Vida Law Firm

Can I file bankruptcy on business debt?

admin — Wed, 10 Jun 2009 22:08:49 +0000

I have a small business and run it as a sole proprietorship. I have debt for the business. Can I file
bankruptcy on the business debt and not for myself?

No. A sole-proprietorship essentially means that you are the business. You file taxes as a self-employed individual but do not have a separate legal entity like a corporation set up for your business. It is common for people to operate businesses as sole-proprietorships. You may have incurred debt that directly relates to your business such as leases, credit cards, vendors, bank loans, equipment loans, and tax debt. You do have personal liability on the debt even though it was for a business purpose. Filing for bankruptcy as an individual will help you to reorganize or eliminate this business debt while still maintaining some of your personal debt, like your home mortgage. Depending on the type and amount of debt, the bankruptcy may be filed as a “business case” meaning that the majority of your debts are not consumer debts. Filing bankruptcy does not mean that you will lose your business, either. You may still be able to operate and maintain control of your business assets and accounts while you are in bankruptcy. Every business is different. Bankruptcy can be a useful tool in helping your business to survive in a difficult economy.

Please call my office for an appointment to discuss your options in managing your business debt.

Can I file bankruptcy on tax debt?

admin — Wed, 10 Jun 2009 22:06:54 +0000

I owe money to the IRS for self-employment taxes for several years. I heard that under the new bankruptcy laws, I cannot file bankruptcy on tax debt. Is that true?

No, that is not true. There is still a variety of relief available for tax debt under the new bankruptcy laws enacted in 2005. It is a common problem for self-employed individuals or individuals running a business to have tax liability issues with the IRS, the State Comptroller, and the local property taxing authorities. IRS problems could include non-payment of personal income taxes, and 940 and 941 taxes including interest and penalties. Other tax issues could involve state sales taxes and local property or business personal property taxes.

The relief available to you in bankruptcy will strictly depend upon your circumstances. You need to consult with an attorney experienced in handling taxing authorities. The first questions I will ask you in a consultation about IRS debt are: have you filed your tax returns that are due, when did you file them, and are there any IRS liens on your property? Some taxes can be eliminated or reorganized in bankruptcy. In addition, bankruptcy may provide relief on interest and penalties.

Bankruptcy can be a useful tool in helping your business to survive in a difficult economy. Please call my office for an appointment to discuss your options in managing your tax debt.

Difference between a business bankruptcy and a consumer bankruptcy

admin — Wed, 10 Jun 2009 22:05:06 +0000

What is the difference between a business bankruptcy and a consumer bankruptcy?

A business bankruptcy can be filed by a legal entity, such as a corporation, but a business bankruptcy can also
be filed by an individual who has primarily “business debt”. Entities or individuals filing business bankruptcies may be attempting to eliminate or reorganize debt. A consumer bankruptcy is filed by an individual who has primarily “consumer debt”, which may include houses, cars, credit card debt, and medical bills. A consumer may need to be relieved of debt or may need to reorganize debt.

It is common for small business owners to have personally guaranteed their business debts such as SBA loans, leases, credit cards, or other bank loans. Typically, lenders and landlords do require such guarantees from an individual for business loans. If a business is not going well, the individual may need personal relief from the business debt to protect his personal assets; therefore, the individual may file a personal bankruptcy to receive relief from business and consumer debt.

The business itself, meaning the legal entity of the corporation or partnership, may also need to file a bankruptcy to handle debts of the business. A Chapter 7 bankruptcy is available to a business that is closing and liquidating assets. A Chapter 11 bankruptcy is available to a business attempting to stay open and reorganize debt or attempting to close and liquidate assets.

Please call my office for an appointment if you or your business are experiencing financial distress and unable to
service debt.

What happens to my business if I file bankruptcy?

admin — Wed, 10 Jun 2009 22:03:03 +0000

I own a business that I think needs to file bankruptcy. What is the difference between a Chapter 7 and a Chapter 11?

Businesses that are corporations, partnerships or limited liability companies may file Chapter 7 or 11 in bankruptcy. Chapter 7 is a liquidation bankruptcy. It means the business is closing, and all of the assets will be liquidated to pay creditors. Secured creditors and tax authorities get paid before unsecured creditors. Corporations may not protect, or exempt property—all assets will be liquidated. An individual person who has guaranteed payment of debt, such as a bank loan or a lease, will not receive relief from the liability of the debt unless the liquidation of the assets satisfies those debts in full. This is a common situation with small businesses. Individuals may end up filing bankruptcy to manage the business debts for which they may be liable. Chapter 11 is a reorganization bankruptcy. It means the business is attempting to stay open and actively operating, but it is reorganizing debt in some way. Generally, in a Chapter 11 the old management stays in control of the business subject to certain rules and restrictions. The business will be given time to propose a plan of reorganization which may or may not pay all creditors in full. The creditors get to vote on the plan of reorganization. The plan can be approved either by the vote and consent of the creditors or in certain circumstances it may be approved by the Bankruptcy Court over the objection of the creditors. The approved plan of reorganization will be a contract between the business and its creditors which will replace all the old contracts which the business used to have with its creditors. Bankruptcy can be a useful tool in helping your business to survive in a difficult economy. Please call my office for an appointment to discuss your options.

