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California Chapter 11 Bankruptcy Cases Continue Despite Reopening

Intelsat SA Seeks California Chapter 11 Bankruptcy Protection Ahead of Spectrum Auction

Amid the raging COVID-19 pandemic, several companies have been forced to seek bankruptcy protection to avoid creditor actions. While most of the latest cases have been directly caused by the government action to prevent the spread of the deadly pandemic, a significant number of bankruptcy cases are not directly related to the COVID-19.

In a last-ditch move to save its assets from creditor actions, Intelsat SA opted to file for Chapter 13 bankruptcy late Wednesday. The indebted satellite company opted to seek California bankruptcy protection after falling short of funding required to provide airwaves to wireless operators.

Before filing for California bankruptcy protection, the company was set to participate in a future wireless-spectrum auction by the government.  The company, however, fell short of required funds after being weighed down by almost $15 billion debt to creditors.

The forthcoming auction involves a swath of spectrum currently in use by satellite operators, which the Federal Communications Commission (FCC) plans to repurpose for 5G networks.

A successful auction, though financially burdening, could spell the difference between the company’s doom and prosperity. If the bankruptcy claim is approved, the company will be able to participate in the forthcoming auction, which could boost its financial standing.

While announcing the new development, the company also cited the economic slowdown affecting several markets as a result of COVID-19 as being one of the causes.

The company also announced that it planned to continue its everyday operations, after securing and committing up to $1 billion new funding in the form of debtor-in-position. If the courts also approve of this move, the company will be able to run its operations normally while it proceeds with its bankruptcy case.

Under Chapter 11 bankruptcy that Intelsat SA is seeking, a company has to reorganize its debts to creditors with a plan subject to the approval of the courts. Since the company’s operations will not be crippled as a result of the bankruptcy, it can continue with its operations as long as it designs strategies to meet its debt reorganization goals agreed upon by both the creditors and the bankruptcy court.

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California Bankruptcy Courts and The Best Effort Requirement

Debt Repayment Plan in Chapter 13 California Bankruptcy

Among the most commonly used bankruptcy protection clauses are Chapter 13 and Chapter 7 for individuals dealing with financial difficulties. While most people usually aim for Chapter 7 when filing for bankruptcy, many of them end up qualifying only for Chapter 13 instead.

Chapter 13 bankruptcy protection allows individuals to reorganize their debts, in contrast to the liquidation done through a Chapter 7 case. For this purpose, you would need to formulate a repayment plan subject to court approval to meet your debts.

A California bankruptcy court will, however, not issue an approval of the repayment plan unless one can demonstrate that the content therein is the “best-effort” of the individual at repaying their debts to the creditors owed.

The court will thus assess your secured and unsecured debts to determine how they have been prioritized.

California bankruptcy law dictates that one should make a plan that will channel all disposable income towards the payment of the unsecured debts. Since the law also recognizes that you would need to sustain yourself and your family during the bankruptcy discharge, it allows you to divide your income to cover living expenses, upon which the rest should be used in debt repayment if filing for a Chapter 13 bankruptcy protection.

The courts will additionally subtract from your income the amounts required to repay priority debts and secured ones when assessing the disposable income available for repayment of unsecured debts.

Secured debts, by definition, comprise those that are tied to an asset while unsecured debts are those that are not.

Credit card debts, for instance, issued by health care providers, are considered unsecured and usually take the last priority in a Chapter 13 bankruptcy repayment plan. Priority unsecured debts, on the other hand, include those involving child support and government taxes among others.

The latter is usually considered as being especially crucial in formulating a repayment plan. If the bankruptcy court is satisfied with your prioritizing of these debts in your repayment plan and that what you present is your best effort, the plan will be approved and you enjoy protection from creditor actions.

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How to Manage Student Loan Debt

Strategies For Managing Student Loan Debt

Student debts can be very confusing and overwhelming. Below, we advise you on how to lower your payments or get rid of your debt altogether. While some of these services are free; others, such as credit counselors and legal advice, generally cost money. Personalized help may be worth paying for if your situation is complex.

  • Know Your Debt

Stay in touch with your creditors and always be aware of what you owe. You can make a list of what and who you owe on your student loan debt. Keep track of your lender(s), the balance you owe and your repayment statis (current balance, due dates, end dates, interest, etc.).

