 |
 |
 |
||||||||||||||
 |
||||||||||||||||
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
||
 |
||||||||||||||||
Is a recession the time to protect your business?:Portland, Maine With the economic recession, individuals with unmanageable debt should consider eliminating debt now through a workout or bankruptcy. Historically, getting a fresh start by shedding old debt helps set the stage for success in the next upswing in the business cycle. Clearing away the financial deadwood earlier in the cycle is better than later since you will be better positioned to take advantage of the opportunities in upswing. The good news is that despite changes to the Bankruptcy Code bankruptcy remains a valuable and accessible resource for entrepreneurs and professionals. Additionally, the threat of bankruptcy provides a framework for the less drastic alternative of a voluntary restructuring. CHAPTER 7, 11 or 13: For most individuals, the most desirable filing is a Chapter 7 filing. Chapter 13 requires ongoing payments to a trustee, and, while it can be helpful as a strategic move or to deal with certain liabilities or assets, it does not give you a quick clean break with your financial difficulties. Chapter 11 is a relatively expensive process suited for businesses or complex situations. Because of the misguided changes to the bankruptcy code the financial industry forced through Congress a few years ago, it can be difficult for some people to qualify for a Chapter 7 bankruptcy. Fortunately, for entrepreneur and professionals, high levels of business debt generally enable you to use Chapter 7. Chapter 7 is available if your income (adjusted) is below the median or if your business debts exceed your consumer (including home mortgage) debts. Under the ''new'' bankruptcy code there is significantly more financial due diligence and record keeping required as well as a higher possibility of auditing. Frequently, people have trouble generating or finding essential financial records and the filing process is longer than in the past. PLANNING: Because of changes in the Bankruptcy Code, it can take some months to be ready to file. Coordinating the timing of the filing with respect to income, tax filing, property transfers, inheritances etc. can be important. Efforts to hide or transfer assets can lead to serious legal problems, so any asset protection planning needs to be carefully analyzed. Insolvency creates a different world where decisions that might normally be good, are bad and visa versa. For example, many people use exempt assets like retirement funds or home equity to pay dischargeable debts, or try to pay down friends and family, or neglect trust fund taxes to pay income taxes - not good. Once you have decided to file a bankruptcy, it makes almost no sense to pay any unsecured debt and it may not make sense to pay your mortgage or taxes if your home is far underwater. HOME AND RETIREMENT: As battered as you 401(k) account may be, at least it is exempt from creditors. Due to an inexplicable twist in exemption law, if you roll it over into an IRA you face challenges. $35k of each owner's home equity is exempt, possibly more depending on your age. Generally, there are ways to protect and preserve a reasonable amount of home equity. If you are behind on your home mortgage(s) it is currently very difficult to predict a result. Unless you are dealing with a local lender holding your mortgage as part of its portfolio, the industry and the foreclosure process is irrational. There may be significant federal changes coming that will radically alter the foreclosure landscape - or not. In our office we see a wide range of approaches and results with lenders on short sales, deeds in lieu, re-capitalizations, forgiveness... singly or in combination. Generally, the ''WE CAN SAVE YOUR HOME FROM FORECLOSURE'' people do not offer any real value and can be, at best a distraction and at worst, they can wreck an otherwise resolvable situation. YOUR COMPANY AND OTHER ASSETS: Stock or membership interests you hold when you file a bankruptcy will be subject to review and sale by a trustee. Generally, in this economy, if you are forced to file bankruptcy protection, those interests have no value and you will retain them. My goal here has been to provide a summary. If you have questions contact Dave Perkins or me at rolson@perkinsolson.com or 207-871-7159. |
More Headlines
|
|