Charlotte Bankruptcy Blog

Posts containing useful information for anyone considering a North Carolina bankruptcy lawyer.

Debt Consolidation For Credit Cards

If you are considering debt consolidation for credit cards, you need to read this blog post. First, it is important to know there are a few ways to consolidate your credit card debt. Each program being offered will be different. In any case, first, we will quickly go over the different types of debt consolidation, and then discuss a few pitfalls and other options.

Types Of Credit Card Debt Consolidation

Balance Transfer – When you do a balance transfer you are essentially transferring several credit card balances to one credit card. It could be due to a low introductory rate, or some other special terms, which are more favorable than the prior card or cards.

Debt Consolidation Loan – Some banks will offer you a loan that you can use to pay off your credit card debts. You will be left with one balance on the loan, and usually at a lower interest rate than the credit cards you paid off.

Debt Management Program – This is the most traditional form of debt consolidation. In this instance, you work with a credit management company. They establish a payment structure for you and a timeframe. The credit management company negotiates with your creditors to lower your balances. Usually, the negotiated amount is contingent upon you completing the consolidation plan.

Three Common Pitfalls To Credit Card Debt Consolidation

Fees And Costs – Whether the fees come in the form of high interest or third-party fees charged by your credit card management company, it is important to understand what fees you are being charged. The lengthy contracts consolidation companies provide you with can be difficult to sort through. The point is you are paying for a service. You are entitled to know how much the service is costing you. This way, you can comparison shop and set your bottom line for how much it is costing to eliminate your debt.

Dropping Out Of The Consolidation Program –

Many debt consolidation agreements are contingent upon your completion of the term. The term may be for three or more years. During that timeframe, anything could happen which might prevent you from being able to make your payment on time. You want to be aware of the penalty for late or missed payments, and get confirmation that you will not lose the progress you made along the way by making consistent on-time payments in the program.

Worrying Too Much About Your Credit Score –

It is important to be concerned about your credit score. You should think carefully before spending thousands of additional dollars for the sole purpose of sparing a few credit score points. As a bankruptcy attorney, I speak with clients every day who are worried about their credit score. I do my best to help them see the full picture. Often, those clients already have a reliable vehicle and own a home. If that is the case, I encourage them to look at the upside to eliminating the debt—no matter how they choose to do it—instead of obsessing over how it will affect their credit score.

What Other Options Are There?

Bankruptcy is worth considering. Both Chapter 13 and Chapter 7 are options in consumer bankruptcy. Every bankruptcy attorney I know in Charlotte, North Carolina will give you an honest answer as to whether you should file bankruptcy or not. This means you should consider having a free consultation with a bankruptcy lawyer to make sure you understand the cost of bankruptcy versus the cost of debt consolidation. If a client can eliminate $25,000 of unsecured debt by filing bankruptcy for under $3,000, it is going to be difficult to justify a debt consolidation program that charges $525 a month for 36 months.

Debt settlement is another option. Because we are a bankruptcy law firm, we obtain good results for clients attempting to settle the debt. When you are settling a debt with a creditor, you are proposing to pay them a small portion of the debt in 90 days or less, in exchange for forgiveness of the remainder of the debt. To accomplish this, you must have access to a lump sum of money to pay the creditor. It is not uncommon to receive a dramatic reduction from the outstanding balance in exchange for timely payment of a small percentage of the debt. In a prior post, we have discussed how a debt settlement affects your credit score.

Speak With A Bankruptcy Lawyer Today

If you are considering consolidating credit card debt, you deserve to understand all your options. We would be happy to discuss bankruptcy, debt settlement, and credit card consolidation with you. Then, we can help you make the decision that will work best for you. Sometimes, just one phone call is all it takes to discover you have more control over the situation than you thought.

If you would like to speak with a bankruptcy attorney, call us at 704.749.7747 or click HERE to request a phone consultation. Consultations are free and answering questions is part of our job. We are here to help.

Does Bankruptcy Ruin Your Credit?

