What is a chapter 11 bankruptcy and how do they work?

A chapter 11 bankruptcy is designed to first protect and then help a business survive and succeed.  If a business is struggling under the weight of a tremendous debt then a chapter 11 can be filed to preserve the business.  Public policy says that a business is a going concern that employs people and thus should be saved from breakup and destruction.

A chapter 11 can also be filed by an individual instead of a business if that individual has debt that exceeds the debt limits of a chapter 13.  This is less common than business chapter 11s but it gives individuals with a great amount of debt an opportunity to file a payback type of bankruptcy if they can’t file a chapter 7.

A chapter 11 business filing will theoretically give a business time to reorganize and develop a plan to pay back the creditors at least partially.  The problem is that though many are filed most chapter 11 bankruptcies for small businesses do not work.

If a business is failing then it is unlikely that a suspension of the collection efforts of creditors will save it.  There is usually insufficient income generated by the business to pay much of its debts.  If the business reaches this point where it needs a chapter 11 then the business model is probably unworkable.  Most attorneys will advise their clients to at least consider the possibility of closing the business.  In the end most chapter 11s are converted to chapter 7s or they are dismissed.

In addition chapter 11s are very expensive to file.  The filing fees are over $1000 and in addition there are administration fees charged by the court.  There is a tremendous amount of work for the attorneys to do too and thus large attorney fees are also required.  There are also numerous legal documents and motions that must be filed on the first day and then more of these within the next 7 days.

There are also numerous trips to court.  Court appearances are necessary to ask the judge for permission to do many things like pay your attorneys.  The business becomes the “debtor in possession” after the filing but the business must take out all new bank accounts after the filing is done and it must close all of the old bank accounts.  On each account it must be stated that this business is in chapter 11.  The debtor in possession can run the business though during the chapter 11.

Then there are the reports.  Profit/loss statements must be filed along with balance sheets and monthly operating reports.  Keeping business accounts in a chapter 11 is very difficult and must be done correctly.   The court must be specially petitioned for permission to pay an accountant and other experts to do this kind of work.

All of this is why chapter 11s work better for a large business than a small one.  Most law firms will charge $20,000 at least to do one and the court fees, accountants, and business specialists must be paid are in addition to these fees.  Large law firms handling large businesses are the norm in workable chapter 11s.

There is also the problem of the creditors committee that must be set up with a chapter 11.  The creditors of the business must be gotten together to approve of the reorganization plan for the business and the reorganization plan must be carefully produced.  The reorganization plan is a plan that the business comes up with to both run the business and pay back part of the debts.  This plan must then be approved by the creditors committee.

With a small business the formality of a creditors committee may be waived but if there is one or two large creditors they are definitely have something to say.  They may be foreclosing on property or want their other assets back or they may want to break up the business.  Creditors can even demand that the management of the business be turned over to someone else (instead of the business owner) resulting in you losing control of the day-to-day operations of the business.

There are advantages to a chapter 11 like it does not have a five-year limitation to paying back creditors like a chapter 13.  Also you may be forced into one if you have more debt than is allowed in a chapter 13.  (And remember that individuals can file a chapter 11 bankruptcy in cases where their debt exceeds 13 limits and where a chapter 7 will not work).

But remember the purpose of the 11 is to turn around a business and make it work.  If the judge thinks you are using it for another purpose like stalling the paying of creditors or for stalling a foreclosure then he could move for sanctions, move to dismiss the case, and even lift the automatic stay.

In a SARE cases (single asset real estate) it is common that the debtor/business filed when a foreclosure was pending.  The creditor/mortgage holder will then move to lift the stay and sell the property unless the debtor makes payments or files a “workable” plan.  Both of these things the debtor may not be able to do.  Therefore in these cases the lifting of the stay is often allowed and the property is then sold at foreclosure.

You can see from this short blog on chapter 11s that they are expensive, time-consuming, extremely complicated, and prone to dismissal or failure.  The good news it that there are alternatives to these 11s.  Contact a competent bankruptcy attorney to discuss your options if you are considering filing a chapter 11 bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation about a chapter 11 bankruptcy or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Did you receive a notice of garnishment of your wages? Bankruptcy can stop it and get some of your money back that has already been taken!

