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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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.

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When Should You File For Bankruptcy ?

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Some of the questions you will likely ask yourself before deciding to file bankruptcy include:

• How much do you owe on your credit cards and are you only making minimum payments?
• Are you using credit cards wisely or using them to pay for necessities?
• Do you feel like your finances are out of your control?
• Are you being contacted by bill collectors on a regular basis?
• Are you in danger of losing your home to foreclosure?

If your answer to one or more of these questions is yes, then the decision to file bankruptcy may be obvious. However, the challenge may be whether the timing of a bankruptcy filing is right. Timing matters in some cases because filing at the wrong time could mean you lose assets you might otherwise be able to keep, and because filing at the wrong time could hamper negotiations with creditors.

Chapter 7 and Chapter 13 Bankruptcy Filings

It is important to understand the differences between Chapter 7 and Chapter 13. Chapter 7 bankruptcy will eliminate many debts such as medical, credit card, and personal loan debts immediately upon discharge. A Chapter 13 will require you to enter into an agreement to repay most of your debts off over a period which may extend up to five years. During those five years, your debts will be paid down and any debt remaining at the end of the agreement will be eliminated. Most child support payments and tax payments which are in arrears cannot be discharged and may require payment in full regardless of a bankruptcy filing.

What to Avoid When Filing Bankruptcy

You can avoid problems with a bankruptcy filing by taking some proactive steps ahead of time. There are two specific situations where you can run into problems with a bankruptcy filing. The first is running up your credit cards to the maximum amounts with frivolous purchases such as high-end cell phones, large screen televisions, or other similar types of purchases. This does not mean if you or your child needs a warmer winter coat, or your heating system goes on the blink you should avoid using your credit card. However, one of the items the trustee may look at is what new credit you incurred over the last six months and how it was used. Frivolous purchases could be considered fraudulent use of bankruptcy which could lead you to face criminal charges.

The other issue is disposal of property which you have in your possession and transfer to another person or sell. You are well within your rights to liquidate or transfer any assets you own at any time. However, if you are considering filing bankruptcy, you want to make sure you have sold the property for market value and keep records of how the proceeds were used. This is important so the court does not suspect you have disposed of the property for the sole purpose of protecting it in a bankruptcy proceeding.

Keep in mind a bankruptcy trustee will review any property transfers made within certain time periods and they will investigate whether they believed the intention was to defraud your creditors. Should they be able to determine this is the case, they may claw back the asset from the person who purchased it or to whom you transferred the property.

Bankruptcy May be the Right Solution

Illness, divorce, or job loss can have a devastating impact on your finances, and you may need help deciding the best way to move forward and restore your financial life. People seldom go into debt thinking the best way out is to file bankruptcy but oftentimes, this is the only solution when you cannot seem to get out from under a burden of too much debt and circumstances in your life have made it difficult or impossible to pay that debt off.

For more than three decades, Philadelphia bankruptcy lawyers, Cibik & Cataldo, P.C., have been providing bankruptcy legal services in Philadelphia and the surrounding areas. When you feel like your debt has taken control of your life, we can help you take control of your finances by helping you find the right bankruptcy solution. Contact our offices today and let us help you find a way forward.

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Can I Keep My Tax Refund After Filing Chapter 7?

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Your tax refund is based on money that you’ve over-paid in taxes throughout the course of the calendar year. As you reach the end of the year, you’d like to get as much of that money back as possible. Unfortunately, if you’ve filed for bankruptcy, you may find yourself wondering if you can keep any of the money from your tax return. Whether you can keep any of the money from your tax return depends on several factors.

When Did You Earn the Money?

In order to establish whether you can keep the funds from your tax return, you’ll first look at when you earned the money included in that refund.

