Planning is key. Payment by an insolvent entity for old debt is known as a “preference,” and the creditor may have to disgorge in bankruptcy if it received a greater payout than it would in Chapter 7. As the key to bankruptcy is equitable distribution, the creditor will be paid only its pro rata share. To best avoid “preferences,” debtors should pay in an ordinary course pattern, COD, or provide new value.
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Credit scores can begin an uptick fairly quickly after the completion of a bankruptcy case. Borrowing can begin within a few months via secured credit cards or credit-builder loans, and VA or FHA mortgages can be obtained within two years. Moreover, increasing innovations in fintech should yield more non-traditional opportunities. In sum, while bankruptcy may remain on credit reports for 10 years, it can create a trajectory for a fresh future through discharge and opportunities to re-tool.
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Bankruptcy law is designed to give us all a fresh start. Most people don’t have to give up their basic possessions and can keep $25k plus of equity in their homes. They can choose between immediate discharge relief under Chapter 7, or instituting a repayment plan under Chapter 13, if their assets are beyond the scope of basic Chapter 7 protections. For small business, they can choose either Chapter 13 or the new Subchapter V of Chapter 11 which dispenses with creditor consent. As you weigh you or your clients’ financial retooling options, federal bankruptcy might be the best path forward to a new beginning.
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Gift card claims in bankruptcy are spotlighted in this article which highlights efforts by consumer advocates to put these claims at the head of the pay-out line, as well as provide support through an official court committee of consumer creditors. Note that retailers may shorten the deadline for collecting on the card.
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A creative move by a pro se debtor resulted in a successful discharge of its student loan via the Servicer’s default judgement, followed by a full pay-off of the loan by the Servicer to the Department of Education. In a recent bankruptcy court decision, the court sanctioned the Servicer for harassing the debtor post-bankruptcy, and required it to both pay off the debt and compensate the debtor the amount of $24,000.
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The SEC has recently published a proposed amendment to expand the “Accredited Investor” definition to go beyond financial net worth. Certain certified educational and insider knowledge will suffice, coming closer to the definition of “sophisticated” under Rule 506. In addition, LLC’s are now incorporated into the definition, among Indian tribe, government and other communities. Stay tuned as the rule hopefully goes effective in mid-October!
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As businesses struggle to survive COVID-19 closures, courts are continuing to find that Business Interruption policies do not cover pandemics. This is where the government needs to step in and help subsidize businesses per the model being followed in Canada. Otherwise, bankruptcy may be the only other option.
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In yet another decision by a bankruptcy court, a private loan by Navient, a popular student loan lender, was discharged in Chapter 13. While government loans cannot be discharged, the recent COVID-19 legislation has now implemented the debt forgiveness previously promised to those working in the non-profit sector. This is a good sign for student borrowers and is trending toward equalizing the playing field in bankruptcy.
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Women Owned Law Virtual Speaker Series, March 27, 2020
Enjoyed discussing the CARES Act and its impact on the new Subchapter V of the Bankruptcy Code as a novel option in our new normal ecosystem. Please join WOL’s virtual speaker series on a monthly basis to get updated on the latest in the law!
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WBEC-East, Women’s Business Enterprise Center, January 16, 2020
Parkway Central Library Business Resource and Innovation Center
Enjoyed advising local sister small business owners on the next step in their business lifecycle!
