The Automatic Stay – What it is and How it Can Help You Protect Your Assets

Section 362 of the Bankruptcy Code provides one of the most important protections extended to debtors in bankruptcy cases. With certain exceptions, the automatic stay applies the moment a bankruptcy case is filed and prevents the commencement or continuation of adverse litigation or collection activity. For individuals attempting to stave off a scheduled sheriff’s sale of their home or avoid the repossession of a vehicle, the automatic stay is federal law strictly prohibiting foreclosures and repossessions in most instances.

Tell your bankruptcy attorney of any existing or potential lawsuits against you and all possible adverse creditor actions. Generally, it is advisable for your lawyer to immediately give notice of the bankruptcy filing to such creditors to advise them that your assets are shielded by the automatic stay.

Creditors who knowingly violate the automatic stay are subject to mandatory sanctions for your actual damages arising from the violation. Additionally, courts may award punitive damages and attorneys’ fees for such willful violations. In the event of a stay violation, your bankruptcy attorney can best advise you on how to respond.

Creditors wishing to protect their interests may file certain motions before the bankruptcy court. Commonly, creditors file motions for relief from the automatic stay so that they can continue their collection efforts. Your lawyer can discuss your goals with you and help you decide whether to defend a motion for relief from stay. Additionally, certain secured creditors may move for adequate protection payments and demand that debtors provide evidence of insurance. When those kinds of motions arise, your bankruptcy professionals will be available to help you respond.

The automatic stay provides debtors in bankruptcy cases breathing room and puts a halt to chaotic creditor collection efforts. That stay may enable debtors to confirm a plan of reorganization, cure outstanding payments or provide for an orderly turnover of an asset. To assess your goals and map a path toward a fresh start and financial freedom, contact us today for a free initial consultation.

(412) 925-8194

Bankruptcy | Mortgage Modification | Loss Mitigation 

Bankruptcy is an option for consumer debtors who have fallen behind on their mortgage payments.  If your lender has initiated a foreclosure action or has requested that you short-sell your property or execute a deed-in-lieu of foreclosure, you may wish to consider other options that will permit you to remain in your home.

Most lenders offer loss mitigation or modification options.  Borrowers who qualify for mortgage modification may see their interest rates lowered, principal balances reduced or mortgage term extended so that the monthly payments become more manageable.  In some instances, lenders may be willing to recapitalize mortgage arrearages, rather than requiring the borrower to make a lump sum, cure payment.  Mortgage modification applications are highly structured and lenders typically will not render any decision without a package that is 100% complete with current versions of all documents requested.  While many borrowers attempt to modify their mortgage without the assistance of a lawyer, an attorney who practices in the area can be very effective.

Many courts, including the United States Bankruptcy Court for the Western District of Pennsylvania, sponsor their own loss mitigation programs.  Court sponsored programs have the advantage of a judge with the power to compel mortgagees to designate a single point of contact and to come to a timely decision when the modification application is completed.

A chapter 13 bankruptcy case is also a highly effective way to preserve an at-risk interest in real property.  Unlike chapter 7 bankruptcy, bankruptcy under chapter 13 of the United States Bankruptcy Code allows debtors with a regular source of income to repay their creditors some or all of what they are owed over a period of three to five years.  For debtors who have reasonable mortgage terms but who have fallen behind on their mortgage obligation and just need some time and space to catch up, a chapter 13 filing may be the answer.  When a debtor needs both time and better mortgage terms, a chapter 13 case, together with participation in a loss mitigation program might represent that debtor’s best opportunity to save their home and get a fresh start.

Behind on a mortgage obligation?  Don’t wait until your lender forecloses on you—get a free consultation with an experienced bankruptcy lawyer today.

 Robleto Law, PLLC

(412) 925-8194

© 2014 Robleto Law, PLLC | Pittsburgh Bankruptcy Lawyers

How Applying Your Tax Return to a Bankruptcy Case Could be a Prudent Financial Planning Strategy

Bankruptcy and Your Tax Refund

For many trapped in the cycle of credit card use and minimum payments, the question of how to use a tax refund is not a simple one.  Having access to cash is appealing.  In the short term, a tax refund may allow you to buy groceries without a credit card as well as make payments on your credit card balances.  On the other hand, you could also apply your tax returns to your credit cards and begin to chip away at your credit card debt.  The first path is almost never a sound one.  A tax refund is a once per year occurrence–the money will soon be gone but your credit card debt will remain.  Applying your tax refund to your credit card debt might make sense in some situations but, for many unfortunate people, that use of a tax refund would benefit creditors while providing no .  Let’s consider a couple of hypothetical situations.

