Friday, May 23, 2014

Your Sole Proprietorship Business Can Be Rescued by Chapter 13

Do you have a small business in your own name that would be successful if it only got a break from its debts? A Chapter 13 case would likely greatly reduce both your business and personal monthly debt service while you continue to run your business.

Although Chapter 13 is sometimes called the “wage earner plan,” it is not at all restricted to wage-earning employees. In the Bankruptcy Code Chapter 13 is actually titled “Adjustment of Debts of an Individual with Regular Income.” That word “Individual” makes clear that a corporation cannot file under Chapter 13. But if you are a person who owns a business that is operated in your own name, or that of you and your spouse, then you and business are treated as a single legal entity. The business’ assets are just part of your personal assets; its debts are just part of your debts. This is true regardless if your business is operated under an assumed business name, as long as you have not gone through the formalities of creating a corporation, a limited liability company, or other separate legal entity for your business.

Here’s how Chapter 13 works to help your sole proprietorship business:

1) Chapter 13 deals with your business and personal financial problems in one package. In a sole proprietorship you are individually liable for all debts of your business, along with your personal debts. So as long as you qualify for Chapter 13 otherwise, you can simultaneously resolve both business and personal debts with that one option.

2) Stop both business and personal creditors from suing you and shutting down your business. The “automatic stay” imposed by the filing of your Chapter 13 case stops ALL your creditors from pursuing you, including both business and personal ones. Your bankruptcy case will stop personal creditors from hurting your business, and business creditors from taking your personal assets.

3) Keep whatever your business assets you need to keep operating. If you do not file a bankruptcy, and one of either your business or personal creditors gets a judgment against you, it could try to seize your business assets. Also, if you filed a Chapter 7 “straight bankruptcy,” under most circumstances you could not continue operating your business. However, Chapter 13 is designed to allow you to keep what you need and continue operating your business.

4) Keep critical business and personal collateral. If you are behind either on business or personal loans secured by either business or personal collateral, Chapter 13 will at least temporarily stop the repossession of the collateral, and often give you an opportunity to either lower the payments or at least have some time to catch up on your late payments. In certain limited situations—such as some judgment liens and some 2nd/3rd mortgages—the liens can be gotten rid of altogether. Overall, through Chapter 13 you are provided ways to keep collateral that you would otherwise lose, and often do so under much better payment terms.

5) Solve both business and personal tax problems. Business owners in financial trouble are often in tax trouble, which Chapter 13 addresses well. The program is designed so that at the end of a successful Chapter 13 case, you will have either discharged or paid off all your tax debts and will be tax free.

Conclusion: Chapter 13 can be an incredibly effective tool for keeping your business alive by reducing your business and personal debt, IF you operate your business as a sole proprietorship. But this tool is not the best one in every situation. It comes with some disadvantages: its rules are not very flexible, some business relationships may be harmed when your case is filed, they usually take three to five years to complete, and you generally cannot use or incur credit during that time. You need someone deeply experienced in business bankruptcies who will take the time to understand your business and advise you about all your alternatives, including Chapter 13.

Wednesday, June 6, 2012

Is the Home Affordable Refinance Program (HARP) 2.0 New and Improved Enough to Help YOU?

Under new rules coming on line, HARP is now available for refinances no matter how far your home is underwater. The 125% loan-to-value cap is no more.
The purpose of the Home Affordable Refinance Program has been to enable homeowners who could not otherwise qualify for a refinance do so, thereby getting a lower interest rate and lower monthly payment, making more likely that they could afford to stay in their homes.
Until this revamped version of HARP, homeowners could not qualify if their existing mortgage was more than 125% of the value of their home. In the new improved version announced way back in October, this condition was eliminated. But it has taken until a few weeks ago for Fannie Mae and Freddie Mac to release their formal guidelines, update their approval software, and start getting lenders on board.
In this blog I will give you a short list of the main conditions for HARP 2.0 eligibility, and then provide a few good sources for more detailed information. 
1. Your mortgage loan must be owned or guaranteed by Fannie Mae or Freddie Mac. Why? Because these entities were effectively taken over by the government near the beginning of the real estate market crash, and so the federal government can require them to follow new refinancing rules. HARP operates through Fannie and Freddie, and so loans owned by private lenders aren’t in the program. However, a large majority of home mortgages are held by Fannie or Freddie, so there’s a good chance yours is as well. You can find out by checking these two websites:  or (If you instead you have a VA, FHA, or USDA home loan, they each have their own refinancing programs.)
2. Your loan must have been sold to Fannie or Freddie on or before May 31, 2009.
3. Your loan was not refinanced through HARP previously. No second bites at this apple. One small exception—if you happened to refinance your Fannie Mae mortgage from March through May of 2009. Also, prior non-HARP refinances are not a problem.
4. Your current loan-to-value must be greater than 80%. Although HARP is not limited to underwater loans, you can’t have more than 20% equity. Presumably, homes with an equity cushion are either more likely to be refinanced on the private market, and any event their owners will be motivated to preserve their equity. The point of HARP is to enable refinances which could not otherwise happen, and to give help and motivation to homeowners who have little or no equity.
5. Must be current on the mortgage—no late payments in the last 6 months, maximum of 1 in the last 12 months. Given that this program will leave the homeowner with a loan with little or no equity, and often with serious negative equity, the borrower must show a very clean recent payment history. However, many other requirements have been loosened, for example automated appraisals will be permitted instead of needing on-site ones (since the home value is not important here), and income verification will be less often required, making self-employed people more likely eligible.
CAUTION: Lenders have a fair amount of discretion to alter these rules, so refer to your lender for the details, and it may well be worth shopping for eligibility and better refinance terms.
Resources for More Information
1.  A good general new story about the HARP changes, from the website edition of the Philadelphia Inquirer.
2. The best detailed description I could find of the new program, in a website called
3. Some experts’ opinions about the impact of HARP 2.0 in a Wall Street Journal blog.

