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Paterson Bankruptcy Law Blog

Chapter 11 Bankruptcy Could be a Good Option for a Struggling Business

  • 17
  • April
    2014

If you are running a business that is in financial trouble, but could be profitable with a reorganization of debt, then a chapter 11 bankruptcy could be a good option for you. Perhaps you are burdened with tax debt that you would like to pay off over time or are facing a foreclosure and need a timeout to be able to plan your next step. Once a chapter 11 bankruptcy petition is filed, the automatic stay of bankruptcy goes into effect. Once the automatic stay is in effect, collection efforts by creditors must cease. Thus, the automatic stay can give your company the breathing room it needs to be able to survive a tough economic time.

Contact a Lawyer

If you are considering bankruptcy, contact a lawyer so you can be guided accordingly as to what your options are and what option is best for you. The bankruptcy process can be difficult to navigate, so it is important that you have someone representing you who is familiar with the process to make sure everything goes smoothly.

How to ditch debt collectors once and for all

  • 17
  • April
    2014

Anyone who has dealt with pesky debt collectors knows how tiring and frustrating the experience can be. Even though there are laws that protect consumers from threats and harassment from debt collectors, the behavior still persists in many states, including New Jersey.

The best way to avoid dealing with debt collectors is to prevent debts from being sent to collections in the first place. This can be done by working with creditors right away to arrange a payment plan that works for you.

Unfortunately, though, this isn't always possible. For individuals who are already being harassed by creditors or debt-collection agencies, it's important to keep these things in mind:

Bankruptcy Filing Fee Increases Effective June 2014

  • 17
  • April
    2014

The Judicial Conference has approved new bankruptcy filing fee increases effective June 1, 2014. The total new filing fee for each chapter will be as follows:

  • For filing a petition, or for filing a motion to divide a joint case, under Chapter 7: $335 
  • For filing a petition, or for filing a motion to divide a joint case, under Chapter 12: $275
  • For filing a petition, or for filing a motion to divide a joint case, under Chapter 13: $310
  • For filing a petition under Chapter 9, 11, or 15: $1,717

Other changes:

  • For filing a motion to divide a joint case under Chapter 11: $1717
  • For filing an adversary complaint: $350

Tax Consequences for the Forgiveness of Debt

  • 14
  • April
    2014

Oftentimes settling debts for less than the full balance can come back to bite you. When a portion of a debt is forgiven, the creditor is required to report the forgiven amount and issue a IRS Form 1099. This forgiven debt may be considered as income by the IRS. The same is true when a property is foreclosed or sold via a short sale. The difference between the amount owed and the amount received by the lender in the sale may be taxable to the borrower.

Timing the Filing for Bankrutpcy 

The timing of the bankruptcy is critical here. Most tax professionals believe that in order for the forgiveness of debt to be non-taxable because of the bankruptcy exception, the bankruptcy must be filed before the short-sale or foreclosure sale.

Are Property Settlement Agreements Discharged in Bankruptcy?

  • 14
  • April
    2014

If you have gone through a divorce, are going through one or are even contemplating divorce, then you know it can often be a confusing and challenging process. Many questions can arise with respect to the equitable distribution of assets and liabilities. As many already know, the division of assets and liabilities are set forth in a Property Settlement Agreement which is voluntarily entered into by both parties. As part of a Property Settlement Agreement, for example, an ex-spouse may have to provide a period of alimony support to the other spouse or has agreed to incur the marital credit card debt. However, because divorce is in fact a disruptive process, many spouses can end up in debt over their heads and do not have the money to cover their support and/or debt obligations. Therefore, the question becomes: Can an ex-spouse file for Bankruptcy and discharge these debts agreed upon in the Property Settlement Agreement?

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Dischargeability of DMV Debts

  • 14
  • April
    2014

It is obvious that people file bankruptcy cases to discharge (wipe out) their debts. There are some exceptions to the debts that can be discharged. 11 U.S.C. §523. For example, recent income tax debt, sales or payroll tax from a business, and property damage or injury caused as a result of driving while intoxicated are all exceptions to discharge. Public policy plays a large role in determining the debts that are and are not dischargeable through a bankruptcy filing.

Potential clients often ask whether or not debts owed to the New Jersey Department of Motor Vehicle ("DMV") are dischargeable in a bankruptcy proceeding. The answer depends on the nature of the debts. For example, surcharges are dischargeable (In re Pulley, 295 B.R. 28 (Bkrtcy. D.N.J. 2003)) while DMV liens are not dischargeable (In re Schnick, 418 F.3d 321 (3d Cir. 2005)) and must be repaid through the bankruptcy case or after, depending on the Chapter. The State of New Jersey, Motor Vehicle Commission defines DMV surcharges:

Surcharges are fines assessed by New Jersey Surcharge Violation System (NJSVS). Drivers who have excessive points for traffic violations or have been convicted in court for specific offenses such as driving while intoxicated (DWI) are liable for Surcharge. Surcharges are in addition to any court fines and/or penalties and are billed yearly for three years.

Surcharges are dischargeable in a bankruptcy proceeding as the monies collected do not "benefit a governmental unit" within the meaning of non-dischargeable debts pursuant to 11 U.S.C. §523(a)(7). Once unpaid surcharges become liens, they are no longer dischargeable. Timing of the bankruptcy filing is everything.

As always, it is important to contact a qualified bankruptcy practitioner who can explain all of the nuances when it comes to determining the dischargeability of various debts. This area of bankruptcy can be extremely complex for attorneys who do not normally practice in the area. Of course, it is never recommended for individuals to file "pro se" (representing themselves) as the process naturally requires the expertise of a trained professional.