[perfectpullquote align=”left” cite=”” link=”” color=”blue” class=”” size=”22″]”If your credit is already poor, filing a bankruptcy case can put you on the quickest path to rebuilding your credit”[/perfectpullquote]

First, let’s assume that you owe $5,000 in credit card debt with no other significant unsecured debt and you are current on all of your debt obligations.  If you receive a tax refund of $3,000 and you exercise the discipline required to plunk all of that down on your credit card obligations.  The result here could be good.  Your debt to income ratio will improve and you will be better situated to pay down the credit card debt over the coming months.

Second, let’s assume that you owe $15,000 in credit card debt and another $10,000 in unpaid medical bills.  You are consistently behind on your credit card bills and are routinely penalized with late fees and interest charges.  The same $3,000 refund will not put you in a better position to address your debts–rather it is something like dropping a teaspoon of water upon a raging fire.  Your financial position and credit score were poor prior to your receiving your tax return and will not be substantially improved by handing your tax return to your creditors.  Moreover, just as in the prior example, spending your refund on day to day living expenses offers no hope of long term improvement in your financial position.

Thus, in the first hypothetical, paying down debt with your tax refund is sensible.  In the second, it is not.

(412) 925-8194

Tax Return and Bankruptcy – A Viable Solution

The debtor in our second hypothetical, with $25,000 of unsecured debt and a $3,000 tax return could be better served by filing a chapter 7 bankruptcy case.  A case under chapter 7 of the United States Bankruptcy Code would allow that debtor to get a fresh start.  Most consumer chapter 7 bankruptcy cases last a few months and debtors never see the inside of a court room (rather, they simply meet with a trustee at a meeting of creditors that lasts only minutes).   While certain types of debt are not dischargeable (e.g., student loans, domestic support obligations and some tax obligations and criminal fines), most common unsecured debt (like credit card debt and medical debt) is dischargeable.

By using part of the $3,000 tax return to file a chapter 7 bankruptcy case, the debtor in our second hypothetical has a drastically improved debt to income ratio and more available cash from month to month.  That newly available cash flow can serve to improve quality of life and enable the debtor to begin to accumulate savings and prepare for retirement.  While the filing of a bankruptcy case does adversely affect one’s credit score, if your credit is already poor, filing a bankruptcy case can put you on the quickest path to rebuilding your credit by responsibly paying down your debts as they become due.  Contact a Pittsburgh Bankruptcy Lawyer today to find out whether a bankruptcy case could improve your financial future.

(412) 925-8194

© 2014 ROBLETO LAW, PLLC

We are a debt relief agency, we help people file for relief under the United States Bankruptcy Code.

Pittsburgh Bankruptcy Attorney

Who May File a Plan in a Chapter 11 Bankruptcy Case

The debtor in a chapter 11 case always has standing to file a plan of reorganization.  In fact, during the “exclusivity period,” only the debtor has right to file a plan.  The exclusivity period starts out as the first 120 days after the filing of the chapter 11 bankruptcy case or, in a small business case, the first 180 days following the filing of a bankruptcy petition.  Often, debtors seek extensions of their exclusivity periods.  While the requirements and timing for such motions vary between small business cases and chapter 11 bankruptcy cases that are not designated small business cases, extensions are routinely granted when debtors are diligently working toward resolving matters in order to file a confirmable chapter 11 plan of reorganization.

Filing a Chapter 11 Bankruptcy Plan After Exclusivity Has Lapsed

When the debtor’s exclusive right to file a plan of reorganization lapses or is terminated, any “party-in-interest” can file a plan of reorganization.  The term “party-in-interest” is not defined in the Bankruptcy Code but so many courts have taken up the question that bankruptcy attorneys have a good concept of its boundaries.  As mentioned, the debtor is always a party-in-interest with standing to propose a chapter 11 plan of reorganization.  The Bankruptcy Code also confers standing upon creditors of the debtor thus, outside of the exclusivity period, creditors have standing to file chapter 11 plans of reorganization.  Interestingly, the term creditor is so broadly defined in the Bankruptcy Code that any party with a claim against a debtor is considered a creditor.  A claim includes rights to payment and equitable remedies that have not been filed or reduced to judgment.  In fact, a party remains a “creditor” of a debtor even if the debtor vigorously disputes any liability to that creditor.

But party-in-interest standing goes extends beyond the debtor and its creditors and extends to any party whose interest could conceivably be affected by the confirmation of a chapter 11 plan.  Many courts have noted that the intent of Congress was to encourage greater participation in chapter 11 cases.  Effectively, party-in-interest standing is not a limit at all but, rather, an invitation to participate–the only real limit is the bare limit imposed by Article III of the United States Constitution.

