C. SCOTT KIRK

ATTORNEY AT LAW
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Things not to do before Filing Bankruptcy

A person in desperate financial circumstances will take desperate actions to stave off bankruptcy. They will often seek advice from people they know about what to do. Typically, this advice is wrong and/or half-right. You should seek the advice of a bankruptcy attorney before you take any action with your property and money. The advice you receive may save you money, reduce stress, and eliminate unnecessary court proceedings. You and your attorney can create a plan of what to do and when to do it. Before seeing a bankruptcy attorney, you should not do the following:

1. Close all your bank accounts and convert all your deposits into cash.
2. Transfer your property, such as a car or boat, into another person’s name.
3. Transfer your home or real estate into another person’s name.
4. Pay off debt owed to relatives, friends, or business partners.
5. Give your property away to someone or a business.
6. Hide any property. (The bankruptcy trustee assigned to your case will find the property and there will be serious consequences)
7. Withdraw or cash-in retirement savings, 401(k) plan, 403(b) plan, or IRA.
8. Take out a second mortgage on your property to pay down debt or other expenses.
9. Grant a lien against your property.
10. Incur new debts before filing. (Ex: Do not max out your credit cards with intent of filing a bankruptcy and then see your attorney).
11. Withhold any debts from your attorney. You cannot save a debt from bankruptcy. All debts must be included.
12. Hide anything about your income, expenses, and finances. Your attorney should know everything about your finances. This will eliminate any surprises or unnecessary circumstances in your case.
13. Hide any information about a personal injury claim, pending lawsuit, inheritance or life insurance proceeds from your attorney.

Bankruptcy works best when you disclose everything to your attorney, creditors, trustee and Court. Non-disclosure, gamesmanship and lack of candor creates litigation, stress, and serious legal consequences. You are always better off over disclosing information.

To see if you qualify for this relief and discuss your options, you may contact C. Scott Kirk of C. Scott Kirk, Attorney at Law, PLLC at 252-689-6249 or scott@csklawoffice.com. Please visit csklawoffice.com. C. Scott Kirk, Attorney at Law, PLLC proudly serves clients in Greenville and throughout Eastern North Carolina.

Can Bankruptcy Cancel a Mortgage?

Can a bankruptcy remove, cancel, or void my mortgage? The answer to this question is maybe. The bankruptcy code is protects mortgages on a primary residence, but under certain circumstances, the code allows removal of a mortgage. Chapter 13 and chapter 11 allow a person to void or “strip” off a mortgage on a primary residence if certain criteria are met.

Requirements to Strip a Mortgage

1. The mortgage is not the first mortgage on the property. Typically, mortgages that can be stripped are equity lines, second mortgages, or a line of credit.
2. There is no equity in the property. After deducting all senior liens from the property, there is no equity to secure the junior lien.
3. The plan is successfully completed.

This relief only applies to those who file a chapter 13 or chapter 11, and only applies to mortgages that are not the first mortgage. The bankruptcy code prevents any modification of the first mortgage on your property. The code does allow stripping of junior mortgages only if there is no equity to secure the mortgage. For example, if your home is worth $100,000, you have a first mortgage of $105,000 owed on the property, and a second mortgage of $15,000 owed on the property, the bankruptcy code will allow you to strip off the second mortgage in its entirety. The second mortgage is removed upon completion of the plan.

Not all homeowners with multiple mortgages who file for chapter 13 or chapter 11 can qualify for this relief. There must be no equity securing the mortgage. For example, your home is worth $100,000, you have a first mortgage of $99,000 owed on the property, and a second mortgage of $15,000 owed on the property. In this scenario, the second mortgage cannot be stripped. After deducting the first mortgage from the property there is $1,000 of equity to secure the second mortgage. The second mortgage will remain intact and owed the full balance. The Supreme Court of the United States has ruled that if there is one penny of equity securing a second mortgage the mortgage cannot be stripped or modified.

Conclusion

The bankruptcy code can provide a homeowner relief from a second mortgage. Before for filing, the homeowner should have a good understanding of the value of their home. You should familiarize yourself about recent sales in your neighborhood or similar sized home sales in neighborhoods like yours.

