The Automatic Stay in Bankruptcy Blocks Creditors

For many folks in the greater Sacramento area, the most valuable component of a bankruptcy is the automatic stay, which is usually gained immediately upon the filing of the initial bankruptcy documents. The stay stops most creditor actions against a debtor, including foreclosures, repossessions, garnishments, utility shut-offs, and, most of the time, evictions. The stay can also be effective in ending creditor collection efforts and can result in contempt or money damages and attorneys fees. Finally, the stay can simply provide some breathing room for a debtor to catch her breath and give her some time to figure out how to solve financial problems.

The Stay May Also Protect Friends And Relatives

Chapter 13 bankruptcies have a special additional stay called the “codebtor stay.” This special provision provides protection for those that are codebtors with the filing debtor. This may be an important reason to file because it can provide some relief for friends or relatives of the person filing bankruptcy.

The Duration of the Stay

The duration of the stay depends on the circumstances of the case. Unless the court lifts the stay, the stay lasts for the duration of the case, usually three to six months in a no asset Chapter 7 case and up to five years in a Chapter 13 case.

However, if a bankruptcy case was dismissed within a year of a filing a new petition, the stay terminates thirty days after filing. The shortened stay can be extended by the court if the debtor can show the case was filed in good faith. If a debtor has two or more cases dismissed within the year prior to filing a petition, the stay is no longer automatic and court approval is required to impose the protections of the stay. The law puts these rules in place to make sure people aren’t abusing the system.

The Stay Even Applies to the IRS

Even the IRS is not allowed to take collection certain actions after the petition has been filed. It may still be able to continue an audit, but it must put a stop to an existing collection action and must not begin a new collection action without court approval.

Consequences if Creditors Violate the Stay

Some creditors violate the stay accidentally. If that is the case, they must stop collection actions immediately upon learning of the bankruptcy. However, a great many violations are done on purpose. If such a violation is “willful”, the creditor might be in for some substantial penalties. Not only can a bankruptcy filer recover money or property taken wrongfully, but may also be entitled to attorney fees and punitive damages.

The Stay Only Works if You Use It

Like an umbrella, the stay only protects you if you use it right. Don’t open the umbrella when it rains, and you’re all wet. If creditors violate the stay and you don’t inform your attorney, there may be little to no actual consequences. The automatic stay can be a powerful provision, but often only when you use it. Remember the power of the automatic stay!


California Grocery Chain Files for Bankruptcy

Businesses face many challenges but can also reap several benefits. Business owners must manage all the issues that arise in a business such as submitting and paying for orders, hiring and paying employees, paying rent or buying the location. Business owners also get the satisfaction of being their own boss and managing it how he or she wants to manage it. But business owners can also be affected by changes in the economy. For example, the recent economic downturn has forced many business owners into business bankruptcy because they see no alternative way out of the debt they are dealing with.

A local family owned business in Northern California, Mi Pueblos, has filed for Chapter 11 bankruptcy. This grocery store chain has filed because of a dispute with a secured creditor. The chain has indicated that it is not currently defaulting on any obligations.

The grocery chain has stated that customers will not be affected by the change, and employees will still be paid and stores will remain open. The filing has just caused them to go through reorganization in order to deal with their creditor.

Filing for bankruptcy places an automatic stay on all creditor actions. It also stops all liens and repossession of business property. Filing for bankruptcy also allows the business to create a debt reorganization plan. This creates a repayment plan for the business to repay their debts to creditors and vendors. In many cases, interest payments and fees may be reduced or even eliminated.

Businesses require significant cash flow to operate and pay expenses including payroll and orders. When this is impaired by events such as a recession or business disaster, debt relief such as filing for bankruptcy may be the best option. The first step is to understand the options the business has. If they qualify, a knowledgeable professional will be able to guide them through the process efficiently and effectively.

Source: CBS SF Bay Area, "Mi Pueblo grocery store chain files for Chapter 11 Bankruptcy," Mike Colgan, Jul. 22, 2013

Business & Commercial Bankruptcy

American Airlines Looks to Merge to Exit Chapter 11 Bankruptcy

Running a business can be both a rewarding and difficult experience. When the economy changes, it can substantially affect a business owner's ability to run their business. Sometimes, the only way for the owner to get their company out of a tough situation is to file for business bankruptcy.

On Tuesday, a bankruptcy judge allowed American Airlines to pay a severance package to its chairman and CEO. This ruling sets the stage for American to exit Chapter 11 bankruptcy and merge with US Airways. The decision still requires the approval of American's creditors.

