All posts tagged: West Palm Beach Bankruptcy Attorney

Small Business Bankruptcy

SMALL BUSINESS BANKRUPTCY

In February 2020, Congress passes the Small Business Recovery Act (“SBRA”) which created Subchapter V of Chapter 11 which created a streamlined bankruptcy process for small businesses with secured and unsecured debt up to $2,725,625.

CARES ACT AMENDMENTS TO SBRA

In light of the economic impact of COVID-19 virus on U.S. businesses (both large and small), Congress passed the CARES Act on March 27, 2020, which amends the SBRA to increase the debt limit for debtors filing under sub-chapter V from $2,725,625 to $7.5 million.  The debt limit will revert back to $2,725,625 after one year unless further extended by Congress.  This change will substantially increase the number of businesses that are eligible for relief under the SBRA.

The SBRA, as amended by the CARES Act, permits businesses with debts of less than $7.5 million (both secured and unsecured) to file a Chapter 11 case under sub-chapter V provided that 50% or more of those debts arise from business or commercial activities.  The SBRA seeks to provide a much more streamlined, cost-effective reorganization for eligible debtors and sub-chapter V contains certain provisions not otherwise available under Chapter 11.  Some of the key features include:

“SMALL BUSINESS DEBTOR” DEFINED

Although sub-chapter V does not define a “small business debtor,” the Bankruptcy Code defines a small business debtor as:

  • “. . . a person [defined as an individual or entity] engaged in commercial or business activities (including any affiliate of such person that is also a debtor . . . excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) that has aggregate non-contingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount [not more than $7,500,000] (excluding debts owed to 1 or more affiliates or insiders). . .” ; and
  • “does not include any member of a group of affiliated debtors that has aggregate noncontingent liquidated secured and unsecured debts in an amount greater than [$7,500,000] (excluding debt owed to 1 or more affiliates or insiders).”

11 U.S.C. § 101(51D) (emphasis added).

  • Although titled the “Small Business” Reorganization Act, the SBRA is also available to individuals who may not otherwise meet the requirements of a filing under Chapter 13 of the Bankruptcy Code.

STREAMLINED PROCESS TO FILE AND CONFIRM CHAPTER 11 PLAN

The SBRA imposes the following truncated timeline to file a Chapter 11 plan of reorganization, significantly reducing administrative expenses in bankruptcy:

  • Not later than 60 days after the bankruptcy filing, the Bankruptcy Court will hold a status conference “to further the expeditious and economical resolution of a case under this subchapter.”
  • Not later than 14 days before the status conference, the debtor’s bankruptcy counsel is required to file a report that details the steps the company and its advisors have taken to attain a consensual plan of reorganization.
  • Unless the debtor requests an extension related to circumstances outside of its control, the chapter 11 plan of reorganization must be filed not later than 90 days after the bankruptcy case is filed.
  • Once the debtor completes all payments according to the plan, the reorganized debtor will receive a discharge from all of its pre-confirmation debts.

CHAPTER 11 PLAN REQUIREMENTS

The Chapter 11 plan of reorganization must provide the following:

  • All projected disposable income of the debtor to be received within a 3-5-year period (i.e., 3 years “or such longer period not to exceed 5 years as the court may fix”), beginning on the date that the first payment is due under the plan, will be applied to make payments under the plan; or
  • The value of property to be distributed under the 3-5-year plan, beginning on the date on which the first distribution is due, is not less than the projected disposable income of the debtor.
  • This Plan structure is similar to Chapter 13
  • It allows the small business to accept or reject contracts, catch up on past due rent and/or loan payments.

CONTINUED OWNERSHIP AND MANAGEMENT

The Chapter 11 plan may permit the owners of the small business debtor to retain their stake in the reorganized debtor, as long as the plan does not discriminate unfairly, and is “fair and equitable,” with respect to each class of claims and interests.

  • A debtor may satisfy the fair and equitable requirement in one of the following ways:
    • The debtor’s advisors must identify the debtor’s “disposable income,” and the plan of reorganization must explain how the disposable income will be distributed to the standing trustee during a 3-5 year period in order to effectuate payments to creditors under the plan; or
    • The plan may require the debtor to distribute some or all of its property to the standing trustee for the benefit of its creditors, provided that such property “is not less than the projected disposable income of the debtor” during the 3-5 year period.
  • The debtor’s management will continue to operate the business, but may be removed for fraud, dishonesty, incompetence, or gross mismanagement.

Appointment of a “Standing Trustee”

A “standing trustee” will be appointed and will remain throughout the payment period set forth in a confirmed Chapter 11 plan to account for all of the property received by the debtor, examine and object to the allowance of claims, review the debtor’s financial condition and business operations, report fraud or misconduct, appear at hearings, prepare a final report and account, help facilitate a plan of reorganization, distribute property in accordance with a confirmed plan, and ensure a debtor’s compliance with the confirmed plan. The Chapter 11 trustee’s role is similar to that of a Chapter 13 trustee applicable to individual debtors.