To see if you qualify for this relief and discuss your options, you may contact C. Scott Kirk of C. Scott Kirk, Attorney at Law, PLLC at 252-689-6249 or scott@csklawoffice.com. Please visit csklawoffice.com. C. Scott Kirk, Attorney at Law, PLLC proudly serves clients in Greenville and throughout Eastern North Carolina.

The Farmer’s Ultimate Weapon in Bankruptcy-PACA

Farming is a tough business. Weather, market volatility, tight lending requirements, reliable equipment and government regulations are just a few of the many issues that a farmer faces annually. Even when all the breaks go the farmer’s way and the crop has been harvested, the farmer still faces uncertainty. He must find a buyer for the harvest. One that can be trusted. A buyer that will hopefully pay and pay on time. He relies on the buyer for prompt payment because the farmer has lenders that must be paid. Unfortunately, buyers sometimes do not pay promptly, or even worse, the buyer does not pay after delivery of the harvest and files for bankruptcy. Will the farmer be paid, or will he be forced to stand in line with other unsecured creditors and pray for some scraps? The answer to the question all depends on whether the farmer has armed himself with the ultimate protection called PACA.

What is PACA?

PACA refers to the Perishable Agricultural Commodities Act of 1930. Congress enacted 7 U.S.C. § 499 (PACA) amid the Great Depression. The purpose of PACA was to protect farmers from delayed payments or no payment. The nature of the product being sold and marketed is perishable. These items have a short shelf-life and farmers had no way of ensuring payment once the product was delivered. The enactment of PACA provided farmers some protections in the event of non-payment or bankruptcy.

What Products does PACA Protect?

PACA only applies to perishable agricultural commodities. The statute defines a perishable agricultural commodity as “fresh fruits and vegetables of every kind and character, whether or not frozen or packed in ice…as defined by the secretary (of the USDA) in accordance with trade usage.” 7 U.S.C. § 499a(b)(4). The definition is limited in scope and does not protect processed products, such as frozen battered onion rings.

How does PACA Work?

To create a trust, (a) there must be property to transfer; (b) a definite purpose and disposition of the property; (c) a person to execute the disposition and purpose; and (d) a beneficiary. Every transaction that is PACA qualified creates a trust. The farmer grows and owns the property to transfer. The distributor takes delivery to process and sell the perishable crop for the benefit of the farmer. The farmer receives the money within a definite time after delivery.

How does a Farmer Create a PACA Transaction?

A farmer can receive the protections rather easily. A farmer must place the distributor on notice that the transaction was subject to PACA within 30 days after the expiration of the time prescribed for payment as set in the regulations by the USDA, or as the parties may agree otherwise in writing before the transaction. For best practices, farmer should invoke the protections of PACA each time a perishable crop is delivered.

What Happens to a PACA Transaction in Bankruptcy?

A farmer with a PACA claim has several protections in bankruptcy. First, the bankruptcy automatic stay does not prevent him form perfecting his PACA claim after the bankruptcy is filed. Second, PACA claim funds are generally not property of the bankruptcy estate. The funds are the property of the PACA trust beneficiary, the farmer. Third, because the funds are not property of the bankruptcy estate, the funds are not subject to the liens of secured creditors. Typically, a PACA claimant will jump ahead of banks in the priority scheme. Fourth, most courts have ruled that PACA proceeds are not subject to avoidance actions that may be brought by a bankruptcy trustee against other creditors. In a nutshell, a PACA claimant holds a superior claim to all creditors in a bankruptcy.

Conclusion

During times of uncertainty and even in times of certainty, a farmer should always be sure that his perishable crop transactions are afforded the protections of PACA. The statute is the ultimate weapon for a farmer and should be used.

If you have any questions about PACA or wish to make sure that you are properly using PACA, call C. Scott Kirk, Attorney at Law, PLLC at 252-689-6249 or email at scott@csklawoffice.com. You may visit the website at csklawoffice.com. C. Scott Kirk is an attorney in Greenville, North Carolina serving Eastern North Carolina in bankruptcy and other financial matters.