If you earned the money in a calendar year prior to the year you filed for bankruptcy, your refund will go to the estate. If, for example, you got behind on filing your taxes and needed to file an extension–or simply needed to get caught up–you may have a refund due for previous years. You may also, for example, file for bankruptcy early in the calendar year–say, in February–and then file your tax return in March or April. Because the money was earned before you filed for bankruptcy, it will go to the estate and may be used to help repay some of your debts.

If you earned the money in the same calendar year as your bankruptcy, you may get to keep part of your tax return, but not necessarily all of it. Suppose, for example, that you filed Chapter 7 bankruptcy in July of the previous year. When you file your taxes for that year, whether you file in January or as close to the April deadline as you can, you can keep the refund on income earned after you filed for bankruptcy (in this case, income earned in August through December), but not the refund on income earned prior to your bankruptcy (that is, in the example, income earned in January through July of the year you filed for bankruptcy).

If you earned the money in the year after you filed for bankruptcy, the refund is yours to keep and use as you see fit. Just as you will not lose income earned after your bankruptcy to your lenders, you need not pay your tax refund to the estate.

Can the Money Qualify as an Exemption?

In some cases, you can keep some cash on hand when you file for Chapter 7 bankruptcy. Some states offer a specific exemption that will allow you to keep some cash–usually a minimal amount–when you file for bankruptcy. This will allow you to keep enough cash on hand to continue paying some of your bills or to ensure that you have enough to pay living expenses. Pennsylvania allows you to keep $300 in cash as a wildcard exemption when you file Chapter 7 bankruptcy. While your tax return may well exceed the amount you’re able to keep on hand in cash, Pennsylvania offers some other exemptions that can help you keep as much cash as possible.

If you believe your tax refund may qualify as an exemption, consult with an experienced bankruptcy lawyer to learn more. While these exemptions do exist, an attorney can help you find and identify them more effectively–and ensure that you do not make a costly error in the process.

How Can You Keep More of Your Tax Refund?

Many people use their tax refund as a sort of extended savings account: they pay extra on their taxes each year both to ensure that they do not end up owing at the end of the year, and to help have a little extra in the bank when that tax return comes in. Tax returns are often used for vacations or to fund big purchases that just aren’t possible during the rest of the year. While keeping that extra money in the year that you file for bankruptcy can be difficult, there are several strategies you can use to make the most of your refund.

1. Adjust what you’re withholding. Work with an accountant or someone within your company to determine how much extra you should receive at the end of the year and adjust your withholding accordingly. Make sure that you continue to withhold enough to cover what you’ll owe in taxes by the end of the calendar year, but do not withhold additional funds. This will leave you with the extra funds in your paycheck, rather than waiting until your tax return comes in at the end of the year.

2. Use your refund on key expenses, if you haven’t yet filed for bankruptcy. Prior to filing for bankruptcy, you can use your tax return on necessary expenses: paying your mortgage, paying off some of your debts, or taking care of home repairs, groceries, or other necessary expenses. You cannot protect the refund if you use it to pay off friends and family members, nor can you use it to prepay expenses: paying several months’ rent ahead of time, for example. Talk with an experienced attorney about what expenses can be protected if you use your tax return on them before you file for bankruptcy.

3. Use an exemption to cover your tax refund. Keep in mind that this may prevent you from using the exemption on something else, so choose your exemptions carefully. An experienced bankruptcy attorney can help answer questions about Pennsylvania exemptions and how they may impact your refund.

If you have recently filed for Chapter 7 bankruptcy or plan to file for Chapter 7 bankruptcy in the immediate future, and you’re ready to file your tax refund and want to keep as much of it as possible, consult with an experienced bankruptcy attorney to learn the laws and how they can impact you. Have questions about your bankruptcy, what assets qualify as exempt, or how to handle your tax refund when you’ve had to file for bankruptcy? Contact us today to learn more about how we can help.

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The Three Main Types Of Consumer Debt

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Americans are drowning in debt. In November 2019, American consumer debt climbed to $4.17 trillion. That’s trillion with a T–twelve zeros. Chances are pretty good that you’re one of those Americans, with credit cards, a mortgage, and a car payment or two. And that’s okay–in lots of ways, debt is good for our economy.

