Why are Bankruptcy Filings Down?
I am on the Chapter 11 Advisory Committee for the Bankruptcy Court for the Eastern District of New York, a committee comprised of Bankruptcy Judges in the District and experienced bankruptcy practitioners. At a recent meeting there was a discussion of bankruptcy filings in the Eastern District and National trends. Despite the fact that many individuals and businesses are in financial distress, it has been somewhat counterintuitive to my non-bankruptcy lawyer colleagues, friends and acquaintances to comprehend that bankruptcy has been on the decline and that business for bankruptcy lawyers has been extremely slow.
Adjustments to New York State Exemptions Provides Added Relief to Debtors Owning a Homestead
New York State’s Exemptions for property exempt from application to the satisfaction of money judgments is adjusted every 3 years. The exemptions recently changed, effective April 1, 2021. Of note is that the personal Homestead Exemption (in the Metropolitan Area) increased over $9,000, from $170,825 to $179,975 in just three years. When I started practicing bankruptcy law in 1984, the homestead exemption was $10,000! Many thought that amount, which had not changed in many years, was too low. New York Lawmakers ultimately enacted legislation to avoid this circumstance from happening again by having the exemptions automatically adjusted every three years based on the change to the consumer price index for All Urban Consumers, New York-Northern New Jersey-Long Island, NY-NJ-CT-PA region.
Author: Andrew M. Thaler
For years I have advocated that everyone, particularly business owners, should make a concerted effort to learn what would happen if a financial disaster befell them or their business. As a bankruptcy attorney I have seen once wealthy individuals and thriving businesses fall on bad times, often due to health reasons, business reversals, and divorce. However, who would have thought that the entire world would be struck with the devastating consequences of the COVID-19 Virus? There is no better example than COVID-19 that a catastrophe can hit any one of us at any time. Sadly, we have only seen the beginning of business failures due to COVID-19. Many closely held small businesses have shut their doors never to re-open. Where does that leave the owners of those businesses? The answer may rest with whether they planned for a financial catastrophe or were just lucky.
Chapter 11 reorganization allows the debtor to reject undesirable leases. If the debtor opts to reject the lease, the landlord is left with a breach of contract claim. In most instances rejection claims against the bankruptcy estate will be for less than the remaining rents under the lease as the claim is capped pursuant to the bankruptcy code.
Alternatively, the debtor can elect to assume the lease. Assumption requires the debtor to cure all prepetition defaults, including payment of all past due rents, on assumption. The debtor has 120 days, which can in certain circumstances be extended another 90 days, to assume or reject the lease. During the time debtor decides to assume or reject the lease, all post-petition obligations, including payment of rent must be paid. The court may “for cause” extend the time for performance of any post-petition rent, for up to an additional 60 days.
EVENTS THAT ORIGINATED BEFORE A BANKRUPTCY IS FILED: WHAT POST-PETITION ACTION OR INACTION CONSTITUTES A STAY VIOLATION? WAGE GARNISHMENTS, SEIZURES, SETOFFS, DISCOVERY DEMANDS AND MORE
The filing of bankruptcy operates as an automatic stay of the enforcement of a judgment against the debtor or property of the estate, the commencement or continuation of litigation against the debtor, the taking of possession or control of property of the estate, and more. Creditors are often placed in a position of not knowing what to do when they learn that a debtor has filed bankruptcy. Some common scenarios are where, prior to bankruptcy, (i) a creditor seized the debtor’s vehicle, (ii) the Sheriff garnished and is holding debtor’s wages, or (iii) creditor’s counsel engaged in litigation have pending outstanding interrogatories, subpoenas, motions or other court hearings.
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