Coronavirus: Bankruptcy Considerations
Choosing to file for bankruptcy is a difficult decision for any individual or business owner, but it’s one that many may face as the current coronavirus crisis leaves more people in debt, with no means of getting out. Unfortunately, the process is time-consuming with hearings and paperwork and can be overwhelming, if you’re unfamiliar with the workings of a bankruptcy court.
Here is information related to some of the bankruptcy questions you may have at this moment.
Frequently Asked Bankruptcy Questions During Coronavirus:
- FILING FOR BANKRUPTCY
- CHAPTER 11 BANKRUPTCY
- BANKRUPTCY RELIEF
- BANKRUPTCY ATTORNEYS
Filing for Bankruptcy
Figuring out when to file for bankruptcy and what type to pursue are the earliest challenges in the process.
How and when should someone consider filing for bankruptcy?
There’s no set rule for when someone should consider filing for bankruptcy. If you’re overwhelmed by debt to the point that you simply can’t afford to pay what you owe. If your debts outweigh your assets, you should speak with a LegalShield Provider Attorney. Bankruptcy may be an option to get yourself out of your current predicament.
What kind of bankruptcy should I file for?
Depending on what you owe and own, and in what capacity you’re filing for bankruptcy, you’ll seek a Chapter 7, Chapter 11, or Chapter 13 bankruptcy.
Chapter 11 is generally the bankruptcy used by businesses as it allows for a reorganization plan for the company. The company can restructure debt in a way that allows them to stay open while working towards repaying their creditors over a period of a few years.
Chapter 7 and Chapter 13 bankruptcy are options individuals use to provide them relief from their debt, though the two differ in how the debt is handled.
- In the case of Chapter 7 bankruptcies, is generally a liquidation where you seek to discharge the debt. A meeting of the individual’s creditors (known as a 341 hearing) is held, and r non-exempt assets may be used to pay the debt. While a Chapter 7 can provide much-needed relief, there are eligibility requirements to file for Chapter 7.
- With a Chapter 13 bankruptcy, the individual goes to court and creates a repayment plan whereby they make monthly payments to the trustee for three or five years to be paid out to creditors; once that repayment period is over, the remaining debt is discharged.
The decision between Chapter 7 and Chapter 13 depends on what type of debt you have and how much property you own, as well as your income. Chapter 7 is for those who meet certain income requirements and works well for individuals with unsecured debt and little property. On the other hand, Chapter 13 is for those who make too much to or otherwise does not qualify for Chapter 7 and is better suited for debt that isn’t dischargeable. Chapter 13 may be needed to save a home in foreclosure. You should seek advice from an attorney.
How can I file for bankruptcy and follow through amidst social distancing?
The legal system has been affected by implemented social distancing measures and people seeking to file bankruptcy may encounter issues. There may be l challenges related to filings, in exchanging documents and attending meetings and hearings online or over the telephone. The key for those in the midst of bankruptcy proceedings is to have an attorney to guide you through the process and the adjusted procedures for the ongoing period of distancing.
Can my LLC file for bankruptcy?
Bankruptcy is an option for an LLC, but the type of bankruptcy depends upon whether the LLC is intended to continue on past the bankruptcy. A Chapter 7 bankruptcy for an LLC allows for a trustee to liquidate the entity’s assets to pay creditors, at which point the LLC ceases to exist. Because the entity no longer exists, there is no debt discharge, which means that creditors may be able to pursue legal action against individuals in certain circumstances. Chapter 11 bankruptcy allows businesses to reorganize and restructure debt in order to continue operating, but it can be a complex and time-consuming process. Any business looking towards bankruptcy should work with a lawyer to ensure they’re handling it correctly.
How should I be documenting the COVID-19 impacts (i.e., income loss) to my business?
Your business losses incurred due to the coronavirus should be recorded separately from your regular business losses for the purposes of insurance claims or government reimbursement. The U.S. Chamber of Commerce recommends creating a separate account number or code within your accounting system to track losses linked to coronavirus-related reasons as well as creating a baseline to compare your business performance before and during the crisis.
Chapter 11 Bankruptcy
Chapter 11 offers businesses a chance to stay open while working towards paying off debts.
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy is a type generally used by corporations to discharge their debt while continuing to operate. Under Chapter 11, a business seeks a reorganization plan to continue operating and restructure its debt in an effort to pay off that debt within a proposed time period, often by reducing overhead and liquidating assets. Chapter 11 bankruptcies are generally more complicated and expensive.
Recent measures have made it easier for some small businesses to seek bankruptcy and try to stay afloat.
What was the amendment to the Bankruptcy Code?
The Bankruptcy Code was amended in February 2020 by the Small Business Reorganization Act (SBRA). The SBRA is intended to make the bankruptcy process for small businesses quicker and less expensive. Under the new rules, small businesses can be appointed a trustee to help with the process, and only small businesses can propose a reorganization plan. In short, the new measures make it easier for small business owners to go through the bankruptcy process, pay debts, and have those debts discharged.
Do I qualify for an SBRA bankruptcy?
Under the SBRA, companies with less than $2,725,625 of debts were eligible to take advantage of the new streamlined process. However, the CARES Act amended the SBRA temporarily to raise the debt limit to $7.5 million for a period of one year.
What does the stimulus bill say for bankruptcies?
In addition to the temporarily increased debt limit for the SBRA, under the CARES Act, coronavirus-related payments would not be counted as income for the purposes of Chapter 7 and Chapter 13 bankruptcy filings. In addition, CARES allows individuals in Chapter 13 to seek modified payment plans due to hardships created by the coronavirus.
Having an attorney to help you through any legal process is never a bad idea, and bankruptcy is no exception.
Do I need a bankruptcy attorney?
While you are not required to have an attorney to file for bankruptcy, as with any legal matter, it’s best to have a legal counsel.
How can I find one?
Are bankruptcy courts still open?
If you’re looking to file bankruptcy, a check of the current operational status of the US Bankruptcy Court in your jurisdiction may be needed. You should seek advice from a bankruptcy lawyer.
No one wishes to file for bankruptcy, but if you are considering the process, it’s critical to make sure that you’re doing everything correctly. Having access to a Bankruptcy lawyer with a LegalShield membership provides peace of mind and assistance if needed.
LegalShield provides access to legal services offered by a network of provider law firms to LegalShield Members through member-based participation. Neither LegalShield nor its officers, employees or sales associates directly or indirectly provide legal services, representation or advice. See a plan contract at www.legalshield.com for specific state of residence for complete terms, coverage, amounts, and conditions. This is not intended to be legal or medical advice. Please contact a medical professional for medical advice or assistance and an attorney for legal advice or assistance.
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