Loan modifications continue to be a hot topic among homeowners in financial distress, and the excitement is not unwarranted. For a homeowner that has fallen behind on mortgage payments, the possibility of lowering monthly payments while also bringing the account current can be a truly exciting proposition.
However, what surprises me and many other bankruptcy attorneys in North Carolina is the notion that bankruptcy and loan modifications are mutually exclusive options. What many individuals do not realize is that bankruptcy can be filed in conjunction with negotiating a loan modification.
With Chapter 7 Bankruptcy, for example, it is possible to file bankruptcy in order to deal with unsecured debts, such as credit cards and medical bills, and then, almost immediately thereafter, apply for a loan modification. Alternatively, individuals may apply first for a loan modification and then file for Chapter 7 bankruptcy after the loan modification is completed. When a Chapter 7 Bankruptcy is combined with a loan modification, the result can be an extraordinary debt-fighting strategy.
For more mortgage relief information, feel free to contact a mortgage relief and bankruptcy lawyer in North Carolina, Jefferson Mabrito, at 704-209-7540
In good times and bad, protecting your future is never a bad idea. And for North Carolina individuals with highly leveraged finances, it is always important to think in terms of protecting assets, even when times are good and debts appear to be manageable. This is perhaps especially true for real estate investors, land developers, contractors and other business owners who are commonly asked to offer personal guarantees in order to transact business.
Incurring debt is often unavoidable. However, several mistakes should be avoided.
First, avoid personal liability as much as possible. It really goes without saying, but, if you run your own business, make sure you have incorporated or formed another type of shielding business entity, and then avoid personal guarantees as much as possible. A corollary to this statement is that you should avoid granting liens and mortgages on things you cannot stand to part with. Do not find yourself in the situation where you have secured company financing with a mortgage on your home and a lien on your brother’s car.
Second, protect your family. Never—again I say, Never—let a spouse, parent, sibling, favorite-second-cousin, or uncle guarantee any debt unless you are 200 percent certain that the debt will be paid. As a North Carolina bankruptcy lawyer and debt defense attorney, I have encountered numerous examples of debt-burdened individuals who are actually judgment proof individually, except that their mother, father or other family member guaranteed the loan in question. Such individuals may be judgment proof personally, but often feel no relief when a jointly-responsible relative has substantial assets that are now at risk.
Especially with respect to husbands and wives, protecting your family actually protects you. In North Carolina, where the presumptive form of real estate ownership for husbands and wives is known as a “tenancy by the entirety”, a creditor of only one spouse can never reach the real estate assets owned by both spouses jointly as tenants by the entirety. This means that, from a debt-defense perspective, it is best for spouses not to co-sign on each other’s debts. In some instances, this point can determine whether or not a couple can keep their home.
In sum, try to avoid debt entanglement. Keep debts in their isolated sphere, separate from family and personal assets. For more information on debt defense, debt relief and business incorporations, feel free to contact North Carolina bankruptcy attorney and business lawyer, Jefferson Mabrito, at 704-209-7540
A small business owner recently contacted me about the possibility of discharging his business debts in a personal Chapter 7 bankruptcy filing. He was worried about whether his business debts could be erased, whether he would lose all of his assets if he were to file a bankruptcy, and what effect the bankruptcy would have on his business. Such questions are common among North Carolina business owners in financial distress, and, as a bankruptcy lawyer in Charlotte NC, I have recently observed increasing numbers of small business owners in need of bankruptcy relief...
Whether a chapter 7 bankruptcy is appropriate for a small business owner depends on a wide variety of factors.
Many individuals are under the mistaken impression that, in order to erase personal liability on a business debt, it is necessary to file a “business bankruptcy”. However, this is simply not the case. When a business owner files a personal bankruptcy, the bankruptcy discharge typically erases the owner’s responsibility with respect to both consumer debts and business debts, such as guarantees.
However, it is important to keep in mind that a business is often the primary obligor with regard to business debts. This means that, even if the owner manages to erase his personal liability for business debts in bankruptcy, the business itself may remain liable on such debts. The continuing liability of the business itself can make it difficult to preserve business assets for the benefit of the business owner.
If the business in question has no significant assets and more or less has no value, then the continuing liability of the company may not be cause for concern. The owner may not be concerned about preserving the business entity itself because the business has no value. In such cases, the owner may wish to simply file his chapter 7 bankruptcy and walk away from the business. This can be a successful approach in many cases.
Where the business in question has significant assets, a business owner can often still file a successful personal chapter 7 bankruptcy, but there can be issues relating to the preservation of business assets that should be taken into consideration. First, when filing a Chapter 7 bankruptcy, individuals are only entitled to keep assets that are within the North Carolina exemption limits. Where the value of the business is in excess of the NC exemption limits, there is a risk that the trustee will attempt to liquidate it. When a business has little debt in relation to assets, often the owner will run a risk of losing his business if he files a Chapter 7 bankruptcy. On the other hand, when there is no equity in the business entity, i.e. where business debts equal or exceed business assets, there is less likelihood that the business will be forcibly liquidated in a Chapter 7 because the business, in effect, has little or no value. The second issue that can arise involves the actions of business creditors after the owner's personal Chapter 7 bankruptcy comes to a close. As noted above, after the business owner receives his discharge, the business owner will have erased his personal liability on business debts, but the business entity will remain responsible for such business debts, which means that business creditors will continue to pursue assets that are owned in the name of the business, although such creditors will no longer be able to pursue the owner personally.
Where a substantial amount of assets are owned by a business, the business itself may need to consider filing a Chapter 11 bankruptcy if it wishes to protect its business assets.
For more information regarding bankruptcy, please feel free to call chapter 7 bankruptcy lawyer, Jefferson Mabrito, at 704-209-7540