No, bankruptcy does not ruin your credit. In fact, bankruptcy may ultimately be the reason you are finally able to restore your credit. We understand your credit score is an important factor in deciding whether to file bankruptcy. While the initial filing of a bankruptcy will temporarily lower your credit score, most debtors find that their score recovers within a year from filing bankruptcy.

Your Debt To Income Ratio

One important aspect of your credit score is your debt to income ratio. The filing of bankruptcy changes your debt to income ratio in your favor. This immediately serves to help you rebuild your credit. Additionally, as a result of your bankruptcy, your credit report will show fewer debts. You become an attractive client to creditors when your debt to income ratio is healthy. This means you will be considered for credit cards, automobile loans, and other extensions of credit.

How Quickly After Bankruptcy Will My Credit Score Recover?

Most of our clients tell us that their credit score bounces back at the one-year mark from filing bankruptcy. However, this will fluctuate depending upon how high your score was before filing bankruptcy, and depending upon the steps you take to rebuild your credit after bankruptcy. If you are making payments on a secured credit card or a vehicle after bankruptcy, those positive payment reports will serve your credit score well.

Free Yourself From The Chains Of Credit Card Debt

Credit card companies want you to fear bankruptcy. They would rather you give them every extra penny you have, to keep them from taking further action against you for non-payment. This is true regardless of whether your monthly payment to them makes even the slightest dent in the balance owed.

The bigger picture when deciding whether to file bankruptcy involves regaining your financial freedom. The relatively small price to pay for that financial freedom is the time it takes to rebuild your credit. When bankruptcy clients call us two years after their bankruptcy to tell us they have gotten approved for a home mortgage, they usually tell us the same thing: I never should have waited as long as I did to file my bankruptcy.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about how bankruptcy can help your credit, we are here to help. Once a client decides to file bankruptcy, we advise you to stop paying on any debt which will be discharged by the bankruptcy. If you would like to speak with a bankruptcy lawyer, call us at 704.749.7747 or click HERE to request a free consultation by phone or in person.


Should I File Bankruptcy Or Just Not Pay?

If you are overwhelmed by credit card debt or medical bills, you may be considering Chapter 7 or Chapter 13 bankruptcy. Or, you may be considering simply not paying. Here’s why bankruptcy is the best long-term approach to managing overwhelming debt.

What Can Creditors Do If I Do not Pay?

If your debt is secured by a vehicle, the creditor can repossess the vehicle. In North Carolina, this is a contractual agreement between the creditor and the vehicle owner and does not typically require court approval.

If your debt is mortgage debt or home equity line of credit debt, the lender can use the North Carolina statutory provisions under N.C.G.S. Sec. 45 to begin the foreclosure process. Essentially, if you cannot ‘catch up’ on the mortgage with the lender, your home can be sold to pay the mortgage creditor.

If your debt is unsecured debt like credit card debt or medical debt, the creditor’s primary recourse is to contact you in attempts to collect. Many unsecured creditors will use this method for months before resorting to taking legal action against you. Keep in mind, an unsecured creditor can file a lawsuit against you to prove the amount you owe, and secure a judgment. Once a creditor has a judgement against you, they can pursue your assets with the backing of the judicial system. Additionally, if you own a home, the judgement will attach to the home. This means when you sell the home the judgment will need to be paid in most cases.

Creditors And The Writ Of Execution

Once a creditor obtains a judgment, they can file a writ of execution with the sheriff to pursue your assets. This includes your home, vehicles, cash in bank accounts, etc. For the most part, you can protect the same property you would be able to protect or exempt in a bankruptcy. The remainder of your property is available to the creditor. When a creditor is pursuing your assets, you may receive a Notice of Right To Claim Exemptions. This puts you on notice that you must report your assets to the creditor. It also lets you know the creditor is pursuing your assets.

Bankruptcy Stops All Collection Attempts

By filing a Chapter 7 or Chapter 13 bankruptcy, you put your creditors on notice that they are no longer allowed to attempt to collect on debts. This is a function of The Automatic Stay in bankruptcy. Additionally, you pay a fixed amount of money to your bankruptcy attorney or the bankruptcy court, in exchange for discharging the entire balance of the debt. If you have unsecured debt more than $10,000, it makes sense to consider bankruptcy. If your debt is $20,000 or more it will almost always make sense to file bankruptcy as compared to attempting to pay the debt.

