Highlights of the differences between the new small business bankruptcy law and traditional Chapter 11 cases

By doug | Published: March 27, 2020

The Small business Reorganization Act of 2019 roared in to life six months after its passage, on February 19, 2020, just in time for businesses to test its effectiveness given the ongoing corona virus crisis. Most lawyers and business people have at least heard of the existing Chapter 11 laws — at various points Delta Airlines, Donald Trump’s Atlantic City casinos, and General Motors have all partaken — but many are wondering what exactly is this new law, and how does it fit in or differ with what came before? Here’s a short primer on what to expect from the new legislation:

  • Filing fees: Traditional Chapter 11 cases come with a $1,717.00 filing fee. So do cases under the small business version — so $1,717.00 gets everyone’s case filed.
  • Trustees: Traditional Chapter 11 cases rarely use case-specific trustees. All interaction usually is with the U.S. Trustee’s office. Every small Business case will have a case trustee assigned — a significant departure from pre-existing practice, and one more closely resembling how Chapter 13 cases are handled.
  • Implementation: The new act is located in a brand-new “Subchapter V” at 11 USC ss. 1181 through s. 1195. Many of the definitions and procedures of traditional Chapter 11 are re-worded or even eliminated. Hence, there are traps for the unwary galore. Local rules and new forms are on the way — and have even arrived in many districts. 
  • Small vs. Large: Initially, a business was considered “small” if it had total debt of less than $2,725,625.00, and more than 50% of that debt is from the commercial or business activities of the debtor. As of March, 2020 the limit was raised to $7 million in response to the corona virus economic slowdown.  Small business cases filed by self-employed individuals are allowed. Note that some individuals may qualify under this standard, and some others may not. Also, treatment under the new rules is at the election of the debtor: there is nothing requiring their use, or prohibiting small cases from being filed under the traditional method. If no choice is stated, the case will be treated as a traditional one.
  • Committees: Unsecured creditor committees will not be formed in small business cases unless they are specifically ordered by a judge for cause.
  • Plans: Small business debtors will have ninety days after the start of the case to file a plan. Only a debtor can file a plan. In traditional cases, creditors may file their own competing plans, and vote for them over the debtor’s plan.
  • Disclosure statements: Traditional Chapter 11 cases require detailed disclosure statements concerning the history of the business and its operations. These are eliminated in small business case. This should save some legal expense, as drafting the statements can be a major undertaking for the debtor’s law firm. Some of the disclosure information has merely been shifted to the Chapter 11 plan, however.
  • Business loans and venture capital secured by a personal residence:  For the first time ever, debtors who qualify for small business treatment will be able to modify some of the mortgages on their homes. To modify (or “cram down” in bankruptcy lingo) a mortgage, the proceeds of the loan must have been used primarily in the business, and not primarily to buy the house. This section has the potential to be a major benefit to debtors who have pledged their homes in order to access capital for their enterprise.
  • Consensual confirmation: If all impaired classes vote to accept the debtor’s plan, confirmation will be by consent. In such a case, the debtor will receive a discharge upon confirmation, the reorganized debtor is responsible for making plan payments to the trustee, and the trustee will be terminated upon the “substantial consummation” of the plan.
  • Cram downs (i.e. confirmation over the opposition of one or more creditors): The rules for handling non-consensual plan confirmations are radically different from prior practice. A creditor’s ability to block confirmation by voting against the debtor’s plan has been significantly weakened by the small business sub-chapter. In particular, the absolute priority rule (which often gives an individual creditor veto power over plans) is completely removed from small business cases. If there are classes of creditors who vote against a plan, a court can confirm it anyway (“cram it down”) if the court finds the plan does not unfairly discriminate and that it is fair and equitable to those who voted against the plan. When a plan is crammed-down, the trustee will continue to serve for the 3-5 year length of the plan, and will distribute the debtor’s plan payments to creditors according to the terms of the plan.
  • Fair and equitable: the definition of what makes a  fair and equitable small business Chapter 11 plan is quite different from traditional practice. Essentially, the absolute priority rule (11 USC s. 1129 (b) ) has been junked, and a definition similar to that used in Chapter 12 family farmer cases has been adopted, where the fairness of the plan is measured by the amount of disposable income committed to plan payments.
  • Interviews: Small business debtors must still attend an initial intake interview at the U S Trustee’s office shortly after the case is filed.
  • Accounting: Small business debtors still need to pay an accountant to compile monthly operating reports for the US Trustee’s office.
  • Ongoing fees: Small business debtors are excused from the obligation to pay quarterly fees to the US Trustee.

