Do I Have To List My Business Assets on My Personal Bankruptcy?

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This is an excellent question.  For the most part, our bankruptcy clients who have businesses fall into two categories. The first category consists of those who feel as though they and their business are “one” entity. The second category consists of those who feel as though their business is a completely separate entity. Often, when clients drop their paperwork off at our office and we question what business assets exist, clients will reply, “Well, that doesn’t belong to me, that belongs to my business.”  So the real question is: what needs to be listed as assets in your bankruptcy and what does not?

Technically, ALL of your assets need to be listed.  Therefore, going back to our previous blog post on whether or not tools are protected we can examine debtor-owned businesses based upon the same scenarios.  Let’s use the example of Joe Blow’s Lawn Care.  Joe owns Joe Blow’s Lawn Care.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe. If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to his garage at home. These tools would need to be listed in Joe’s personal property and protected by the exemption known as “Tools of the Trade” as long as Joe is using them in his business. If Joe were to be sued, he would need to protect those tools as he would any other asset (such as a bank account or vehicle) he has from seizure.

Referring back to the same situation as discussed in the previous blog post, let’s use the scenario that Joe went to the Secretary of State and registered his company as a corporation.  Now Joe Blow’s Lawn Care, Inc. is the owner of the tools.  Even though the company at this point in time owns the tools, let us not forget that in the end scheme of things the debtor owns the company.  That company is an asset in itself; therefore the tools would be listed on the business balance sheet, included as an asset and the Joe’s portion of equity from the corporation must be listed in the bankruptcy and protected.

Regardless of how large or small, the court looks as personal assets all in the same; they need to be listed and at least attempted to be protected in the bankruptcy.  Again, it goes back to the confusing question of how the business should be treated for bankruptcy purposes.  Since businesses can get quite complicated at times, we strongly suggest that you thoroughly discuss your business and any other assets you or your business may have with your attorney so they may advise you properly to ensure your assets are protected.

What Is Discovery In A Lawsuit?

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A lawsuit is crafted of several different stages.  In the civil proceedings there are certain litigation paths that must be taken depending on the route of the case.  Discovery is in the pre-trail phase of a lawsuit and acts as the parties’ opportunity to gather information.

What is discovery in a lawsuit?

Upon the commencement of a civil action by filing a civil summons, the defendant is allowed to file an answer to the complaint, either admitting or denying allegations.

In response to the answer, the plaintiff’s lawyers then put together written questions known as “interrogatories,” which usually mark the beginning of the discovery phase in litigation.  These are a series of questions compiled by the plaintiff’s for the defendant to answer.  However, the defendant may also serve a set of interrogatories on the plaintiff(s).

In addition to interrogatories, the parties may request depositions. A deposition is an examination of a party or witness in a lawsuit. A deposition allow for each side to gather further information and allows opposing counsel the opportunity to know what a witness or party to a case may say at trial by allowing them to question or depose them.

Another tool in the discovery process are the requests for admissions. These are used to determine which issues or facts in a case are really in contention. If a party is willing to admit to something then it is not something that needs to be argued during a potential trial. Requests for admissions are done in writing.

This is just a brief synopsis of the different parts of discovery in a lawsuit. The important thing to remember is discovery is meant to gather or discover information so there are fewer surprises if a case does find its way to court.

Is Post Traumatic Stress Disorder (PTSD) Covered by Workers’ Compensation?

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Yes! Post traumatic stress disorder (PTSD) is considered an occupational disease which is covered under the North Carolina Workers’ Compensation Act.The North Carolina Supreme Court has required three elements in order to prove that a injury is an “occupational disease” including PTSD.  They are as follows:

(1)  The disease must be characteristic of and peculiar to the claimant’s particular trade, occupation or employment;

Father Injured at Work with Daughter

(2)  the disease must not be an ordinary disease of life to which the public is equally exposed outside of the employment; and

(3)  there must be proof of causation (proof of a causal connection between the disease and the employment). However, the worker must prove that the mental illness or injury was due to stresses or conditions different from those borne by the general public.

A good example of a post traumatic stress disorder (PTSD) claim is as follows. A worker at a factory is working beside their co-worker.  An explosion takes place in the factory.  A sheet of metal is torn from the ceiling by the explosion and is hurled through the air striking the co-worker in the neck, decapitating the co-worker. The worker watches the head of the co-worker fall to the floor, killing the co-worker. The worker is now terrified from PTSD any time she is in a factory with other co-workers and hears any loud noise similar to an explosion.  This psychological trauma has been verified and diagnosed by competent physicians. We would all agree this meets the criteria for PTSD.

Another example of PTSD in the work setting is a bank tellar who is held at gunpoint during a bank robbery and now suffers from PTSD due to her fear of being robbed and held at gunpoint again.

To qualify for workers’ compensation benefits for a post traumatic stress disorder (PTSD) claim the “three elements” listed earlier must be met. In this event, a worker should be entitled to workers’ compensation benefits in North Carolina.

