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Cleveland TN Bankruptcy Law Blog

How does bankruptcy affect a person's credit rating?

Most people in Eastern Tennessee contemplating bankruptcy are aware that they have credit scores that are used by potential lenders to determine whether the person should be loaned money and what interest rate they should be given. The uncertain piece of the puzzle is the effect the bankruptcy filing has on a person's post-bankruptcy credit score.

In the United States, three credit rating bureaus keep track of how well individuals pay their debts. Each person in the system is given a score based upon their promptness in repaying their loans. A credit score of 780 is deemed to be excellent, and a score of 680 is deemed to be fair. The maximum score is 900. Most lenders would use a score of 780 to lend money with little or no question and give a low interest rate.

Small Tennessee hospital seeks Chapter 11 protection

Small community hospitals all over the United States are facing severe financial pressure to remain solvent. The pressure comes from two sources: the expansion of large medical companies and increasing costs. These factors have forced a small hospital in western Tennessee to go through a forced business bankruptcy under Chapter 11.

The Lauderdale Community Hospital in Ripley, Tennessee, has faced obstacles for months. In February of this year, a federal judge appointed a receiver to manage the hospital's financial affairs. Now, the receiver has filed a motion requesting permission to file a Chapter 11 petition on behalf of the hospital. In the motion, the receiver alleged that the hospital cannot pay its operating expenses and critical vendors without the protection of Chapter 11. A local bank added its weight to the motion by offering to provide "an immediate short-term influx" of necessary funds upon the filing of the Chapter 11 petition.

Understanding the effect of the automatic stay in bankruptcy

For people in eastern Tennessee, the filing of a bankruptcy petition under either Chapter 7 or Chapter 13 can feel like the first step on a long, dark and unpredictable journey. In reality, the decision to seek relief from debt via a bankruptcy proceeding will produce several immediate benefits. One of the most important is the automatic order for relief and the automatic stay.

The order for relief is issued automatically by the bankruptcy court in which the petition is filed. The order contains a very important provision - the stay of all collection activities by every creditor of the debtor. The stay orders every creditor to immediately cease collection activity against the debtor. The stay affects lawsuits, all debts incurred before the petition was filed, and all proceedings to collect on existing judgments. The stay can prevent utilities from being disconnected, halt eviction proceedings, prevent credit card companies from pursuing collection and stop garnishment proceedings. Perhaps the most important benefit is the immediate halting of foreclosure proceedings involving the family home. Penalties for violating the stay are severe, but the law also gives the creditors an opportunity to seek relief from the stay for certain prescribed reasons.

Mental health center for women abruptly ceases operations

Most businesses show signs of financial weakness before they cease operations or declare bankruptcy. Occasionally, a business will close without prior warning to employees or clients and commence a business bankruptcy proceeding. A high-end mental health treatment center in Auburn, near Knoxville, that focused on female clients recently closed its doors with no advance warning to clients or employees.

Brookhaven Retreat was a private facility that treated women with addiction and other mental health issues. The center charged roughly $40,000 - $50,000 for a 30-day stay. Its advertising touted fine cuisine, equine therapy and individualized treatment. It received national attention when it treated pop singer and actress Selena Gomez in 2016.

Understanding Tennessee's bankruptcy exemptions

Anyone in our state who is wondering about the wisdom of filing a Chapter 7 bankruptcy should make an effort to understand the kinds of assets that cannot be claimed by creditors. These assets are usually referred to as "exemptions" because they are exempt from the claims of creditors.

The most important personal bankruptcy exemption is the homestead, the building used by the debtor and his or her spouse as their residence. A debtor who is filing only singly can claim up to $5,000 in the home's equity as exempt from the claims of creditors. Joint filers can claim $7,500 as exempt. For persons age 62 or older, the limit is higher: a single filer can claim $12,500 as exempt. Married filers who both live in the house can claim $20,000. If both filers are 62 or older, the limit is $25,000.

