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Garnerville Bankruptcy Law Blog

The right help when it comes to filing for bankruptcy

Many people in Rockland County who are considering bankruptcy are deterred by the thought of adding to their financial problems by adding attorneys' fees. The answer to the question of whether an attorney is necessary in a bankruptcy filing can be complex, and it always depends upon the individual's financial situation.

The first question to ask is how much money is involved. How much does the debtor owe? Does the debtor have assets that can be sold to help pay the debts? If the debtor has very little in the way of assets, the debtor may be eligible for a "no asset" Chapter 7 bankruptcy. In this type of proceeding, the bankruptcy trustee makes a judgement that the debtor has no assets that can be liquidated to pay, and the case is summarily processed and an order of discharge is issued. Most people considering bankruptcy, however, usually own a home or an automobile that was purchased by borrowing money, and they are far from paying off the indebtedness. In fact, delinquent payments on mortgages and auto loans are some of the chief reasons that people look to bankruptcy. Another question that should be answered is the nature of the debt. Credit card obligations are probably the single most common cause of bankruptcy. A bankruptcy proceeding may be able to eliminate most, if not all, credit card debt.

Barriers to a discharge in a personal bankruptcy

Most people in Rockland County who have endured the rigors of a personal bankruptcy filing felt that the outcome justified the effort, because many debts were discharged. Sometimes, however, the debtor will fail to attend to one or more necessary details and will learn that a discharge will not be granted.

One of the more common errors is the failure to pay the filing fee. The fee is $335 for a Chapter 7 proceeding and $310 for a Chapter 11 proceeding. Most bankruptcy courts will allow the filer to pay the fee in installments. Another common omission is the failure to take the mandatory credit counseling and financial management courses. Both of these omissions can usually be charged to negligence on the part of a person who is under the stress of the bankruptcy proceeding.

How bankruptcy can provide protection from creditors

Residents of Rockland County who are experiencing financial difficulties, especially from significant credit card debt, are often told that bankruptcy can protect them from creditors. While this statement is generally correct, the "how" of this protection is often a mystery for some people. For most individuals who file a petition in bankruptcy, the strongest protection is provided by the automatic stay, a court order that is issued automatically when a bankruptcy petition is filed.

Every person who files a bankruptcy petition must also provide a list of creditors, including addresses. Upon receiving the petition and ensuring that the filing fee has been paid, the clerk of bankruptcy court sends a copy of the automatic stay to each creditor. The stay is a court order directed to all creditors of the debtor, and it forbids each creditor from taking any action to collect debts owed to by the debtor.

Sears bankruptcy will have varied impacts on others

By now, the news of the bankruptcy filing by Sears is well known. Many Sears stores will close, and many employees will lose their jobs. But, what about firms that sell goods and services to Sears or rent space to Sears? Preliminary analyses of the retail market appear to show that some firms will benefit from the Sears bankruptcy and others will be harmed. The extent of both harmful and beneficial effects cannot yet be measured with fine accuracy, but preliminary studies of Sears' situations provide a few informative hints.

Sears suppliers have been taking self-protective steps for several months. Many suppliers who are worried about Sears paying for their products have tightened payment terms or have refused to sell to Sears. At least one firm that provides insurance and cash advances to Sears suppliers has stopped offering any type of insurance. About 200 suppliers have simply stopped selling merchandise to Sears. Nevertheless, some very large vendors, such as Frigidaire, Samsung and Whirlpool, will have claims against the bankruptcy estate between $5 and $23 million.

Retailing icon Sears on verge of bankruptcy

Another retailing icon appears to be edging toward a bankruptcy filing. Sears, one of the most recognized names in American retailing, is expected to file a business bankruptcy petition. The decline of Sears appears to be the result of a changing retail climate in the country and a serious of questionable management decisions.

Sears, Roebuck & Co. was founded shortly after the Civil War, and it soon became known as the go-to-for-everything store. Its huge Christmas catalogs were part of many families' holiday traditions, but the store's inability to compete with large box retailers, such as Wal-Mart, and online marketers, such as Amazon, caused management to sell off a number of profitable brands, such as Craftsman tools and Land's End. Over the last five years, Sears has lost about $5.8 billion; over the last decade, the company has closed a thousand stores. The company is currently searching for interim financing of approximately $500 million that will allow it to survive until the end of 2018.

