Conversion from Chapter 13 to Chapter 7 Bankruptcy

February 7th, 2010

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The most common reasons for filing a Chapter 13 bankruptcy would be for protection from a pending foreclosure or to pay back unsecured debt based on non-exempt equity in real property.  As situations change, a bankruptcy filing can as well.  A Chapter 13 Bankruptcy may either be modified (change in the Bankruptcy Plan post-confirmation) or converted to another Chapter, usually to a Chapter 7 Bankruptcy.  The conversion  is triggered by a change in income or intent generally regarding real property.  Whether a modification or conversion is desired a motion must be filed and approved by the Bankruptcy Court.  The motion must show cause for conversion or change in circumstances for modification. 

Normally, in a Chapter 7 case, only prepetition debts are payable from the estate and are subsequently discharged. Postpetition debts are not discharged, nor are they paid out from the bankruptcy estate. However, when the Chapter 7  is a conversion from another chapter, then debts incurred postpetition but pre-conversion become part of the debts that are paid out of the estate and are subsequently discharged.

Conversion and modification in Chapter 13 Bankruptcy can be technical and it is recommended that one seek assistance from a competent attorney specializing in Bankruptcy Law. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyersat Sadek Law Offices, LLC at 215-545-0008  or (877) 4-LAW-411 or email brad@sadeklaw.com. Thank you.

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Bankruptcy and IRS Debt

January 28th, 2010
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http://taxreducer.net/common/imagelib/index.htm/1245_420_280_crop_c03af.jpg

For small business owners, independent contractors or those who have failed to file taxes in the past, this time of year can be daunting.  This blog will discuss options available in paying back or discharging back taxes through either a Chapter 13 or Chapter 7 Bankruptcy filing.  IRS back taxes carry a compounding interest rate of at least 7 percent per month.  The interest on back taxes begins and continues to compound from the onset of the tax deficiency.  When negotiating debt directly with the IRS, interest, penalties and late fees continue to accrue through the pendancy of a negotiated payment plan.  Making payment through an offer and compromise or installment agreement with the IRS is usually extremely difficult to catch up and pay off the tax debt.

There is an advantage of filing Chapter 13 bankruptcy where IRS debt is involved.  The technical term is known as “bifurcation of claim.”  An IRS debt carries two main categories, the principal debt and the accrued interest and penalties.  Through Chapter 13 bankruptcy a delinquent taxpayer is usually able to drastically reduce interest and penalties as an unsecured debt and pay back the principal tax debt interest free over three to five years.  The Chapter 13 process affords the  taxpayer a viable option to pay back taxes and remain debt free.   

Moreover, the tax debt may be “discharged” through a Chapter 7 Bankruptcy filing if the following conditions are met:

1. The taxes are “income taxes,”

2. No fraud or willful evasion took place,

3. The debt is at least three years old,

4. You filed a tax return and

5. The tax debt has been assessed within 240 days.

The aforementioned list and types of bankruptcies discussed herein are highly complicated and specialized, if you are having trouble with tax or any other type of debt contact Sadek Law Offices, LLC. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyersat Sadek Law Offices, LLC at 215-545-0008  or (877) 4-LAW-411 or email brad@sadeklaw.com. Thank you.

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Vacation Timeshares – A Waste of Time and Money

January 17th, 2010

A timeshare purchase usually reserves six (6) nights and seven (7) days in a network of resorts.   The timeshare is sold through a presentation hosted by commissioned salepeople that lure purchasers with a free night in a resort and/or a free toaster-oven at best.   Often my clients ask me whether they can sell their timeshares, however, a timeshare is under the  law deemed only a “license” to use the resort, meaning the purchaser does not have any  ownership or titled interest in the resort whatsoever.  For greater example, if one has a ticket to attend a sporting event at a particular venue on a particular date, they do not own the team or even the seat, just the right to sit there for the game, they can not sell the seat or the sports team. 

The reasons why people purchase a timeshare vary, on it’s face it may be presented as a good deal (ever hear a car salesman say that you are buying a lemon), or after a three-hour presentation people just sign up so they can finally leave.