Many of my clients come to me with wage garnishments already in place or they have received notice that one is about to begin.  A wage garnishment is when a creditor can reach out to your employer and seize part of your paycheck for some debt you owe.  These creditors are limited to taking no more than 25% of your take-home pay.  This amount can be large though and can make the difference in whether you can afford to pay your bills or not.

Before creditors can get this garnishment in California they must go to court and get a judgment and then file for the wage garnishment with your employer.  Once they get it the garnishment will continue until the debt is paid in full which can be some time if the debt is large.

Some of my clients have a $20,000 or $30,000 credit card debt or vehicle deficiency debt that is being garnished from their wages.  Most of these people can’t afford to pay their ongoing bills with their current income and a 20% pay cut makes their situation impossible.

It is best to catch this before the garnishment hits your paycheck but the good news is that bankruptcy can stop this immediately from happening.  If we catch the garnishment before it starts that is best.  But if we do not we can still stop it and wipe out the underlying debt.  We can even get back some or all of your money garnished if we file within 90 days of the garnishment beginning.  We will send a request to the creditor that they return the money and most will return it if a bankruptcy case has been filed.

So don’t despair if you receive a garnishment notice.  It is not the end of the world.  A wage garnishment can be stopped and the money can usually be returned.  You just need to call a bankruptcy attorney, let the attorney analyze your case, and file the bankruptcy.  And don’t worry about whether you owe the money or not and don’t worry about not paying it back.  It’s your federal right to file for bankruptcy and get a fresh start with your debts discharged so contact an attorney today and begin the process to return your income to you.

I am a bankruptcy lawyer practicing bankruptcy law in San Diego, CA.  For more information please visit my website at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

If you are considering bankruptcy and want to receive the Free e-book; “13 Things You Should Do To Prepare For Filing Bankruptcy” then please e-mail me at: farquharesq@yahoo.com.

Cash for keys! It’s still available after a foreclosure. My advice is get that cash!

(For the current state of the foreclosure crisis see this blog: http://bit.ly/JGU1dZ ).

How many times does someone hand you cash?  I’m sure it’s not often but it is the case that lenders are offering cash for keys after a foreclosure.  You may or may not be upset about the foreclosure and you may actually be relieved that the process is all over.  You may have tried a short sale that failed (or you may have never attempted one) and now the foreclosure sale has taken place and you are being contacted by the new owner of your property to find out from you what your plans are.

Remember that this new owner will have to evict you legally before he can get you out of this house that you formerly owned even though he is the new legal owner of the property.  He cannot throw you into the street.  There is no “self-help” allowed and the only way a new owner can get you out of your former home is through the eviction process.  You are no squatter.  You originally entered the property legally.   You are the former owner with the legal right to be there until a judge evicts you in court.

In California eviction means that the landlord has to give you a 3 day notice, followed by a filing of an unlawful detainer action, followed by a trial, followed by a sheriff who will actually remove you.  This all takes time and money.  To get you out will take around 4 to 6 weeks depending on how behind the courts and the sheriffs are.  In addition he has to hire attorneys, pay filing fees, and wait until the process finishes.

Or he can pay you money.  The going rate is about $3000 so don’t sell cheap.  Many of my clients have been offered and have received this money.  It will cost the landlord almost that much to proceed with and eviction plus there is the time involved.  The landlord may ask you to leave quickly (like in a week) but you can always try to negotiate for more time.  Just don’t scare him off so he doesn’t pay you.  Remember though that he will know the costs of legally removing you and that is your leverage.

You have a legal right to be in this home until he goes through the lengthy and costly legal process of removing you.  You can remind him of that if it helps the negotiations but always remember that you have legal rights.  If you don’t exercise them you will lose them.  You will be saving him time and money if you get out quickly with no hassles for $3000.

An extra $3000 can help a lot with bills and getting a new place.  If you can get more time then do so but if not then I suggest you take the money.

If you need a bankruptcy now to get rid of credit card or automobile deficiency or medical debt then call me and we will discuss how to free you up from the rest of your debt.

I am a San Diego bankruptcy attorney.  Please visit my website for more information at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  If you or someone you know may need to file a bankruptcy get my FREE E-BOOK: “13 THINGS YOU SHOULD DO TO PREPARE FOR OUR BANKRUPTCY FILING” by e-mailing me at: farquharesq@yahoo.com.