Taxation of debts cancelled in bankruptcy

Most residents of Rockland County have never heard of cancellation of indebtedness income. The common perception is that when a creditor cancels a debt, that's it. The debtor is completely off the hook, and nothing more needs to be done. Unhappily, that is not the case.

The federal tax code says that, when a debt for which the taxpayer is personally liable, such as a credit card debt, is cancelled by the creditor, the taxpayer must include the canceled portion of the debt in gross income. In other words, if the taxpayer owes $5,000 on a credit card, for example, and the card issuer forgives the debt, the taxpayer now has gross income of $5,000 that must be reported to the IRS. Most creditors who forgive a portion of the amount owed to them will send a form 1099-C to the taxpayer and to the IRS. Many kinds of debts are exempt from this requirement, which raises the question: Do debts discharged in bankruptcy create cancellation of indebtedness income?

Jurisdiction of U. S. bankruptcy courts

Rockland County businesses and individuals who are contemplating the filing of a petition in bankruptcy court rarely stop to wonder why Congress created a special court to handle bankruptcy cases. The creation of bankruptcy courts and the defining of their jurisdiction is a long and complicated history. A review of the last several decades of this history may help our readers understand why the bankruptcy court is different from other U.S. courts.

Article III of the Constitution creates a federal judicial system and gives Congress the power to establish the Supreme Court and such inferior courts as it deems necessary. Strangely enough, Article III does not mention bankruptcy. Instead, Article I, the article that establishes Congress and defines its powers, says that Congress may establish "uniform laws on the subject of bankruptcy throughout the United States." The first Bankruptcy Act was passed in 1800 and replacement acts were passed in 1841, 1867, 1898 and 1978. Each of these statutes modified the jurisdiction of the bankruptcy courts, such as how the 1867 statute was the first to include provisions for corporate bankruptcies, and also responded to Supreme Court decisions that affected the jurisdiction of bankruptcy courts. In 1984, Congress passed the Bankruptcy Amendments and Federal Judgeship Act, which established bankruptcy courts as "units" of the district courts.

Seasons Kosher Supermarkets files Chapter 11 petition

Another grocery chain has decided to seek protection from creditors by filing a Chapter 11 petition. Seasons Kosher Supermarkets, based in Flushing, N.Y., filed its petition in the Eastern District of New York on September 16. An announcement by the company that accompanied the filing indicates that the chain is attempting to arrange interim financing that will allow it to remain in business during the Chapter 11 proceeding.

The chain began operations in Queens in 2011. Since then, it has added stores in Manhattan, Scarsdale, Baltimore and New Jersey. It is currently attempting to open another store in Cleveland, but the bankruptcy filing is likely to delay the opening of that store. In its bankruptcy petition, the company stated that it had liabilities of approximately $42 million and assets of approximately $31 million. Its operating revenues to date for 2018 come to about $63 million.

How bankruptcy can save a home from foreclosure

For families in Rockland County who are struggling with financial problems, one of the greatest fears is the loss of the family home through foreclosure. Filing a bankruptcy petition often seems like surrender, but, a bankruptcy petition under either Chapter 11 or Chapter 13 can be the surest means of stopping a foreclosure proceeding in its tracks.

Section 362(a) of the Bankruptcy Code provides that the filing of a bankruptcy petition automatically halts all collection proceedings against the debtor, including any proceeding to enforce the lien of a mortgage through a judicial sale. The provision applies to any debt that existed as of the date of the filing of the petition. If a loan secured by a mortgage is not paid in full as of the filing of the petition, the bank or other holder of the mortgage cannot take any action to collect on the loan or begin or pursue foreclosure proceeding.

Preventing asset forfeiture in bankruptcy

When a Rockland County resident is considering filing a bankruptcy petition, one of the first questions is whether creditors can compel the forfeiture of certain assets, most commonly a car or the family home. The answer to the question is generally more positive than most people realize.

First, the laws of the United States and New York identify certain assets as exempt from the claims of creditors. A debtor must choose from one list or the other. Regardless of which list is used, exempt assets can include the homestead, up to a certain amount, a motor vehicle up to a specified value, reasonably necessary clothing, household goods and furnishings, household appliances, pensions, the tools of the debtor's trade or profession and a portion of earned but unpaid wages. Some items are not exempt, such as a second vehicle, a second home or cabin, collections of stamps and other valuable items and cash on hand. These assets will remain in the debtor's possession after the bankruptcy proceeding is completed.

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