  • By Doug Beaton

    Attorney Douglas J. Beaton has practiced bankruptcy law in the Northeast for twenty six years, and is an active commentator on developments in bankruptcy practice and procedure. He can be contacted through this form:

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A guide to interpreting the Small Business Reorganization Act of 2019 without driving yourself crazy

By doug | Published: March 22, 2020

Before diving in to the details of the Small Business Reorganization Act of 2019, take your gloves off. You’re going to need all your fingers to cross-reference the myriad of bankruptcy law passages that are cryptically referenced there. For a head start, keep reading: you can consider this guide a means of freeing up at least enough fingers to grab hold of your favorite beverage.

For starters, why even care about this law? Two basic reasons: it’s brand new, taking effect in February, 2020, and it offers hope to businesses hit hard (or shut down) by the economic implosion wreaked by fear of illness. So, to start:

First of all, the law adds a new “subchapter V” to the existing Chapter 11 of title 11.

The new passages begin with 11 USC s. 1181, so awe will start there:

11 USC 1181: This section contains a laundry list of other code sections that do NOT apply when using the new law to reorganize a small business. In most cases, these neutered sections are replaced by alternate procedures within the new subchapter V. Existing sections that do NOT apply under the new law include (Sections are in title 11, the bankruptcy code, unless noted):

Setting dates for status conferences; s. 105(d).

Formal definition of the term “debtor-in-posession”; 1101(1).

Various sections concerning the use of trustees (heretofore rare in Chapter 11); ss. 1104-1108.

What counts as property of the estate; s. 1115.

Duties of debtors and trustees; s. 1116.

Who may file a plan; s. 1121.

Plan payments and sale of property; parts of s. 1123.

Modification of a Chapter 11 plan of reorganization; s. 1127.

Rules for confirmation of plans, including the detested “absolute priority rule”; parts of s. 1129.

Vesting property of the estate in the debtor; s. 1141(d)(5).

11 USC s. 1182: This section is straightforward, and defines the terms “small business debtor,” and “debtor in possession” under the new subchapter.

11 USC s. 1183: A long section providing for the appointment of a trustee in every small business Chapter 11 case. The duties of the trustee are written so that in normal circumstances, the trustee will not operate the business. Trustees will also not file substitute schedules for debtors. They are able to distribute support payments to recipients. Trustees are relieved of duties following the “substantial consummation” of a plan; debtors are responsible for filing a pleading informing the court and trustee of substantial consummation. Cross references: ss. 704, 1106

11 USC s. 1184: A short explanation of the rights and powers of a debtor in possession. Cross references: ss. 330, 1106

11 USC s. 1185: Debtor in possession status can be removed in cases of fraud or incompetency, and reinstated when appropriate, after notice and a hearing. 

11 USC s. 1186: “Property of the estate” is defined in the same way as in sec. 541, with the addition that property acquired post-petition and pre-conversion is included as belonging to the estate, as well as post-petition earnings. Property of the estate remains in possession of the debtor in normal circumstances. Cross reference: s. 541

11 USC s. 1187: Lists the debtor’s filing requirements, which include balance sheets, cash-flow statements, and federal tax returns, but in the usual case, does not include separate disclosure statements. Cross references: ss. 308, 1106 (1), 1125.

11 USC s. 1188: The court will schedule a status conference within 60 days of a petition being filed; 14 days prior to the conference, the debtor must file a report concerning negotiations with creditors for consensual resolution.

11 USC s. 1189: Only the debtor may file a plan. The plan should be filed within 90 days of the petition date.

11 USC s. 1190: The contents of the plan must include a history of the business, a liquidation analysis, and projections of the debtor’s ability to make plan payments. Future projected income is committed to the trustee for the life of the plan. The plan may modify loans secured by the debtor’s principal residence, if the funds were intended for business purposes. Cross references: s. 1123 (b) (5). 