The reality is that we are living in a consumer economy, and most of us don’t have the savings to fund large purchases. So we use credit for everything from home purchases to education to new furniture and vacations. When you spend money, the dealership or hotel doesn’t care if you’re taking out a loan, using a credit card, or walking in with a briefcase full of hundred dollar bills–you’re helping their business grow.

Growth means bigger profits, and bigger profits contribute to rising stock prices, which makes a company more valuable. Higher valuations give companies more capital (money) to invest and hire more workers, which leads to job creation and rising incomes. The more money consumers have to spend, the more inclusive and better the economy. So spending is a good thing- as long as it’s done within your means.

All Debts Are Not The Same

The three examples of debt mentioned above–home, education, vacations, and stuff–represent three different kinds of consumer debt. Consumer debt is what you owe as an individual–you’re not a business and you’re not the government. If you’re a small business owner, you know that your business debts are separate from your personal credit cards and loans.

Consumer debt falls into three categories–secured, unsecured, and a nebulous third group that isn’t easily categorized, but in general, involves a court or government debt. Which category your debt falls into matters because if you are considering bankruptcy, that third category can’t be included in a debt discharge.

Secured Debt

The most common debt in the US is secured debt–where you have pledged an asset to the lender to reduce their risk against loss. Mortgages and car loans are examples of secured debt. The lender retains actual ownership of the house and car until you make the final payment, and if you can’t make the payments they seize the asset via foreclosure or repossession.

Your secured debts have a start date and a final payment date, and typically every payment due is the same amount (if you have an adjustable mortgage the amount will change after the predetermined period) on the same day of the month, which is most often the first or fifteenth. If you’re having a tough time managing your debt, secured debt should be your priority since it’s your house and car.

Unsecured Debt

Credit cards and personal loans are examples of unsecured debt–there is no security pledged against default. Card companies consider your overall credit health when they issue a credit card, basing your credit limit on your credit score. Your bank may have given you a personal loan based on the same factors.

Credit cards, including individual store cards like Target and Best Buy, are revolving debt–you have a limit on the card, and as long as you pay the debt off or down every month you can keep using the same credit over and over again. Your minimum payment every month depends on your outstanding balance, and that payment is not enough to keep interest from piling up. Lots of people get in financial trouble when they stick to that minimum payment on several cards until their balances creep up over their limits–you should always make more than the minimum payment.

Personal unsecured debts are amortized like car loans–you have the same payment due over a period of months or years. You can’t “re-use” credit as the balance declines, but you can be assured exactly when that debt is paid off.

Other Debts That Can’t Be Discharged

As noted earlier, there are some debts that stay with your forever, or at least until you pay them in full or negotiate some sort of settlement. And these are debts that involve money you owe to or through the government. Here are some examples.

• Child support and alimony
• Any fines, penalties, and restitutions for breaking the law
• Taxes owed to the IRS or the state of Pennsylvania
• Any money you owe as the result of someone else’s death or injury because you were driving while intoxicated

Bankruptcy will not wipe those debts out, but it can help you pay them in easy monthly installments.

If you do file for either a Chapter 13 or Chapter 7 bankruptcy, you are still on the hook for these debts. In Chapter 13 you’ll continue to pay then within the plan (through the trustee) and in Chapter 7 you’ll keep paying after the bankruptcy is over.

Student Loan Debt

Student loans have turned out to be crushing debts for many Pennsylvanians, and not just recent graduates. The seismic shift in job opportunities sent many adults back to school after 2008, and they took out loans to finance their re-education. Student loans may be eligible for a bankruptcy discharge if you meet the standards of the Brunner test or the Totality of Circumstance test. For both of these, you need to show undue hardship for your family if you continue to make the payments, and that you have made some good faith effort to repay.

