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Cleveland TN Bankruptcy Law Blog

We help folks facing problems with credit card debt

Credit card debt can be easy to accumulate and very difficult to pay back. Unanticipated emergencies, unemployment and other unforeseen expenses can cause credit card debt to add up quickly. Events like holidays and other special occasions can add to the debt. Not too long ago, we discussed the impact of the holiday season on the average American's debt burden.

According to a survey, Americans accumulated on average more than $1,000 in new debt over the course of a recent holiday season. About 20% of Americans accumulated $2,000 or more during the holidays. Over two-thirds of those surveyed used a credit card or an in-store card to finance their debt. Over 60% of people in debt had not expected to take on debt at the start of the holiday season. Fewer than 50% of those surveyed thought they would have their debts paid within three months.

Sears shareholders sue former CEO, claiming he looted the company

The saga of the Sears bankruptcy is continuing with another lawsuit against the former chairman, Eddie Lampert, claiming that Lampert and his associates siphoned off billions of dollars in assets from the company and purposely drove it into bankruptcy. Sears stores were scattered across Rockland County and the state of New York, causing many to wonder how the chain could have failed. The plaintiff in the lawsuit, Sears Holdings Corp., is overseeing the liquidation of Sears' assets and is representing the interests of the company's shareholders.

Lampert and his company, ESL Holdings, purchased $5.2 billion of Sears' assets during the company's commercial bankruptcy at a price many assumed was an overly steep discount. Sears Holdings Corp. alleges that Lampert and his associates began to implement a plan in 2011 to sell the firm's assets at deep discounts to pay the company's operating expenses with no explicit plan to return the firm to profitability. The plaintiff also claims that but for the defendants' illegal actions, Sears would have retained enough cash to pay its third-party creditors and would have been able to avoid the disruption of bankruptcy.

Discounter Fred's begins closing stores and selling off inventory

Another discount chain that depends upon brick and mortar stores is beginning the process of closing outlets and selling off its merchandise. The chain is Fred's, a chain based in Memphis.

In a statement issued last week, the chain announced that it plans to close 159 underperforming stores by the end of May and to evaluate strategic alternatives. The chain also announced that it has retained an advisory firm to assess its options and help it maximize value as it restructures. Fred's also hired two liquidation firms to provide assistance in the downsizing process. The president of the company said that a 4.9% drop in sales in the first nine months of 2018 caused its executives to search for a more rational footprint by closing underperforming stores. The company's shares also lost 5.8% of their value.

How bankruptcy can get creditors off your back

Many people in Eastern Tennessee have heard that a bankruptcy petition can prevent harassment by aggressive creditors, but very few understand how this happens. The answer is an automatic stay.

The automatic stay is found in the U.S. Bankruptcy Code at 11 U.S.C. ยง362. This section states that a bankruptcy petition automatically operates as a court order. The order states that all creditors shall immediately cease all attempts to collect debts owed to them by the debtor. The order specifically applies to lawsuits, attachment of wages and attempts to perfect or enforce any lien. Creditors who do not obey the order may face significant sanctions from the bankruptcy court. Because the order is automatic, creditors are immediately shut down in their efforts to collect debts.

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.

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