Kevin L. served his country honorably for 22 years in the U.S. Army, including tours in Afghanistan and Iraq. After 22 years, Kevin retired at the rank of technical sergeant, and despite suffering combat-related injuries that left him fully disabled with PTSD, Kevin looked forward to his new life as a civilian.
Unfortunately, fate intervened. Kevin was involved in a significant auto accident after his honorable discharge. Kevin suffered a significant head injury that required brain surgery. Debts quickly piled up afterward. Even worse, Kevin’s partner left him after she added even more debt to his already heavy load.
Fortunately, Kevin came to the Sterbick firm for help this Spring. Kevin’s debts included his home and a truck, among others, and he had fallen behind in his payments. After the Sterbick team evaluated Kevin’s situation, we recommended filing a Chapter 13 repayment plan to get Kevin’s finances back under control. After answering Kevin’s questions, he agreed to the approach, and the Sterbick team prepared Kevin’s documentation and Chapter 13 filing.
The Sterbick team filed Kevin’s case in late May 2020. At the 341 hearing before the bankruptcy trustee and those creditors who wished to attend, only Kevin’s mortgage lender objected. John Sterbick represented Kevin at the hearing and overcame the lender’s objection to how the mortgage payments in arrears would be handled. After the Sterbick team amended Kevin’s Chapter 13 bankruptcy plan to include the amount of arrears, Kevin’s bankruptcy plan was approved.
Provisions for Bankruptcies Due to COVID-19
During the COVID-19 crisis, many people were furloughed or let go. A number of those now jobless people who had faithfully paid their mortgages before governments across the nation shut down large portions of the economy to try to mitigate the COVID-19 crisis could no longer remain current on their obligations. As a result, some people who had lost their income began to fall behind in their mortgage payments and other bills.
In a Chapter 13 bankruptcy filing caused by job and income loss due to the COVID-19 crisis, payments in arrears can be included in the bankruptcy plan and can be repaid over a period of up to five years at 0% interest.
The Sterbick firm recommends including mortgage payments in arrears into the Chapter 13 bankruptcy plan instead of taking the alternative option to forbear the missed payments. Here’s why:
Bankruptcy trustees have allowed mortgage forbearance during the current COVID-19 crisis for debtors who can prove job and income loss due to the crisis. Any debt in forbearance will be due and owing after the forbearance period ends, and plan payments will increase to include the missed payments. Chapter 13 currently allows the debtor to extend the debt repayment plan for up to seven years under those conditions. In forbearance, the arrears are not placed on the back end of the repayment plan unless the Trustee has agreed to extend the plan period to 7 years. As you can see, a debtor would accrue mortgage interest and default fees as well. In the end, the debtor will pay much more by accepting the mortgage lender and bankruptcy trustee’s offer to forbear the missed payments than if the debtor includes the missed payments in the Chapter 13 bankruptcy plan. Why add more debt to what is already a crushing burden?
Kevin Looks Forward to a Brighter Future
Now that his Chapter 13 bankruptcy filing and 341 Notice to Creditors hearing is behind him, Kevin is looking forward to a better life. Once the COVID-19 crisis is over, Kevin plans to renew and strengthen connections with his family, becoming a brother to his siblings and an uncle to their growing children.
Kevin left a five-star review for John’s firm on the firm’s Google listing: “Very impressed with John’s knowledge and ability to work quickly and effectively. Very impressed & I highly recommend. Thank you for all your help.”
Kevin went on to say, “I feel a great sense of relief now that the process is complete, and my finances are in order in a way that I can manage on my own again.”
Filing a Lower Cost “Chapter 5” Bankruptcy Case Could Save Your Business
Why did it take so long for Congress to pass a law providing a “better way” to reorganize financially troubled small businesses? The Small Business Reorganization Act of 2019 (SBRA) created a new Subchapter V of Chapter 11, which enables small businesses to reorganize and discharge debt more efficiently and without the high administrative costs of a Chapter 11 bankruptcy filing. This timely new law went into effect on February 19, 2020. In this article, we’ll explain why filing Subchapter V bankruptcy may be the lifeline that small businesses need to survive COVID-19.