To begin with, the debtor has the right to file a plan.  If exclusivity terminates, then any party-in-interest may file a plan of reorganization in a chapter 11 bankruptcy case.  To determine whether you may propose a plan of reorganization in a chapter 11 bankruptcy case and whether becoming a plan proponent makes sense, you should consult an experienced Pittsburgh Bankruptcy Lawyer.

(412) 925-8194

Can I File Bankruptcy Again; The Prior Bankruptcy Case Question

Can I file bankruptcy again after a prior bankruptcy case?  Many individuals who were debtors in a prior bankruptcy case and who fall upon hard times a few years later want to know whether they can file bankruptcy again.  The answer to that question very much depends on several factors including (i) the timing of the prior bankruptcy case; (ii) the chapter under which the prior bankruptcy case was filed; (iii) whether the debtor received a discharge in that prior bankruptcy case; (iv) the chapter under which the debtor wishes to file a subsequent bankruptcy case; and (v) whether or not the debtor needs or expects a discharge.

If your prior bankruptcy case was dismissed with prejudice, generally, you will be unable to file bankruptcy again for a period of 180 days.  There are many reasons why a bankruptcy court could dismiss a case with prejudice but, generally speaking, when a debtor has acted in good faith but a bankruptcy court must still dismiss a bankruptcy case, the order dismissing the case will be without prejudice to file bankruptcy again.

File Bankruptcy Again – Past Bankruptcy Filing Eligibility for a Discharge Under Chapter 7 of the Bankruptcy Code

If you have a received a prior discharge in a case under chapter 7 or a case under chapter 11 of the Bankruptcy Code, you are not eligible to receive another discharge unless 8 years have elapsed between the date upon which you filed the prior case and the date when you file bankruptcy again.  If your prior discharge occurred in a case under chapter 12 or chapter 13 of the Bankruptcy Code, the waiting period is 6 years in most cases.  However, if in your prior chapter 12 or chapter 13 bankruptcy case you paid your unsecured creditors 100% of their allowed claims, you would be eligible to file bankruptcy again and receive a discharge under chapter 7 without any waiting period.  Also, if in your prior chapter 12 or chapter 13 bankruptcy case, you paid your unsecured creditors 70% of their allowed claims, proposed that prior chapter 13 bankruptcy plan in good faith and it was your best effort, you will also not be held to the 6 year bar for a discharge in a chapter 7 bankruptcy case if you chose to file bankruptcy again.

File Bankruptcy Again – Past Bankruptcy Filing Eligibility for a Discharge Under Chapter 13 of the Bankruptcy Code

You are not entitled to receive a discharge in a case under chapter 13 of the Bankruptcy Code within 4 years of having received a discharge in a case under chapter 7 or chapter 11 of the Bankruptcy Code.  Once again, the waiting period to file bankruptcy again is less for a prior case under chapter 13 of the Bankruptcy Code.  In that instance, you are barred from receiving a discharge if you file bankruptcy again within 2 years of having received a discharge in a prior chapter 13 case.

As you can see, determining eligibility for a discharge when you’ve filed a prior bankruptcy requires careful attention to the facts of your case.  Additionally, even if you are not eligible to receive a discharge, you may still wish to file bankruptcy again for other reasons.  For example, a person who has fallen behind on their mortgage payments may wish to file a chapter 13 bankruptcy case for the benefit of the automatic stay and to have the ability to repay the arrearages through a chapter 13 plan over a period of 3 to 5 years.  As with most bankruptcy questions, it is best to discuss them with an experienced bankruptcy lawyer during a free initial consultation.

File Bankruptcy Again  |  Bankruptcy Questions  |  Free Initial Consultation

Take advantage of your free opportunity for an initial debt relief consultation.  Find out whether you qualify for relief under the United States Bankruptcy Code.  In Pittsburgh, call today for your no fee initial discussion with a highly experienced bankruptcy attorney.

(412) 925-8194

Pittsburgh bankruptcy lawyers.

After a business debtor files a bankruptcy case, its trade creditors are often sued for receiving preferential payments under sections 547 and 550 of the Bankruptcy Code.  These creditors didn’t do anything wrong, they just happened to accept a payment from the debtor within the 90-day period preceding the bankruptcy case for a pre-existing debt.  Often, these businesses will simply return those payments rather than pay to fight to keep them.  In fact, they may have very good defenses to these claw back claims.  In practice, even an imperfect defense is a good defense because of the nature of preference cases.

A preference case must be brought by way of adversary proceeding, that is a separate case, related to the bankruptcy case of the debtor which allegedly made the preferential payment.  A capable Pittsburgh bankruptcy lawyer defending a preference case will review all relevant defenses to assist in determining whether which preference defenses fit the facts of the case.