We have written many articles about using bankruptcy to stop a foreclosure and recover if you are behind on mortgage payments. We hope those are helpful.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about whether to stop paying on debt, we are here to help. Once a client decides to file bankruptcy, we advise you stop paying on any debt which will be discharged by the bankruptcy. If you would like to speak with a bankruptcy lawyer, call us at 704.749.7747 or click HERE to request a free consultation by phone or in person.


What Does Bankruptcy Cover?

A consumer bankruptcy comes in the form of Chapter 7 or Chapter 13. The goal of both bankruptcy filings is to obtain a Discharge. The discharge is your confirmation that the debts included in the bankruptcy filing are no longer your responsibility, and that creditors can no longer pursue you or your assets to try to collect on those obligations.

There are several types of debt which receive specific treatment in bankruptcy. Below, we will cover a few broad categories in hopes of giving you and understanding of what is covered when you choose to file bankruptcy.

Unsecured Debt – Unsecured debt is generally credit card debt, medical bills, and personal loans. Essentially, it is debt which is not secured by a specific piece of property. Unsecured debt is discharged in a Chapter 7. In Chapter 13, you may pay a small percentage to your unsecured creditors by way of your Chapter 13 plan. Then, when you make your final payment in Chapter 13, the remainder of that unsecured debt will be discharged.

Secured Debt – Secured debt is debt which is secured by property. Generally, this means that if you stop paying on the debt the creditor has the right to take the property. An example would be a home or a vehicle. In North Carolina, a home can be foreclosed upon if you stop paying debt. A vehicle can be repossessed. Again, this just means the lender’s loan is secured by property. In a Chapter 7, you can keep your secured property, but the debt comes with it. For example, if you have a vehicle with a loan balance and you file Chapter 7, you will get a chance to indicate if you want to keep the car (and the debt), or if you want to surrender the car to the lender. If you surrender the car to the lender, the debt  goes with it. Your bankruptcy attorney will help you decide which decision is best for you. The terms of your loan will not change if you decide to keep the car and the debt associated with it.

In Chapter 13, you have the same options. There are many instances where your car payment will lower in Chapter 13 because Chapter 13 spreads your car payment out over the 60-month repayment period (Your Chapter 13 Plan). This can provide great financial relief as you enter Chapter 13.

Secured Debt Arrears – If you owe or are ‘behind’ on payments to secured creditors, you cannot use a Chapter 7 to cure the arrears. You will need to get caught up on payments when filing your Chapter 7. However, a Chapter 13 is specifically designed to force your lender to allow you some time to get caught up on late payments. In fact, the amount you are behind on the day you file your Chapter 13 will be divided over the 60-month length of the plan. This gives you time to make your normal payment each month, while slowing getting caught up. When you finish your Chapter 13 plan, you will be caught up on your payments to the mortgage lender or vehicle lender.

Priority Debt – Some debt like tax debt or child support is categorized as priority debt. While there are exceptions, generally tax debt and child support debt are not discharged by Chapter 7. One exception relates to taxes which were filed at least 240 days before the bankruptcy, and which are at least 3 years old at the time of the filing.

In Chapter 13, priority debt like taxes or child support, must be paid in full over the life of the Chapter 13 plan. Assume you are behind $6,000 on taxes when you file your Chapter 13. Further assume the tax debt is less than 3 years old, which means it needs to be paid in full during the Chapter 13. With some exception, the tax debt will come to $100/month in your Chapter 13 plan. This can be a very manageable amount compared to what the IRS or NC DOR will offer you outside of bankruptcy.

You can still file a successful Chapter7 with priority debt; however, when you receive your discharge, the priority debt (except taxes older than 3 years old, etc.) will still exist. Some clients find that to be an OK solution—without the other unsecured debt burden, those clients can make payments on the priority debt which survives the bankruptcy.

