Personal/Business Reorganization (Bankruptcy Law)

These days, it is almost impossible to avoid acquiring debt – whether from operating a business, maintaining a house or purchasing a vehicle. At A.O.E LAW & ASSOCIATES, we recognize the financial challenges that people face when they are unable to pay their bills.

CHAPTER 11

The prospect of filing for bankruptcy can be intimidating, but this is largely due to misunderstandings about what the actual implications of bankruptcy are. The reality is that many successful businesses have been allowed to thrive by successfully completing one or more Chapter 11 bankruptcy cases. The following are some benefits of Chapter 11 bankruptcy protection:
• You can keep your business running while you work to get out of debt. Chapter 11 bankruptcy lets you restructure your business plan while you are still operating.
• The automatic stay gives you freedom from creditors harassing you on a daily basis. This freedom gives you the opportunity to restructure and make a plan for future success.
• The chance to pay off secured debts and even some unsecured debts so you can run a successful business in the future. Most importantly, you may be able to renegotiate the terms of repayment, extending the repayment period or lowering the amount of each installment and reduce the interest rate to the current market rate.
• Chapter 11 bankruptcy was originally designed for businesses but individuals may also file under this chapter. Those individuals who exceed the debt limits of chapter 13 bankruptcy are required to file under chapter 11. The current debt limits for chapter 13 is $1,081,400 for secured debts and $360,475 for unsecured debts. The debt limits appear to be low for those individuals who own more than one property whose values have dropped significantly. With Chapter 11 bankruptcy, there are no limits on the amount of debt you have.
• There are many advantages of being in chapter 11 as opposed to chapter 13. When individuals file for chapter 7 or chapter 13 bankruptcy, they are subjected to a means test. Those debtors who are above the median income limit for their household size cannot file under chapter 7 and if they file under chapter 13, they are required to make payments in a five year plan. However, the means test does not apply to the individual debtors in chapter 11 cases so they may propose repayment plans that are less than five years and therefore, they will end up paying less of their disposable income to unsecured creditors.
• In chapter 11, the debtors can modify their secured debts such as car loans and mortgages. There is a time restriction in chapter 13 cases where the debtor must have financed the vehicle more than two and half years ago before the loan can be reduced to the value of the car. However, in chapter 11 cases there is no time restriction so if you purchased a vehicle a year ago and if the loan is more than the value of the car, you are only required to pay back what the car is worth and not the original balance. In both chapter 11 and 13 cases, the debtors can modify the mortgages on their rental properties. For example, if the value of the property has dropped below the outstanding mortgage, you are only required to pay back the amount based on the current value of the property. The only caveat is that individual debtors are not allowed to modify their primary residence.
• Once the values on the secured properties have been established, the debtor will then propose a plan of repayment of the secured and unsecured debts. The plan duration can be controlled by the debtor such as a three year or longer plan. The debtor must submit the plan to the creditors for a vote and if the case is to proceed forward, the debtor must receive at least one vote from the creditors. The remaining creditors that object to the plan can be forced to accept the plan by the court which is called a “cram down.” The advantage of chapter 11 bankruptcy is that the debtor has control over the content of the plan and may propose terms that are to his benefit.
Through Chapter 11 bankruptcy, A.O.E LAW & ASSOCIATES has helped individuals and business owners reduce and eliminate overwhelming debt while protecting their valuable assets, including residential and commercial property. We confirm 70% of our Chapter 11 bankruptcy cases while national average of confirmed chapter 11 cases is 20%.

CHAPTER 13

Chapter 13 bankruptcy is personal financial reorganization, and involves a three to five year court approved payment plan. Chapter 13 helps individuals or small scale business owners retain non-exempt properties and pay back the creditors under a repayment plan. This type of bankruptcy provides you with an alternative to the liquidation process of Chapter 7 bankruptcy.