Why you should file bankruptcy if you have debts you cannot pay

In celebration of reaching 50 blogs I thought I would update one of my most popular articles to date.  In this article I talk about all of the reasons why you should file bankruptcy.

I find that my clients want to file and they need to file but they are also apprehensive about  filing bankruptcy and they are concerned that bankruptcy is somehow shameful, wrong, or deceitful.  I try to get them to see that it is none of these things and that there are very good reasons to file and great benefits to filing.  I also try to show them that it is a legal, moral, and ethical thing to do that is as old as the bible and that corporations do it whenever they can.

You get a fresh start, you get peace, freedom, anonymity, your credit score will improve, you can keep most of your assets.  I also try to explain that times are tough, you need your money, and that bankruptcy is their bailout and things will probably get worse for them if they don’t file because collectors will not stop trying to collect from them.

I try to get my clients to see all of these things about the benefits to filing.  Often the biggest hurdle is the psychological block that they have to bankruptcy itself.  So please read my article and see if you should also possibly file bankruptcy if you have debts you cannot pay.

 1)  You get a fresh start.  Filing for bankruptcy is powerful and useful tool which allows you to discharge most of your debts and usually keep most of your assets.  You get a “fresh start” with your life and you can begin again financially without the burden of debts you cannot pay.

You can also avoid the permanent debt trap from which it is very hard to escape.  Remember that bankruptcy is nothing new.  It is as old as the Old Testament of the Bible.  It has been around in some form for thousands of years.

The tradition in Old Testament times was to forgive debt regularly every 7 years.  This practice had a tremendously beneficial effect on society and its people as it can on you.  Even back in ancient times people knew that everyone in society is better off if individuals don’t carry around debt long-term.  They knew then that debtors were happier, healthier, and better and more productive citizens when their debt was forgiven.

How badly is the burden of all this debt affecting your everyday life now?  Do you feel the fear, the worry, the anguish we all feel when we are over our head in debt and we don’t know how to get out or what to do.  Bankruptcy is a legal, definitive action you can take that can make the debt all go away and put your life back together to give you a fresh start.

 2) Usually your credit score will improve over and above what your credit score would be if you didn’t discharge these debts.  By the time most people file bankruptcy they are so far behind in their credit card payments that bankruptcy will actually help improve their credit score.  Each month that you don’t pay those monthly credit card bills your credit score remains low.  Since most people are unlikely to pay their debts off this results in a permanently low credit score.

If you are in the same position then bankruptcy will certainly help you.  Your credit score will decrease immediately upon the filing of the case but when your bankruptcy is finished your debts will appear as “discharged in bankruptcy”.  Those debts discharged in bankruptcy will then no longer negatively impact your credit score.

You can now begin to rebuild your credit score with new credit.   You need to have credit in your name and use that credit wisely to increase your score.   If you charge things on your new cards and then pay your payments on time and pay the full balance every month you will slowly and steadily build up your score.  Every month that you pay those payments you should get points added to your score.  These points will add up over time.   You will get credit card solicitations after the bankruptcy discharge so use them wisely to increase your credit score.

Any other payments you make on time for financed items will help drive up your credit score.  Some of my clients reaffirm their cars in bankruptcy so they will get the benefit to their score when they make payments.  Others will finance a new car after bankruptcy for the same purpose.

 3) You get freedom– Shakespeare said “never a borrower or lender be” because as a borrower you become a slave to the lender.  If you owe credit card debt then you are a slave to those big banks to whom you owe money.  You pay huge amounts of interests to these big banks every month to service your debt.  These interest payments only serve to enrich very large corporations at your expense.

Filing bankruptcy can serve to free you permanently from both the worry and the financial strain of continual and unrelenting debt and the stress of the collection actions.  Your discharge is your key that unlocks the debt prison doors.

 4) You can keep most of your assets.  Most people can retain most of their assets in a bankruptcy.  That includes your house and your cars.  Many people think they will lose everything.  We have very generous exemptions in California that allow most people to keep everything they own.  If your house and cars don’t have any equity then you can certainly keep them.  If they do have equity then usually we can find a way to exempt them.

Your house is probably secured.  If there is equity in the home then there is a homestead exemption we can use to allow you to keep it.  Your car may be secured and if there is equity in that we can use the car exemption and the “wildcard exemption” together to keep your car (if we don’t have to use the homestead exemption on your house”).