Student loans that were incurred through for-profit, vocational, or trade schools may be eligible for discharge if you can prove they acted in bad faith. Bad faith would be a breach of contract, fraud, or unfair or deceptive business practice.

Take Control Of Your Debt

If you’re using new credit cards to pay off old debt, it’s time to consult one of the attorneys at Cibik & Cataldo. Take a proactive approach to managing your finances before things get out of control and you’re at greater risk of losing your house or car.

 

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What Assets Can You Keep in Chapter 7 Bankruptcy?

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Financial pressure can sometimes take a toll on daily life. When you can’t get a handle on your finances, starting over may be necessary to reach the road of financial recovery. For some people, filing bankruptcy is an ideal solution. Bankruptcy is a process in which individuals who cannot repay debts to their creditors seek relief from some or all of their debts.

There are various types of bankruptcies that individuals can file. However, the most common types of bankruptcies you might file include chapter 13 and Chapter 7. Chapter 13 Bankruptcy is a repayment plan. It essentially helps individuals to reorganize their debts by making monthly payments on some of their unsecured debts and all of their secured debts. This payment plan is approved by the court. Additionally, it is set up for debtors to pay off their debt between 3 to 5 years.

Chapter 7 Bankruptcy, however, is known as a liquidation bankruptcy or straight bankruptcy. Out of all bankruptcies, Chapter 7 is the most common among individuals who are having serious financial problems. In this process, a court-appointed trustee is responsible for overseeing the liquidation of your assets. Assets are considered anything that you own that has value. These assets are used to pay off your creditors. If you have any other unsecured debts, it will be erased.

What Assets are Liquidated in Chapter 7?

There are a few nonexempt assets that can be taken if you file Chapter 7. Some of these assets include:

• Any property that can be sold by the court
• A second vacation home
• Additional cars or trucks
• Cash, bank accounts, stocks, bonds, and other investments
• Family heirlooms
• Expensive musical instruments (unless the individual is a professional musician)

Who can File for Chapter 7?

In most cases, anyone who owns a property or has permanent residency can file for Chapter 7 Bankruptcy. However, it’s important to note that there are a few requirements you should be aware of in order to file.

One thing to consider is that if you are filing for consumer bankruptcy, your income must pass the “means test”. The means test was designed to limit the use of Chapter 7 Bankruptcy to only those individuals who can’t pay their debts. This is determined by deducting specific monthly expenses from your current monthly income. The only exception is if you are a qualified disabled veteran or your debts are primarily from the operation of a business.

Another requirement is that you could not have filed bankruptcy previously within a certain period of time. Additionally, you must not be an incorporated entity. It’s important to always be aware that if the courts believe you are cheating creditors, you will be denied Chapter 7.

What Assets can Individuals Keep When they File for Chapter 7 Bankruptcy?

When individuals are considering filing for Chapter 7 Bankruptcy, one of their main concerns is whether their assets will be liquidated and if so, how much of their items will be liquidated. The good news is, Chapter 7 does allow for a few exemptions that may put your mind at ease.

When it comes to Chapter 7, an exemption will determine what assets you get to keep. This can include things such as a home, car, pension, personal belongings, and potentially other property. For instance, if your home is exempt, you will get to remain in your home before and after bankruptcy. However, if your home is nonexempt, the trustee has the right to sell it in order to pay off your unsecured debt.

Exactly how many assets can I protect in Bankruptcy?

How many assets you can protect will depend on the state you live in. Each state has its own rules when it comes to exemptions in bankruptcy. Most states require you to use their state exemptions. With that said, there are 17 states that give you the option to use an exemption system created by Congress. This is called the Federal Bankruptcy Exemption. Please note that you cannot choose two exemptions systems. You must choose one or the other.

Most states and federal bankruptcy do allow you to keep a few of your assets such as a certain amount of equity in your home, along with your personal property. Personal property includes items such as a car and many different retirement accounts. Some states may allow you to keep some wages but this is not likely.