  • Review Your Repayment Options

A 10-year repayment plan is typical with student loan debt, but if that isn’t going to work for you there are other options out there. You can extend your student loan debt payment plan out beyond the 10-year marker, but an even longer plan will increase the interest on the life of the loan even though the monthly payments are lower. An Income-Based Repayment Program maybe something to consider.

  • What is Your Grace Period?

Every student loan has a grace period, which is the timeframe allowed by the lender between the time you finish school and the time your first payment is due.

  • Update Your Records

Stay on top of your end of the bargain by updating your lenders if you move, change your contacts, or have a change in your financial situation such as job loss. Make sure you allow your lenders to do the same with you.

  • Ask For Help

If you cannot keep up with your student loan debt, get help! Don’t default.

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California Bankruptcy Cases Likely to Increase as Airlines now Seek Protection

Bankruptcy Cases in California Expected to increase Even as Businesses Reopen

The coronavirus pandemic has now claimed among its economic victims one of the largest airlines in Latin and Central America. Avianca (AVH) is one of the longest continually running airlines in the US. The company becomes the latest to succumb to the loss of business due to the pandemic after the government instituted stringent travel measures to control its spread.

California was one of the first states to go into lockdown following the spread of the COVID-19 pandemic in the country. Having been in virtual lockdown for the past ten weeks, the government is finally opening up its businesses albeit with a raft of precautions.

The loss of business due to stringent government regulations restricting traveling has affected airlines the most as interstate travel and international flights are the backbone of their economies.

California Pacific Airlines earlier filed for Chapter 11 California bankruptcy protection in a bid to reorganize its debts with creditors after the business went down. It remains uncertain how many more will follow the same route due to the impacts of the COVID-19 pandemic.

Even as businesses reopen, the government announced that the economy would only reopen to 70% capacity in the following months, leaving the rest in the dark. Even so, the economy is not expected to recover immediately. Thus companies filing for California bankruptcy protection are expected to rise in the following months.

Economic experts have already predicted a rapid increase in bankruptcy cases over the next 18 months. States like California, which have been in a lockdown for the longest time, remain the most affected by the drop in business while the coronavirus pandemic spreads even further.

The state continues to battle the pandemic on one side while struggling to keep its economy running on the other. Employment levels rose following the lockdown with millions of its citizens filing for unemployment benefits from the state to alleviate their financial situation. Governor Newson, however, urged the residents to remain optimistic in the face of the pandemic and resume business operation while observing prevention measures to limit its spread.

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What Happens to Student Loans in Bankruptcy?

Can Your Debts Be Discharged in Student Loan Bankruptcy?

When a debtor first files for bankruptcy, he may still have student loans in bankruptcy that he needs to repay. Unlike many other debts, student loans are not usually discharged during the process of going through bankruptcy. There are times when a person may discharge his student loan debt, but they are the exception rather than the rule.

  1. Permanent and Total Disability

Debtors can have student loans in bankruptcy discharged if they have suffered from some form of permanent and total disability. Because non-physical disabilities are hard to prove, a person with a mental disability cannot expect this form of debt relief.

  1. Extreme Financial Hardship

In a case of rare financial hardship, a judge may rule that a student loan in bankruptcy may be discharged completely. As with the disability case, this happens exceptionally rarely. Most debtors should expect to have a repayment plan worked out that includes their student loans.

What Else Can Happen?

If a person’s student loan is in default, the government can take a person’s tax return checks until the debt is paid. Wages can also be garnished, although a judge may provide temporary relief from wage garnishments after a person is declared to be financially insolvent.

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California Chapter 7 Bankruptcy: No Asset Case

No Asset Cases in California Bankruptcy and What it means to Creditors and Debtors

In general, most people that qualify for a Chapter 7 bankruptcy are those with few assets. The main reason for this is that one requires to pass the means test to be eligible for this particular type of bankruptcy. Unless one has an exemption from the means test, they would have to undertake the evaluation, failure to which they would be directed to file a Chapter 13 bankruptcy case.

California bankruptcy courts do not require the debtor in a Chapter 7 case to hand over their assets to the court-appointed trustee. Thus, the bankruptcy would be a ‘no asset’ asset case given that such assets would often fall within the exemptions provided under California bankruptcy laws.

