Why File Chapter 7 Business Bankruptcy?

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Corporations and LLC’s don’t get a discharge in a Chapter 7 bankruptcy, so what’s the point of filing? Ensuring that business assets go to pay payroll, benefits, and taxes is a compelling reason.

 

Chapter 7 is a liquidation proceeding; the trustee appointed by the court will gather up and sell the corporation’s assets and pay creditors in the order of their priority under the Bankruptcy Code.

 

It is the notion of priority, then, that may make it advantageous for a corporation going out of business to file bankruptcy. The Code’s priority scheme provides that claims with a higher priority are paid in full before claims with a lower priority get anything.

 

The business owner probably has two personal concerns about what happens to the business assets: they wants to receive payment in their role as employee, and to see that taxes for which the individual might be liable personally get paid from corporate assets to the extent possible.

 

The owner’s concerns dovetail nicely with the priority scheme: unpaid wages incurred in the 180 days before filing or cessation of the business, whichever came first, have a priority for payment. Claims are capped at $10,000 per employee.

 

Taxes owed to governmental agencies have a high priority for payment in bankruptcy. While the shareholder probably isn’t liable for the corporation’s income tax or property tax, the individual may well be liable for any unpaid trust fund taxes (employment taxes) or for unpaid sales tax. The shareholder has a real interest in payment of these taxes before payment of run of the mill business debts.

 

So, one very good reason for a business corporation to file a Chapter 7 bankruptcy is to see that priority claims are paid, instead of the claim of a creditor without a priority who files a collection action.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

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Does it Make a Difference if I File Bankruptcy Before the End of the Month?

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If your income is above the median income for your household size in your state, you must complete a “means test” when you file your bankruptcy petition. To determine whether you are above or below the median income, your gross income for the six-month period prior to the month you file bankruptcy is considered.

 

So, if you would file, October 31, the six-month period under examination is April through September. If you file the next day, November 1, the six-month period excludes April but adds October. If you get the exact same paycheck each payday, this won’t make a difference. But what if you got a lump sum bonus or a retroactive pay raise in one of your October paychecks? In that case, you could be under the median today, but well over it tomorrow.

 

Some income may not need to be included in determining median income. Social Security income, for example is excluded.

 

Just because you are over the median income, it doesn’t necessarily mean that you can’t file a Chapter 7. For example, if more than 50% of your debt is business related and not consumer debt, you may be able to avoid the “means test” and qualify for Chapter 7 Bankruptcy. Therefore, be sure to work with an experienced bankruptcy lawyer to see what your best options are.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

The post Does it Make a Difference if I File Bankruptcy Before the End of the Month? appeared first on Philadelphia Bankruptcy Lawyers.

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What Are The Risks of Co-Signing a Loan?

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Co-signing a loan is a dangerous thing. Too many people end up in bankruptcy due to debts they just co-signed for, so here are a few points worth considering before co-signing for a friend or family member.

1. There is a reason they need a co-signor. A professional lender does not think they will pay the money back. An objective professional (or underwriting standards) arrived at this judgment. Why do you think you know differently?

2. If they do not pay or miss payments, it will affect your credit.

3. The fact that the debt exists, and you are liable for it, in itself, will affect your credit and will limit the amount of other debt you can contract due to your debt/income ratio.

4. In most states, the creditor doesn’t have to chase the primary borrower when they don’t pay. They will usually just pursue the co-signor in court, getting a judgment and attaching the co-signor’s property and wages. This is a real shocker for most people, and I’ve had many, many conversations with people in some stage of disbelief that they, and not the person who they co-signed for, is getting chased for the debt. However, the truth is that the co-signor is usually better off financially than the primary obligor and, consequently, is a more attractive target for a creditor.

5. Unless you agree otherwise with the lender, you may not even know if the primary obligor misses payments. They may be afraid to tell you while you are accruing mounting interest and late fees.

Co-signing a loan is serious business, and you should think about it as taking on the debt itself, rather than just helping someone out because a creditor is being unreasonable. Once you co-sign a loan it is your debt, and you should ask whether you can afford it and really want to take on the responsibility.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

The post What Are The Risks of Co-Signing a Loan? appeared first on Philadelphia Bankruptcy Lawyers.

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Can Bankruptcy Be A New Day?

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I’ll admit that most of my clients never wanted to come see me.  Most of my clients are embarrassed by the fact that they even must ask about filing bankruptcy.  Struggling with debt is hard and it can literally suck the life right out of you.  For most, it seems like the end of the world.

 

Generally, when I speak with folks, the stories revolve around the same themes.  They have tried their best to manage their finances but through one thing or another, they just can no longer juggle the debts.  They are constantly badgered by telephone calls demanding payment immediately.  They are tired of going to the mailbox to get another batch of letters with red print shouting “pay now!”  They are tired of a sheriff’s deputy showing up at their home to serve yet another lawsuit against them.