11 USC s. 1191: Provides the rules for confirmation of the plan: it must not discriminate between members of a class, and be fair and equitable to impaired, non-consenting creditors. The “absolute priority rule” does not apply to small business cases under the new subchapter. Projected disposable income must be committed to the plan for a 3-5 year period. Debtors are allowed to deduct reasonable personal support payments, and funds needed to operate the business, from the definition of disposable income. Cross references: ss. 507 (a), 510, 1129

11 USC s. 1192: Specifies the extent of a discharge under the new law. Most debts are discharged after completion of plan payments. Exceptions are those found in the laundry list of s. 523 (a) (student loans, etc.) and any debt “on which the last payment is due after the [3-5 year length of the plan]. Cross references: 503, 1141

11 USC s. 1193: Rules for modification of plans: the debtor may modify anytime before confirmation, and is excused from the requirement of having to commit all personal services income to the new plan. Post confirmation plans require notice and a hearing. Cross reference: 1123 (a) (8). 

11 USC s. 1194: Authorizes the trustee to distribute plan payments. If a plan is not confirmed, the trustee will refund plan payments to the debtor, less allowed administrative claims, adequate protection payments, and trustee fees. Cross reference: s. 503

11 USC s. 1195: Allows persona with small claims against the estate to be employed as professionals. Cross reference: s. 327

To read the full text of the new law click here.

That is the entirety of the new law. It is sure to be tested by fire, and changing economic circumstances will make sure it is well used early on in 2020. Many businesses will be looking to rebuild after the epidemic, shedding debt from the shut down, but continuing operations in to the future. For many, the Small Business Reorganization Act may come to their rescue.

By Doug Beaton

Attorney Douglas J. Beaton has practiced bankruptcy law in the Northeast for twenty six years, and is an active commentator on developments in bankruptcy practice and procedure. He can be contacted through this form:

 

 

 

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New small business bankruptcy offers a lifeline to companies blindsided by the sudden economic downturn

By doug | Published: March 20, 2020

In late August of last year, the usually dysfunctional and bitterly divided Congress did something unusual: it passed a bill that was signed into law by the President (it was only the fifty-fourth law enacted in more than a year and a half of effort by the 116th Congress) . The subject matter of the new legislation was also a bit surprising, given that the economy was roaring along at the time: it added provisions to the Bankruptcy Code to make it easier and faster for small businesses to get Chapter 11 bankruptcy relief.

The new law was set to take effect in February, 2020 and so it did: just in time to help out both individuals and businesses struggling with the startling economic collapse in the spring of 2020.

The legislation, formally called the Small Business Reorganization Act, creates a whole new subpart of Chapter 11 that didn’t exist previously. The act eliminates some of the more costly elements of traditional Chapter 11 relief, and in some ways borrows from the expedited procedures used in Chapter 12 (family farmer) and Chapter 13 (wage-earner) cases. The act was designed to provide a simpler an more efficient path to reorganization for small business debtors and certain individuals.

Highlights of the act include the following:

