bankruptcy law changes

Temporary Changes in Bankruptcy Law Due to COVID-19

In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed, with a historic $2.2 trillion of economic stimulus aide, to try to offset the social and economic damage inflicted by COVID-19

Along with so many other changes for most of us in recent months, we see that bankruptcy legislation has changed a little, too. What many don’t realize is that the CARES Act temporarily changed federal bankruptcy law. This includes some of the procedural guidelines set forth by Chapter 5 but also on filing allowances for some of the most common types of bankruptcy, like Chapter 7 or Chapter 13. 

What Are The Major Differences Between Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 bankruptcy frequently applies to eliminating any unsecured debt, like credit card or medical debt. Essentially, it wipes the debt slate clean. It may also involve the liquidation of some of the debtor’s assets to go towards debt repayment. Note, Chapter 7 does not cover all varieties of debt, so it may not be suitable for everyone. Student loans, for example, cannot be eliminated with this type of bankruptcy.

Chapter 13 bankruptcy allows debtors to restructure their debt by making significantly lowered payments for the duration of 3-5 years. It’s not a complete debt elimination, but the reduction in debt allows many to get back on their feet while fulfilling at least some part of their debt obligation. 

Important to both of these kinds of bankruptcies are “monthly income” and the amount of “disposable income” one has on hand.  For many people living through the Coronavirus pandemic, those figures may have changed drastically in the last few months. And, while many may not have previously passed the Means Test in qualifying for bankruptcy, they may now.

Here are some facts you need to know, whether you have already filed for bankruptcy or are considering filing for bankruptcy in the near future:

  • Payments made under federal law to individuals related to the COVID-19 pandemic do not count in Chapter 7 or Chapter 13 bankruptcy filing as “current monthly income” and do not have to be reported as such.
  • Any payments made to individuals relating to the COVID-19 pandemic under federal law do not count in bankruptcy filing as “disposable income” and therefore cannot be included in the debt repayment plan for Chapter 13 bankruptcies. This means that your repayments won’t go up like they would otherwise. 
  • Past filers of Chapter 13 can apply for a modified repayment plan based on any (direct or indirect) hardships experienced due to COVID-19. Your monthly payments could even be greatly reduced by this aspect of the CARES Act.
  • Chapter 13 debtors may also qualify for an extended repayment plan of up to seven years if qualifying under the economic hardship resulting from COVID-19.

Figuring out whether you qualify for bankruptcy or may be eligible for a modified bankruptcy plan is best to ascertain with the help of a qualified bankruptcy attorney to walk you through the process.  At the Law Offices of Bill F. Payne, we can guarantee up-to-date legal information and advice in an ever-changing world.

Contact us today to set up your free initial consultation.

Businesses Seek Bankruptcy Protection Due to Coronavirus

With so many businesses being shuttered during the COVID-19 pandemic, it’s no surprise that even well-established major corporations are pursuing bankruptcy.  J. Crew was among the first of the major corporations to file for bankruptcy amidst the Coronavirus shutdown, marking an end of an era for a major American apparel retailer with international acclaim. Its retail services were deemed non-essential and, with consumer budgets tighter than ever, it was hit hard, along with much of the retail industry.

Other giants who have filed for bankruptcy in recent months include Pier One Imports, Art Van Furniture, and even Whiting Petroleum Company, who experienced huge losses from the crash in oil prices. Unfortunately, many more are projected to suffer the same fate.  

While it’s not just retail that is (and will be) impacted by the Coronavirus, there are some factors to consider when looking at some of the industries most heavily impacted by a global pandemic. Luxury retail and travel-related services will likely continue to experience the biggest hardships.

The early statistics on the economic fallout of COVID-19 are in and, in addition to retail, have identified the following industries as being the hardest hit so far

Airlines:

This one may seem obvious, since most borders are currently closed and only essential travel is allowed.  However, even in spite of a $58 billion dollar bailout from the federal government, many airlines are projected to file for bankruptcy in the coming months. This also has projected downstream effects for the aerospace industry, as well. 

Casinos and Gaming:

With most casinos and gaming facilities shut down completely, this entire industry is at a stand still, until it’s time to safely re-open those sectors of the economy. Even then, it will be a slow start, while consumer confidence gradually re-builds.