 

Yet, once a bankruptcy case is filed, these problems go away.  As Jill Michaux explained, the crushing weight of debt is lifted off your back.  Because of the automatic stay, you will no longer receive collection calls or visits from the sheriff.  But, once your case is over and your debts discharged, you will find a new financial future.  To be sure, as far as credit goes, it may be initially more difficult, but credit is available.

 

The simple fact is that bankruptcy is not the end of the world.  It is a new beginning-a fresh start.  Just as the night is darkest before the sunrise, so it is with the bankruptcy world.  Once you decide that you are tired of laboring against insurmountable debt and take the action to rid yourself of that debt, the sun starts to peek through the horizon.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

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Should I Be Worried About Going to My Meeting of Creditors?

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After you file a bankruptcy case, you are required to attend a Meeting of Creditors. This is scheduled for about a month after your petition is filed and is usually the only appearance you will need to make during the bankruptcy process. Should you be nervous about it? Probably not, especially if your bankruptcy lawyer knows what he or she is doing.

 

Your attorney should prepare your bankruptcy petition and schedules with plenty of attention to detail and accuracy. Before you sign your petition, you should carefully review it and correct any items that are incorrect or incomplete.

 

At the meeting of creditors, the bankruptcy trustee will ask you some questions which you will answer under oath.

 

1. Tell the truth.

2. Listen to the question.

3. Let the trustee finish before you start speaking.

4. Answer in as few words as possible.

 

The trustee will already know much about your financial affairs. Before your scheduled meeting, your attorney sends the trustee several documents. Prior to the meeting the trustee has reviewed your deed, mortgage, vehicle titles, and your most recent tax returns, in addition to your bankruptcy petition and schedules.

 

So, when you meet with the trustee, they may not have many questions for you other than “When you signed your bankruptcy petition and schedules did you review them? And were they true and accurate? Were there any errors or omissions?” You may be asked if you had sold any property in the last few years, or how much of a tax refund you expect to get. The trustee could ask if you have suffered any injuries that you could sue someone for, or if you expect to receive an inheritance. The trustee will also discuss with you what will happen to any property you own that is not protected by an exemption.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

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Will Bankruptcy Stop the Creditor Calls?

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Yes, the minute you file bankruptcy, the Bankruptcy Court issues an order telling all of your creditors to leave you alone. No more phone calls. No more collection letters. No more lawsuits. No garnishments. No repossessions. No foreclosures. Nothing.

No actions whatsoever against you or your assets. This order has a name. It is called the “Automatic Stay,” and it is issued pursuant to Title 11 of the United States Code, Section 362.

The Automatic Stay prohibits your creditors from taking any action that could be considered an attempt to collect a debt from you or your assets. Once you file bankruptcy, the creditor is not even allowed to call you or send you letters. In addition, the creditor must stop any collection attempts already started.

The Automatic Stay is very powerful and puts the full weight of the United States Courts to work for you, to make sure your creditors leave you and your assets alone.

And if you file for Chapter 13, section 1301 of the Code also applies the automatic stay to a co-debtor on any consumer debt.

If a creditor violates the Automatic Stay, you have the right to bring the creditor before the Court for Contempt of Court, and to be compensated accordingly. This is not a hollow right. Bankruptcy Court Judges do not take kindly to creditors who ignore their Order-the Automatic Stay-and these Judges have been known to punish creditors severely.

Very simply, once you file for bankruptcy, creditors must leave you alone or suffer the consequences.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

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Can A Bankruptcy Continue After Death of a Debtor?

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One of Benjamin Franklin’s most famous quotes is, “Certainty? In this world nothing is certain but death and taxes.”

With the certainty that is death, it is not surprising that occasionally, after a bankruptcy is filed, a Debtor will die.

However, the death of a Debtor does not automatically mean the death of his or her case.

The Bankruptcy Code permits the continuation of both Chapter 7 and Chapter 13 cases after a death.

Federal Rule of Bankruptcy Procedure 1016 deals with the issue of the death or incompetency of a Debtor.

Rule 1016 permits the continued administration of a Chapter 7 case “…in the same manner, so far as possible, as though the death or incompetency had not occurred.”

Likewise, in a Chapter 13 reorganization, the case can continue to be administered if it is in the best interest of the parties.

The ability to get a discharge of debts in a Chapter 7 can be a tremendous benefit to the deceased heirs of an estate, since they would be able to assume the assets of the deceased person without having to assume the debts.

In Chapter 13, the ability to continue with the case can be more difficult because of the fact that the payment of debts through the Plan will almost always have been based on the Debtor’s own income which will no longer be available.