  • The first thing to consider is what constitutes a “small” business. Smallness is judged by debt level. To file under the new law a business (or individual) must have total debts of less than $7 million dollars. This means all secured and unsecured debt added together. The dollar figure will be adjusted for inflation in three years.
  • In a big departure from traditional Chapter 11 practice, a trustee will be appointed to every case. Assignment of a trustee was previously rare in Chapter 11, invoked only in cases of suspected fraud or other unusual circumstances. Under the new subchapter V, the trustee will not operate or close the business (as in Chapter 7), but will serve a role similar to a Chapter 13 trustee in disbursing plan payments. A standing (i.e. permanent) trustee can be appointed to serve a specific geographic area. In smaller districts, this may be the same lawyer who is the Chapter 12 or 13 trustee.
  • Under the small business law, there will not be an unsecured creditors committee to cause mischief to debtors — a big plus for using the new section.
  • The bankruptcy court will hold a status conference within 60 days of the petition date to determine specific procedures for each case.
  • A plan must be filed within 90 days of the petition date unless there are extenuating circumstances.
  • Only the debtor may file a plan. This is another important departure from prior practice, as Chapter 11 traditionally allows creditors or the government to file competing plans, which are put to a vote. This removes another potential headache for those seeking bankruptcy relief.
  • Some of the information that was found in costly disclosure statements will instead be shifted into the plan, simplifying the drafting chores of the debtor’s attorney. The plan must include a history of the company’s business operations, a liquidation analysis that calculates how much money would go to creditors in a hypothetical liquidation situation, and a mathematical projection of the debtor’s ability to make payments under the plan.
  • The length of the plan must be between three and five years, identical to the requirement of Chapter 13. This is an imposition on debtors, as the time limit does not apply in existing Chapter 11 law. This is a trade-off that debtors should consider when deciding whether to use the new section.
  • The debtor must contribute all disposable income (read: future profits) to the creditors for the duration of the plan. This is a concept borrowed directly from Chapter 13. 
  • A very important provision for some debtors will allow them to modify home equity loans and second mortgages on their principal residence. This is extremely valuable to persons who may have mortgaged their house to get access to venture capital funds. The modification is called a “cram-down,” which reduces the amount due on this particular type of secured loan to the amount of equity available. Most Chapter 7 judges will not allow this, and Chapter 13 has severe restrictions on its use, so this could possible be a big win for small business debtors.
  • The plan will be approved (“confirmed” in bankruptcy lingo), if the judge determines it is feasible, does not unfairly discriminate, and is fair and equitable to non-consenting classes of creditors. Gone is the applicability of the so-called “absolute priority rule,” which often threatened to give veto power to a single disgruntled creditor.
  • A discharge of debts is granted to debtors who complete their plan payments in the contemplated 3-5 year period. The usual list of exceptions (e.g. student loans) applies. One sticking point is that debts on which the last payment is due after the 3-5 year length of the plan are not discharged. However, most arrearages racked up during the corona virus shut-down will be eligible for discharge.
  • As with any new law, there are unanswered questions. For instance, it is unclear what interest rate will be applied to payments on secured debts under a plan: contract rate, a rate imposed by local fiat, or a “Till” rate (usually slightly higher than the prime rate), are all viable options. It also remains to be seen whether judges will borrow concepts and precedents from Chapters 12 and 13 when interpreting the new section.
  • This new law, passed during the best of times, could end up being a life preserver for small business people hurt by this unexpected and swift global slowdown. It will allow them to clear out much of the financial carnage wrought by corona virus business interruptions, while allowing them to continue operating and to participate in the recovery. Maybe not quite a gift from God, but for once, a timely gift from Washington!
  • By Doug Beaton

 

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Should anyone rely on bankruptcy appeals?

By doug | Published: February 14, 2020

Clients hire lawyers for specific answers to a legal problem.  Lawyers, in turn, generally want to provide their clients with such answers by doing some legal research and applying the results to the specifics of the client’s situation, and then making an educated guess about the possible outcomes.

In most areas of the law, lawyers will lean heavily on reading appellate court opinions in order to educate themselves. In part this is because they are trained to do this from day one of law school, but it is also due the fact that opinions about the law from higher-up judges are generally binding on the lower-level judges who will be hearing their cases.

In the world of bankruptcy law, however, finding opinions to read that are binding are often few and far between.

Here’s why: losers in bankruptcy court may have multiple appeal options, most of which take them down the path that led to non-binding results. For researchers, that means that even though there are thousands of potential dead-ends to wade through when studying even a relatively simple question.

The first line of appeal to the bankruptcy loser is to take the case to a federal district court judge in the same state and district. District judges usually hear trials (and all types of hearings in criminal cases), but are authorized by Congress to sit as appeals judges in bankruptcy cases. A district court’s appellate decision in a bankruptcy case, however, is NOT binding, not on other district judges, and not even on the bankruptcy judges below them, and not even if the opinion is published for posterity in the law books.

An alternate route of appeal — available in only some locations — is to bring the case to a bankruptcy appellate panel. (Such panels are referred to as BAPs). A BAP is comprised of three bankruptcy judges from the same part of the country, who decide the issues before them by a vote of either 3-0 or 2-1, and ho have the option of publishing their reasoning as well.

The first problem with BAPs is that they aren’t found everywhere. At this writing, only the First, Sixth, Eighth, Ninth and Tenth Circuits have set up BAPs — live elsewhere and you will go without.

The second problem with BAPS is that they are made up of bankruptcy judges temporarily hearing appeals. While this sounds like a good idea, bankruptcy judges do not hold lifetime appointments, and therefore cannot bind the “Article III” judges (who sit on district and circuit courts) who do.