As part of completing your bankruptcy paperwork. You will include all of your property and any exemptions that you claim. It’s important to be aware of potential complications that can occur in your bankruptcy process though. For instance, your car may be part of your exemptions. However, if you have unsecured debt (a car payment), the creditor’s lien on this asset will ensure that the creditor gets paid first.

Let’s take a look at a potential scenario. If you have a vehicle that is worth $15,000 and your state allows you to exempt $10,000. Your car loan will still be $5,000. In this case, the trustee is required to pay the lender the balance of $5,000. This would leave you with an equity of $5,000. These kinds of complications are important to take into account when you consider filing for Chapter 7.

Filing for bankruptcy can be a difficult decision. If you would like to learn more about your bankruptcy options or you would like to know more about how we can help you along your financial journey, contact us today. The trusted bankruptcy lawyers at Cibik & Cataldo have been providing superior, cost-efficient, and value-oriented bankruptcy legal services for over 35 years.

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The 10 Most Common Reasons People File for Bankruptcy

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Bankruptcy is nothing to be ashamed of. Many people find themselves on the brink of bankruptcy through no fault of their own. Bankruptcy can affect any person regardless of age, race, education level, and background. You are not alone – many people have been in your shoes and gotten a fresh start. Here are the top 10 reasons why people file for bankruptcy.

Job Loss

When a person loses their job unexpectedly, they take on additional expenses that they didn’t have to worry about before. Even with a comfortable savings account or hefty severance package, unemployment makes things like healthcare and emergency expenses, such as car troubles, even more pricey.

Income Shortage

Even if a person doesn’t lose their job, companies are always looking to cut back on unnecessary expenses. This could mean significant pay decreases and loss of bonuses at the drop of a hat. Employees may resort to dipping into savings accounts or credit cards to make ends meet, but these safety nets can only supplement one’s lifestyle for so long before they are in over their heads.

Overspending

Poor budgeting, a lack of financial discipline, and spending money that someone doesn’t have, especially on credit cards with high-interest rates, are easy ways to accumulate crippling debt that is difficult to recover from.

Foreclosure

To avoid foreclosing on their homes, many Americans have no choice but to file for bankruptcy. When a person has to choose between losing their house or going bankrupt, the choice becomes clear, even if it’s not ideal. Financial burdens are stressful enough without the threat of having your house taken from you.

Utility Costs

Keeping a home warm in the winter and cool in the summer is not cheap. Whether a person rents or owns their home, the expenses that come with heating, air conditioning, and electricity often complicate a person’s finances.

Divorce

Marital separations are one of the leading causes of personal bankruptcy. Divorce can create tremendous financial burdens on both parties, even if the divorce is agreed upon. Between legal fees, dividing assets, child support, alimony, providing for two households instead of one, and any debt that one might become responsible for through their spouse, it’s no wonder why divorce is one of the top reasons people file for bankruptcy.

Unexpected Expenses

Sometimes, life just happens. When it hits you hard, you may not be as prepared as you think you are. Whether someone’s property is burglarized, their car suddenly has complications, or a natural disaster hits their home, unfortunate events happen every day that could suddenly cost a person thousands of dollars.

Credit Debt

Credit cards and personal loans may seem like quick fixes for piling bills and unforeseen expenses, but they prove to be slippery slopes for many Americans. Uncontrolled credit card spending, car installments, and other personal loans are quick avenues into debt that are difficult to recover from. Even if one’s credit card debt isn’t a result of a lack of self-control, but rather from unfortunate circumstances like a job termination, falling too far behind on minimum monthly payments is a sure-fire way to file for bankruptcy. Likewise, home-equity loans can sometimes help keep creditors at bay, however, if these payments go unpaid, they could result in having to foreclose on one’s home.

