures fell on the investors and those who bought into his business acumen self-assessment.

Three of the casino-related bankruptcies came about during the time of the early 1990s recession and the Gulf War crisis. Both of these situations made keeping Atlantic City, New Jersey gambling facilities face some hard times. At about this same time, Trump entered into a project that involved a Manhattan hotel and two casino holding companies.

Additional Trump Business Failures

All the following projects created by Trump failed but did not result in bankruptcies, although those who spent money on some of these products were sorry they had participated.:

1. Trumped!

A syndicated radio spot

2. Trump Steaks

T-bones to eat at home that tasted as good as the ones he served in his restaurants

3. Trump Network

Nutritional supplements

4. GoTrump

Online travel site

5. Tour de Trump

Bicycle race

6. Trump Airlines

7. Trump Vodka

8. The New Jersey Generals

Pro football team

9. Trump Mortgage

10. Trump: The Game

11. Trump Magazine

12. Trump Ice

Bottled water

13. Trump University

About Cibik & Cataldo Law Firm

Our company is in the business of offering debt relief to our clients. Bankruptcy often includes shame, fear, and anxiety. We understand how you feel because we have helped so many in getting through what is a stressful time. We know how to confront the issues involved in individual and small business consumer bankruptcy, here in Philadelphia and surrounding areas.

Our most important desire to share our compassion and respect with you, our clients. Our lawyers are well-versed in providing bankruptcy services which include:

• Mortgage foreclosure assistance
• Debt relief options
• Medical debt cases
• Small business bankruptcy claims

When you call us, we will make an appointment for a free consultation if you are considering bankruptcy.  Our no-pressure environment will allow you to share with us your financial situation, your options,  and come up with the right solution for you. Once we have met, we will guide you in the areas of:

• The types of bankruptcy
• Filling out the necessary papers
• Fees
• Processes

All the pieces of this financial puzzle will come together once we begin. We will answer your questions, such as:

• How much will it cost to declare bankruptcy?
• Will I lose everything for which I worked so hard?
• Will my credit be ruined?
• Does it take long to get my credit score back up to where it was?

Yes, we know going through bankruptcy is a difficult matter, but the sooner you begin the process, the sooner you will get financial relief. Contact us today to get started on fixing your financial record.

After 35 years, and filing over 20,000 personal bankruptcies, we know we can be of help to you. Our top-rated firm is on your side and ready to get started on your case.

The post How Often Has Donald Trump Declared Bankruptcy? appeared first on Cibik & Cataldo: Philadelphia Bankruptcy Lawyers.

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Cibik & Cataldo
1500 Walnut St Suite 900
Philadelphia, PA 19102
(215) 735-1060
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