Student Loans –Unfortunately, student loans are not discharged in bankruptcy except in the most limited circumstances. We are hopeful the rules on discharging student loans will change; however, our firm has litigated student loan issues in the past and the law is relatively settled now. We are happy to discuss it with you before you move forward with bankruptcy. The great news is that our clients with a good bit of student loan debt choose to move forward with bankruptcy despite the rules around student loans. Those clients find that once the bankruptcy closes out and the burden from their pre-bankruptcy debt is relieved, they are easily able to make their student loan payments, apply for income-based repayment, or use a forbearance.

Speak With A Bankruptcy Lawyer Today

If you would like more information about what is covered in bankruptcy, reach out to us. We love to help educate consumers, and we can help you understand your options. You can reach us at 704.749.7747 or click HERE to request a consultation via email. We are here to help.

When Is The Right Time To File Bankruptcy?

The short answer is that most people wait too long to file bankruptcy. The right time to file is before you have thrown thousands of dollars away on large debt. The right time to file bankruptcy is before you have eaten through your retirement funds to make good on mounting credit card debt. A consultation with a Charlotte bankruptcy attorney can often put all your fears about bankruptcy to rest, and help you decide if the time to file is right now.

Foreclosure And The Right Time To File Bankruptcy

There are a few matters which can force your hand in a bankruptcy filing. If you are facing a foreclosure and you want to use bankruptcy to save your home, you will need to file bankruptcy within 10 days after the foreclosure sale date. Additionally, you can only use Chapter 13 bankruptcy to save a home from foreclosure. As a result, the right time to file bankruptcy to stop a foreclosure sale is any time before the 10th day after the foreclosure sale. Then, your Chapter 13 plan will schedule the mortgage arrearages to be paid over a 60-month period. In many cases, we are able to file an Emergency Bankruptcy for clients as this deadline approaches.

Retirement Funds And The Right Time To File Bankruptcy

All retirement income is exempt in bankruptcy under 11 USC Sec. 522. This protection includes 401k, IRA, and most pension plans. This means that regardless of when you choose to file bankruptcy, whatever funds you have in a qualified retirement account will be exempt or protected from creditors.

Because of this “super exemption” on retirement funds, it does not make sense to withdraw your exempt retirement funds to pay creditors. Additionally, as soon as you take funds from an exempt retirement account those funds are no longer exempt assets. This means $10,000 in a 401k is exempt while the same $10,000 once withdrawn and placed in your checking account is no longer exempt by 11 USC Sec. 522. Potentially, these funds will need to be turned over to the bankruptcy court if they are in your possession at the time of your bankruptcy filing.

Income And The Right Time To File Bankruptcy

When attempting to qualify for a Chapter 7 bankruptcy filing, you must meet the income requirements. The bankruptcy court looks at your most recent six months of income in determining whether you qualify. This is done through what is known as The Means Test. Your bankruptcy attorney will apply the rules of bankruptcy to determine if you pass The Means Test.

The Means Test starts with a calculation of Current Monthly Income (CMI). Your CMI is your average monthly income from all sources, for the six months prior to filing. The bankruptcy definition of income differs from the definition of income used by the IRS. If you receive a cash gift from a family member, it will be included in your income calculations. As a result, your bankruptcy attorney may advise you to wait to file, if you have income from the past six months in excess of the allowable amount. The good news is that by waiting a few months to file, your six-month average income will change. For example, if you received a bonus at work for $10,000 in February, it would be included in your income calculations if you file in March, April, May, June, July, or August. However, if you wait to file until September, your February income is no longer relevant.

Speak With A Charlotte Bankruptcy Attorney Today

If you would like to have a consultation with a bankruptcy attorney, you can call us at 704.749.7747 or click HERE to request a consultation. Consultations can be done over the phone or in person, and they are free. The goal is to help you understand your options, and answer any questions you may have about the process.

Debt Negotiation Lawyer In Charlotte, NC

If you are considering hiring a debt negotiation lawyer or a debt settlement lawyer in Charlotte, you should consider three primary aspects of debt negotiation. First, you should know that every bank is different regarding their tolerance for negotiating a debt. Second, it is important to understand what will inspire any bank or lender to work with you when negotiating your debt. Lastly, you want to guarantee that when you do reach an agreement with the creditor, that they are bound by the terms.