American filed for Chapter 11 bankruptcy 18 months ago. They also tried to negotiate with their employee unions to lower operating costs. US Airways and American announced a merger at the end of last year.

The issue holding up the merger was the severance package for the executives. The Bankruptcy Code prevents any severance package given to a CEO to be more than ten times the amount given to the average employee. Generally creditors must approve any reorganization or merger plans.

There are two types of business bankruptcy. One liquidates the business to pay off creditors. The other creates a debt reorganization and repayment plan. Both can help a business get out of a tough financial situation and can provide the business a fresh financial start, like in the case of American Airlines.

One of the major benefits of filing for bankruptcy is that all creditors actions are stopped immediately. This includes liens and repossession. A debt reorganization plan will generally decrease interest payments and penalties or fees are reduced or eliminated.

No matter the situation, if a business is considering filing for bankruptcy, they should consider their options to determine whether it is a viable option. In addition, they might qualify for various form of bankruptcy, so it is a good idea to seek out advice to understand what their best option is.

Source: The Sacramento Bee, "Bankruptcy judge removes obstacle to American-US Airways merger," Curtis Tate, June 4, 2013

Chapter 11

California Electric Car Company Files for Chapter 11 Bankruptcy

Trying to run a business is never an easy task. But the recent economic times have made this task remarkably more difficult. It does not take many missed or late payments before creditors begin harassing a business for money owed to them. In many cases, the best way to get a business turned around and out of trouble is to file for business bankruptcy.

A California-based electric car company filed for Chapter 11 protection recently. The company, CODA Holdings, filed after poor sales. They intend to get out of the auto business permanently with this filing. The company says that it will focus post-bankruptcy efforts on an energy storage business that is also under the CODA name and uses similar technology.

At the moment, a group of debtors plans to buy the company for $25 million. The company is only four years old and only has about 40 employees.

CODA is not the first electric car company to struggle financially. Only last month, an Anaheim based company laid off almost 75 percent of their work force. This company makes electric sports cars. Another company, Tesla, has yet to make a profit and the company owes the government almost $500 million in loans.

Filing for bankruptcy can put an automatic stay on creditor actions. This includes repossessions and foreclosures. Bankruptcy can allow a business time to reorganize and reduce or eliminate penalties and fees.

Companies in any type of business can experience financial difficulty. Whether due to market changes or other commercial factors, business owners in such situations should explore the possibility of chapter 11 filing, to determine if it can help save the company.

Source: The Sacramento Bee, "Electric car maker CODA files for Chapter 11," Robert Jablon, My 1, 2013

Chapter 7

Company That Supports Charities Files for Chapter 7 Relief

In the current economy, uncertainty about the future is a common concern. This is especially true for business owners. Small changes in the economy can substantially affect an owner's ability to pay creditors. It does not take many missed or late payments to creditors before a business can fall very behind and face significant economic challenges. In some situations, a business owner is unable to catch up with creditors and must consider other options such as Chapter 7 bankruptcy to stop creditor harassment.

A company that helps support charities has filed for Chapter 7 bankruptcy protection. The company,, allegedly owes clients thousands of dollars. The company filed for bankruptcy protection after a court ordered the owner to pay over $400,000 to an investor.

This is not the only ruling to go against the owner. He owes hundreds of thousands of dollars to investors and clients even though the company claims revenues of over $8 million. Companies all over the country have filed suits or at least complaints that the company owes them money. The company has an 'F' rating at the Better Business Bureau.

Bankruptcy can provide both business owners and individuals with a variety of protections and an ability to get a fresh financial start. One benefit of bankruptcy is that it puts an automatic stay on creditor actions such as foreclosures, wage garnishments and repossessions. Chapter 7 bankruptcy allows the filer to liquidate and eliminate their debt.

Chapter 7 allows the filer to discharge a variety of debt including credit card debt, medical bills and mortgages if the filer does not want to keep the house.

Source:, "Company claiming support for charities files bankruptcy protection," Dan Tilkin, April 29, 2013

Business & Commercial Bankruptcy

California Farm Files for Bankruptcy to Cover $100 Million Debt

The recent economic downturn has affected all different kinds of industries, from agriculture to manufacturing. One California poultry farm has recently chosen to file for bankruptcy to pay off creditors. Zacky Farms LLC owes creditors close to $100 million.