Student Loans

It’s estimated that 1 percent of all US bankruptcies, or about 15,000 a year, are a result of student debt. While it’s certainly common for people to have some student loan debt in their name even years after graduating, failing to pay it off as quickly as possible can have serious consequences on your financial well-being.

Medical Expenses

Even if a person has great health insurance, a serious illness or injury can easily leave them with a bill totaling hundreds of thousands of dollars in bills. An unexpected diagnosis is the fastest way to clean out retirement, college, and savings accounts and still leave collectors searching for more. The result? Unavoidable bankruptcy.

If you have found yourself in over your head in debt caused by life’s unfortunate circumstances, you are not alone. The trusted bankruptcy lawyers at Cibik & Cataldo have been providing superior, cost-efficient, and value-oriented bankruptcy legal services for over 35 years. Proudly serving the Philadelphia and surrounding areas, our legal team is committed to helping you make well-informed decisions on all of your bankruptcy matters. Contact us today to regain your financial freedom as quickly as possible!

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Understanding the Repossession Laws in Pennsylvania

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Here at Cibik & Cataldo, we want our clients and those who need answers to their questions, to understand, in layman’s terms, what is going on in their lives. That’s why we work diligently to make what can be quite confusing as understandable as possible. The laws concerning repossession are exceptionally complicated in some cases. Don’t worry! We’re here to help you navigate through this difficult time. 

PA Laws Concerning Creditors and Repossession

If you owe money to a bank, finance enterprise, or a creditor, the credit entity likely has a security interest in some of your property. This security interest is called collateral.

Creditors’ Rights Involving Repossession

A creditor can repossess the personal property (collateral) if he or she does so peacefully. If a creditor arrives at your door to repossess your car, refrigerator, or any other item you have purchased on credit, you have the right to deny him or her access to the property. If a creditor attempts to come into your home or onto your yard, you have the right to tell the creditor he or she cannot do so. However, a lender does not need the owner’s permission to repossess a car that is parked on a public street outside of someone’s home.

If you have restricted the creditor from coming onto your home or yard to repossess the property, the creditor will be obliged to go to court and attempt to get the property back. This action will accrue more costs for the defendant (the party receiving the complaint). The plaintiff is the person bringing the charge against the party who is delinquent in paying.

Unless the defendant has signed a written security agreement that clarifies that repossession will occur if he or she does not pay, legal assistance must take place. If the creditor breaks any of these laws, the defendant has the right to sue the creditor in court.

Is a Warning that Property is in Danger of Being Repossessed Required?

Typically, no warning is necessary before repossession. There are, however, two situations that do require notice before repossession:

Non-Vehicle Personal Property

If you borrowed money to purchase personal property that is not a vehicle (i.e., furniture, outdoor equipment), the creditor must give you a 21-day notice before your property removed. This action provides buyers a chance to catch up with back payments.

Mobile Homes

A written 30-day notice from the creditor must appear before the creditor can repossess your mobile home. This notice gives buyers a chance to catch up with past payments. To further prevent repossession, the buyer must:

• Pay “back-payments.”
• Pay late charges
• Pay up to $50 for the creditor’s attorney fees
• Acquire insurance for the home (if the contract requires doing so)
• After 30 days, the buyer may have to pay court costs and attorney’s fees

Let’s Talk about Debt

Since we just mentioned the “written security agreement,” this is an excellent time to discuss the types of debt we see most often.

Unsecured Debt

This type of debt has no assets supporting the debt. It usually occurs in the areas of:

• Medical bills
• Credit Cards
• Old apartment leases, and more

Chapter 7 Cases

If you choose to take care of your debt by filing a Chapter 7 bankruptcy agreement, the trustee will gather and sell the debtor’s nonexempt assets and use the money to pay creditors. There is more to this choice that we are happy to assist you with by calling our office for a free consultation.

Chapter 13 Cases

This type of bankruptcy move is known as a “wage earner’s plan.” It allows an individual with a regular income to create a plan for repaying all or part of the debts. This step is also quite complicated, and you will need assistance to follow all the “legalese.”