Bank Tolerance For Negotiating A Debt

Some banks are notoriously more or less reasonable than others when it comes to negotiating a credit card debt outside of Bankruptcy. Additionally, those tolerances change over time depending upon the economy and each bank’s financial position. One frustrating element to negotiating a debt is this apparent inconsistency. Most recently, we settled a sizeable debt for a debt negotiation client. The bank forgave thousands of dollars in debt in exchange for a lump sum payment much smaller than the outstanding balance. Two months later, the same bank offered our client a new line of credit with favorable terms.

Inspiring A Bank To Negotiate Your Debt

It is important to understand that the bank may hold a different perspective regarding your debt than you do. For instance, you may be “cash poor” monthly, which is the reason you are asking the bank to work with you. However, the bank may look at your schedule of assets and determine you have $50,000 of equity in your home. Their position is that you should take out an equity line to pay your debt to them. And so, it goes back and forth.

Hiring a debt negotiation lawyer who is also a bankruptcy lawyer sends a specific message to the bank. Namely, it is implied that you are considering bankruptcy. In fact, many of our clients tell us to communicate to the creditor that if we are unable to work out favorable debt settlement terms, the client will move toward filing bankruptcy. This changes the tenor of the discussion with the creditor and often inspires a better debt settlement offer.

In any case, working with a third-party debt negotiation lawyer gives you leverage you simply do not have when you attempt to negotiate the debt on your own. Not only does your debt negotiation lawyer make standard arguments for you when it comes to your financial picture, but they also strategically position your creditors against one another. After all, all the creditors lose if a bankruptcy is filed.

Debt Settlement and Judgment Cancellation or Satisfaction

It is important to reach a favorable agreement with the lender. Your debt negotiation lawyer will also ensure that the lender signs off on language binding them to not only cancel the underlying debt. Additionally, if the creditor successfully filed a judgment against you, your debt negotiation lawyer will see that proper filings cancelling the judgment are put in place once you carry out your end of the agreement with the creditor.

The Debt Settlement Strategy

Debt settlement differs from debt consolidation. Many debt consolidation programs come with high fees, and you are not reducing the amount of debt you pay, you’re simply restructuring the debt. If you can’t make payments or miss payments, you are in default of the debt consolidation agreement and you can incur additional fees and essentially go back to square one.

While debt consolidation allows you to combine multiple debts into a single loan, debt settlement utilizes a very different strategy, When you settle debt, you’re effectively asking one or more of your creditors to accept less than what’s owed on your account. If you and your creditor(s) reach an agreement, then you would pay the settlement amount in a lump sum or a series of installments.

Our firm has helped hundreds of clients settle their debts. Often these are settled one by one at the client’s pace, with overall tremendous savings for the client.

Speak With A Charlotte Debt Negotiation Lawyer Today

Whether you are in Charlotte or any part of North or (most of) South Carolina, our firm can assist with debt negotiation and debt settlement. Call us at 704.749.7747 for a free consultation by phone, or click HERE To request a consultation. We look forward to helping you.

How Do You Negotiate Credit Card Debt?

Negotiating credit card debt yields varying results. Depending upon the facts of your situation, a credit card lender may consider offering terms or reductions which you find favorable. There are also lenders that refuse to negotiate with you despite what you think is a fair offer. This often leads to frustration for the debtor and a stalemate between the two parties—you are unwilling to pay their exorbitant fees and interest, and they are unwilling to compromise. Ultimately, you may find yourself in a stalemate with your lender.

Breaking The Stalemate

While you may be able to negotiate credit card debt on your own, we recommend you use a third party to do it—this is true whether it’s our law firm or another law firm or service. The primary reason we recommend you have someone negotiate credit card debt on your behalf is simple: leverage. One example of leverage in a credit card debt negotiation is bankruptcy. Often, you do not have to file bankruptcy. Just the legitimate threat of it changes the conversation.