Generally payment for a timeshare is taken automatically out of the purchaser’s checking account on an ongoing monthly basis, this way the monthly fee is out of sight and mind.  Timeshares generally average $300.00 per month with a $75.00 maintenance fee.  Let’s do the math,  a combined monthly payment of $375.00 per month times 12 months is a total payment of $4,500.00 per year.  Now on a per night basis, for a stay of six (6) nights, divide $4,500.00 by six (6) , and the per night cost is an outrageous $750.00 per night. 

In addition to the cost of the timeshare, travel and meal expenses are also incurred.  Moreover, if one is having a rough financial year, they do not have the flexibility to forego paying for their over-priced vacation because the monthly fee (averaging $375.00) is taken whether the purchaser uses the “time” or not. 

Before purchasing a timeshare do your research, go online and see how much it costs to stay at a particular resort per night and compare it to the timeshare cost and most likely the timeshare will be tremendously more expensive.  

There is good news.  Timeshares are a dischargeable debt in Bankruptcy.  Meaning that the monthly fee through bankruptcy will be turned into monthly savings.  With those savings the Petitioner in Bankruptcy can save for a vacation that is affordable and on their own terms.  If you have any questions about your particular timeshare, call our Philadelphia Bankruptcy Law Firm and I will be happy to discuss the financial implications of having one.  Thank you for reading this post. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008  or (877) 4-LAW-411 or email brad@sadeklaw.com. Thank you.

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Mortgage Modification and Bankruptcy Legislation

January 5th, 2010

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Currently, mortgage modifications are negotiated between the lender and borrower outside the state or federal court systems.   Representative Conyers from Michigan, has proposed a Bankruptcy Mortgage Modification Amendment as part of the Wall Street Reform and Consumer Protection Act (H.R. 4173).

The Bankruptcy Mortgage Modification Amendment seeks to allow Bankruptcy Judges to modify the first mortgage on the bankruptcy filing party’s primary residence in Chapter 13 Bankruptcy. 

This would be a great help to homeowners.  Currently mortgage modifications lower interest rates, spread arrearages through the duration of the loan and may lower the principal balance through federal assistance programs and/or private negotiations with the mortgage lender.  However, the new bill would allow the homeowner to modify their mortgage based on the current value of their home.  Therefore, if the current value of the home is $125,000.00 and the current mortgage is $175,000.00, the proposed legislation would allow the mortgage amount to be crammed down to the value of the home, in this example $125,000.00, leading to a substantial savings for many homeowners.  In Chapter 13 Bankruptcy, the $50,000.00 crammed down would be deemed unsecured debt and the Petitioner would pay only a small percentage of the forgiven debt.   With a lower payment and a mortgage based on fair market value of the property, homeowners would be more inclined to pay for and afford their mortgages on an ongoing monthly basis. 

Such legislation is not new and has been discussed since in or about, 2007. However, the resurgence in the legislation has been fueled by the less than anticipated success of the current mortgage modification system’s ability to grant homeowners help in a timely and ongoing manner. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email brad@sadeklaw.com. Thank you.

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When Will You Be Debt FREE?

December 23rd, 2009

To best answer this question, there are a few questions that must be asked.  First of all, how much debt do you have, secondly what is the interest rate(s) and lastly what amount of money do you pay per month toward the debt(s)?

Let’s say that a person has only one credit card with a $20,000.00 balance, 15% interest rate and makes a regular monthly minimum payment in the amount of $300.00.  Although that person is doing his/her best to pay off the debt in a timely basis, it will take them 95 years and 6 months to pay off the $20,000.00.  Further, that person will have paid the balance of $20,000.00 plus $86,974.31 in interest charges for a total payment of $106,974.31.  

If you are reading this blog, most likely you have debt of some kind.  I would advise you to follow the link below to the “debt reduction planner.” 

            http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp 

You will realize that there is probably not enough time or money to pay off your existing debt and a bankruptcy filing is most likely the quickest and least costly alternative to becoming debt free and getting the fresh-start you need. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email brad@sadeklaw.com. Thank you.

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Cars, do your research before you buy!