Should you rely on a written opinion of a BAP? This is a surprisingly controversial question. The Sixth Circuit (Michigan, Ohio, Kentucky and Tennessee) has implemented a couple of rules to encourage reliance, but even there some judges have wriggled out of them.

In the First Circuit (Massachusetts, New Hampshire, Maine, Rhode Island, and Puerto Rico) BAP opinions are considered persuasive authority that is not binding on bankruptcy court judges. A Massachusetts bankruptcy court has said that if district court judges do not bind each other, then neither do a collection of bankruptcy court judges (i.e a BAP). In other words, pay attention to BAP rulings, but don’t stake your life on them.

If district court and BAP bankruptcy rulings aren’t binding, where do you go to find bankruptcy cases that are? Start at the Circuit Court of Appeals, which will hear bankruptcy cases when the litigants are bound and determined to “go to the top.” These opinions are few in number, a long time coming, and even then are binding only in their geographic area (i.e. the First Circuit does not bind the Second, etc.). So there still can be opposite conclusions on bankruptcy questions throughout the country.

The last stop for a bankruptcy appeal is the U.S Supreme Court, which (at last!) produces binding authority oven the entire nation. But cases that make it there a very few (not more than 10 a year, and often less),and have a history of being so obscurely written that they often produce even more questions and litigation down the line.

As a general rule, when looking at bankruptcy court and BAP decisions as authority, treat them as well-reasoned and persuasive, but realize that they don’t absolutely have to be followed by any given bankruptcy judge.

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First Circuit allows bankruptcy trustees to claw back tuition payments

By doug | Published: February 11, 2020

Add another wrinkle to the worries of consumers thinking about filing for bankruptcy — in New England parents of college age children may find their bankruptcy trustees going after money paid for their children to attend college.

On November 12, 2019 the First Circuit Court of Appeals in Boston ruled that tuition payments made to a child over the age of majority within two years before the bankruptcy filing constitutes a fraudulent transfer, and that a college or university may have to retroactively cough up the payments to the bankruptcy trustee.

The ruling came in the Palladino bankruptcy case, where the debtors had made several of thousands of dollars in tuition payments to Sacred Heart University in Connecticut, where their adult daughter was attending college for a bachelor degree.

The First Circuit’s opinion becomes binding law in Massachusetts and New Hampshire, as well as Rhode Island, Maine and Puerto Rico. The opinion is not in force elsewhere, although it may be influential with bankruptcy judges nationwide. The opinion was written by Chief Judge Jeff Howard, formerly a lawyer and politician in New Hampshire. 

The Palladino ruling reversed a bankruptcy court order issued by Massachusetts bankruptcy judge Melvin Hoffman which had said Saced Heart could keep  the payments.

The appeals court however explicitly rejected the arguments of the school and the parents that tuition payments are legitimate because they help a child become financially independent in the long term, by virtue of earning a valuable degree.

Instead, the First Circuit essentially found that even laudable motives for paying for a child’s college expenses are irrelevant; so long as payments were made by parents when they were insolvent (typical with consumers who later file for bankruptcy), they are fair game for a bankruptcy trustee to go after.

There are still many questions left open after the ruling however. The appellate court did not address how their ruling would apply in states that have higher ages of majority, in situations where their are custody or divorce orders that compel a parent tuition payments, or what actions (such as denying to provide transcripts) a school might take if they lose their tuition revenue in litigation.

 

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Supreme Court puts some teeth into the bankruptcy discharge

By doug | Published: June 20, 2019

Debtors pay good money to go bankrupt — in exchange for which they expect to shed most of their debts and be left alone by prior creditors. But what should happen when creditors don’t get the message and continue collection or harassment? 

The United States Supreme Court recently addressed this issue for the first time, and in the process put some teeth into enforcement of an individual’s bankruptcy discharge.

In the case of Taggart v. Lorenzen, on June 3, 2019 the Supreme Court ruled 9-0 that a creditor who violates a bankruptcy discharge can be held in civil contempt if a judge rules that it was objectively obvious that they should have left the debtor alone. Associate Justice Stephen Breyer (above) wrote the opinion for the Court.

Individuals who file for bankruptcy and complete all the requirements of the bankruptcy process typically receive a discharge of most or all of their debts near the end of the case. Once the discharge is issued, creditors violate it at their own peril — or so it was thought. 

