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Archives for November 2019
What Are They? How Do They Affect Your Bankruptcy Filing?
When you file for protection in bankruptcy, an automatic stay immediately goes into effect, prohibiting creditors from contacting you or taking action to collect the debt outside the bankruptcy proceeding. The stay generally remains in place until your bankruptcy proceeding is finished. But the bankruptcy process is not just forward-looking. The bankruptcy trustee and the court also look back at your actions in the period leading up to your filing. One of the things they look for are what are known as “preferences.”
What Is a Preference in Bankruptcy?
A preference, or preferential debt payment, is the conveyance of property or transfer of funds to a specific creditor within a certain period of time prior to the filing of a bankruptcy petition. If the bankruptcy court concludes that such a payment is preferential, that transaction can be voided and the creditor will be required to return the payment so that it can become part of the bankruptcy estate.
- Transfers made within 90 days of a bankruptcy filing?The bankruptcy court has the power to void any payments in excess of $600 (in aggregate) to a specific creditor within a 90-day window prior to the initiation of bankruptcy proceedings. However, it also must be shown that you were insolvent at the time of the transfer (i.e., that your debts were greater than your assets) and that the transfer resulted in the specific creditor receiving more than they would have recovered in the bankruptcy process.
- Transfers to insiders?A different rule applies to transfers to persons considered to be “insiders.” For purposes of bankruptcy law, an insider includes “relatives, any partnership in which the debtor is a general partner, any general partner of the debtor, or any corporation in which the debtor is a director, officer or person in control.” The dollar amount for preferences is the same for insiders as others ($600 in aggregate), but the bankruptcy court can look back as far as one year. A transfer to an insider will be considered a preference only if the debtor was insolvent at the time of the payment and the conveyance resulted in the creditor receiving more than they would have obtained through the bankruptcy proceeding.
Contact Our Offices
At the Law Office of Andrew B. Finberg, LLC, we bring comprehensive bankruptcy counsel to individuals in Burlington, Camden, and Gloucester counties in New Jersey. To schedule an appointment, call our office at 856-988-9055 (toll-free at 866-721-7269), or contact us online.
What Is It and How Can It Benefit You? What Are the Limitations on Personal Property?
When you are seeking protection from creditors through Chapter 13 debtor reorganization, one option to consider is what’s known as a cramdown. A cramdown typically allows you to pay less than the actual principal balance on secured debt. The cramdown is most often used for motor vehicle debt but, with some restrictions, also may be used with other property. The application of the cramdown option to mortgage debt is significantly limited.
What Is a Cramdown?
A cramdown is a Chapter 13 strategy that allows a debtor to reduce the principal balance of a secured debt to the fair market value of the collateral. The cramdown option typically is used when a loan is “under water,” or when the principal balance due is greater than the fair market value. A cramdown allows you to pay the reduced amount in equal installments over the term of your reorganization plan. The principal amount due in excess of the fair market value is typically considered unsecured debt and treated like credit card and similar obligations.
Why Should You Cram Down a Debt?
When you cram down a debt, you’ll be able to keep the collateral?e.g., a car or truck?while making reduced payments. In addition, because you’ll pay the reduced balance over the term of the reorganization, you’ll own the property free and clear when your Chapter 13 is completed. You also may be able to negotiate a reduced interest rate for the payments. Depending on where you were in the term of the original note, you also may secure a longer period to repay the debt, further lowering your payments.
Cramdown Restrictions on Personal Property
There are two limitations on cramdowns of personal property:
- For motor vehicles, the 910-day rule means that the cramdown option may be used only if the purchase of the vehicle was made at least 910 days before the filing of your bankruptcy petition.
- The one-year rule applies to all other personal property and prohibits cramdowns of debts secured by assets owned for less than a year.
Contact Our Offices
At the Law Office of Andrew B. Finberg, LLC, we bring comprehensive bankruptcy counsel to individuals in Burlington, Camden and Gloucester counties in New Jersey. To schedule an appointment, call our office at 856-988-9055 (toll-free at 866-721-7269), or contact us online.
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