Beware of National Consumer Bankruptcy Law Firms

When you search for a bankruptcy professional on the internet, your search will result in several websites that trumpet all the help they can provide you.  If you are reading this, I am probably one of those sites that you find when you search “bankruptcy Greenville North Carolina”.  If you are a consumer, please beware that some of these websites want nothing more than to take your money and offer little help in return.  Some sites merely point you to some forms for a fee.  Others may be a law firm in some far away big city that wants you to swallow the hook.  As an attorney who has witnessed and read the devastation that these sites can cause, I urge anyone that is contemplating professional help to read the following:

  1.  Beware of Form Websites:  These websites attract you because of their low costs.  “We can help you for only $89”.  Once you pay the fee, they offer you access to an overwhelming amount of forms.  These forms will be hard to understand.  The forms have serious legal consequences when filed with the Court.  They provide you no legal representation.  You could lose your house, car and other property.  These companies are only concerned with getting their fee for finding forms and have no care as to the consequences to you.  If forms are all that you want, I will save you the money.  The following is a link to the national bankruptcy forms.   www.uscourts.gov/forms/bankruptcy-forms.
  2. Beware of National Consumer Bankruptcy Law Firms: These firms are typically firms that are not located in your state.  They are prominent on the internet.  Their goal is to cultivate as many clients as possible.  They lure you with their fee for fee structure.  Most of your contact with the firm will be through the internet or telephone.  They prepare your case.  Then they have one of their “partners” take over the case.  The partner is usually a local attorney in your area.  You may or may not meet with the local attorney.  The attorney may or may not be experienced in bankruptcy law.  You will sign paperwork that the national firm has prepared.  The “partner” will attend a court hearing with you.  You may or may not recognize your attorney at the hearing.  If this sounds like a good experience, then one of these national firms is for you.  If you are lucky, all will go well, but the following can happen. See this link to a press release from the Department of Justice regarding one of these firms:  https://www.justice.gov/opa/pr/national-consumer-bankruptcy-law-firm-sanctioned-harming-financially-distressed-consumers-and
  3. Here are Some Tips to Finding the Right Attorney from the Internet:

a) Is the attorney local?  Local can be relative to your location.  Sometimes you may need to drive to the next city to find a competent bankruptcy attorney.  Not every attorney is a bankruptcy attorney and we                     tend to be dedicated predominantly to bankruptcy law.

b)  When you called the attorney, did you feel that you were being sold a product?  National firms will often engage in high pressure sales techniques.  Remember, you are seeking legal help.  You should not feel               like you are being sold a timeshare when you call a law office.

c)  Were you able to schedule an appointment?  If a law firm tells you that there is no need for an appointment and everything can be done by internet and phone, you should consider another attorney.  The first                 meeting with the client is extremely important for both the attorney and client.

If you are seeking help with your financial troubles, you may contact C. Scott Kirk at (252) 689-6249 or scott@csklawoffice.com.  Visit my website at csklawoffice.com.  I am a bankruptcy attorney located in Greenville, North Carolina and serving Eastern North Carolina.

What are the Immediate Impacts of Chapter 11 Bankruptcy on my Business?

A business that files a Chapter 11 bankruptcy must understand that there will be immediate impacts, both beneficial and restrictive, once the case is filed. The bankruptcy code, rules and the Court’s local rules place several requirements that both the business and creditors must follow. These requirements range from small administrative rules to significant legal impacts. The following are some of the most important impacts that a business should expect upon filing a Chapter 11.

The Automatic Stay

When a Chapter 11 bankruptcy case is filed, an automatic stay becomes effective. For a business, this means that all creditors must stop all collection actions. Bank attachments, foreclosures, repossessions, rent assignments, etc. must stop immediately when the bankruptcy is filed. No creditor may attempt to collect money from the business or take any action against the property of the business once the bankruptcy is filed. This includes any action taken by the government to collect delinquent taxes. A creditor must seek the Court’s permission to take any of these actions once the bankruptcy is filed.