The creditor in the Lorenzen case, however, argued that a subjective standard should apply to alleged discharge violations, meaning that creditors would only be punished if they themselves thought they were doing wrong at the time they did it.

No way, said Breyer and the eight other justices. The Supreme Court equated violation of a bankruptcy discharge with contempt-of-court proceedings in ordinary civil cases, and said objective evaluations of misbehavior should be applied to creditors who step over the line with post-bankruptcy collection attempts.

While Taggert v. Lorenzen is unlikely to be regarded as a watershed decision of the year, it does give a measure of comfort to debtors seeking bankruptcy protection, who will know that discharge violations by creditors will be subject to stricter scrutiny.

 

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The Supreme Court will decide a bankruptcy case

By doug | Published: June 12, 2019

The United States Supreme Court typically hears less than one hundred full cases each year, and out of that small sample, usually only one or two involve the federal bankruptcy laws.

But on May 20, 2019 the Supreme Court announced that it will decide a bankruptcy dispute in the next term, which begins in October, 2019.

The case that’s going all they way to Washington is called Ritzen Group v. Jackson Masonry, and the issue at stake is whether a bankruptcy judge’s ruling against a creditor’s request to lift the automatic stay is a “final order” that can be immediately appealed by the losing party.

Ritzen Group and Jackson Masonry were involved in a failed real estate deal several years ago that ended up in litigation in a Tennessee state court. Then Jackson Masonry filed for Chapter 11 bankruptcy protection; as soon as the bankruptcy case was filed, the state court case was immediately frozen by the automatic stay that goes along with bankruptcy protection.

Ritzen filed a motion asking the bankruptcy judge to lift the stay so their lawsuit could proceed, but the judge refused to do this and denied the motion. Ritzen then filed a Proof of Claim in bankruptcy court, but that was denied as well. Frustrated, they then appealed both losses, but were told they had missed the fourteen day window for appealing a final order concerning the automatic stay.

In most civil cases, only final orders can be immediately appealed; this prevents the litigants from bogging down the system with premature appeals. The Supreme Court now faces the question of whether the same logic applies to a bankruptcy judge’s ruling on whether to lift the automatic stay or not.

It is already generally known that an order granting a request to lift the stay is “final” and can be appealed; the Jackson Masonry case will decide if a denial of the motion will be treated likewise.

Expect the case to be argued in the fall of 2019, with a decision likely some time in early 2020.

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The difference between Chapter 7 and Chapter 13

By doug | Published: April 16, 2019

Chapter 7 or Chapter 13 Bankruptcy: What’s the Difference?

When individuals file for bankruptcy, one of the first choices they must make is under which chapter of the Bankruptcy Code to file their case. In general, individuals choose to file either under Chapter 7 or Chapter 13. Each of these chapters provides its own set of rules and offers different advantages and disadvantages for debtors.

If you’re considering filing bankruptcy in Massachusetts or New Hampshire, it’s important that you understand the key differences between these two chapters. This post provides a general overview of each, but for more information and help when filing, you should consult a knowledgeable bankruptcy attorney.

Chapter 7: Liquidation

Chapter 7 bankruptcy is known as a liquidation bankruptcy. That’s because, in a Chapter 7 bankruptcy, the case trustee will liquidate (i.e., sell) your non-exempt property and apply the proceeds to pay off as much of your outstanding debts as possible. What property is exempt from liquidation, and what property is subject to liquidation, depends on both state and federal law.

Fortunately, in practice, the “liquidation” label is misplaced. In most Chapter 7 cases, a debtor can protect all of his or her property using the available bankruptcy exemptions. In such cases, known as “no asset” bankruptcies, the debtor gets to keep all of his or her property, including his or her home, car, furniture, and clothing.

At the end of a Chapter 7 bankruptcy, the bankruptcy court will discharge your remaining unsecured debts. After the bankruptcy discharge, you will no longer be legally responsible for repaying those debts, and the creditors that hold them will be prohibited from attempting to collect them.

However, not everyone is eligible to file for bankruptcy under Chapter 7, because Chapter 7 is intended for those individuals who are unable to pay their debts. Generally speaking, if your monthly income is less than the median income for a comparable household in Nevada, then you can file for Chapter 7.

Otherwise, you will only be able to file under Chapter 7 if you pass the “means test,” which looks at your disposable income after accounting for certain kinds of expenses. If your income is too high to qualify for Chapter 7, you will have to file under Chapter 13.