Automotive:

The automotive industry, including retail parts and manufacturing, is also seeing the impact of COVID-19. Consumers are holding off on non-essential repairs, which means automotive shops and dealerships aren’t as busy. Unfortunately, it also means that the automotive parts industry has seen a huge decline in their demand. Factory shutdowns due to the pandemic have also played a factor in parts and equipment availability, even for businesses which are deemed essential. 

Oil and Gas Drilling:

With the demand for travel of any kind being lower than it has been in decades, oil prices dropped precipitously in recent months. It’s little surprise that these corporations are also experiencing financial hardship during the Coronavirus. 

What do these large bankruptcies mean for small business owners?

There is good news for small businesses considering bankruptcy during this time. Some of the COVID-19-related changes concern federal bankruptcy law.  This is, in part, owing to the record number of large corporations having to file for bankruptcy protection at this time. 

Many small businesses may even find bankruptcy as a way to stay afloat during this pandemic, owing to recent changes in Chapter 11 bankruptcy filing guidelines.  The Small Business Reorganization Act (SBRA), for example, made small businesses with under $2.7 million in debt eligible for debt restructuring. The recent federal CARES Act for economic stimulus upped that threshold to $7.5 million to qualify for Chapter 11. 

If you’re wondering whether your business could be eligible for debt restructuring during COVID-19, contact the Law Offices of Bill Payne, P.C., an experienced bankruptcy attorney with more than 30 years helping businesses learn what their options are. There’s no need to drown in debt during a pandemic, and we are here to help you through that process with a free consultation to discuss your unique situation.

Business Bankruptcy

If your business is currently facing financial difficulties that it cannot handle on its own, it may be time to consult a corporate bankruptcy lawyer. While bankruptcy will have a significant impact on your business, it may be the only way to move forward.

Types of Business Bankruptcy

The three types of bankruptcy available to businesses include:

  • Chapter 7, often used by sole proprietorships and small businesses;
  • Chapter 13, which allows sole proprietorships to restructure their debt; and
  • Chapter 11, used by corporations and partnerships to help meet debt obligations.

When filing business bankruptcy in Dallas, you’ll first need to consult with a business bankruptcy attorney to see whether it’s truly the best option for you. If it is, it will then be important to determine which option best fits your situation.

Filing Chapter 7 Bankruptcy for Your Business

Chapter 7 bankruptcy is for businesses that don’t have the means to restructure their debt. It effectively frees you from most of your unsecured debts, though it may mean liquidating assets to do so. To qualify for Chapter 7, your business will need to pass a “Means Test” to see if its income is insufficient to meet its current obligations.

Chapter 7 bankruptcy is typically best for:

  • Sole proprietorships and general partnerships where individuals are responsible for business debts,
  • Corporations or LLC’s
  • Businesses that can no longer continue operating.

Filing Chapter 13 for Sole Proprietorships

Sole proprietorships that don’t pass the means test may qualify for Chapter 13 bankruptcy. Additionally, general partners of partnerships—not the partnership itself—may qualify to file under this chapter since they are personally liable for their business’s debts.

Chapter 13 allows individuals to pay off their debts over a three to five year period. To qualify, you’ll have to meet these requirements:

  • Be individually responsible for your debt ( if you’re a sole proprietor or general partner),
  • Wish to continue business operations, and
  • Have no more than $419,275 in unsecured debt and $1,257,850 in secured debts.*

Note that corporations, LLCs, LLPs, and other such organizations cannot file Chapter 13 bankruptcy.

*Debt limits are current as of April 2019.

Filing Chapter 11 for Partnerships and Corporations

Partnerships and corporations that wish to restructure their debts may file for Chapter 11 bankruptcy. The process of doing so is long and complex, and you will need a corporate bankruptcy lawyer to work with you through the process, including filing petitions and creating a repayment plan.

Get Started with a Business Bankruptcy Attorney

If you think you may need to file business bankruptcy in Dallas and other areas in North Texas, we can help you through that process. We’ll advise you on the steps you’ll need to take as well as which type of bankruptcy is right for your situation. To get started, contact the Law Offices of Bill F. Payne, P.C. today.

