December 2019 Archives

Changes in Bankruptcy Preference Laws

When a business files a bankruptcy, under certain circumstances the bankruptcy trustee can assert a preference claim against certain creditors and take back from those creditors money previously paid to the creditor by the debtor. For example, if within 90 days of the filing of a Chapter 11 bankruptcy a payment is made on a past due invoice, in certain circumstances the trustee can assert that the creditor received a preference which is unfair to the other creditors and therefore, even though the money was owed, they must give it back to the debtor so the money can be redistributed to treat creditors equally. Trustee's would take advantage of this power by filing suit in order to try and get a settlement even though there may be valid defenses such as new value or contemporaneous exchange. In addition, if a company in, say Maple Shade NJ files a chapter 11 and the the debtor paid a company in Bozeman, Montana within 90 days before filing, the company in Bozeman could be forced to litigate in New Jersey. Under the new law, a trustee must do reasonable due diligence  and consider defenses before they can file a suit. In addition, all lawsuits for less than $25,000.00 must be filed in the District where the defendant business is located. Both changes were badly needed.

Filing bankruptcy gives you a chance to rebuild your credit

To the average American, filing for bankruptcy may seem like a scorched-earth tactic for handling their debts. People might even compare it to a nuclear attack on their finances, leaving nothing behind. While it is true that bankruptcy has a profound impact on your credit in the short term, that doesn't mean that it must have a permanent, negative effect on your life and finances.

The New Small Business Reorganization Act

The new Small Business Reorganization Act was signed into law by President Donald Trump on August 23, 2019 and goes into effect in February 2020. The changes are long over due. Filing a Chapter 11 bankruptcy for a small business has been problematic because it is more designed for a large company rather then a small one. Because of certain rules which could make it more difficult for the owners to retain their ownership in certain circumstances, chapter 11 was sometimes avoided even though it could provide relief. Now the debtor can elect to be treated as a subchapter V debtor as of February 19, 2020. The new Chapter streamlines the process and avoids the potential loss of ownership. It is more cost effective. It also allows the debtor to have his bankruptcy plan confirmed over objections as long as certain criteria are met. Overall it should allow a number of small businesses to successfully reorganize

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