The Benefits of a Chapter 13 bankruptcy case include:

• Catch up on Mortgage/Avoid foreclosure. Both Chapter 7 and Chapter 13 will at least temporarily stop foreclosure through a court ordered injunction called the automatic stay. However, in the event that you hav3e fallen behind on your mortgage, Chapter 13 bankruptcy can actually force your lender to accept past due payments in small installments over a period of years. While you pay back the past due payments, you stay in your home. It is important to note that, in order to prevent foreclosure, making the normal monthly mortgage payment will be required. Chapter 13 bankruptcy does not relieve this obligation. It does, however, allow past due payments to be repaid in reasonable installments over a longer period of time than usually demanded by a bank
• Modify Second Mortgages. Another mortgage related benefit of chapter 13 bankruptcy is the ability to lower housing costs by modifying second mortgages on a primary residence. If your home is underwater and the amount of your first mortgage exceeds your home’s value, it is then possible to “strip” the second mortgage lien. How is this achieved? First, a home appraisal will be ordered that will prove the value of your home and that you are underwater. Based on this appraisal, your attorney will file a lawsuit in he bankruptcy court seeking to remove the second mortgage lien from your home. If the appraisal is solid the second mortgage lender often doesn’t put up much of a fight knowing that the debtor has the right to remove their lien. Once the mortgage lien has been removed, the second mortgage balance is paid out at the same percentage as the rest of your unsecured debts.
• Cram Down Car Payments. By making car payments through a chapter 13 plan, it is possible to reduce the interest rate and even the principle on your loan. The Bankruptcy Code allows debtors to “cram down” or reduce their car loan to equal the actual value of the vehicle.
• Reduce Unsecured Debt Such as Credit Cards. Although chapter 13 bankruptcy does not immediately “wipe the slate clean” as in a chapter 7 case, it does help to reduce credit card debt and medical bills. Depending on debtor’s income, chapter 13 bankruptcy can reduce credit card debt significantly, often requiring re-payment at pennies on the dollar. Unlike chapter 7 bankruptcy which is a liquidation, chapter 13 bankruptcy involves crafting a repayment plan to pay something back to unsecured creditors. Many debtors with significant expenses and relatively low income end up paying back a small percentage of their total debts over the life of their plan. Others, who have higher income or non-exempt property pay a higher percentage
• Protection for co-signors: A chapter 13 re-payment plan lasts for between 3-5 years. During that time, the automatic stay in a chapter 13 case prevents creditors from pursuing a co-signer of debts as long as the debt is a consumer debt and the co-signer is an individual. By contrast, chapter 7 bankruptcy provides no protection for a co-signer.
• Retain Non-Exempt Property: Chapter 7 bankruptcy or “straight” bankruptcy involves the sale of non-exempt property to satisfy creditor claims. In many cases, debtor filing for chapter 7 retain all of their property, however, in the event non-exempt property exists chapter 13 bankruptcy allows for retention of the property as long as the non-exempt value is paid out over the life of the re-payment plan. The non-exempt value of property is paid out incrementally over the life of the payment plan
• Fee Flexibility. People who are contemplating bankruptcy are often in a pinch for cash and wonder how they will be able to pay for a bankruptcy attorney. Chapter 13 can help to defer the up front cost of bankruptcy by allowing the debtor to pay the attorney’s fee in installments through the chapter 13 payment plan.

CHAPTER 7

The primary benefit of a Chapter 7 Bankruptcy is the elimination of most or all your unsecured debt. Unsecured debt is debt that is not secured, or attached, to any of property. The most common examples of unsecured debt that will be eliminated in a Chapter 7 Bankruptcy are credit cards, medical bills, payday loans, utility bills and personal signature loans. All of those types of debt are eliminated. In other words, upon successfully completing of a Chapter 7 Bankruptcy you will not owe your creditors anything for most types of unsecured debts. A typical Chapter 7 bankruptcy case is opened and closed within three to six months and the person filing emerges debt-free except for a mortgage, car payment and certain other types of debt such as student loans, recent taxes and unpaid child support
Although you can lose property in Chapter 7 bankruptcy, most filers don’t. Bankruptcy lets you keep most necessities — if you have little to begin with, chances are good you’ll be able to keep all or most of your property (unless you pledged the item as collateral for a loan, such as your home or car) However, not everyone is eligible to use Chapter 7 bankruptcy. If your income is sufficient to fund a Chapter 13 repayment plan, after subtracting what you’ll spend on certain allowed expenses and monthly payments for child support, tax debts, secured debts (such as a mortgage or car loan), and a few other types of debts, you won’t be allowed to file for Chapter 7 bankruptcy.
At A.O.E LAW & ASSOCIATES, we are proud to report that all of our chapter 7 clients receive a discharge within three to six months and 90% of our chapter 13 plans are confirmed.