November 30th, 2009

 

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http://www.carbuying.us/car-shopping-600.jpg

 

There are many financial decisions that can be made without too much research and analysis.  However, the most common impulsive buying decision that my Philadelphia Bankruptcy Law Office sees is with respect to automobiles.  If you are able to read this blog, you have some sort of internet access, which means there is no excuse for an impulsive buying decision. 

However, with respect to automobiles, there are numerous automobile information sites such as www.edmunds.com, www.kbb.com, www.nada.com.   There is no such thing as the deal of a lifetime with respect to an automobile and doing your individual research can save you thousands of dollars in the price of the new car, value of trade-in and on financing terms.  Moreover, if one wants to know their estimated car payment they may consult bankrate and utilize their automobile calculator.  http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx.   Please be advised that a longer payment term of years may reduce the monthly payment amount, however, the buyer will be paying interest for a longer period of time and the car will be depreciating quickly in value during the payment terms, usually causing an equitable deficiency.  

Too many impulsive buying decisions and lack of planning may cause one to become financially overwhelmed and a bankruptcy may be the best option. 

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email brad@sadeklaw.com. Thank you.

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Technocrati Confirmation

November 25th, 2009

Technocrati Profile

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Considering a Business Bankruptcy?

November 23rd, 2009

Bankruptcy Relief and Small Businesses

First, is the business a corporation, a partnership, or a proprietorship?

  • Proprietorships are just an extension of the owner meaning, a bankruptcy cann not be filed on behalf of the proprietorship alone, meaning the proprietor (individual owners(s) must file bankruptcy.  The bankruptcy will look into the assets and liabilities of the individual owner as an extension of the business itself.  The individual owner may file a Chapter 7 Bankruptcy, Chapter 11 Bankruptcy or Chapter 13 Bankruptcy.

Advantages and disadvantages to corporate reorganization under Chapter 11 Bankruptcy.

  • Reorganization can’t create a market; increase gross revenue, or make up for a poor fit between the skills available and the skills required to run the business. 
  • Reorganization could free up cash from servicing the old debt to permit current operations; permit rejection of leases or contracts that are no longer advantageous (an expensive facility lease or improvident equipment purchase); or prevent the loss of vital assets or cash to creditor collection actions.

Bankruptcy reorganization in Chapter 11 requires significant time on the part of the owners and managers to comply with the requirements of the bankruptcy system, interface with counsel, and negotiate with creditors.  The “bankruptcy bargain” is that, in exchange for the protection of the bankruptcy protections, including the automatic stay, the debtor provides full disclosure of its financial condition to creditors and the court, both at the beginning of the case and on a monthly basis thereafter,  and operates as a fiduciary for its creditors while the bankruptcy is ongoing.  

Businesses that require little capital, have few assets, or are really just extensions of the owner’s skills and personality are ones that it may not pay to reorganize.  The owners may be better off liquidating the business, in or out of bankruptcy, and starting over in a fresh entity.  

When Chapter 7 is best

A Chapter 7, whether for the individual or a corporation, may be the best choice when 

  • The business has no future, 
  • It has no substantial assets or qualities that cannot be reproduced after bankruptcy,  or 
  • The debts are so overwhelming that restructuring them is not feasible.

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email brad@sadeklaw.com. Thank you.

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REAL ESTATE SHORT SALE CONSIDERATIONS

November 6th, 2009
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http://azactiveretirementliving.com/image_store/uploads/6/6/3/5/9/ar124300570895366.gif

What is a Short Sale?

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.  Further, the lender may accept a short-sale in favor of the possibilty of the borrower filing for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy protection and therefore staying a prolonged period in the subject property for a longer duration of time and not being responsible for the mortgage deficiency. 

Short Sale Considerations 

1.         In a traditional sale of real estate items such as the washer and dryer, refrigerator, ceiling fan and lighting fixtures are usually included in the sale of real propert.  Said items are known as Personal Property and Fixturess and are not always included in a short sale and careful consideration must be made to the Contract for Sale. 

2.         In a Short Sale addendumto a Contract For Sale of Real Estate, the short sale is generally contingent upon  upon the approval of the short sale by the lien holders or  mortgagees within 60 days after review period. 