Cars usually have no equity if financed and these days with housing prices low, many houses also have no equity.  Your personal furniture and clothes you can keep under a separate exemption and jewelry and “tools of the trade” also have their own exemptions.  Even your retirement fund, if it’s an IRA or 401k, is protected by federal bankruptcy law up to $1,000,000.

 5) You will get peace back in your life.  When you file bankruptcy your creditors must stop calling you on the phone.  Most of my clients have not answered their phone for some time before they actually consider bankruptcy.  Filing a bankruptcy case will stop all of these collection efforts with the miracle of the “stay” that is created once you file bankruptcy. This stay stops all creditors from contacting you in any way once they get notice from the Bankruptcy Court of the filing.

So remember that as far as you debts go, peace and tranquility are waiting to return to you if you file bankruptcy.

6) No one needs to know.  Many people are afraid of bankruptcy because they think that their landlord or their employer will find out about their bankruptcy and they believe they can be evicted or lose their job.  This is not true and you will still have anonymity if you file.  You don’t have to tell anyone that you filed bankruptcy and probably no one will know unless they do a public record search.  It is unlikely that this will happen though so your secret should remain safe.

Your landlord will probably not be notified especially if you are on a month to month lease.  Your employer need not know unless you already have a wage garnishment that needs to be stopped.  You cannot be fired from your job or thrown out of your apartment or home because you filed bankruptcy if your employer or lenders or landlord do find out.  Discrimination of this sort based upon a bankruptcy filing is illegal.

7)  You have other things to do with your money–   If you are like most people then you need the money you earn from working to pay for your own personal bills and pay for your family and their needs.  You don’t need to give this money to these large banks.  You don’t need to spend this money to enrich large banks for money you borrowed from them a long time ago.

If you earn less than is allowed in the means test then you can probably file bankruptcy and discharge your debts.  You can then use your money for other purposes than paying off old dischargeable debt.

 8) You have already paid the credit card companies back–  If you are like most of my clients then the debts that you owe are probably very old.  You have probably been making payments on these debts for years.  If that is true then you have already reimbursed the creditors for them.  By the time most people file a bankruptcy they have already paid back all of the money they borrowed plus some interest. This is because of the very high interest rates that credit card companies charge.

Remember that the banks borrow money at a very low-interest and then lend it to you at very high interest.  They keep the rest.  It is a most profitable business and the make lots of money doing it.  The banks want to keep you paying them this exorbitant interest indefinitely.  Some of you are paying as much as 30% interest on the money you borrowed.

Don’t make the mistake of feeling that you need to keep paying these companies.  You have already paid them enough so file a bankruptcy, discharge the debts and move on.

 9) Times are very tough and many people need to file more now than ever.  There is a recession on now and you need relief from your debt maybe more now than ever before.  Many people are unemployed and those who are employed don’t know if they may lose their job in the near future.  Even if your job is secure and you expect no pay cut, you still probably need your funds for your ongoing bills.  Why pay for old debts incurred long ago when the money you borrowed back then often went to pay for other bills?

Times are very tough in this recession so explore the possibilities that bankruptcy opens up today.

 10) Personal bankruptcy is your bailout – Corporations file bankruptcies all the time including the credit card companies that you owe money to.  They bail out with bankruptcy so why not you?  In addition many banks have received government bailout money to keep them going.  They then turn around and bug you for money.  That is your money they are receiving from the government but they are not giving you any breaks.

So if big companies can file bankruptcy and get your money sent to them so they can collect more money from you then why don’t you get your bailout?  File bankruptcy.

 11) The creditors absolutely will not stop trying to collect from you until you pay or you are dead or you file bankruptcy.  They only know one thing and that is to collect your debt with all of the interest and penalties that they can add.  They will continue to sell the debt to other collectors and these collection agents have a nationwide network.  They buy, sell, and trade these debts but they keep trying to collect.  They are like the Terminator in that movie.  They are like a machine which won’t stop until you are dead.

If you file bankruptcy then they must stop trying to collect the debt. They will then discard your debt because if they try to collect it after the bankruptcy discharge then they would be in violation of federal bankruptcy laws.