However, sometimes a family member or members may wish to come forward to fund the Plan. This is particularly true where the bankruptcy may have been filed to address an arrearage on real estate or to stop a foreclosure/sheriff sale.

By continuing with the 13, the family member(s) may be able to pay out the arrearage to keep the house, or obtain refinancing to pay off the home loan.

Decisions on whether to continue on with a bankruptcy after death can be as much an issue of State inheritance laws as it will be an issue of bankruptcy itself.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

The post Can A Bankruptcy Continue After Death of a Debtor? appeared first on Philadelphia Bankruptcy Lawyers.

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Can Bonuses Paid to a Debtor After Chapter 7 Filing be Taken by the Bankruptcy Trustee?

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The Bankruptcy Appellate Panel for the U.S. Court of Appeals, Eighth Circuit, ruled that employment bonuses paid to a debtor shortly after she filed for chapter 7 bankruptcy could not be considered part of her bankruptcy case.  The court’s ruling allowed the debtor to keep $24,072.00 in bonuses, and it reversed a lower court’s order revoking her bankruptcy discharge for failing to list the bonuses in her bankruptcy papers.

 

In this case, the debtor filed a chapter 7 bankruptcy. She was a long-time employee of IBM.  On the date of filing, she was eligible for both a quarterly Excellence Award bonus and an annual Growth Driven Profit Award bonus.

 

IBM’s bonus program documents stated that “[n]o employee earns or otherwise becomes entitled to payment, or any portion of a payment, under the GDP program prior to payment by IBM.”  The IBM bonus program documents stated that this restriction applied to both bonus programs.  Bonuses were usually announced and then paid by IBM about sixty days after the close of the quarter for the Excellence Award, and about sixty days after the close of the calendar year for the GDP Award.

 

IBM paid the debtor an $8,000.00 Excellence Award bonus, for the last quarter, after the chapter 7 was filed but prior to the creditors meeting with the trustee.  IBM also paid the debtor a $16,072.00 GDP bonus, for the year, a few weeks later, after the creditors meeting.  Neither of these bonuses were listed in the debtor’s bankruptcy papers, and she did not inform the trustee that IBM had paid her the $8,000.00 bonus prior to the creditors meeting.  After the meeting, the debtor did have some correspondence with the trustee about the $8,000.00 bonus, but she never mentioned receiving the GDP bonus.

 

Upon learning more about the bonuses, the chapter 7 trustee asked the bankruptcy court to order turnover of the $24,072.00 received by the debtor, as well as fees and costs.  The trustee also asked the bankruptcy court to revoke the debtor’s discharge of debts due to her failure to list the possible bonuses in her original bankruptcy papers.  The bankruptcy court granted the trustee’s request.

 

The debtor appealed, and the appeals court reversed the bankruptcy court on all counts.  The appeals court held that under IBM’s bonus program documents, the debtor had possessed no ownership interest, whether contingent or otherwise, in either bonus, until actual payment of the bonus by IBM.  Although some employer bonus plans give the employee a vested interest in a bonus once employee goals are met, the IBM program specifically stated otherwise.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

The post Can Bonuses Paid to a Debtor After Chapter 7 Filing be Taken by the Bankruptcy Trustee? appeared first on Philadelphia Bankruptcy Lawyers.

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What is the Second Costly Emotion That Keeps You In Debt and from Filing Bankruptcy?

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Stubbornness

It’s hard to knock stubbornness, even when it keeps people doing foolish things. After all, stubbornness, the drive to finish what you started, is often a virtue.

I’m talking about the attitude that says “these are my debts, and by d***n, I’ll get them paid”. Honorable, but not rational. See how long it takes to pay off a modest credit card balance by paying the monthly minimum.

Life is about choices, and the choice to keep chipping away at a Mt.Rushmore of debt means usually that some other, real and important need goes unmet. The greatest of these neglected choices, in my world, is retirement savings.

Cultivate stubbornness as a virtue, and the questionable choices of the past poison your future as far as the eye can see.

 

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.

The post What is the Second Costly Emotion That Keeps You In Debt and from Filing Bankruptcy? appeared first on Philadelphia Bankruptcy Lawyers.

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Cibik & Cataldo

Cibik & Cataldo, a Philadelphia bankruptcy law firm, has provided superior, cost-efficient, and value-oriented legal services in a compassionate and respectful manner to thousands of clients.
The Philadelphia law firm concentrates solely on consumer and business bankruptcy matters. Debt consolidation attorneys Michael A. Cibik, Esq. and Michael A. Cataldo, Esq. are both certified by the American Bankruptcy Certification Board and have filed well in excess of 20,000 personal bankruptcies. ABC Certification provides an objective standard that assists the public in making informed decisions when choosing counsel. Additionally, ABC certification encourages attorneys to strive toward excellence and recognizes those attorneys who have met ABC’s rigorous standards.

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