Steps to Determine if Bankruptcy is Right for You - Bankruptcy: A Blessing or A Curse?
Attorney Martin P. Sheehan, Esq – is the founder of Sheehan & Associates, P.L.L.C., located in Wheeling, West Virginia and specializes in bankruptcy law and helping businesses who cannot repay debts to creditors. Martin believes that bankruptcy is an overlooked alternative for many people, often thought of as a matter of last resort, but can be valuable. Lawyer Monthly recently caught up with Martin to discuss bankruptcy and the advantages of filing for bankruptcy earlier rather than later.
What sectors and areas of law do you specialize in?
My practice has tended to focus on Criminal Defense, Bankruptcy and a smattering of other complex legal problems.
Donald Trump has filed for business bankruptcy four times: the Trump Taj Mahal in 1991, Trump Plaza Hotel in 1992, Trump Hotels and Casinos Resorts in 2004 and Trump Entertainment Resorts in 2009. Donald Trump responded to criticism by arguing that businesses often have to file for bankruptcy and that filing for bankruptcy was a financially sound move each time he did it. How can filing for bankruptcy be a good thing?
Well-meaning and competent people can be caught financially flat footed. Bankruptcy reorganization allows a “time out” to keep productive assets together and to be made productive again. Bankruptcy is the only legal proceeding in which debt can be restructured without unanimous consent of all creditors.
Bankruptcy can have the primary goal of effecting a sale, free and clear of liens, of an ongoing business. That can be useful.
Why is it better to file for bankruptcy at the earlier stages rather than continuing to run a failing business in the hope of turning it around?
No one likes to admit failure. Facing reality is often deferred. In my experience, early intervention allows a greater chance to recover.
Individuals tend to a) refinance their homes to pay credit card debt, and b) cash out their retirement money. The refinancing causes unsecured debt to become secured debt. Potential exempt equity in real estate is lost in this way. Retirement money is largely exempt. Using it to pay bills causes great exemptions to be lost also.
Today, an individual in West Virginia can exempt $35,800 in home equity, and a married couple can exempt twice that sum. The exemption for retirement assets is now $1,362,800. People who surrender their home equity, and their retirement money before consulting an attorney waste their legal options. Exemption analysis should be done by a competent attorney. Some analysis is easy, but there are odd opportunities that may exist in some cases. While corporations do not receive exemptions, the terms of secured debt can often be negotiated. Restructuring payments over a longer time cycle is preferable to having a borrower fail completely.
After financial issues develop, but while it is possible to make payments, that’s the time to see if a new payment structure can free up some cash flow. Take advantage of that time before resources to successfully reorganize and vaporize. Early consultation is always better!
Should I at least try to pay back my creditors before filing for bankruptcy?
No! TALK TO A BANKRUPTCY LAWYER FIRST! Your creditors knew your options when they extended credit to you. Should you not have the same understanding? Ignorance can be expensive.
Are there any other things that you definitely do not want to do before filing for bankruptcy?
When some financial difficulty makes you think bankruptcy could be an option, see a lawyer who practices bankruptcy law. Find out how exemptions could work for you, as an individual. Sometimes spectacular results are possible.
In the corporate world even where no exemptions are available, obtaining advice early on is also useful. As noted, time allows for negotiation.
Time also allows for identification of what debts would flow through a corporation onto individuals. Obviously, this includes voluntarily guaranteed debt.
But it will also include debts for some corporate taxes that a “responsible corporate officer” can be required to personally pay if the corporation does not. These include monies withheld for taxes owed by an employee, the employee share of social security taxes and state sales taxes. Consultation will allow payment alternatives, and the repercussions to be understood.
Do you have a particular approach or method used to assist failing businesses considering bankruptcy or is every case different?
I have a generic intake form for businesses and individual clients. While each case is different, there are common scenarios that are used to solve financial problems. I have a few written explanations for some common scenarios that I provide to clients, as appropriate. This helps me explain bankruptcy law is not magic. I want my client to be informed and understand, without going to law school, just how the law works and how the law can benefit them.
What are the pros and cons of filing for bankruptcy?
The big advantage is that the purpose of a bankruptcy is to obtain a discharge. A discharge once meant a discharge from debtor’s prison. Now it means that debts of most kinds are no longer a legal obligation.
Alternatively, my clients are concerned about a potential stigma from filing for bankruptcy. There is some. Bankruptcy will remain on a credit report for ten years. But missing payments contributes to a bad credit score also. About two years after receiving a discharge, and resuming timely payments often causes credit scores to rebound.
Can filing for bankruptcy at an earlier stage benefit me personally? Could it be disadvantageous for me personally to file for bankruptcy at the later stages?
I want to say, earlier is better, but not too late. I have had calls from individuals saying, “I’ve lost my job, and I need to file, now.” I discourage filing until that person returns to work. This allows more negative issues which will occur during unemployment to be included. A good lawyer will work on the timing of filing as well as filing.
Do you have a particular style or approach for your clients – what do you think the most important aspects of a lawyer-client relationship are?
Trust. I have stopped talking about my experience. I simply ask questions that focus on a client’s situation. Clients understand that from the questions, I know what is important. I offer explanations about how the law works relative to their situation. That builds trust, the key to any successful attorney-client relationship.
About Martin P. Sheehan, Esq.
I am a 1980 graduate of Duquesne University School of Law in Pittsburgh. I clerked for a federal judge in Pittsburgh before becoming an Assistant United States Attorney. As an AUSA, I handled civil, bankruptcy and general criminal cases. I left after being involved in a RICO case involving a locally notorious figure. My walls contain a Merit Award from DOJ and a letter of commendation from the FBI Director.
I joined a regional law firm in 1992. During that employment, my most complex case involved the defense of a college student accused of killing her new-born child. Complexity was everywhere due to medical and psychological issues.
Over time, my practice has involved complicated legal problems of every sort.
In 1993, I was appointed as Chapter 7 Panel Trustee in West Virginia. I joined the National Association of Bankruptcy Trustees soon after. I am a long-time member of the Amicus Committee of NABT. I also served as Editor of NABTalk for 3 years. Over the years, I have contributed various articles to that publication and others. In 2014, I had the honor to serve as National President of NABT.
I served as an adjunct lecturer at West Virginia School of Law, primarily teaching Advanced Bankruptcy (Chapter 11), but also Introduction to Bankruptcy (Chapters 7 and 13). I found a case that I had won had been included in then Professor, now United States Senator, Warren’s textbook.
Contact
E: Martin@MSheehanLaw.net
T: (304) 232-1064