Since the debtor in a no-asset case gets to keep all their property, the creditor in such a case would be the biggest loser as they would not be paid from the bankruptcy proceeding. Also, California bankruptcy courts offer such a creditor no option to ever collect on their debts in the future as it would more likely discharge most of the debts owed by the debtor.

It is this particular aspect of a no-asset case that makes Chapter 7 bankruptcy attractive to most debtors while presenting a nightmare for the creditors involved with such an individual

Since the creditor in such a case will most likely not be receiving any compensation from the debtor, California bankruptcy courts will not require them to file a proof of claim and will write to such a creditor to inform them as such.

Debtors seeking Chapter 7 bankruptcy protection should always be wary of common pitfalls that are easy to overlook. It is essential, for instance, that although the Chapter 7 no-asset case involves liquidation, it usually depends on the exemptions set by the state. The non-exempt property will be handed over to the bankruptcy trustee to pay off creditors.

A debtor should also be keen to disclose all their assets without concealing them for any reason. Hiding assets may result in penalties as well as discontinuity from the Chapter 7 bankruptcy protection at any time.

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How to Avoid Home Foreclosure

Six Tips to Avoid Home Foreclosure

Home foreclosure is a real fear for many people in our struggling economy, however, with these six easy tips, home foreclosure can be avoided:

  1. Spend your money intelligently. This rule seems simple, but doing something like cooking dinner at home rather than going out to eat can save a lot of money during rough times. In other words, know what your financial priorities are.
  2. Make sure you understand your mortgage plan.
  3. Contact your lenders when you fear you may have a problem making payments. Lenders can often come up with a new plan for payment.
  4. Read all documents sent to you by your lenders. Do not sign anything you do not read or understand.
  5. Beware foreclosure recovery scams. While there are some people out to help you, there are also others that want you to sign a contract out of being desperate. Be careful and refer to tip four.
  6. Talk to a housing counselor. This tip can actually help you with the rest of the tips.

There are many tips for avoiding this tragedy, but countless foreclosures could have been avoided with just these six.

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California Bankruptcy Courts Urged to Hire More Judges

California Bankruptcy Cases Expected to Soar as State Reopens

Amid the raging COVID-19 pandemic, several companies have been forced to cut back on their operations, with some sending their staff on mandatory leave as a means to curb the spread of the virus. Others have even resorted to lay off their staff due to the negative impacts of the pandemic on the economy.

Despite the measures taken by the government to cushion the people from financial hardships resulting from the pandemic, the extended stay at home orders in some states continue to impact negatively on the population.

In California, several companies have already filed for Chapter 11 bankruptcy protection in a bid to seek reorganization of their debts with creditors. Several more are hanging on the edge with the possibility of California bankruptcy filing rising as the pandemic continues.

Job losses have soared since the enforcement of the government directives restricting movement and public gatherings. With the pandemic showing no signs of ending anytime soon, States have been forced to implement new measures to ensure business continuity even as the battle against the deadly virus continues.

California, one of the first states to institute a lockdown announced yesterday that it would reopen business operations, citing the plight of citizens who had earlier protested the state’s prolonged lockdown.

Though California bankruptcy cases remain low at the moment, millions of the states’ citizens have been relying on government assistance to stay afloat after the prolonged lockdown state left most of the unemployed.

Legal scholars are now urging Congress to appoint more bankruptcy judges in anticipation of a surge in bankruptcy cases following economic disruption by the COVID-19 pandemic.

The scholars cautioned the congress that the current number of bankruptcy judges could easily be overwhelmed by the cases that are likely to rise over the next 18 months as a direct result of the coronavirus economic disruption.

In his speech on Friday, the California governor, Gavin Newson, announced that the state would reopen in four phases. Roughly 70% of the states’ economy, reopen in the coming months. This would mean that many of the state’s workforce will still be left out, galvanizing the bankruptcy cases as predicted by economic scholars.

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California Bankruptcy Laws and Retirement Plans

Protection of Retirement Assets under California Bankruptcy Laws

A debtor’s retirement is generally protected in both Chapter 7 and Chapter 13 bankruptcy. However, there are exemptions to this protection, with individual states reserving the right to set laws governing protected funds and pension plans.