Cash Collateral

A business that files Chapter 11 may not use money to operate that is subject to the lien of a creditor without the Court’s permission or consent of the creditor. Creditors often have liens on the business receivables, rents and inventory proceeds. One of the first actions taken in a Chapter 11 is to seek permission to use that money to keep the business operating. Most Courts will hear these requests on an emergency basis. The Court may approve the use of the cash temporarily and require the business to abide by an approved budget during that time. The Court may require the business to make payments to the creditor for use of the cash.

Payment of Pre-Petition Debt

A Chapter 11 bankruptcy prevents a business from paying pre-petition debts without the Court’s permission. Pre-petition debts will be paid through the Court approved plan unless otherwise ordered. This requirement can place a hardship on the business particularly if a reliable vendor is owed money. The business should be prepared to seek another vendor in such a situation. In some unique circumstances, the Court may grant permission to pay a vendor pre-petition debt.

Pre-Petition Wages and Benefits

If a business has employees that are owed wages and benefits at the time of the Chapter 11 bankruptcy, those employees are pre-petition creditors. This includes employees that had their first paycheck withheld. These employees cannot be paid pre-petition wages unless the Court permits. Courts will typically allow the business to pay pre-petition wages if it does not exceed a certain amount.

Sale of Property

A business in Chapter 11 bankruptcy can sell any of its inventory and assets if the sale is in the ordinary course of business. The bankruptcy code and rules contemplate that a business in Chapter 11 will want to continue doing business by selling its normal products. For example, a shoe store can continue to sell shoes. On the other hand, a shoe store cannot sell the shoe display equipment without permission of the Court. A business should remember that if a lien is on inventory that is sold that lien will transfer to the proceeds generated from the sale.

Payment of Officers

In Chapter 11 bankruptcy, a business is not permitted to pay its officers, members or directors any compensation without permission of the Court. Some Courts have local rules that allows compensation to be paid while the application to the Court is pending for officer compensation. For example, the Eastern District of North Carolina allows an officer to be compensated for one-half month if the application for approval is pending.

There are many more administrative rules that must be complied in the first couple weeks of a Chapter 11 bankruptcy. The above is just a few of the major first day rules of Chapter 11 bankruptcy.

Contact Us Today
Dealing with financial complications can be overwhelming. C. Scott Kirk can help advise you during these stressful circumstances. If you have additional questions regarding bankruptcy, contact C. Scott Kirk, Attorney at Law, PLLC by calling (252) 689-6249 to schedule your personal consultation. You can learn more at csklawoffice.com.

Chapter 7 or Chapter 13? The Benefits of Chapter 13 Bankruptcy

Which Bankruptcy? Chapter 7 or Chapter 13 ? Do I Need a Helping Hand or a Fresh Start?

Chapter 7 bankruptcy is often referred to as the fresh start bankruptcy. It allows the client to receive a discharge of all dischargeable debts. In exchange, the client will surrender any non-exempt assets to a trustee to be liquidated to pay creditors. If your assets are exempt, you will be able to keep those assets. However, this does not mean that the client will keep the exempt asset after bankruptcy. If the asset is subject to the lien of a creditor, such as a home mortgage or auto loan, the client will have to pay those debts or surrender the collateral to the creditor.

Chapter 13 bankruptcy is often a better alternative for my clients because it provides a helping hand. It is a consumer bankruptcy that requires some form of repayment to creditors over a three to five year period. Most of my clients think that Chapter 13 is a repayment plan that will require them to pay all debts, in full, over a period of time. This assumption is mistaken. Only in rare Chapter 13 cases will a client have to pay all of their debts in full. While some debts may have to be paid in full, usually at reduced interest rates, others can usually be paid nothing.

Circumstances where Chapter 13 is a Better Option

1) Ability to Pay: Not every client can automatically qualify for Chapter 7. Chapter 7 has an income and expense test to determine whether you can pay your debts . A Chapter 13 may be your only option if a review of your income and expenses demonstrate that you cannot qualify for a Chapter 7. If your income prohibits you from qualifying for a Chapter 7, then a Chapter 13 will allow you to craft a plan that will take into account your monthly living expenses. Typically, you will pay little, if anything, back to your unsecured creditors, i.e. credit card debt.