Secured Debts

Secured debts that occur most often are for vehicles and houses. In these cases, the buyers put up some form of collateral. During the bankruptcy process, the automatic stay will keep creditors from taking the property. After the bankruptcy, you will have to reaffirm the debt to keep your house or vehicle. If you do not, the bank has the authority to keep your property.

No Discharge Debts

These debts include:

• Student loans
• Debts obtained fraudulently
• Child support debts
• Financial obligations related to a criminal case
• Some types of IRS debts fall into this category

We want to share with you all we know about repossession. Still, in practically every case, a knowledgeable and experienced attorney will need to be by your side as you navigate what can become something of a maze. 

Tips for Avoiding Repossession

As upsetting as repossession can be, it gives you a chance to reassess how you spend your money and how to stay out of debt. This action can be accomplished by:

1. Doing all you can to avoid getting in over your head financially
2. Determining that you make enough each month, even if your salary decreases somewhat, to handle the payments on your vehicle or house
3. Paying attention to the interest rate on your loan
4. Letting the creditor know if or when you hit a rocky place with your budget (Creditors are humans. He or she may find a way to give you an extension of time for payment or possibly refinance the entire loan.)
5. Remember, you will also need enough income to keep up maintenance and repair costs that you must pay regularly.

Contact Cibik & Cataldo

If you are facing foreclosure, bankruptcy, or repossession,  Michael A. Cibik and Michael A. Cataldohave filed over 20,000 personal bankruptcy documents during their 35 of practicing law. When you are looking for legal help in the bankruptcy arena, Cibik & Cataldo offer compassionate and respectful guidance to assist you with what may seem to be problems with no solutions.

If you need assistance and you live in and around Philadelphia, contact the law offices of Cibik and Cataldo today for a free consultation. It’s time to find your way back to financial freedom.

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Cibik & Cataldo
1500 Walnut St Suite 900
Philadelphia, PA 19102
(215) 735-1060
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Should You Reaffirm Your Mortgage When Filing for Bankruptcy?

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If you choose to file for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, one option you may be urged to consider is signing a “reaffirmation” of your obligation to make mortgage payments. You should not make that decision without the advice of your attorney.

Each year, about three-quarters of a million Americans, file under Chapter 7 seeking a fresh financial start and relief from creditor demands. Therefore, it is worth understanding “reaffirmation.” It is an agreement that you can sign—if you choose to do so–during a bankruptcy proceeding. In the reaffirmation, you agree: 

1. That you realize that a successful bankruptcy “discharge” will free you from the obligation to make payments on your home mortgage, and
2. That you hereby “reaffirm” your legal obligation to make those payments.

On the face of it, that seems a silly thing to do.  If you win bankruptcy relief from your obligation to make your mortgage payments, why turn right around and “reaffirm” that obligation?  Well, your creditor (the bank or other lending institution holding your mortgage) would like you to do so. But why should you agree?

Choosing Chapter 7

Some background on Chapter 7 may help to clarify the context in which the “reaffirmation” option arises.

Broadly speaking, Chapter 7 is one of two ways that personal bankruptcy works. Under Chapter 7, you liquidate “all” your remaining assets—but with some “exemptions” or exceptions—to pay as much as possible of what you owe your creditors. Under Chapter 13 of the Bankruptcy Code, you set up an agreed repayment plan, “scheduling” your debt payments to be manageable over time given your expected income.

Almost 70 percent of consumer bankruptcy petitions (or filings) in the federal courts are under Chapter 7. The other 30 percent are under Chapter 13. The overwhelming majority of both types of filings are categorized as “non-business; that is, they mainly involve consumer debt.

The apparent preference of consumers for Chapter 7 may be explained by the speed of the debt relief. You can obtain such relief much more quickly under Chapter 7. By contrast, a Chapter 13 repayment plan can last up to five years.