 12) Your situation will probably continue to get worse and worse if you don’t file bankruptcy or pay these creditors.  The collection efforts will increase in intensity and eventually the creditors will file suit.  Many people try to put their heads in the sand and hope the debts will disappear.  This is not the case though as the situation will only get worse.  The debts will grow in size as interest and fees grow.  Eventually some creditors will file suit and serve these on you.

If you do not file at this point then you could get a default judgment against you and they will use this judgment to collect money from you.  They can now lien your house and file a lien against you personally.  Some liens cannot be removed in a chapter 7.

In addition creditors with court judgments can garnish your wages so your income could decline.  They can also get access to your bank accounts and remove money from them legally to satisfy your debt.  You may need that money to pay a bill but it could be gone one day.  They can even call you into court for a debtor’s exam to get you to answer questions about your job, your bank account, and your general financial situation and they can get you in there every 6 months.

Not all of these things will happen to all people but these are the tactics creditors can use against you when they have a court judgment.  As you see here your financial situation will continue to get worse over time when you have debts.  It will not get better on its own and the debts won’t go away.  Therefore don’t delay and preserve your rights by exploring your options with bankruptcy.

(See here for my blog about what the bible has to say about bankruptcy.)

Thank you for reading my “12 Reasons to file bankruptcy article” and if I can be of any further help please call for a free consultation.  I am a San Diego bankruptcy attorney.  Please visit my websites at www.freshstartsandiego.com or www.farquharlaw.com.

Douglas G. Farquhar, Esq.

1901 First Ave. Suite 217H

San Diego, CA. 92101

(619) 702-5015  Call now for free credit report and analysis!

E-mail: farquharesq@yahoo.com

Websites: www.farquharlaw.com or www.freshstartsandiego.com.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

7 reasons why the timing of your bankruptcy filing is crucial

Over the years I have seen that time and time again the timing of the filing of the bankruptcy is crucial for a debtor to receive the most out of the bankruptcy as he or she possible can.  Your filing discharges all debts before you file.  You can amend and add debts during the bankruptcy but after it’s closed it’s more difficult.

1)  If you are going to incur some unavoidable debt– in the near future you don’t want to file too soon.  You may want to wait until after the debt has been incurred.  Many people have a medical issue like an upcoming operation that is going to occur in the near future.  If that is the case then it is best to wait until that medical procedure is finished and you are billed for it.  Then we can add the debt to the bankruptcy and the debt can be discharged.

So if you have debts that will be incurred in the near future it is a good idea to wait to file so you can include them in the bankruptcy.

 2) If it has been less than 8 years since you file a chapter 7- Then you want to wait until the 8 years elapses before you file again.  If you file too soon the case will be dismissed.  We need to carefully examine when your last filing occurred before we file for you again.

 3) If some creditor has sued you– then you want to be sure to file in around 30 days after the suit was served on you (not 30 days after the suit was filed).  So try to remember when you were served with the suit and you have 30 days from that day to file the bankruptcy before the creditor can default you and begin to attempt to collect on your debt.

 4) If foreclosure has been started then you want to probably get the maximum time to stay in your house.  In this case you want to wait to file until the last possible day before the trustee sale where your house will be sold.  A filing the day before the sale will stop the sale and the creditor will have to file a motion for relief from stay to proceed with the sale.  From my experience this will delay the sale for around two more months on average in a chapter 7.

If you file a chapter 13 you can stop the sale but if you want to keep your house then you would have to have sufficient income to pay for it and in addition you would need disposable income to at least partially pay your unsecured creditors.

 5) If you are currently unemployed or underemployed and you believe that you might get a higher paying job in the future then you might want to file soon.  It is possible that the new job could pay you sufficient income that you would fail the means test and thus lose your ability to file a chapter 7 because you waited.

I have encountered this case a few times and would be a shame to not file quickly here.  To lose a chapter 7 can mean that you would be in a 13 where for up to five years you would be paying debts you could have discharged if you filed sooner.

 6) If you have recently charged some large amount on your credit card then you might want to wait for some time to elapse so that this charge ages.  This also occurs with cash advances.  Both can invite a fraud challenge from a credit card company if the charges are too large and too soon before the bankruptcy filing.

Here I like to look at the charges and see when they were made, for how much, for what purpose, and how recently.  I analyze the risk of filing on a case by case basis.

 7) If you just want to get started re-building your credit then you would want to push the bankruptcy forward and file right away.

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.