Zacky points to the dramatically rising feed costs and heavy debt as the reasons for filing. Zacky is a closely held company and is facing the same fate as many other smaller farms in the California area. Corn and soybean meal prices are at an all-time high, which has lead to significant losses in its poultry operations. Droughts in the United States, South America and Russia are to blame for the increased feed costs. This increase in the price of corn, which is the main in gradient in livestock feed, has lead to Zacky spending almost $2 million a week on feed for 1.9 million turkeys and 600,000 chickens.

Zacky tried to avoid commercial bankruptcy by borrowing heavily in the spring. The company borrowed around $7 million from the trust account that owns half of Zacky. To remain in operation during bankruptcy, the company must borrow $71 million. This debt arrangement is currently being made by a separate Zacky family trust. The company's goal in bankruptcy is to reorganize the debt and continue operating.

Bankruptcy is a beneficial option for companies in a situation such as Zacky. It stops all collection actions immediately and allows the company to create a debt reorganization plan that will allow it to continue operating. Most of these plans reduce interest payments, and penalties or fees that have accumulated may be reduced or eliminated completely.

Source: Bloomberg Businessweek, "Zacky Farms Files Bankruptcy, Cites Cost of Poultry Feed," Steven Church and Phil Milford, Oct. 9, 2012

Credit Card Debt

Debt in Death: Will Family Have to Pay Your Credit Card Debts?

In these tough economic times, many Americans have turned to credit cards to make everyday purchases. But this has left many Americans with substantial credit card debt.

But what happens to this debt if you die? Generally, the estate pays off credit card and all other debts. In most cases, the estate is not able to cover all debts which leaves the creditors out of luck. This also means that family members are not liable for that debt.

Unfortunately, having to deal with a loved one's passing may not be the only stress associated with a death of a family member. If the debt is from a joint credit card, the other cardholder may still be liable for the debt. If the card was cosigned by both parties, then that debt does not go away. An authorized user only of an account will not inherit the debt.

Inheriting debt can put a serious financial strain on a family member of the deceased. If a substantial debt is inherited and the inheritor is not in a financial position to pay it back, bankruptcy may be an option. Bankruptcy can eliminate many debts and at the very least can prevent creditors from contacting the individual in debt. But, an authorized user should not use the card after the cardholder passes away. This can put the user in serious legal trouble because there are criminal implications.

While a debt that is only the estate's responsibility may seem like the best case for family members, it can leave beneficiaries empty handed. Debts must be paid before any distributions are made which means that an estate that must pay off a substantial amount of credit card debt can mean nothing for the family members.

Death is always a very difficult time for any family member but being aware for possible financial changes can make the transition just a little bit easier.

Source: Fox Business, "After death, who inherits credit card debt?," Sally Herigstad, Aug. 20, 2012

Business & Commercial Bankruptcy

California solar manufacturer files for Chapter 11 bankruptcy

A Silicon Valley-based solar manufacturer recently filed for Chapter 11 business bankruptcy protection with hope of reorganizing its business and beginning anew.

NovaSolar was created just three years ago when a large thin-film solar manufacturer was broken into two parts. The portion that has now filed for Chapter 11 bankruptcy protection had taken over the manufacturer's management and intellectual property divisions. Over the course of the past three years, the company worked to secure several large solar farm contracts. The company also worked toward the construction of a manufacturing facility in China and a research and development facility in Silicon Valley.

Until just a few months ago, the company contended that it was working to secure more contracts and completion of all construction. The foreign facility was to be completed by the end of 2011 and have 10 production lines.

However, the secured contracts and production facilities were not enough to protect the company from several outstanding debts. It has also been speculated that the company's structure and management too closely mirrored the failed company from which it was created, leading to financial distress.

The company initially tried to limit losses by furloughing employees and halting all construction at both facilities, including the one in California. A Chapter 11 reorganization was ultimately filed this month.

The Chapter 11 filing will allow the solar manufacturer time to organize its finances and work with creditors. While the process receives attention when engaged by large companies, small business can also use Chapter 11 to help with business reorganization and debt negotiations.

NovaSolar's bankruptcy filing lists $6 million in assets and $14 million in liabilities. While the bankruptcy is pending, the company will be able to work on restructuring without worrying about creditors attaching liens to company assets or interest accruing on the outstanding debt.

Source: PV Magazine, "NovaSolar bankruptcy announced," Becky Beetz, June 19, 2012