(By the way, you probably have heard, as well, of Chapter 11 filings.  Corporations, partnerships, and sole proprietorships that desire to remain in business, avoiding liquidation while they go through “reorganization,” often choose Chapter 11.)

If you do consider a Chapter 7 bankruptcy filing, you should be aware that your petition is not automatically accepted for action by the court. There are certain qualifications that you, the debtor, must meet. Also, you are required to have a trustee assigned to your case; pay various court charges; and provide financial statements such as income-and-expense reports, copies of tax returns, and a list of all property—among other things.

It is imperative to have the assistance of a qualified lawyer as soon as you start considering the possibility of filing for bankruptcy. By the time you actually make a court filing (if that turns out to be your choice), you will have taken many preliminary steps with your lawyer’s advice.

If you are asked to sign a “reaffirmation”

If you are a homeowner filing Chapter 7 (or a husband and wife filing jointly), and “all” your assets are turned over to be liquidated to pay some part of what you owe, your home is not included. It is exempt.

Furthermore, if the court “discharges” you (your filing is successful), you have no obligation to make any more payments on your mortgage.

Does that sound too good to be true? It is. When you arranged for your mortgage with the bank, you entered into not one but two agreements. You signed a promissory note that you would make the scheduled payments on the mortgage loan (home loan). And you agreed to a “lien” on your home, which became the bank’s security in case you defaulted on your payments on the promissory note.

With your successful bankruptcy, the promissory note, per the court, no longer binds you. But the lien is not canceled. Therefore, if you no longer make payments on the mortgage loan, the bank will have recourse to selling your home to pay the mortgage loan.

It often is said that filing under Chapter 13 can “enable you to keep your home.” That means only that if your debt payments are stretched out in a five-year repayment plan, you might thereby be able to make payments to the bank and keep your home.

But under Chapter 7, you also can keep your home. You can keep it if you make your mortgage payments. In order to make those payments, you certainly do not have to sign the “reaffirmation” of your promissory note. You just keep making the payments, when due, but you are not legally obligated to do so. You are doing so because wish to keep your home.

That is why many attorneys wonder why people would want to sign a “reaffirmation.” They can keep making payments on their home if they are able. In addition, they seem to have a definite advantage under one scenario.

If the bank does end up selling your home, and if the sale does not yield all the money required to pay your entire mortgage, the bank would like you to make up the difference. If you and your bank have entered into the “reaffirmation” agreement, then the bank has a legal basis for this: You reaffirmed your promissory note.

If you did not sign the reaffirmation, the bank has no basis for collecting from you the balance of the mortgage not covered by the sale of your home.

This means–to repeat what we said at the outset–there is at least one obvious reason to refuse to sign a reaffirmation. And, finally, be aware that acceptance of your reaffirmation agreement by the court is not automatic. Most judges will ask some tough questions about why you are reaffirming. And some judges don’t sign reaffirmations at all because you don’t need one to keep making your mortgage loan payments.

A reaffirmation is a decision, like many you will face if you elect Chapter 7, to be made only after discussion with your attorney. And, by the way, a reaffirmation, if you decide to make one, can be approved by the judge only at the time you make your court filing. It cannot be approved when your bankruptcy is discharged. Therefore, an affirmation is one of many issues you and your lawyer must discuss as early as possible.

Cibik & Cataldo Can Help

As Philadelphia bankruptcy lawyers, Cibik & Cataldo, P.C. has 35 years of experience providing legal services to thousands of clients in the Philadephia area. We have done so with a strong value orientation and with compassion and respect for clients. Michael A. Cibik, Esq. and Michael A. Cataldo, Esq. are both certified by the American Bankruptcy Certification Board, which means that you have an objective standard of excellence and reliability when you make your choice of legal counsel in financial and bankruptcy matters.

Check back here regularly for information, insights, and updates on all legal aspects of financial and bankruptcy matters.

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