No United States Trustee Fees

Sub-chapter V exempts small business debtors from paying United States Trustee fees, which are fees based on a company’s disbursements, further reducing the costs of administration.

Mortgage Modifications

The small business debtor can seek to modify a mortgage against a principal residence, provided that the mortgage loan was not used primarily to acquire the residence.  The SBRA will make it harder for creditors to take away a business owner’s residence pledged as collateral to support the business.

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Steven Wallace, EsqSmall Business Bankruptcy
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Steve Wallace Recorded Video Seminars

Steve Wallace Recorded Video Seminars

The Wallace Law Group, PL is proud to announce the availability of past video seminars on The Wallace Law Group, PL You Tube Channel.

Past Seminars include:

Legal Pitfalls of Distressed Real Estate Transactions

Fundamentals of Real Estate Syndication

Understanding the Commercial Real Estate Contract

Evictions During a Pandemic: Understand Your Rights

Top 10 Fundamentals of Real Estate Investment

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Steven Wallace, EsqSteve Wallace Recorded Video Seminars
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What is Chapter 7 Bankruptcy?

What is Chapter 7 Bankruptcy?

Chapter 7

Chapter 7 is known as the “liquidation bankruptcy’’ because it discharges most of your unsecured debt. That includes credit card debt, medical bills and personal loans.

It’s the quickest, simplest and most common type of bankruptcy. About 63% of the 774,940 bankruptcy cases filed in 2019, were Chapter 7.

An even more encouraging bankruptcy statistic: 94.3% of Chapter 7 filings had their debts discharged. You must pass a “means test’’ to qualify for Chapter 7 filing. The means test examines financial records, including income, expenses, secured and unsecured debt. You must qualify under income limits that vary by state. There are also debt requirements. For better or worse, some people don’t have enough debt to qualify.  As a rule of thumb, I generally do not file bankruptcy for clients with less $10,000 in unsecured debt (credit cards).  You might be forced to sell any non-exempt assets, although important assets like home, car (provided you don’t have a lot of equity in the car), equipment for work, are exempt and can be retained.  Although if you are a risk of losing that asset, we will have you file a Chapter 13 Bankruptcy Instead.

Generally, the Chapter 7 process can be completed in three to four months.

Bankruptcy Myths

Filing for bankruptcy can be a traumatic experience, particularly for people who believe some of the “myths’’ that supposedly surround the process.

Some of the myths include:

Losing Everything — Actually, the majority of Chapter 7 filings are “no-asset cases,” meaning the debtor gives up no possessions. The law allows you to retain basic assets necessary for day-to-day life, like your house, car, computers or other equipment needed for you to work. These are called exemptions. Beyond that, it’s likely that creditors won’t want the possessions that aren’t covered under exemptions.

Relief from ALL Debts — As a general rule, debts you are deemed personally responsible for – taxes, alimony, child support, student loans – won’t be forgiven. Some consequences can’t be erased.

Paying off Debts Is a Better Decision — Maybe. But maybe not. If your debts are more than 50% of your annual income — and you can’t see a way to pay them off within five years — bankruptcy is the best choice to achieve a long-term, debt-free life.

Bankruptcy Is a Personal Failing — It’s not an admission of failure or a character flaw. Filing bankruptcy is a financial remedy, especially if unforeseen events occur in your life. Things like job loss, meltdowns in the real estate market and especially medical emergencies, aren’t easy to predict. The fact is, medical bills account for more than half of the bankruptcies in America.

Bankruptcy Will Ruin Your Financial Future — Yes, credit will be difficult to obtain. Yes, higher interest rates will be a given for the 10 years the bankruptcy is expected to remain on your credit report. But in time, there is a way back. Many people have prospered after taking the short-term hit that comes with filing for bankruptcy.  We have many clients that are able to buy a home within 2 years from receiving their Chapter 7 Discharge.

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Steven Wallace, EsqWhat is Chapter 7 Bankruptcy?
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What is Chapter 13 Bankruptcy?

What is Chapter 13 Bankruptcy?

Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But there’s hope even in bankruptcy, and Chapter 13 of the federal bankruptcy code offers the closest thing to a soft landing.

Sometimes called the Wage Earner’s Bankruptcy, Chapter 13 allows those with enough income to repay all or part of their debts an alternative to liquidation. It’s bankruptcy for those whose biggest problem is dealing with creditors’ demands for immediate payment, not lack of income.

One of Chapter 13’s most attractive features is the chance is the ability to pay back past due mortgage payments over a 3 to 5 year period and you can keep your home as long as you remain current on your mortgage payments under the Chapter 13 Plan.