Wednesday, April 11, 2012

Ten Terrific Tools for Saving Your Home through Chapter 13--Part 2

Here are the other 5 powerful home-saving tools. Chapter 13 isn’t for everyone. But these tools, especially in combination, can often give you what you need to tackle and defeat your mortgage and other home-debt problems.
In my last blog I gave you the first five of ten distinct and significant ways that Chapter 13 can save your home. I’ll summarize those here briefly, and then give you the other five in more detail.
Chapter 13 enables you:

1.... to stretch out the amount of time you are given to catch up on missed mortgage payments, giving you as long as 5 years to do so.

2. ... to slash your other debt obligations so that you can afford your mortgage payments.

3.... to permanently prevent income tax liens, child and spousal support liens, and judgment liens from attaching to your home.

4.... to have the time you need to pay debts that cannot be discharged (legally written off) in bankruptcy, all the while being protected from those creditors messing with your home.

5.... to discharge debts owed to creditors which could have otherwise put liens on your home.

6.... to get out of paying all or some of your 2nd or 3rd mortgage ever again—IF the value of your home is no more than the balance of your 1st mortgage. This “stripping of junior mortgages” under Chapter 13 continues being used more and more as home property values continue to head downward in so many parts of the country.
7.... to take extra time to pay back property taxes, while protecting the home from tax and mortgage foreclosure. This is particularly important if you have a mortgage on your home. That’s because virtually all mortgages require you to keep current on the property taxes. So not only does Chapter 13 protect you from the property tax authority itself, more importantly it prevents your mortgage lender from using your property tax arrearage as a justification for foreclosing on your home.
8.... to favor many home-related debts—such as property taxes, support liens, utility and construction liens-- that you probably want to pay. You generally can’t get rid of these special kinds of liens on your home, but Chapter 13 allows—indeed requires—you to pay them in full before you pay anything to your other creditors. So in many situations your regular creditors’ loss is your home creditors’ gain, and thus your gain, too.
9.... to get rid of judgment liens in many situations, so that they no longer attach to your home. Although this can also be done in Chapter 7, it’s often all the more helpful in a Chapter 13 when used in combination with these other tools.
10.... to sell your house without the pressure of a foreclosure sale, either just a short time after filing the Chapter 13 case, or sometimes even three, four years later. You may need to or be willing to sell and downsize, but not until a kid finishes high school or you reach an anticipated retirement date. Chapter 13 may allow you to delay selling and curing part of your mortgage arrearage until then, allowing you to preserve your family home in the meantime.

Monday, April 9, 2012

Ten Terrific Tools for Saving Your Home through Chapter 13--Part 1

Powerful Chapter 13 gives you tools to solve your mortgage problems from a number of different angles.  Plus it gives you other tools to deal with tax, support, and judgment liens on your home.

In my last blog I showed how a straight Chapter 7 bankruptcy case can sometimes help you enough to save your home. Or at least it can help you hold onto your home for as long as you need to.  But Chapter 7 can only give limited help, sufficient only in limited circumstances. Chapter 13, on the other hand, provides you a much more powerful and flexible package, with a range of tools for addressing just about all debt issues involving your home.

Here are the first five of ten distinct and significant ways that Chapter 13 can save your home. I’ll give you the other five in my next blog.

A Chapter 13 case enables you:

1. ... to stretch out the amount of time you get for catching up on missed mortgage payments, giving you as long as 5 years to do so. A longer repayment period means that you can pay less each month, making it more likely that you will actually be able to catch up and keep your home. Throughout this catch-up period, you are protected from foreclosure as long as you stay with the payment program, one that you propose.

2. ... to slash your other debt obligations so that you can afford your mortgage payments. The mortgage debt—especially your first mortgage—is highly favored within Chapter 13. So you are usually allowed—indeed required—to pay most of your mortgage payments in full, while being allowed to pay only as much as you have left over towards your “general unsecured” debts—those without any collateral, such as most credit cards, medical debts, and many other types of debts.

3. ... to permanently prevent income tax liens, child and spousal support liens, and judgment liens from attaching to your home. This stops these special creditors from gaining dangerous leverage over you and your home.

4. ... to have the time to pay debts that cannot be discharged (legally written off) in bankruptcy, all the while being protected from those creditors messing with your home. That applies when the tax, support or other lien was not filed before the Chapter 13 is filed—the example immediately above. But this also applies if the lien is already in place, giving you the opportunity to pay the debt while under the protection of the bankruptcy laws, undercutting most of the leverage of those liens against your home. And at the end of your case, the debts are paid and those liens are gone.

5. ... to discharge debts owed to creditors which could otherwise attack your home.
For example, certain income tax debts are discharged, leaving you owing nothing. But if instead you had not filed the Chapter 13 case, or delayed doing so, a tax lien could have been recorded on that tax debt. That would have required you to pay some or all of the balance to free your home from that lien. Even most conventional debts can turn into judgment liens against your house after a lawsuit is filed. And certain judgment liens may or may not be able to be taken care of in bankruptcy.  If instead you file a Chapter 13 case to prevent these liens from happening, at the end of your case the debt is gone, and no such liens ever attach to your home.

Again, see my next blog for the other five house-saving tools of Chapter 13.
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