How to File for Bankruptcy

If you have overwhelming debt or financial obligations, it may be time to file bankruptcy. If you’re not sure how to file for bankruptcy or whether it’s right for you, a personal bankruptcy lawyer can help you.

When to Consider Bankruptcy

Bankruptcy may be your best course of action if you:

  • Have difficulty keeping up with debt payments
  • Can’t seem to pay off debt balances, no matter how hard you try
  • Have lots of high-interest debt
  • Are facing a possible home foreclosure or other loss of personal property

If any of these sound like your situation, talking to a Dallas bankruptcy attorney will be the best place to start. We can help you determine if bankruptcy is right for you.

Choose the Type of Bankruptcy

Before filing bankruptcy, you’ll need to choose the right type for your situation. Consumers have two types of bankruptcy options: Chapter 7 and Chapter 13.

Chapter 7

Chapter 7 bankruptcy is intended to completely eliminate certain unsecured debts, such as credit card debt or medical bills.

Note that getting debts discharged may require liquidating some of your personal assets, and even then, not all types of debt are covered. That said, Chapter 7 can be a powerful way to get a fresh start.

Chapter 13

Chapter 13 bankruptcy allows you to reorganize your debt and make payments over the course of three to five years. The idea is to allow you to get caught up on your financial obligations without outright forgiving the debt entirely.

Do You Qualify for Bankruptcy?

To file for bankruptcy, you’ll first need to meet certain eligibility requirements.

Means Test

To qualify for Chapter 7 bankruptcy, you’ll need to pass a “Means Test,” which will determine if you have the financial means to meet your current obligations. Passing the means test indicates that you can’t make a meaningful impact on your existing debt.

Eligibility

Some situations may limit your eligibility, such as if you have already filed bankruptcy in the past. Typically, you’ll have to wait a period of time or pay enough of your previous obligations in order to qualify if this is the case.

Other requirements

Other situations, such as residence requirements, may also limit your eligibility. The best way to find out if you’re eligible is to talk to a personal bankruptcy lawyer.

Get Started with a Dallas Bankruptcy Attorney

To learn more about how to file for bankruptcy and to get started with the process, you’ll want to contact a Dallas bankruptcy attorney. At your initial consultation, bring the following information:

  • Recent bills from each of your creditors
  • Collection letters
  • Court documents
  • Notices of property repossession, foreclosure, etc.
  • Financial information, including pay stubs and tax documents
  • Proof of ID

At the Law Offices of Bill F. Payne, P.C., we’ll help you determine whether bankruptcy is the best option for you, find out if you’re eligible, and get you started on the process. Contact us to schedule a free consultation.

Signs You Should Consider Chapter 11 Bankruptcy

You have probably heard the term “Chapter 11 bankruptcy” in the news referring to large companies in financial trouble. In recent years, companies like General Motors, K-Mart, and United Airlines have filed for Chapter 11 bankruptcy. While this type of bankruptcy filing isn’t usually available to private individuals, it may be an option for some. Chapter 11 filings mostly relate to business operations. Here’s what you need to know about how to qualify for Chapter 11 bankruptcy, what it entails, and what it means for the future of a business that files for it.

How to File Chapter 11 Bankruptcy

Often called a reorganization bankruptcy, Chapter 11 bankruptcy allows a company to handle insolvency by reorganizing or discharging debt. In most cases, Chapter 11 bankruptcy filings are voluntary; a business debtor acknowledges financial trouble that will lead to the company’s ruin and seeks out debt relief from bankruptcy court. In rare cases, groups of creditors may band together to pressure an insolvent debtor into filing for Chapter 11 bankruptcy.

Entities that file for Chapter 11 bankruptcy typically include corporations, partnerships, and limited liability companies. In some cases, individuals may qualify for Chapter 11 bankruptcy if they do not qualify for Chapter 7 or Chapter 13 bankruptcy filing. However, individuals filing for bankruptcy face a more difficult process and added risk by pursuing Chapter 11 bankruptcy over Chapter 7 or Chapter 13.

