At J.D. Milliner & Associates, P.C., our Salt Lake City business bankruptcy attorneys will work to meet your specific bankruptcy needs. With one notable exception, the so-called “vulture capitalist,” bankruptcy is a generally unpleasant experience for all parties involved. Business owners and individual debtors don’t enjoy filing for bankruptcy, and usually do so only as a last resort, and creditors certainly don’t enjoy the prospect of not being repaid what they are owed as and when promised! Vulture capitalists, however, do enjoy the bargains they get by acquiring assets from the bankruptcy trustee (sometimes a “debtor in possession”) as the trustee goes about liquidating some or all of the property of the business to raise funds with which to at least partially repay its creditors. Our business bankruptcy attorneys can help you successfully navigate these waters, whether you’re a debtor, a creditor or a “vulture capitalist.”
Common Bankruptcy Issues:
Commencement of the Case
All bankruptcy cases begin with the filing of a petition. Usually, the petition is filed by the debtor voluntarily. Sometimes, however, three or more creditors of the same debtor get together and file an “involuntary” petition with the court forcing the debtor into bankruptcy. The petition will always specify the chapter of the Bankruptcy Code under which protection is sought. Our bankruptcy lawyers in Utah can help business debtors decide whether they really need to file for protection, and, if so, under which chapter of the Bankruptcy Code they should file.
Chapter 7 vs. Chapter 11
Chapter 7 is a liquidation (sale) of assets, under which a debtor, who can be either an individual or a business, allows the bankruptcy trustee gather up all the debtor’s non-exempt assets at the time of filing, sell them, and distribute the net proceeds among the debtor’s unsecured creditors on a pro rata basis. Secured creditors generally receive their collateral, or the value of it in money, and may also have a residual unsecured claim against the bankruptcy estate. By contrast, the purpose of Chapter 11 is to reorganize the debtor’s debts so that the debtor, which is usually a business entity, can preserve some going concern value that likely would be lost in a Chapter 7 liquidation. This is done by creating a “plan of reorganization” that must either be approved by all creditors, or meet the requirements to be “crammed down” on non-approving creditors, before it will be approved by the court. Chapter 11 is also available to individual debtors, but, because of the significantly lighter administrative burden and lower cost involved in a Chapter 13 bankruptcy when compared to a Chapter 11, most individual debtors who cannot file under Chapter 7 usually choose to file under Chapter 13. Only if an individual debtor has significant and/or very complex assets, can’t meet the “below median income” requirement for filing under Chapter 7, or can’t meet the “regular income” requirement for filing under Chapter 13, should he/she consider Chapter 11.
As soon as a bankruptcy petition is filed, the so-called “automatic stay” comes into effect by operation of law. The automatic stay immediately prevents creditors from continuing collection activities against the debtor, and from foreclosing on or otherwise seizing the debtor’s assets. Part of the petition process includes the debtor providing a list of its creditors to the court, which promptly sends out notices of the filing and the invocation of the automatic stay. Creditors who knowingly violate the automatic stay can be severely penalized, in addition to having to disgorge whatever they may have obtained. Under appropriate circumstances, however, it is possible to get permission from the court in the form of “relief from the automatic stay,” to proceed with a foreclosure, etc. Our bankruptcy attorneys can help secured creditors obtain relief from the automatic stay so they can foreclose or seize and sell their collateral without violating the automatic stay.
Proof of Claim
Under all chapters of the Bankruptcy Code, creditors need to file their proofs of claim with the court specifying how much they are owed, the basis of the debt, and whether the debt is secured by property of the estate (formerly property of the debtor), whether the debt is unsecured, or whether the debt is partially secured and partially unsecured. These proofs of claim, although they can be challenged, provide the basis for the structuring of plans of reorganization and the distribution of the net proceeds of liquidated assets pro rata among the creditors. Our talented bankruptcy lawyers help creditors properly prepare and file their proofs of claim and otherwise maximize their recovery through the process.
Secured creditors, such as mortgage and automobile lenders, retain their liens on the assets securing their loans even if an individual debtor’s obligation to pay it has been discharged. Once the automatic stay has been lifted, usually by the granting of a discharge and dismissing of the case, but also by obtaining “relief from stay” by motion to the court, creditors may foreclose on, or seize and sell, their collateral to satisfy their secured debts if the debtor fails to make any payment on time. If an individual debtor is current on his or her payments and wishes to keep the secured property he/she may decide to “reaffirm” the debt by entering into a “reaffirmation agreement” before his/her discharge is granted, under which the debtor agrees to remain liable on the debt, and to pay all or an agreed upon portion of the money owed. In return, the creditor generally promises that it will follow its ordinary collection procedures, rather than immediately foreclosing on or seizing and selling the property if the debtor is late making a single payment. We know how to help creditors obtain proper reaffirmation agreements without violating the automatic stay.
Certain types of debts are not dischargeable by an individual debtor if the discharge is timely challenged by the creditor. One of the most common non-dischargeable debts is a debt that was incurred by means of perpetrating a fraud upon the creditor. In such cases, the creditor can bring an “adversary proceeding” within the overall case and seek to obtain a “nondischargeable” judgment against the debtor, which will survive the bankruptcy process. As bankruptcy attorneys, at J.D. Milliner and Associates we help creditors obtain nondischargeable judgments against debtors in appropriate cases
Another common problem for creditors is where the trustee uses its so-called “strong arm” avoidance powers to sue a creditor or another person to recover transfers of money or property accomplished in violation of the Code or state law. One example is the “preference” transfer of monies or other property by the debtor to a creditor, outside of the ordinary course of business, within the 90 days immediately prior to the filing of the case. The other common case is the “fraudulent transfer” where the debtor gives money or property to someone to whom no debt is owed under circumstances giving rise to the presumption, or at least suspicion, that the transfer was done to defraud the debtor’s creditors of payment of part or all of the debt owed to them. Our bankruptcy attorneys help creditors minimize the damage caused when a bankruptcy trustee sues them to recover an allegedly preferential or fraudulent payment or transfer. Our law firm can help you with your business law needs and for your business or personal bankruptcy case.
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