Posted by Kevin on February 23, 2015 under Bankruptcy Blog | 
Often, by the time you are ready to file a personal bankruptcy, your business has no meaningful assets—no inventory or equipment, no receivables, no brand or business name that you could sell. That simplifies your situation because, whether the business is in your own name or under an assumed business name as a sole proprietorship, or is in the form of a corporation, limited liability company, or partnership, its lack of assets avoids a bunch of thorny issues. If your business doesn’t have any assets you don’t need to worry about how to protect them, or how to distribute them to the business’ creditors
BUT, what if your business DOES have some assets?
As long as your prior business was in the form of a sole proprietorship, your personal bankruptcy filing will immediately protect your business assets (as well as your personal ones) from seizure by garnishment, foreclosure, repossession and such. That’s because the assets of your business are legally treated as your assets, and are thus protected by your bankruptcy.
As for secured debts related to the business—secured by collateral like your business vehicle or equipment, for example—the creditor would be prevented from repossessing its collateral, at least temporarily. That gives time for your attorney to offer for you to “reaffirm” the debt—agree to remain personally liable on it—so that you can keep the collateral. Unless the collateral is worth more than what is owed on it—not likely—your Chapter 7 trustee would have no interest in the collateral.
Instead, the trustee will be interested in your “free and clear” business assets (not subject to a lien). However, you will be able to keep such assets to the extent they are covered by your personal “exemptions.”
A property exemption is a provision in state or federal law that allows you to shelter an asset from your creditors, and thus also from the Chapter 7 bankruptcy trustee who acts on behalf of all your creditors. Exemption laws can be quite complicated, and differ from state to state, often radically. In some states you must use that state’s system of exemptions, while in other states you have a choice of using either the state’s exemptions or a set of federal exemptions provided in the Bankruptcy Code. In NJ, you can choose; however, since the NJ exempts are so puny, about 98% of debtors pick the federal exemptions.
The federal tool of trade is as follows:
The debtor’s aggregate interest, not to exceed $2,175 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
(the $2,175 amount is for cases filed through March 31, 2013). This amount is doubled for married couples filing jointly, as long as the asset is jointly owned. Admittedly, that does not sound like a lot of money. However, you do not value the property as if it were new. It is valued in its “as is, where is” condition. In some cases, the value can be pennies on the dollar. If the trustee differs with your valuation, he or she will have to bring in an appraiser to challenge your valuation. If the trustee loses this battle in court, then there is no money in he estate to pay the appraiser. A trustee does not want to get into that position, so he or she will either abandon the property to the debtor or engage in some “horse trading”. The bottomline is that the debtor stands a good chance of getting the bulk of his business property for free or at a nominal cost.
Posted by Kevin on February 12, 2015 under Bankruptcy Blog |
After filing bankruptcy, you hope you never have to do that again. But it’s good to know you can if you need to.
These next two blogs are, first today, an important recent bankruptcy history lesson, and then in the second blog, why this lesson may be quite important to you.
Filing Bankruptcy in Good Economic Times
Eight years ago, in the late winter of 2005, the U.S. economy was relatively robust. The Gross Domestic Product (GDP) had increased in 2004 the most since before 9/11. In fact it would turn out that the GDP increases for 2004 and 2005, at 3.5% and 3.1% respectively, were the best from 2000 through the present.
And yet, more people filed bankruptcy in 2005 than any year in history.
The Bulge in Bankruptcy Filings 8 Years Ago
Here is a table of the total number of bankruptcy filings in the United States for the last 10 years:
| YEAR |
# OF FILINGS |
| 2003 |
1,660,245 |
| 2004 |
1,597,462 |
| 2005 |
2,078,415 |
| 2006 |
617,660 |
| 2007 |
850,912 |
| 2008 |
1,117,771 |
| 2009 |
1,473,675 |
| 2010 |
1,593,081 |
| 2011 |
1,410,653 |
| 2012 |
1,221,091 |
Notice that by far the most bankruptcies were filed in 2005. Not even in the depths of the Great Recession in 2009, 2010, and 2011 were more bankruptcies filed.
The BAPCPA Filing Bulge
The misnamed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) is the reason for this otherwise oddly timed spike in filings. Other “Bankruptcy Reform” Acts had been kicking around Congress since 1997, and one even passed Congress in 2000 but President Clinton refused to sign that one into law. Then every year after that a similar bill was introduced but never passed, until after the 2004 Congressional elections. President Bush was re-elected to his second term and Republicans had won larger majorities in both Houses of Congress. On February 1, 2005 BAPCPA was introduced in Congress, in March the House of Representatives passed it, in April the Senate passed it, and President Bush signed it into law on April 20, 2005, with an effective date of October 17, 2005.
By the time of the results of the November 2004 election, the odds were high that some major “reform” would become law in the upcoming Congress. That became even clearer a few months later in February when the bill was introduced, so the word started going out that people who were considering filing bankruptcy should seriously consider filing before the new law went into effect. Then when the law did pass, with 6 months until its October, 2005 effective date, lots more people got the word and the rush was on to file before that date.
This filing frenzy is shown by the quarterly bankruptcy numbers during this period, with big quarterly increases from the November 2004 election until the October 2005 new law effective date, and the plummeting of filings right after:
| QUARTERS |
# OF FILINGS |
| 4th Q 2004 |
371,668 |
| 1st Q 2005 |
401,149 |
| 2nd Q 2005 |
467,333 |
| 3rd Q 2005 |
542,002 |
| 4th Q 2005 |
667,431 |
| 1st Q 2006 |
116,771 |
Notice how more bankruptcies were filed in just the 4th Quarter of 2005 than in the entire year of 2006. (See the earlier table). In fact, according to the Administrative Office of the U.S. Courts, of the 667,431 bankruptcies filed in that 4th Quarter (October through December), 630,402 were filed in just the month of October. And more than 600,000 of those were filed in just the first 16 days of that October! That means that during those 16 days, the number of bankruptcy cases filed was about the same as during the entire year of 2006!
Why This Recent Bankruptcy History Matters
This history matters if you, or somebody you know, were one of those millions of people who filed bankruptcy in the run-up to BAPCPA, and because of the economic violence of the Great Recession you again need relief.
If you are one of these people, then you need to be aware of two things:
- The BAPCPA “reform” was both as bad and not as bad as feared. It is probably one of the most badly written pieces of Congressional legislation to have made it into law. It is filled with internal inconsistencies, logical conundrums, and unintended consequences. It has created infinite unnecessary headaches for millions of bankruptcy filers during its 7 and half years, as well as at every level of the federal bankruptcy court system all the way up to the U.S. Supreme Court. But partly because of its dreadfully bad drafting, most of the law’s changes have NOT changed the end result for most people needing bankruptcy relief. Most people filing Chapter 7 “straight bankruptcy” can do so, and most of the tools of Chapter 13 “adjustment of debts” are still available for those who need them.
- If you need bankruptcy help again, you very likely either qualify now or will in the next few months. That’s the subject of the next blog.