Signs to Consider Chapter 11 Bankruptcy

Chapter 11 bankruptcy can offer a company the chance to reorganize debt and remain in operation, but sometimes it can simply be a stepping stone to closing down an insolvent business with as little fallout as possible. Some signs that should encourage business owners to consider Chapter 11 bankruptcy include:

  • Long-term cash flow problems. If cash flow is a perpetual problem, given that debts are continually accruing interest, you could dig yourself into a bigger hole by fighting the inevitable.
  • Risk to personal assets. In most cases, bankruptcy is a means to protect your personal assets from the effects of your unpaid debts. If you’ve co-mingled any of your personal assets with your business, filing Chapter 11 bankruptcy may be the only way to save some of what you personally own.
  • No opportunity for alternative resolution. You may be able to negotiate with some creditors, refinance existing debts, or explore debt consolidation. If there is a chance these methods could enable your company to continue and ultimately recover, you may avoid bankruptcy. If these options aren’t possible or your creditors aren’t willing to work with you, Chapter 11 bankruptcy is likely the next best option.
  • Potential to continue. In most cases, the companies most likely to file for Chapter 11 bankruptcy are those with the potential to eventually recover from the debt and continue their business operations. If current debt problems pose problems for your business’s future, filing for Chapter 11 bankruptcy sooner rather than later may help your company survive.

Chapter 11 bankruptcy filings don’t always ensure the filing company will survive. In many cases, creditors simply consider it easier to liquidate the debtor’s business and recover as much as they can. Smaller companies typically struggle the most with Chapter 11 bankruptcy filings, but larger companies can and have succeeded with their filings and remained in business.   If you are experiencing these signs, set up a free consultation with bankruptcy attorney Bill F. Payne.  He can explain your options and help determine a plan of action for your business.

Out-of-Court or Non-Bankruptcy Debt Workouts

The decision to file for bankruptcy is a major one for both individuals and businesses. Depending on the amount a debtor owes, the debtor’s status as an individual or a business entity, and the debtor’s creditors all influence a debtor’s options for debt relief and potential bankruptcy filings. While bankruptcy can ultimately be a beneficial option in some situations, any record of a bankruptcy filing could have implications for your financial future as a private individual or business owner.

Debtors can try to find non-bankruptcy financial workouts to handle their debts with minimal disruption to their financial futures. Filing for bankruptcy will help an individual or business discharge debts quickly but can make obtaining a loan more difficult in the near term. (If cash flow is a problem and you have already missed loan and/or credit card payments, this type of damage is likely already done.) Nevertheless, consider these alternatives to bankruptcy before deciding.

Debt Restructuring

A creditor may be willing to work with a debtor if maintaining the relationship in the long term is in the creditor’s best interests. Remember, debt renegotiations between debtors and creditors are voluntary exchanges; there is nothing stopping a creditor from eventually disagreeing with the restructured terms and pursuing payment of the debt in full. Restructuring could entail a change in payment amounts, interest rate, or the timeframe for the loan to stretch payments for a longer time.

Debt Settlement

Some creditors will be willing to agree to a lower settlement amount so the debtor and creditor can settle the matter and go their separate ways. If a creditor believes the debtor will never be able to repay a debt, the creditor may simply opt for settlement as a means of recovering something instead of nothing at all. A debt composition or settlement essentially means the creditor accepts partial payment to consider a debt paid in full.

Debt Consolidation

Be wary of companies offering debt consolidation as most often the consolidation simply replaces your existing debts with one large loan and a high interest rate and a longer term. Some debt consolidation companies are actually scam operations that prey on the vulnerable.  Never agree to pay a fee up front before your debts are settled.  This has become such a prevalent scam that the FTC made a law against it.

Forgiveness

While this option is virtually nonexistent in the business world, some individuals may qualify for some types of debt forgiveness, either through government programs or with the approval of the creditor. For example, an individual may persuade a creditor to discharge a debt in the face of a severe medical condition or similar circumstances.

If you have amassed a mountain of debt and are unable to secure an out-of-court solution, bankruptcy is likely your best option. An experienced lawyer who handles debt relief matters will be familiar with Texas law and will be able to explain your options for bankruptcy, then negotiate with creditors and work with you on a fresh start.   Contact the seasoned bankruptcy attorneys at Law Offices of Bill F. Payne, P.C. today for a free consultation.