Chapter 11 is a fit for “big” corporations with large scale operations and complex capital structures. Chapter 11 was not designed for the “mom and pop” store on the corner. Bankruptcy professionals have argued for years that Chapter 11 provides secured creditors with excessive influence over the bankruptcy process, which includes a “high voting threshold” and complicated, detailed disclosures.
Bankruptcy subchapter V provides procedures and incentives to encourage creditors and debtors to come to the table and agree to a consensual plan for the business.
A debtor – an individual or corporate entity – must be engaged in commercial or business activities and have liquidated secured and/or unsecured debt(s) not exceeding $7,500.000.00 to be eligible for relief under Subchapter 5. As enacted in 2019, the statute applied to businesses with not more than $2.7 million ($2,725,625 to be precise) in secured and unsecured debts. Effective March 27, 2020, under the then just-enacted Coronavirus Aid, Relief and Economic Security Act (CARES Act), that ceiling has been raised to $7.5 million, widening its potential reach to a much larger group of businesses.
Differences Between Filing Chapter 11 and Subchapter V Bankruptcy
- Only the debtor can propose a plan of reorganization when you file a Subchapter V bankruptcy case. In a Chapter 11 case, the creditors can submit a reorganization plan if the debtor has not done so within 120 days. The trade-off is that debtor must propose its plan within 90 days of commencement of its bankruptcy proceeding in a Subchapter V case.
- In a Subchapter V bankruptcy case, there will be no creditors’ committee for unsecured creditors unless ordered by the bankruptcy court—huge potential expense savings for the debtor since it typically must pay the fees and expenses of professional advisors to that committee.
- The debtor’s plan does not need approval by its creditors, eliminating the requirement for a court-approved disclosure statement and the costly process of soliciting creditor votes in Subchapter V bankruptcy. However, creditors can object if not all the debtor’s projected disposable income for at least three years will be used for repayment under the proposed plan.
- Chapter 11’s automatic imposition of a U.S Trustee (with its associated quarterly trustee fees and reporting requirements) to oversee the debtor’s business is eliminated in favor of a private trustee (from among candidates approved by the Department of Justice under its U.S. Trustee program) in a Subchapter V bankruptcy case. Under the SBRA, the private trustee is there solely to facilitate a plan of reorganization rather than oversee or operate the debtor’s business.
- The absolute priority rule that in a Chapter 11 bankruptcy case is used to decide what portion of payments will be received by which creditors is eliminated in a Subchapter V bankruptcy filing. Here, the SBRA’s elimination of this rule allows the debtor to retain an ownership interest in its business through the bankruptcy proceeding even if it fails to contribute “new value” towards a reorganization plan or offer a plan that will not pay its creditors in full. The plan of reorganization cannot discriminate unfairly, and instead must be judged to be fair and equitable for each class of impaired creditors.
- Finally, the debtor can pay its administrative claims over the term of a Subchapter V bankruptcy plan, as opposed to payment on the date of confirmation of the plan as is the case in a Chapter 11 bankruptcy case.
Summary of the Benefits of Filing a Subchapter V Bankruptcy Case
- Provide time and ability to restructure the debtor’s business.
- Rehabilitate an otherwise financially viable business.
- Provide a method to discharge debt and a “fresh start” for the company.
- Ensure equality of distribution among creditors.
Debtor Strategies in a Subchapter V Bankruptcy Case
In addition to the automatic stay which protects the business and its assets from collection, the debtor can:
- Suspend debt payments, including past due payments to landlords, general creditors, and future payments to equipment lessors for a limited period.
- With court approval, sell assets that are free and clear of all claims and liens.
- Reject onerous leases and unprofitable contracts.