Under Chapter 13, people have three to five years to resolve their debts while applying at least 90% of their disposable income to pay their unsecured creditors. The option allows debtors to eliminate unsecured debts while catching up on missed mortgage payments and/or vehicle payments. Short-circuiting home foreclosure is one of the option’s most attractive features.  Additionally, the Bankruptcy Courts in the Southern District and Middle District of Florida have mortgage modification mediation programs which allows debtors to obtain loan modifications

How Chapter 13 Works

Chapter 13 bankruptcy is like Chapter 11, which applies to businesses. In both cases, the petitioner submits a reorganization plan that safeguards assets against repossession or foreclosure and typically requests forgiveness of other debts. They both differ from the more extreme Chapter 7 Bankruptcy which liquidates all assets except those specifically protected.

No bankruptcy filing eliminates all debts. Child support and alimony payments aren’t dischargeable, nor are student loans and most unpaid taxes. But bankruptcy can clear away many other debts, though it will likely make it harder for the debtor to borrow in the future.

To be eligible to file for Chapter 13 bankruptcy, an individual must have no more than $394,725 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans. These figures adjust periodically to reflect changes in the consumer price index.

One of Chapter 13 allows you to stop an effort to foreclose on your home. Filing a Chapter 13 petition suspends any current foreclosure proceedings, vehicle repossessions or any other pending collection lawsuits and payment of any other debts owed. Additionally, any wage garnishments are also ceased when bankruptcy is filed.  This buys time while the court considers the plan, but it does not eliminate the debt. Hopefully, the bankruptcy plan will free enough of your income that you’ll be able to make regular mortgage payments and keep your house.

The Chapter 13 Process

First, you should find a bankruptcy attorney experienced in Chapter 13 Bankruptcy as the process is very challenging for those without experience in the process.  We provide free evaluation evaluations and estimate to file.

To file Chapter 13 Bankruptcy, you will need to provide:

  • A list of creditors and the amount of their claims
  • Disclosure of the amount and sources of the debtor’s income
  • A list of the debtor’s property, as well as an accounting of all contracts and leases in the debtor’s name
  • A breakdown of the debtor’s monthly living expenses
  • Tax information, including a copy of the debtor’s most recent federal tax return and a statement of any unpaid taxes.

Chapter 13 petitioners must stipulate that they haven’t had a bankruptcy petition dismissed in the 180 days before filing due to their unwillingness to appear in court. Also, anyone seeking bankruptcy protection, must undergo credit counseling from an approved agency within 180 days of filing a petition.

Shortly after filing, the debtor also must propose a repayment plan.  A bankruptcy judge or administrator will hold a hearing to determine whether the plan meets the requirements of the bankruptcy code and is fair. Creditors may raise objections to the plan, but the court has the final say.

Debtors can arrange to make up delinquent payments over time, but under Chapter 13 rules, all new mortgage payments from the time of filing must be made on time.

The debtor also must work with the Chapter 13 Trustee, who distributes payments to the creditors. The debtor is not required to have any direct contact with his or her creditors under Chapter 13. In fact, all creditors are required by law to cease any attempts to recover the debts covered under the Chapter 13 process if all terms of the agreement are being met.

You must stick to the basics of your settlement. No late payments are permitted. You’ll be allowed to accelerate your payments, allowing you to seek an early discharge from the agreement. Conversely, if your financial situation worsens, it’s up to you to inform the bankruptcy trustee and seek a modification of the plan, if necessary. Failure to comply with the terms, especially failure to make payments on time, could result in you case being dismissed.

 

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Steven Wallace, EsqWhat is Chapter 13 Bankruptcy?
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Florida Unemployment Claims Exceeds 1 Million

Florida Unemployment Claims Exceeds 1 Million

As a result of the COVID-19 pandemic and Florida’s Safer at Home Order, according to the Florida Department of Economic Opportunity, the state has received 1,025,657 unique unemployment claims and has so far paid 452,526.  The Miami Herald Article going into further detail.

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Steven Wallace, EsqFlorida Unemployment Claims Exceeds 1 Million
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Free Bankruptcy E-Book

Free Bankruptcy E-Book

Attorney Steven Wallace is proud to make available his Free Bankruptcy E-Book

Personal Bankruptcy: How You Can a Fresh Start

Download Now

It is very important to hire an experienced bankruptcy attorney to assist you in determining whether it would be proper to file a Chapter 7 (liquidation) or a Chapter 13 (repayment plan for wage earners). For more information, please contact the experienced bankruptcy attorneys at The Wallace Law Group with a convenient office location in Boynton Beach representing clients in Boynton Beach, Delray Beach, Boca Raton, West Palm Beach, Greenacres, Wellington, Fort Lauderdale, Coral Springs, Deerfield Beach, Parkland, Hollywood, Weston, Aventura, Miami, Miami Beach.

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Steven Wallace, EsqFree Bankruptcy E-Book
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Florida Moratorium on Foreclosures and Evictions

 Florida Moratorium on Foreclosures and Evictions

COVID-19 Economic Fallout

On April 3, 2020, in response to the COVID-19 pandemic, Florida Governor Ron Desantis signed Executive Order 20-94 which halted all Foreclosure Actions and Residential Tenant Eviction Actions for Non-Payment of Rent for 45 days.

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Steven Wallace, EsqFlorida Moratorium on Foreclosures and Evictions
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