California bankruptcy laws do not consider retirement funds as part of an individual’s bankruptcy estate, and as such, cannot be sought after by creditors in case of bankruptcy. This provision guarantees that your retirement assets would be safe from the actions of the creditors when bankruptcy comes calling.

But section 541 (a) of the Bankruptcy Code recognizes virtually everything that a debtor owns as being part of their bankruptcy estate, one could argue.

How then do retirement plans not fall under the same category when it comes to bankruptcy?

Well, retirement plans are among a select category of assets that California Bankruptcy laws consider very special and, as such, imposed additional protection against creditor actions by legally excluding them from your bankruptcy estate.

Among this very special category of assets is employer-based retirement plans, deferred compensation plans as well as tax-deferred annuities. These are exempted in law in such a manner that makes them out of reach to the creditors in the strongest terms possible, with reinforcement from federal laws under Section 541(b) of the Bankruptcy Code.

Section 541 (c) also reinforces the state’s protection of retirement plans and assets against creditors. This particular section excludes trusts set up as part of the debtor’s retirement plan from the bankruptcy estate. The wording on this section is such that it makes it more apparent to any creditor seeking such assets that it would be an impossible course to pursue.

That notwithstanding, the trust-based law is not without limitations in the assets that it protects. For instance, the law would not be applicable for California debtors with unusual plans set up by a single person as part of a retirement plan if the individual is the sole person funding the trust as well as the only one with full control over it. Such assets thus would likely not be protected from creditor action.

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California Bankruptcy Exemption Laws Explained

What are California’s Bankruptcy Exemption Laws?

Filing for bankruptcy protection can be an opportunity to wipe the slate clean and start over fresh. However, debtors must understand that bankruptcy guidelines and procedures differ from state to state.

In California, debtors may only use the California state exemptions, which are reviewed every three years. California has two bankruptcy exemptions systems. California Bankruptcy Exemption System 1 (704 Exemptions) offers a large home equity exemption while the other offers a large wild-card exemption of personal property.

Married couples may not double a California homestead exemption.

Property exemptions for California residents filing for Chapter 7 bankruptcy under exemption system 1 include;

  1. Real estate used as the principal residence up to either $75,000 dollars if single and not disabled or $100,000 if married with a family.
  2. 75% of wages paid 30 days before filing and 
  3. Public employee vacation credit credits
  4. $3,325 of motor vehicle
  5. Household items, personal belongings
  6. Jewelry, art and heirlooms of up to $8,725
  7. Bank deposits from of Social Security payments and other public benefit payments
  8. Personal injury and wrongful death causes of action and recoveries necessary for support
  9. Health aids 
  10. Burial plots
  11. Tax-exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans)
  12. IRAS and Roth IRAs
  13. Public retirement benefits and private retirement plans and benefits, including IRA and Keogh
  14. Unemployment, disability benefits and union benefits resulting from labor disputes
  15. Workers’ compensation benefit
  16. Public assistance benefits 
  17. Relocation benefits 
  18. Student financial aid 
  19. Tools of trade including such as uniforms, books, instruments and equipment
  20. Disability and health insurance benefits
  21. Fidelity bonds
  22. Homeowners’ insurance proceeds
  23. Business or professional licenses
  24. Trust funds of inmates up to $1,600

Property exemptions for California residents filing for chapter 7 bankruptcy under California’s exemption system 2 (also known as § 703.140(b) exemptions) include;

  1. Real estate used as the principal residence up to $29,275
  2. Up to $5,850 of equity in motor vehicles
  3. Clothing, household items, animals and more for up to $725 per item
  4. Health aids
  5. Jewelry up to $1,750
  6. Personal injury recoveries up to $29,275 and wrongful death recoveries needed for support.
  7. Tax-exempt retirement accounts, IRAS and Roth IRAs, annuities and ERISA-qualified pension.
  8. Alimony and child support necessary for support
  9. Disability benefits 
  10. Unmatured life insurance policy
  11. Unemployment compensation, veterans’ benefits and social security
  12. Wild card exemption of $1,550 dollars and any unused burial or homestead exemption
  13. Tools of trade