If you need to defend against a preference claim in bankruptcy, you may be able to attack the claim on its elements by arguing that (i) the transfer was not an interest in property of the debtor; (ii) that it was not made to or for your benefit; (iii) that the payment was not made for or on account of an antecedent debt which the debtor owed you before it made the transfer; (iv) that the debtor was not insolvent at the time it made the transfer; (v) that the debtor did not make the transfer within the 90-day period preceding the bankruptcy case (or the one-year period for payments to insiders of the debtor); or (vi) that the transfer did not enable you to receive more than you would have received in a hypothetical chapter 7 case.

Section 547 of the Code contains its own list of possible defenses to a preference claim.  Those statutory defenses provide safe harbors for certain would-be preference claims.  Those include circumstances where the creditor who received the payment at issue provided a contemporaneous exchange for the payment which enabled the debtor to receive new value.  Additionally, payments in the ordinary course of business, made according to ordinary business terms are shielded.  Also, certain circumstances involving security interests give rise to a preference defense.

Moreover, case law has given rise to other defenses to preference claims.  If the recipient of the payment acted as a passive conduit for funds which flowed through it to a third party, it may have a defense to a preference claim.  See Golden v. The Guardian (In re Lenox Healthcare, Inc.), 343 B.R. 96, 103 (Bankr. D. Del. 2006).  Likewise, if the debtor assumes an executory contract or unexpired lease pursuant to which a preferential transfer is made, a preference defendant may be able to defend on the basis that the debtor would have necessarily have had to cure that contract or lease in any event.  See Kimmelman v. The Port Authority of New York and New Jersey (In re Kiwi Int’l Air Lines, Inc.), 344 F.3d 311 (3d Cir. 2003).

If your business has received a demand for payment from a bankruptcy trustee or a preference complaint, you should promptly contact a Pittsburgh Bankruptcy Lawyer.

(412) 925-8194

We are a debt relief agency.  We help people file for relief under the United States Bankruptcy Code.

Exit Financing

“Exit financing” is a term used to describe new credit extended to a debtor-in-possession that allows it to fund its chapter 11 plan and exit its bankruptcy case. Thus, while a debtor must typically file a motion to enter into an agreement outside of the ordinary course of business (see 11 U.S.C. § 363(b)), the “exit” is made via the chapter 11 plan confirmation process. The real challenge then, would remain plan confirmation (and meeting the 16 requirements of 11 U.S.C. § 1129(a)).

Debtor in Possession Financing

A debtor-in-possession (“DIP”) in a chapter 11 case can also seek to obtain financing prior to plan confirmation. DIP financing is governed by 11 U.S.C. § 364. Section 364(a) allows a debtor in possession to obtain unsecured credit in the ordinary course of business (e.g., a DIP that has NET30 terms with a vendor can continue to order inventory from that vendor without first seeking court approval). Section 364(b) deals with unsecured credit outside the ordinary course of business–that requires the approval of a bankruptcy court, on notice and with a hearing but entitles the creditor extending credit to administrative priority status for repayment of its loan pursuant to 11 U.S.C. § 503(b)(1). Subsections (c) and (d) of section 364 deal with post-petition, secured debt. Subsection (c) addresses circumstances in which a DIP cannot get obtain credit on an unsecured basis. With court approval after notice and a hearing, a DIP can use one more more of the following tools to improve the position of its prospective lender: (i) a priority position over some or all administrative expense claims; (ii) a security interest in unencumbered assets of the DIP; and (iii) a junior lien on already encumbered, assets of the DIP. The Order granting authorization to enter into a loan agreement under 364(c) should explicitly address which of the incentives the lender is to be granted (and which if any administrative claims are subordinate to the lender). Subsection (d) allows a DIP to go even further to obtain financing and to prime the rights of existing lien holders notwithstanding protections those prepetition lenders might have in their loan documents. However, the ability to prime an existing lien is an extraordinary remedy. The DIP must show, not only that it would be otherwise unable to obtain credit, but also that it is providing adequate protection to the affected, subordinated lien holders. A DIP can adequately protected a primed lender by providing it with a replacement lien on other unencumbered property. However, when the effect of the DIP financing is merely to shift the risk of being unsecured or undersecured to the prepetition lender from the DIP lender, the court should deny the request for DIP financing. 3 Collier on Bankruptcy ¶ 364.05 (16th ed. 2013) citing In re Mosello, 195 B.R. 277, 293 (Bankr. S.D.N.Y. 1996). The burden of proving adequate protection of the affected lien holder is on the DIP. Id. In the end, DIP financing can be a very potent tool but it is vulnerable to many of the same challenges that a DIP proposing a chapter 11 plan that crams down on the rights of prepetition secured creditors (compare “adequate protection” required under section 364 to “realization… of the indubitable equivalent” in 1129(b)(2)(A)(iii) required to cramdown a plan over the objection of a secured creditor).