2) Ineligible for a Chapter 7 Discharge: If you have filed a Chapter 7 and received a discharge within the last eight years, you are not entitled to receive a Chapter 7 discharge. If you have filed a previous Chapter 13 and received a discharge within the last six years, you may not be eligible for a Chapter 7 discharge.

3) Catch Up on Arrears: If you are behind on your mortgage, child support or taxes, Chapter 13 Bankruptcy provides you the ability of getting current and repaying the amounts over three to five years interest free. This is often a very attractive option because under many circumstances, you pay little, if anything, back on credit cards or medical debts while having a great mechanism for dealing with the debt that you actually want to repay.

4) Prevent Property Loss: While Chapter 7 will stop a repossession, foreclosure and other collection actions (garnishments and bank attachments) by creditors, the relief is temporary. If you are not current with your car or house payments, the creditor may, and probably will, ask the Court for permission to restart those actions. On the other hand, a Chapter 13 can provide a solution which enables you to keep your property, such as your home or car, as long as you pay off the arrears on the mortgage over three to five years or pay off the car through your plan. Your Chapter 13 plan can also provide for payment of all your outstanding tax debt and stop the government from seizing your wages. Your plan can address any child support arrearages that you may have, but cannot stop the state from collecting future payments after the case is filed.

5) Restructure Loans: In most cases, Chapter 7 limits your choices to either giving up your car or home, or signing a reaffirmation agreement with the creditor, making your loan an exception to discharge. In Chapter 13, you have multiple options. First, unless it is your home’s mortgage, you can lower the interest rates and save yourself a ton of money. For example, if you are paying 18% interest on your car loan, a Chapter 13 may allow you to reduce that amount to a much more reasonable interest rate, such as 5%. Second, if the car was financed over 910 days before filing you may reduce the amount you repay to the value of the vehicle. In a Chapter 13 plan, if the car is worth $3000 and you owe $12,000 on the vehicle, you can reduce the principal repayment to $3000. By being able to modify the interest rates and principal balances, you could save thousands of dollars that you might pay through a Chapter 7. This option is very helpful to clients who gave their car, lawnmower, or other personal property as collateral for a loan.

6) Protect Property: A Chapter 7 will only allow you to retain exempt property from your trustee. North Carolina exemption laws that protect your real and personal property are somewhat generous, but that does not mean that they can protect all property. If there is no exemption for the property or the exemption does not cover the full value of the asset, the property can be sold by the Chapter 7 trustee. A Chapter 13 will prevent a trustee from liquidating your non-exempt property. For example, if you have $5000 worth of property that is not protected by the exemption laws, your plan will provide to pay that amount over the next three to five years to your creditors. Chapter 13 allows you to protect equity in your home, car, boat or any asset the exemption laws do not fully protect.

7) Lien Stripping: Chapter 7 allows you to avoid, or strip, a non-consensual lien that impairs your state law exemption. You can strip a lien off your home if (a) it is a non-consensual lien, i.e. judgment lien; and (2) it impairs your exemption, meaning that there is no equity above your exemption to secure the judgment. If there is equity above your exemption, the judgment lien will not be fully removed or removed at all. Chapter 13 allows you to strip both consensual and non-consensual liens. The above same rules apply in Chapter 13, but unlike Chapter 7, it allows you to file a plan that can allow the stripping of a consensual lien. For example, your home is with $100,000 and you owe a first mortgage in the amount of $110,000. You have a second mortgage on the property in the amount of $30,000. In a Chapter 13, you can propose a plan that strips the second mortgage in its entirety from your home. Once you complete the plan and the discharge is issued, the creditor will remove the second mortgage from you home.

Conclusion
For some clients, a helping hand is what is needed. They just need a little help from the Court to repay what they can to their creditors. Chapter 13 is often a useful option to clients who need the assistance to save their home and car. They are simply looking for that helping hand to allow them to do so.

Contact Us Today
Dealing with financial complications can be overwhelming. C. Scott Kirk can help advise you during these stressful circumstances. If you have additional questions regarding bankruptcy, contact C. Scott Kirk, Attorney at Law, PLLC by calling (252) 689-6249 to schedule your personal consultation. You can learn more at csklawoffice.com.