Change The Credit Card Debt Negotiation

When you employ The Layton Law Firm to negotiate credit card debt for you, we will talk to you about bankruptcy as well. There are a few reasons for this. First, we want to provide you with the guidance you deserve and need when making large financial decisions. Second, if you do qualify for bankruptcy, it changes the credit card debt negotiation with your lender. Lastly, if your lender is communicating not with you but instead with a bankruptcy lawyer, they know bankruptcy is imminent. In most bankruptcies, creditors get nothing or pennies on the dollar. When compared to having the entire debt discharged in bankruptcy, your lender may reconsider their definition of a fair debt settlement.

The Reality Of Credit Card Debt Negotiation

Keep in mind that if you can reach a negotiated debt settlement with your creditor, they will want the full settlement amount paid over a truly short period of time. This is part of what they are bargaining for in exchange for deeply discounting the value of the debt. This means you may need access to a significant lump sum to reach a favorable agreement. Our office can assist in sorting through this end of the negotiation, and in most cases, we are able to work out a payment arrangement our client can honor in exchange for cancellation of the debt.

Speak With a Credit Card Debt Negotiation Lawyer Today

If you would like more a more thorough answer to the question “How do you negotiate credit card debt?” give us a call at 704.749.7747. Or, click HERE to request a consultation. The consultation is free and can be done over the phone. We look forward to helping you get back on the path to financial independence.

What Are The Chapter 13 Income Limits?

Generally speaking, there are no income limits in Chapter 13. A Chapter 13 bankruptcy is commonly referred to as a reorganization of your debt. More simply stated, Chapter 13 is an arrangement where you commit some portion of your income to pay your creditors. Provided you honor that commitment for 60 months, the remainder of the debt is discharged.

What Percentage Of My Income Do I Have To Commit?

The answer to this question is different for each individual or married couple entering Chapter 13. While a Chapter 13 plan may ultimately be referred to by the percentage you are paying your creditors, the analysis does not begin there. Your Chapter 13 bankruptcy attorney works with you prior to filing, to determine your monthly net disposable income. If your income (after taxes) is $10,000 per month, and your ongoing expenses each month (not including unsecured debts) are $9,575, then your net disposable income would be roughly $425. This would be the amount the court would require you to commit to your Chapter 13 monthly payment.

If your Chapter 13 plan is 60 months long and you commit $425 a month to unsecured creditors in the plan, you will pay a total of $25,500 to unsecured creditors over the course of 5 years. If you have $100,000 of unsecured debt when you enter the plan, your plan is roughly a 25% plan. This is true because you are proposing to pay roughly 25% of your unsecured debt over 5 years, in exchange for a complete discharge of the remaining 75% of the debt when you finish the plan.

Consider another debtor with the exact same income and monthly expenses, yet that debtor has $200,000 of unsecured debt. That debtor would pay the same $25,500 over 5 years; however, his or her plan would be a 12 or 13% plan, simply because their unsecured debt is greater than that of the debtor in the first example.

Are There Debt Limits In Chapter 13?

Yes, there are debt limits in Chapter 13. As of April 2019, you can have $419,275 in unsecured debt, and $1,257,850 in secured debt at the time of filing. Your bankruptcy attorney will perform a debt analysis with you to determine both the nature of your debt and the amount of your debt.

Speak With A Bankruptcy Attorney Today

Getting started with bankruptcy planning is easy and we are happy to discuss income limits in Chapter 13 and debt limits in Chapter 13 with you. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

Negotiating Small Business Debt

If you are a small business owner facing mounting pressure from creditors, it may be time to consider negotiating small business debt. While our firm handles small business bankruptcy filings, there are times where a business owner prefers negotiating debt settlements with creditors. In that case, we implement a strategy for successfully negotiating small business debt with your small business creditors.

Why Not Bankruptcy?

Whether you should file a small business bankruptcy or negotiate your business debt will depend on several factors. In many cases, the driving factor for negotiating the debt is that you want to keep that particular business running because it is generating income. You may also own a business which has a recognizable brand name which has value going forward. Negotiating the debts of the business allows you to preserve your brand, whereas filing a small business bankruptcy will typically involve dissolving the LLC or business entity and starting over with a new business name.