Is your Business in Trouble and Looking for Alternatives to Bankruptcy? An Assignment for the Benefit of Creditors may be an Option for You

  • 10
  • April
    2014

An Assignment for the Benefit of Creditors is a state law insolvency proceeding where the Assignor signs over the assets of his or her business to an Assignee to wind up the affairs of the business. The assets are transferred through a deed of assignment. The job of the Assignee is to gather as many assets as possible of the Assignor for a distribution to creditors of the Assignor. Included within this role is the recovery of preference payments, the liquidation of assets, the recovery of assets, the closing of bank accounts, etc.  The president of the Assignor is permitted to purchase the assets of the Assignor as long as it is for fair value and approved by the court.

Contact a Lawyer

If your business is in trouble and you are wondering what your options are, contact a lawyer so you can be guided accordingly as to what your options are and what option is best for you. Insolvency can be difficult to navigate, so it is important that you have someone representing you who is familiar with the process to make sure everything goes smoothly.

Supreme Court to have final say on inherited IRAs

  • 09
  • April
    2014

This summer, the United States Supreme Court will issue an important decision regarding inherited retirement assets in bankruptcy cases.

As part of the Chapter 7 process, the court assigns a trustee who searches for assets that can be liquidated to pay off the filer’s creditors. However, there are many property items that are exempt from bankruptcy liquidation, including up to $1.3 million in individual retirement accounts.

The question before the Supreme Court is whether inherited IRAs also qualify as exempt.

A Loss or Deficiency in assets must have a Satisfactory Explanation or a Bankruptcy Discharge may not be Granted.

  • 03
  • April
    2014

Under 11 U.S.C. § 727(a)(5), the court shall grant the debtor a bankruptcy discharge, unless the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities.  A creditor objecting to a debtor's discharge must be able to specifically identify unaccounted for assets that were once in the debtor's possession that are now "no longer available for the debtor's creditors." In re Grammenos, 469 B.R. 535, 550 (Bankr. D.N.J. 2012) citing In re Robbins, 2008 WL 2038833 at *3. However once the burden has been met, it is up to the debtor to explain the loss of assets or deficiency of assets to meet his liabilities. Id.  It is important to note that the creditor is not required to prove that the debtor acted "fraudulently or intentionally" for a denial of bankruptcy discharge under 11 U.S.C. § 727 (a)(5). Id.

What entails a satisfactory explanation is a matter of discretion for the court. Id citing In re Shafer, 2010 WL 1286427, at *6-7 (Banrk. D.N.J. March 31, 2010); In re Buzzelli, 246 B.R. 75, 117 (Bankr. W.D. Pa. 2000).  The explanation given by the debtor will judged based on whether it is believable, not whether the debtor was engaging in sound business judgment when the assets were dissipated.  In re Grammenos, 469 B.R. at 550 citing In re Robbins, 2008 WL at *4.  The debtor does not need to make an elaborate explanation to the court; however, "it must consist of more than a 'vague, indefinite, and uncorroborated hodgepodge of financial transactions.' " Id quoting In re Young, 2010 WL 4777626, at *6, (Bankr. D.N.J. Nov. 15, 2010); See also Buzzelli, 246 B.R. 75, 116 (Bankr. W.D.Pa. 2000)(finding that "a creditor is not required to rely on a debtor's [mere] statement that he no longer has certain assets" and explanations of an indefinite nature such as assets being spent on living expenses unsupported by documentation).  Therefore, if you are contemplating bankruptcy and have recently lost a substantial amount of assets, it is important that you be able to explain the loss of assets for the court should a creditor object to your discharge.

Contact a Lawyer

If you are considering bankruptcy, contact a lawyer so you can be guided accordingly as to what your options are and what option is best for you. The bankruptcy process can be difficult to navigate, so it is important that you have someone representing you who is familiar with the process to make sure everything goes smoothly.

Financing and Incurring New Debt in Bankruptcy

  • 03
  • April
    2014

Once a bankruptcy case is filed, a bankruptcy Trustee is appointed to administer the case, and a judge is assigned. All of the debtor's assets and liabilities become part of the bankruptcy estate. Any changes to the bankruptcy estate must be approved by the bankruptcy court. Changes would include the sale of assets, as well as the acquisition of new debts.

Examples of sale of assets would be selling an automobile or cashing out stocks or CDs. Examples of the acquisition of new debt would be incurring student loans, financing a new automobile, or obtaining a Small Business Loan. In any case, the debtor would petition the court for approval of the sale of assets or acquisition of new debt. The creditors in the case are served with the motion and have an opportunity to object.

Bankruptcy Judge Steven Rhodes who is assigned to the city of Detroit's bankruptcy recently approved a loan for $120 million over the objection by city creditors. Detroit filed for bankruptcy protection in July 2013, and the case represents the biggest municipal bankruptcy in U.S. history. Detroit's plan is to borrow $120 million from Barclays PLC to improve services of the bankrupt city, including improvements to public safety. The city could not take incur any new debt without the approval of the court. This rule applies across the board to all bankruptcy chapters.

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Hoboken, NJ 07030
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Scura, Mealey, Wigfield & Heyer, L.L.P. Attorneys at Law

John Scura of Scura, Wigfield, Heyer & Stevens, LLP, serves clients in New Jersey communities including Wayne, Hoboken, Jersey City, Paterson, Elizabeth, Edison, Camden, Clifton, Passaic, East Orange, Newark, Union City, Bayonne, Irvington, North Bergen, West New York, Bloomfield, Paramus, Fair Lawn, Ridgewood, Saddle Brook, River Edge, Emerson, Englewood, Ramsey, Tenafly, Glen Rock, Teaneck, and Hackensack, and in counties including Bergen County, Essex County, Middlesex County, Hudson County, Union County, Passaic County, and Morris County.

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