Chapter 13: Wage Earner’s Plan

Chapter 13 bankruptcy is sometimes referred to as a “wage earner’s plan.” Unlike in a Chapter 7 bankruptcy, the case trustee will not sell your property—regardless of whether it is exempt or not. Instead, you will devise a repayment plan to pay back your creditors as much as possible over the next three to five years.

Like your eligibility for Chapter 7 bankruptcy, how long your repayment plan will last depends on your monthly income. If it is less than the state median for households of comparable size in your state, then your repayment plan will typically last for three years. Otherwise, it will generally last for five years.

Your repayment plan will have to address three types of debt: priority debt, secured debt, and unsecured debt. Your plan must provide for repayment of priority debts in full, which include such things as most taxes, child support, and criminal fines.

For secured debt, if you want to keep the property used as collateral (e.g., your house or car), you must either pay the full value of the collateral during your plan or the full amount due on the debt, depending on the circumstances.

Finally, for unsecured debt, you will have to ensure that the creditors receive at least as much as they would have had you filed under Chapter 7. In other words, you will need to determine how much your creditors would have received if your non-exempt property had been liquidated, and then pay them at least that much over the term of your repayment plan.

However, it is possible to have too much debt to qualify for Chapter 13 bankruptcy. Only if your unsecured debts are less than $394,725 and your secured debts are less than $1,184,200 will you be eligible for Chapter 13.

Chapter 7 or Chapter 13: Which is Better for You?

Both Chapter 7 and Chapter 13 offer their own advantages for debtors. For example, in a Chapter 7 case, you can receive a discharge much more quickly than under Chapter 13. On the other hand, if you have substantial non-exempt property, you may prefer to file under Chapter 13 so you don’t have to give it up.

There are also other advantages of each that go beyond the scope of this brief comparison.

Ultimately, which type of bankruptcy is right for you depends on your individual circumstances. If you’re interested in exploring whether bankruptcy is a good choice for you, and whether Chapter 7 or Chapter 13 is a better fit for your circumstances, contact Doug Beaton, an experienced bankruptcy attorney, today for a free consultation.

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Stopping creditor calls to your cell phone

By doug | Published: April 11, 2019

Being unable to pay your bills can make you feel powerless. Nasty letters and phone calls can ruin your day, especially when a collector calls your cell phone during work or while you are with friends. Fortunately, there are several consumer protection laws that can redistribute the balance of power and bring you some peace.

One powerful protection is the Telephone Consumer Protection Act, or TCPA. The TCPA prohibits making a call to a cellular telephone using an automatic telephone dialing system without the prior express consent of the called party. This law is often used to stop debt collectors using auto dialing systems to cell phones. The penalties for violating the TCPA start at $500 per phone call.

A debt collection company sued for violating the TCPA can avoid liability by proving that the debtor gave “express consent” to be called on his/her cell phone. The Federal Communications Commission considers “express consent” given when a person provides a cell phone number to a creditor, for example, as part of a credit application. Courts have found that a person can give express consent in other ways including verbal, in writing, or by a spouse. Additionally, the FCC states that calls “placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.”

While express consent may be easy to find, revoking this consent is more problematic. Courts differ whether express consent can only be revoked by giving the creditor and/or collector written notice. Stopping creditor calls to your cell phone may be as easy as sending a written cease and desist notice to the collector. However, revocation of consent under the TCPA does not stop all debt collection calls, only auto dialer calls to your cellular phone.

Filing for bankruptcy is effective to stop all debt collection calls. Once you file bankruptcy, all of your creditors are prohibited from continuing collection attempts, including collection calls. The bankruptcy automatic stay stops collectors cold, and the discharge order at the end of the bankruptcy case stops them permanently.

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All about bankruptcy discharges:

By admin | Published: April 10, 2019

During the 12-month period that ended September 30, 2018, more than 760,000 Americans filed for bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. These Americans were facing seemingly insurmountable debts, but the bankruptcy process offered them a way out.

The way bankruptcy does so is through the discharge, a court order that terminates a debtor’s liability for most types of unsecured debts. But, although the discharge is such an important part of bankruptcy—and is the main reason most individuals who file for bankruptcy do so—it’s an aspect of the bankruptcy process that is not always well-understood by the general public.

