California Bankruptcy Lawyer Blog

Sacramento Bankruptcy Attorney discusses when it may be appropriate for a corporation to file for Chapter 7 Bankruptcy

For individuals, filing for bankruptcy under Chapter 7 means a fresh start and a discharge of nearly all debts. Unfortunately for a corporation, a Chapter 7 bankruptcy filing does not provide the same relief because its debts will not be discharged. This means for many struggling corporations that it is in the officers and majority shareholders’ best interests to just sell the remaining assets (if any), close the doors, and walk away. However, a Chapter 7 bankruptcy can be helpful under the following circumstances:

1. If there are a significant number of assets to be liquidated, officers may want to file for a Chapter 7 bankruptcy in order to benefit from the services of a Court appointed trustee. The trustee will then be responsible for liquidating the assets and relieving the corporate officers from the burden of finding buyers and organizing sales.

2. Filing for Chapter 7 bankruptcy can also protect officers and shareholders who have personally guaranteed the corporation’s obligations, such as leases, certain types of taxes, etc., from creditors who are looking to levy or put liens against assets that could be sold to pay off debts.

3. Creditors may also try to pierce the corporate veil and name officers and/or shareholders in lawsuits to obtain payment, even though they are not personally liable to repay the corporation’s debt. If the corporation believes it is likely to be facing numerous lawsuits from litigious creditors, a Chapter 7 filing will generally protect the officers and shareholders from personal liability.

If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.

San Jose Bankruptcy Attorney Discusses Bankruptcy Statistics and the Economy

The current state of the economy has caused many people to turn to bankruptcies to rid themselves of debt. In March 2009 alone there have been 131,000 bankruptcies of all types filed in Bankruptcy Court. This number represents the most bankruptcies filed for any month since 2005. With every passing month, it seems that more and more people are filing. There has been a 9.2% in increase in March 2009 from February 2009. Since March last year bankruptcies rose 38% and have risen 79% from 2007. It is projected that 1.5-1.6 million people will file bankruptcy in 2009 which would exceed 2008 by 45%. The high percentage of bankruptcies comes off the heels of March's unemployment rate climbing to its highest since 1983 with 663,000 people losing their jobs. The unemployment rate is now 8.5%. Almost 1.1 million people filed for bankruptcy in 2008, 32 percent more than the 827,000 filed in 2007 and 86 percent higher than the 590,500 filings in 2006. So far this year, bankruptcy filings total 323,500.

However 2005 still holds the record for most filings from the 630,000 Americans sought bankruptcy protection in the two weeks before revisions to federal bankruptcy laws in October made it more difficult for individuals to erase debts. At this rate, more and more people who find themselves unemployed will seek the cover of bankruptcy in order to wipe out their debts and let go of their homes.

If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.

San Francisco Bankruptcy Attorney Talks about Law Firm Bankruptcy

As a sign of the times, even major law firms are not immune from the dropping economy. Heller Ehrman filed for Chapter 11 Bankruptcy back in December of 2008. The interesting question is how does a law firm go into bankruptcy? For a sneak peek in the workings of a law firm, a lawyer for Heller Ehrman charges a client for each hour (or fraction thereof) that they spend working on the client’s case. The client is then billed for the work. Assuming that Heller Ehrman was collecting at a reasonable rate and managing the billable work of each attorney, it should never have gotten to a place where it owed money because its employees are retained only if they are producing positive results. (Unlike a car dealer who has to have employees even if no cars are sold).

In Heller Ehrman’s case, the problem was not the amount of work or the client’s not paying. Instead, Heller Ehrman was in a dispute with the landlord over the lease. The two parties reached a settlement agreement which needed a lump sum cash payment. The landlord recorded this agreement as an attachment to Heller Ehrman’s property which created a liability. This attachment affected Heller Ehrman’s balance sheet and caused the banks to deny Heller Ehrman credit when Heller Erhman tried to borrow the money to pay the sum. Without the money to pay the landlord, Heller Ehrman went into default and had to file bankruptcy to protect itself the landlord coming after it for more money.

The scenario above should sound extremely similar to real life people who are faced with bankruptcy now. Many people who have dutifully paid their credit card bills on time every month are suddenly receiving letters from the banks that their credit has been re-evaluated. Due to a higher credit risk (such as a new debt) the bank is cutting the credit limit or raising interest rates. The credit card user, who needed the credit to pay their money expenses, suddenly has no credit and no way to meet their bills. The users are then forced to default on payments to creditors such as the landlord, mortgage company, or utility company. The default creates more debt and restricts the user from getting more credit. The user is then forced to file for bankruptcy.

In Heller Ehrman’s case, it was possible that if the banks did not cut off Heller Ehrman’s credit, it would have paid the landlord and paid back all the money it owed. But the bank’s denial of credit forced the company into a bankruptcy that it did not want. For an individual creditor’s case, if the credit card had not denied credit then the debtor would have paid their bill and repaid the credit card holder plus all the interest. But the denial of credit forced the debtor into default which led to bankruptcy. The parallel shows that debtors, whether they are large law firms or individual debtors, often never want to be in bankruptcy. It is the arbitrary actions of creditors that force them into it.

If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.

San Jose Bankruptcy Attorney discusses a Chapter 11 Success Story

Filing for Chapter 11 bankruptcy protection is a scary scenario for debtors of all financial sizes. However, it is a worthwhile process to keep the company’s doors open and the business operation. An inspiring example of this is the rehabilitation of the Tropicana Resort & Casino on the Las Vegas Strip. In May of 2008, Tropicana Entertainment, the owner of the 51-year-old resort and casino filed for Chapter 11 bankruptcy protection. The Tropicana was able to keep its roulette wheels spinning during the restructuring process and has recently announced that it believes it will be able to emerge from bankruptcy as early as this spring.

The Tropicana appears to have been able to make the necessary changes to make it a viable entity again, less than one year after filing bankruptcy. The Chapter 11 restructuring plan is currently being reviewed by the casino’s unsecured debtors and they have until mid-April to approve the proposal. Assuming everything proceeds as planned, the Tropicana’s bankruptcy confirmation hearings are scheduled to begin on April 27, 2009.

If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankrupcty attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.

Sacramento Bankruptcy Attorney discusses Cash Collateral

While filing for Chapter 11 bankruptcy may protect your business from creditors through the Automatic Stay, debtors need to be aware that filing the petition for Chapter 11 automatically creates a bankruptcy estate. This estate includes all of the property owned by the business at the time of filing which includes cash. What debtors may not be aware of is that the cash generated by the business post-filing is also likely to be considered property of the estate. The problem with this scenario arises when the business goes to pay its monthly bills, utilities, vendors, etc. Bankruptcy Code section 363(c)(2) specifically prohibits debtors from spending cash collateral without the consent of all interested parties to the bankruptcy. That means debtors must have permission from either all of its creditors, or a court order, before it can pay any bills using cash collateral.

Unauthorized use of cash collateral can have severe consequences for debtors, including hefty monetary sanctions, as well as possible dismissal of the bankruptcy proceeding. As such, it is recommended that an Emergency Motion for use of cash collateral be filed in conjunction with the debtor’s Chapter 11 petition. The Court can then make orders “carving out” cash collateral for the business’s use to enable it to remain operational during the bankruptcy proceeding.

If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.