- Allow the use of cash or other collateral of a secured lender (creditor) either with the creditor’s agreement or upon showing that the proposed use of money or collateral does not endanger the lender’s interest in the collateral. Allows post-petition financing to become senior to existing debt either by agreement or by order of the bankruptcy court.
- Pursues a plan with payment terms that are “fair and equitable”. The plan may include a “cram down” which imposes payments representing the present value – avoiding the accrual of penalties and interest – of the creditor’s claims over time.
- Filing a Subchapter V bankruptcy case moves the litigation from state court to the bankruptcy court.
Why You Should File Subchapter V Bankruptcy with the Sterbick Law Firm
COVID-19 is severely impacting the nation’s economy and markets. The negative financial impact has impaired the ability of businesses to meet their financial obligations to suppliers and vendors. Many businesses are being forced to restructure their obligations to suppliers and vendors, and some need to file for bankruptcy protection. Some may have additional complications due to IRS tax problems. John Sterbick has practiced law at the firm that bears his name for over thirty years, and he has built his firm into one of the foremost experts on IRS tax law in the state of Washington. The Law Offices of John Sterbick has filed bankruptcies on behalf of financially distressed businesses for over twelve years. The combination of the Sterbick firm’s recognized expertise and years of experience means that no matter how complex your business problems may be, John Sterbick and the team at his firm will provide you with expert representation you can trust to get you through it.
Contact us today, and we’ll help you determine whether filing Subchapter V bankruptcy with the Sterbick law firm is the best way to protect your business.
With the exception of a home mortgage, if you cannot pay your debts off completely within the next three years, you may consider filing for bankruptcy in order to protect your income and assets. If you file for bankruptcy, you may free up income so that you can begin to pay off your mortgage, save for retirement, or provide an education for your children or grandchildren.
You should not feel guilty or embarrassed for having filed bankruptcy. Psychologists say families, relationships and marriages fail most often because of financial pressures. If financial strain is damaging your health and personal relationships, you should consider bankruptcy.
According to the bankruptcy section of the uscourts.gov web site, a fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial “fresh start” from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:
[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).
This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.
The common types of personal bankruptcy include:
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is the most common form of filing personal bankruptcy. Chapter 7 bankruptcy is often called a “straight bankruptcy”. With many technical exceptions beyond those listed here, all debts are discharged in Chapter 7 Bankruptcy except the following:
- Child Support
- Student Loans
- Most Traffic Tickets and Criminal Fines
- Most Taxes, including Federal Income Taxes
- Injuries Caused by Drunk Drivers
Chapter 7 Bankruptcy cases can potentially discharge debts for:
- Medical Bills
- Lawsuits for injuries caused while driving uninsured
- Credit Card Debts
- Debts following evictions and/or repossessions
- Lawsuits for breach of contract
- Small or moderate insufficient funds checks
- Most business debts
- Some fraud debts
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy involves making payments over time to creditors. The payment plans can be as short as 36 months–even less if you can repay quickly–or as long as five years. Some people have problems that cannot be taken care of with a Chapter 7 Bankruptcy, and are better off filing a Chapter 13 Bankruptcy plan.
The following debts and problems can often be handled in a Chapter 13 Bankruptcy filing:
- Moderate to large insufficient funds checks
- Unpaid Child Support
- Criminal and Traffic Ticket Fines
- Reinstating a suspended driver’s license
- House payments that are several months behind
- Car payments that are several months behind
- Injuries caused by your intentional conduct (such as assaulting someone)
- Unpaid alimony or spousal maintenance
- Reducing a car payment to an affordable level
- Reducing a furniture or household payment to an affordable level
In a few rare cases, it can be necessary or advantageous to file a Chapter 7 Bankruptcy before a Chapter 13 Bankruptcy. These are sometimes called “Chapter 20 Bankruptcy” cases. For example, if you have high credit card debt that you cannot possibly hope to repay, but also have student loans or a suspended license because of many unpaid tickets and/or court restitution, it may be best to ask about a Chapter 20 Bankruptcy plan.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy cases are increasing in rarity. They are usually for large corporations or businesses, or individuals with many large debts as well as lots of equity in their assets. If you have a secured debt of over $1,010,650 and unsecured debt of over $336,900, you may have to file a Chapter 11 Bankruptcy instead of a Chapter 13 Bankruptcy, unless you are willing to file a Chapter 7 Bankruptcy. The decision to file a Chapter 11 Bankruptcy is a technical decision that our firm is well qualified to help you examine. Chapter 11 Bankruptcy cases are very expensive and infrequently recommended. Our firm is willing to put forth the effort necessary if you and your attorney agree that a Chapter 11 Bankruptcy filing is the best plan for your situation.