What To Expect

Creditors are usually willing to negotiate a debt with you. Keep in mind the creditor is incentivized to do so when you build your case for debt settlement with them. You can expect a creditor to inquire about your financial status. Our firm will help establish your financial picture with each creditor, and impress upon the creditor that debt settlement is the best option. As a bankruptcy law firm, we can communicate to the creditor with confidence that perhaps the only viable alternative to settling the debt is the filing of a bankruptcy. In most bankruptcy filings, creditors receive nothing, or pennies on the dollar.

Negotiating A Settlement

Our firm takes the lead on negotiations with the creditor. You will remain informed every step of the way. Negotiating small business debt also has urgency to it, and the creditor knows your resources are limited. In most cases, this leads to negotiated settlements that debtors are happy with, and creditors can live with. While creditors ideally desire to receive the negotiated settlement in a lump sum, our firm can work out payment arrangements over a period of months with most creditors, so that the settlement terms better meet your needs.

Speak With A Lawyer Today

Getting started with small business debt settlement is easy. We are happy to discuss further with you how unemployment can affect bankruptcy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

SBA Loans In Bankruptcy

Small business loans or SBA loans are generally eliminated or discharged by a bankruptcy. One exception to discharging SBA loans in bankruptcy, is when the SBA loan is secured by collateral of the debtor. In that event, depending upon its position relative to other secured creditors, your SBA loan may survive your bankruptcy filing.

What Is An SBA Loan?

An SBA loan is a loan granted by the Small Business Administration. These loans are given to individuals to assist with opening a business or continuing to operate a business. You may choose an SBA loan because it is difficult to get financing as a small business, or perhaps because the terms of the SBA loan are more favorable than other types of financing available.

Personal Guarantees For SBA Loans

In almost all cases, you will be required to personally guarantee your SBA loan. This means that if the business defaults on the loan, the lender’s recourse is not only the business assets but also your personal assets. You can generally tell if you have personally guaranteed an SBA loan if you sign the loan documents once for the business and a second time in an “Individual” capacity. If you did personally guarantee your SBA loan or any other loan for your business, do not feel bad—most lenders will not give you the loan without the personal guarantee.

Does A Bankruptcy Address A Personal Guaranty?

Yes. Consumer bankruptcy comes in the form of Chapter 7 and Chapter 13. Both bankruptcy chapters address your personal debt as well as your personal obligation on business debt. The goal of the bankruptcy is to receive a discharge of the debt as to you, the individual. If you own a business which obligated itself on debt, typically you will dissolve the business with the NC Secretary of State in conjunction with filing bankruptcy. This serves to eliminate the business obligation on the debt, while the bankruptcy serves to eliminate the personal obligation.

Secured SBA Loans In Bankruptcy

Secured debt in bankruptcy is treated differently than unsecured debt. This is true whether it is a mortgage, a vehicle loan, or an SBA loan. If you want to keep the property, you must keep the debt associated with the property. For instance, if you own a vehicle worth $14,000 with a loan balance of $13,000, you can choose between surrendering the vehicle (and the debt) to the lender, OR you can retain the vehicle after bankruptcy and continue to make payments on the vehicle loan.

Most SBA loans are secured by real property, or real estate. If you own a home with a fair market value of $450,000 with a mortgage balance of $300,000, the mortgage is fully secured. This is because the balance of the mortgage is less than the FMV of the home. You may have an SBA loan with a balance of $50,000 which is also secured by the real property. While the SBA loan is in second place as a creditor behind the mortgage lender, but the SBA loan is still fully secured.

SBA Loans After Bankruptcy

If your SBA loan is discharged by your bankruptcy, you will have no further obligation to pay it. The SBA loan is treated like all other unsecured debt. If your SBA loan is secured, it will survive the bankruptcy and you will be obligated to continue to pay on it after bankruptcy. Most clients find that if they can discharge all other unsecured debt by way of bankruptcy, they can manage to pay the monthly amounts due on their secured debt. In many ways, when simply looking at the numbers, the discharge of debt in bankruptcy translates into giving yourself a raise.

Speak With A Bankruptcy Attorney Today

Getting started with bankruptcy planning is easy and we are happy to discuss SBA loans in bankruptcy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.