Consequently, we have prepared this post to provide a brief overview of the bankruptcy discharge. If you are considering bankruptcy or would like more information about how it and the bankruptcy discharge work to give you a fresh start, contact an experienced bankruptcy lawyer today.

What is the Bankruptcy Discharge?

The discharge is the ultimate goal of individuals filing bankruptcy. It is a court order that releases you from any further personal liability for credit card debt, unpaid utilities, medical bills, most court judgments, and most other types of unsecured debt. In other words, after the discharge, you will no longer be responsible for paying the discharged debts.

It also operates as a permanent injunction prohibiting creditors who hold discharged debts from attempting to collect them, such as by contacting you or filing a lawsuit against you. If a creditor violates the discharge order, you can file a motion with the bankruptcy court to punish the creditor, even after your case has been closed.

However, not all debts can be discharged. The exact types of debts that are non-dischargeable vary somewhat between different chapters of the Bankruptcy Code, but notably include the following (among others):

  • Certain types of tax debts;
  • Student loans;
  • Debts for spousal support, child support, or alimony;
  • Governmental fines and penalties; and
  • Court judgments for personal injuries caused by the debtor while driving drunk.

The discharge order will not list the specific debts that have been discharged, but will generally describe the types of debts that are non-dischargeable and, accordingly, have not been discharged.

When Do You Receive the Discharge?

The bankruptcy court discharges your debt at the conclusion of your bankruptcy case. How long you have to wait for that depends on a number of factors, including:

  • What type of bankruptcy you file; and
  • Whether a creditor or the trustee files an adversary proceeding.

When you file a Chapter 7 bankruptcy, you generally receive your discharge within months of filing your bankruptcy petition. However, if a creditor or the trustee files an adversary proceeding challenging the discharge, then you will have to wait longer for the court to rule on that challenge.

In a Chapter 13, you will generally receive your discharge after completing a three-to-five-year repayment plan. That means you will typically have to wait roughly three to five years after filing to receive your discharge. Fortunately, a creditor generally cannot challenge your right to a discharge in Chapter 13; it can only challenge the repayment plan before the court confirms it.

Can the Bankruptcy Discharge be Denied or Revoked?

Although the discharge is the ultimate goal of an individual filing bankruptcy, it isn’t guaranteed. Section 727 of the Bankruptcy Code describes the circumstances in which a discharge may be denied in a Chapter 7 bankruptcy. For example, you are not entitled to a discharge under Chapter 7 if:

  • After filing the bankruptcy petition, you fail to complete an instructional course concerning personal financial management
  • You transfer, remove, destroy, mutilate, or conceal property within one year before filing bankruptcy—or after filing—with the intent to hinder, delay, or defraud a creditor or the case trustee;
  • You conceal, destroy, mutilate, falsify, or fail to preserve records from which your financial condition can be ascertained;
  • You knowingly and fraudulently make a false oath or account, present or use a false claim, or try to bribe the trustee; or
  • You violate a lawful court order.

In addition, you are not entitled to a discharge under Chapter 7 if you received another Chapter 7 discharge within the past 8 years, or if you received a Chapter 13 discharge within the past 6 years. Similarly, you are not entitled to a discharge under Chapter 13 if you received a discharge under Chapter 7 within the past 4 years, or under Chapter 13 within the past 2 years.

A creditor or the trustee can file a lawsuit with the bankruptcy court (called an “adversary proceeding”) challenging your right to receive a Chapter 7 discharge, either in whole or in part, for the above reasons or because:

  • You incurred a particular debt under false pretenses, false representations, or actual fraud;
  • A particular debt results from fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; or
  • A particular debt is the result of your willful and malicious injury to another entity or the property of another entity.

Finally, a creditor or the trustee can ask the court to revoke your discharge even after it is granted in some circumstances, such as when you obtained the discharge fraudulently.

Contact a Bankruptcy Lawyer to Learn More About How the Discharge Can Give You a Fresh Start Financially

The bankruptcy discharge is a powerful, life-changing tool for individuals facing overwhelming debt, but obtaining it requires following all the rules of the Bankruptcy Code, which are complex and often confusing.

If you’re struggling keeping up with your debts in Nevada, contact me today for a free consultation. I will review your circumstances and provide more information about how bankruptcy can give you a financial fresh start.

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