Bankruptcy is a prudent step towards rebuilding your financial future
The Law Offices of John Sterbick is a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code. A consultation with the Law Offices of John Sterbick is important to ensure that bankruptcy is the right choice for you.
To learn more about your bankruptcy options and the most beneficial course of action for your financial situation, contact the law offices of John A. Sterbick to arrange a free consultation with John and our team of associates today. An expert bankruptcy attorney from our firm will outline all of the pros and cons for each option, and help you to confidently make your decision about your course of action. Our bankruptcy attorneys have more than 29 years of experience serving Tacoma-area and Washington State residents and businesses, so contact us today!
Internal Revenue Service (IRS) or State of Washington tax problems cannot be wished away, and do not just disappear!
It is common for people in this situation to just ignore the IRS letters they receive, and hope their IRS or State tax problems will just go away on their own. The fact is that they only worsen, and then before they know it, they are facing a wage levy, a bank levy, or a property seizure. You need professional legal expertise to obtain IRS and State tax relief. In Tacoma, and throughout the State of Washington, you need an IRS and Washington state tax lawyer who is up to the task. You need the IRS tax experts at the Law Offices of John Sterbick.
There still exists a persistent false belief that tax liabilities cannot be discharged in bankruptcy.
In reality, certain tax liabilities can be discharged or paid in Bankruptcy, depending on your individual situation. Whether you have old IRS or State tax debt or not, you need help from the Law Offices of John Sterbick. Not only does John Sterbick understand that tax liabilities can be discharged under an
- Offer In Compromise,
- Payment Plans,
- Uncollectible Status, or
The IRS tax experts at the Law Offices of John Sterbick also have the knowledge and expertise to help you meet the necessary criteria for your particular situation. John Sterbick will resolve your tax problems with the IRS or with the State of Washington to provide a solution to your tax debt.
John Sterbick, attorney-at-law, is an IRS tax law firm with offices located in Tacoma, Washington. As an IRS tax lawyer, he helps gain relief for taxpayers in Tacoma and across the State of Washington to solve their IRS and State tax problems in a timely manner. John Sterbick will fully and fairly represent you in whatever IRS tax problem you have in order to get the IRS tax relief you need. As an experienced IRS and State of Washington tax attorney, John Sterbick offers a broad range of IRS and State of Washington tax services covering everything from:
- IRS tax levies,
- IRS tax wage levies,
- IRS tax liens,
- IRS tax innocent spouse cases,
- IRS tax audit representation,
- IRS back taxes,
- IRS payroll tax problems,
- Discharge of liens from real property, and
- Obtaining uncollectible status
Washington state tax debt problems come from:
- Washington State Dept. of Revenue
- WA State Dept. of Labor and Industries
- WA State Dept. of Employment Security
Do not compound your IRS or State tax problems by ignoring them!
John Sterbick has a long, successful track record of negotiation and settlement with the IRS and with State of Washington Revenue officers on behalf of his clients. Don’t delay, call the Law Offices of John Sterbick now at (253) 383-0140 to get on an equal footing with the IRS or the State of Washington. Contact the IRS tax experts at the Law Offices of John Sterbick — we can protect you!