How to make a Chapter 13 bankruptcy work

Many people in Eastern Tennessee are aware that the United States Bankruptcy Code offers individuals two choices: Chapter 7, in which most debts will be discharged, or Chapter 13, in which the debtor undertakes to fulfill the terms of a plan for paying off debts over a period of 3 or 5 years. Chapter 7 requires the debtor to pass a "means test" by showing that his or her monthly income is below the median income in our state. Chapter 13 has no such test, and it provides a method to escape financial catastrophe for anyone with a regular income.

In order to qualify for a Chapter 13 proceeding, the debtor must demonstrate that he or she has a regular income and that the income will provide sufficient funds to pay off debts according to the plan approved by the court. The debtor must also show that he or she attended an approved course in financial management. The key to making the procedures in Chapter 13 work for the debtor is to accept the fact that the bankruptcy plan will be part of the debtor's life for three to five years after the court proceeding is concluded.

Thirteen tips for recovering after a bankruptcy

Many people in Bradley County regard a bankruptcy as an indelible stain on their credit history, and some even believe that bankruptcy is a stain on their personal reputation. Bankruptcy can surely have an adverse effect on a person's credit rating, but the effect does not need to be permanent. People who are knowledgeable about consumer lending and bankruptcy have several guidelines for resurrecting a damaged financial reputation.

The first step is to obtain a free credit report and ensure that it is correct. The report should also be reviewed periodically to ensure that new information is accurate, especially payments to credit card companies or other lenders. One of the best ways to improve a credit score is to ensure that all payments are made on time, including both credit cards and utility bills. Avoid purchasing high-interest products on a credit card. The high interest will be difficult to pay on time. Avoid credit repair scams. Many dubious firms will offer seemingly miraculous plans for repairing a credit rating, but usually, they are only interested in collecting fees and doing nothing to help one's credit.

Understanding the treatment of executory bankruptcy contracts

Few Bradley County businesses enter bankruptcy in a vacuum. A small retailer may have existing supply contracts with expiration dates long after the anticipated bankruptcy filing date. Both retailers and manufacturers may have unexpired real estate or equipment leases. In a Chapter 7 bankruptcy, the debtor may wish to walk away from such obligations, but in a Chapter11 business or commercial bankruptcy proceeding, the debtor may wish to continue a real estate lease or an important supply contract. The Bankruptcy Code uses the legal concept of "executory contract" to handle both problems.

The Bankruptcy Code gives the bankruptcy trustee the power to either reaffirm or reject any executory contract. The Code does not define executory contract, but it generally understood that an executory contract is an agreement under which either party or both parties have unfulfilled duties to perform. Under a supply agreement, for example, the debtor may have ordered products for delivery long after the bankruptcy petition has been filed. Until the products have been delivered, the contract is "executory." Likewise, a real estate lease with an expiration date that postdates the filing of the bankruptcy petition is executory.

Debts that cannot be discharged in a bankruptcy

When a resident of Tennessee files a bankruptcy petition, their primary object is to obtain a judicial order stating that their financial obligations have been discharged, i.e., that the debts do not need to be repaid. In most bankruptcy proceedings, the bankruptcy court will issue an order at the end of the case identifying which debts have been discharged and which remain enforceable.

Some debts are non-dischargeable as a matter of law. These debts include a tax or customs duty, a debt for money that was obtained by fraud or false pretenses. A discharge will also be denied for purchases of luxury goods for more than $500 on or within 90 days before filing of the petition. All domestic support obligations, including child support or spousal support, cannot be discharged. Fines owed to a government entity cannot be discharged. Finally, any debt incurred by fraud cannot be discharged.

Gymboree and Crazy 8 stores will close in bankruptcy

In what seems to be almost a regular weekly occurrence, another well-known retailer announced that it will be closing several stores here. According to a press release issued by the parent company, Twenty Gymboree and Crazy 8 stores in Tennessee will be affected by the company's decision to file a petition for protection under Chapter 11 of the Bankruptcy Act.

The parent company, Gymboree Group, Inc., operates 900 stores under various names. The stores sell different lines of children's clothing. The company said that it has received a commitment for debtor-in-possession financing of approximately $30 million in new loans and a "roll up" of current obligations. The roll-up will act much like a debt consolidation for an individual. If the bankruptcy court approves the loan and the restructuring of the company's debts, the arrangement is expected to provide enough capital to support the company's operations during the Chapter 11 process.

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