Positives:   The time frame can always be extended, however ALL parties (buyers and sellers) must agree.   Only two months are spent trying negotiate and the buyer and seller may move on if the short sale is not timely approved. 

Negatives:  If  a potential short sale buyer’s house does not sell and settle within a short period of time then a short sale buyer is bound to purchase subject short-sale property per contract.  Sixty days is a relatively short period of time for a short sale to take place, at the paties are at the mercy of the seller’s attorney, lien holder’s  and seller’s cooperation to submit documentation in a timely fashion to the mortgagees for short sale approval. 

3.         A Short-Sale Contract is usually an “As-Is” contract which means that no defects, known or unknown will be fixed at the seller’s expense, however,  the buyer is usually privy to a full home inspection to determine structural and other possible defects in the real property.

4.         Buyers’ potential new mortgage lender may want a home inspection completed prior to approving a mortgage commitment, however, under a typical short sale Contract, a home inspection may not be obtained until up to 10 days after short sale is approved.  Meaning, a short-sale buyer may be bound to buy a house that has not yet been inspected by a home inspector of thier choice prior to the Contract becomming enforeable.  Short Sale contracts are usually “As-Is Contracts” however, a potential short-sale buyer would most likelyprefer to have an idea of the extent of the “Is” part.  Suggestion, amend the inspection clause to read “At buyer’s request  a home inspection may be obtained after the Contract is signed by both parties (buyer and seller).”  Therefore no revelations surface regarding the condition of the subject short-sale property as settlement approaches.

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email brad@sadeklaw.com. Thank you.

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File Bankruptcy, Keep Your House, Car and Property

October 28th, 2009

Filing Bankruptcy does not mean that you will lose your assets in exchange for a discharge of debts.  If an asset is lost, generally it is surrendered because it does not make financial sense to keep it.  For example, if a petitioner owns an automobile and has a loan for $15,000, but the car is only worth $5,000.00, the petitioner may voluntarily surrender the automobile and not be held responsible for the $10,000.00 deficiency. 

On the flip side, if a petitioner(s) in bankruptcy has equity in his/her vehicle one may combine the bankruptcy motor vehicle exemption (11 U.S.C. 522(d)(2)) and the bankruptcy personal property exemption if need be (11 U.S.C. 522(d)(2)), to protect the equity and retain the vehicle.  Further, if a petitioner in bankruptcy has equity in their home, the petitioner may take advantage of the homestead exemption (11 U.S.C. 522(d)(1)) to ensure they will continue to enjoy the subject real estate. 

Other property such as jewelry, household goods, tools of a trade are also exempt.  Due to the federal exemptions, listed in detail below, it is extremely rare that a petitioner in bankruptcy loses property when filing with Sadek Law Offices, LLC in Philadelphia, PA. 

The Federal Bankruptcy Exemptions can be doubled by a husband and wife filing together.  This below list has been updated as of January 2009.

The following exemptions list the type, section of Title 11 of the United States Code, and an explanation of the rules associated with the exemption type and 11 USC.

Homestead:
522(d)(1) Real property, including mobile homes and co-ops, or burial plots up to $20,200. Unused portion of homestead, up to $10,125, may be used for other property.
Personal Property:
522(d)(2) – Motor vehicle up to $3,225.
522(d)(3) – Animals, crops, clothing, appliances and furnishings, books, household goods, and musical instruments up to $525 per item, and up to $10,775 total.
522(d)(4) – Jewelry up to $1,350.
522(d)(5) – $1,075 of any property, and unused portion of homestead up to $10,125.
522(d)(9) – Health aids.
522(d)(11)(B) – Wrongful death recovery for person you depended upon.
522(d)(11)(D) – Personal injury recovery up to $20,200 except for pain and suffering or for pecuniary loss.
522(d)(11)(E) – Lost earnings payments.
Pensions:
522(b)(3)(C) – Tax exempt retirement accounts; IRAs and Roth IRAs up to
$1,095,000 per person.

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact Sadek Law Offices, LLC at 215-545-0008 or email
brad@sadeklaw.com. Thank you.

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