Credit Card Defaults Reach A Record High

vidalawfirm — Wed, 06 May 2009 21:49:45 +0000

Credit card loans considered uncollectible and delinquent have reached record levels. Debts considered uncollectible and written off have reached an 8.6% annual rate in March, up from 5.3% from a year earlier. Delinquent loans hit 6.0%. American Express charge-off rate rose to 8.5% and Capital One Financial’s to 8.4% rate. Rising defaults may well hinder attempts by the Federal Reserve to get credit flowing to consumers because lenders traditionally pull back when faced with mounting losses. In recent months, Bank of America, Citigroup and other credit card issuers have closed unused accounts, pulled in credit lines and raised fees and rates. The loan portfolios of the top six credit card issuers fell at a 1.9% annual rate in the first quarter. Outstanding credit card debt has dropped by $21.0 billion since last September, a result of a lack of desire to lend and reduced demand from consumers to borrow.

SENATE REJECTS CRAM DOWN MEASURE

vidalawfirm — Fri, 01 May 2009 17:31:18 +0000

The U.S. Senate gave a thumb down to bankruptcy judges adjusting mortgage terms to help borrowers avoid foreclosure. This is a victory for banks and credit unions that said the legislation would increase loan costs. The vote count was 51-45, with 12 Democrats being part of the 51 opponents to the measure. The measure needed 60 votes to pass over Republican objections. The House passed its version 234-191 on March 5. This is the second time that the mortgage industry has managed to defeat a measure on adjusting mortgage terms. JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., the American Bankers Association and Financial Services Roundtable were the main oppenets of the measure. The three banks have received $95 billion in U.S. tax payers’ money. The U.S. economy has lost 5.1 million jobs since December 2007, and unemployment has risen to 8.5 percent in March, the highest since 1983. The U.S. taxpayers remain burdened by debt, as consumer foreclosure filings for March totaled 341,180, a record high, according to RealtyTrac. In addition consumer bankruptcy filings increased 41% in March 2009 as compared to March 2008. A total of 121,413 consumer bankruptcy petitions were filed in March 2009. Most of the information for this article is from the report filed by Margaret Chadbourn in Washington (bloomberg.com).

TARP Money Not Moving Forward. SURPRISE! SURPRISE!

vidalawfirm — Fri, 17 Apr 2009 13:30:12 +0000

According to Wall Street Journal and the Treasury Department the largest bank recipients of U.S. government aid are offering less credit to businesses and consumers. In a monthly snapshot of lending by the 21 largest banks receiving Troubled Asset Relief Program (TARP) funds, the Treasury said credit being offered fell 2.2 percent across all commercial-lending and consumer-lending categories in February 2009, compared with January 2009. Continued deterioration was noted in commercial real estate, general business lending, student loans and auto loans. The lone bright spot remained home loans, with consumers eager to take advantage of record-low interest rates to refinance their mortgages. The Treasury said that 16 of the 18 banks surveyed increased mortgage originations in February 2009, resulting in a 35% increase in mortgage lending from January 2009 levels. Despite improvement on mortgage originations filing bankruptcy to save homes has not slowed down.

Mortgage Modification Lawmakers Continue to Work on Cramdown Legislation

vidalawfirm — Fri, 17 Apr 2009 13:23:59 +0000

According to Congress Daily after weeks of negotiation, a compromise may have been reached which will give bankruptcy judges greater power to modify the primary mortgages of chapter 13 debtors. The Senate compromise would mandate that if a lender offered a modification through the Obama plan or a program included in last year’s housing bill, called the Hope for Homeowners Act, the homeowner would be ineligible to modify their loan through bankruptcy. At-risk low-income borrowers and those who pay less than 31 percent of their income for mortgage payments would be ineligible for principal reduction, but they could have their rates reduced or their loans amortized over a longer time. If the principal is reduced by a judge, the possible compromise would allow the lender and borrower to evenly split any profit up to the original amount of the loan if it is sold while the homeowner is still in bankruptcy. Only loans that originated before 2009 and amount to less than $729,750 could be modified in bankruptcy. The program would end in 2014. These restrictions are going to leave a lot of individuals out in the cold. Also, to save their homes from foreclosure, many individuals will have to file bankruptcy even though they will not be able to utilize the benefits of the legislation when and if it becomes law.

Increasing Number of Older Borrowers Face Foreclosure

vidalawfirm — Tue, 14 Apr 2009 23:16:17 +0000

Many older homeowners on low fixed incomes are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were often fraudulently sold loans they could never afford, the Wall Street Journal reported today. Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable. Hundreds of thousands of people in once-hot markets such as California’s Central Valley fall into this category, say housing counselors. Often the only way to keep these people in their homes is if lenders rescind the fraudulent loans or reduce the principal, steps most are unwilling to take.

Bank of America Raises Interest Rate!!

vidalawfirm — Thu, 09 Apr 2009 21:16:20 +0000

Bank of America Corp. is raising interest rates on as many as four million U.S. credit card customers who carry a balance, becoming the latest bank to crack down on people who don’t pay off their bill every month, the Wall Street Journal reported today. Starting with June account statements, any credit card customer who carries a balance and has an interest rate below 10 percent will see his or her rate jump into double-digit territory. The company said that the changes would affect less than 10 percent of the bank’s card customers in the United States. The bank has 70 million card customers worldwide, but doesn’t break out the number of customers who are in the United States. The bank’s move follows similar rate increases that other banks, including Citigroup Inc., JPMorgan Chase & Co. and American Express Co., have implemented in recent months. The banks, facing rising delinquencies, blame the current economic turmoil.