Are My Tools Protected in A Bankruptcy?

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Due to the recession our economy has faced, many small business owners find themselves sitting in our office discussing the possibility of filing for bankruptcy.  Legitimately, one of their main questions is how to protect their assets. One of the major assets of most small business owners is their “tools”. Tools can range from hand tools of a construction worker to the painting supplies of a painter. So, can they take your tools?

Construction Worker Carrying Lumber With Tools

The answer is not simple; this is where an attorney can be helpful.  If you are a sole proprietor then the tools are seen as your personal property and protected as any other property you have.  By default, an business is a sole proprietorship if it is owned by one person and has not been incorporated in one way or another. An example of a sole proprietor is Joe Blow’s Lawn Care; one person owns the company, owns the tools, works for himself, and files a self employment tax (Schedule C) on his taxes.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe.  If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to the garage.  If Joe were to be sued, he would need to protect those tools as he would any other asset he has from seizure.

Now, if Joe had gone to the Secretary of State and registered his company, it’s a bit of a different story.  If that were the case, Joe Blow’s Lawn Care, LLC owns the tools.  They would be included in the balance sheet (what tells other people what your company is worth) as a business asset.  The lawn mower, rakes, blower, hedgers, etc all belong to Joe Blow’s Lawn Care, LLC. If he decided to no longer run the company next week, the company still holds the assets until it is closed down with the Secretary of State (then in most cases ownership reverts back to the owner of the company).  If Joe was to be sued and he was protecting his property, until he closed the company down, those tools belong to the company in which he owns, not him personally.

The bottom line is, you can protect your tools using the “tools of the trade” exemption in North Carolina. An experienced attorney would need to look at your unique situation to determine if using that exemption is proper or not. If you own a business, whether it is large or small, we strongly suggest that you discuss all of your assets and liabilities with your attorney.  Businesses can be a tricky subject, whether owned directly by you or an entity you own, and protecting your assets are important to your success in a bankruptcy.

Can the Homeowners’ Association (HOA) Foreclose If I Don’t Pay My Dues?

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Many people have been led to believe that a homeowners’ association cannot foreclose on their home.  That is not true!  Homeowners’ associations foreclose on property everyday across America and very likely everyday in North Carolina.

Happy Family Standing Together

If your neighborhood has a homeowners’ association, you received and signed documents acknowledging the association’s rights when you purchased your lot or home.  As a matter of fact, participation in the homeowners’ association was not an option for you, it was a requirement if you wanted to purchase your lot or home!   Many people do not read the documents and realize the requirements and powers of the homeowners’ association when they purchase their property, since it was just one of the many documents signed the day of closing.

Your neighborhood will have bylaws and covenants that are specific to your homeowners’ association, but it is under North Carolina General Statutes Chapter 47F that all homeowners’ associations obtain their power.    Under Chapter 47F-3-116 Lien for assessments, the homeowners’ association can place a lien on your home or lot if you do not pay your assessment.  If the amount owed is “…unpaid for a period of 30 days or longer…” the homeowners’ association may file a lien on your property with the Clerk of Superior Court.  The statute provides the timelines, procedures and notice requirements for filing the lien.  If the homeowners association files a lien on our property and the assessment remains unpaid for 90 days or more, the homeowners’ association may foreclose on the property just like your mortgage companies.

Unfortunately, many homeowners ignore the letters they receive from their homeowners’ association.  Most often the letters are ignored because the homeowner does not realize the power provided to the homeowners’ association.  In other cases, the amount owed to the homeowners’ association seems immaterial compared with the monthly mortgage payment(s), so the homeowner does not expect the association to proceed with foreclosure.  Regardless, the homeowners’ association has the right to, and often will, foreclose for what might seem like small dollar amounts.  There have been many cases when the attorney’s fee associated with the foreclosure is more than the homeowners’ assessment amount.  The key is to never ignore the letters from the homeowners’ association; otherwise, you may discover you no longer own your home or lot.  Filing Chapter 13 bankruptcy can stop foreclosure proceedings, so you may want to see if this is an option if you find the homeowners’ association foreclosing on your property.

Can a Second Mortgage Company Foreclose on My Home?

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Have you ever had those times when you were running short of cash?  There was that unexpected car repair or the kids’ summer camp deposit you didn’t have in the budget.  You knew something had to give that month but you weren’t sure what!  When you considered the options of what you could do without or simply not pay – food, gas, car payment, mortgage – you decided you would not pay your second mortgage.  You have missed a couple of payments on the second mortgage in the past and they have never said anything, so you should be fine.  What can they do anyway?

Foreclosure Sign in Front of House

You might be surprised to hear that your second mortgage, Home Equity Line of Credit (HELOC) or third mortgage, if you have one, can foreclose on your property.  Unfortunately, many people have been led to believe that is not possible or that it is not legal.  Do not be fooled.  No different than your first mortgage, your second/third mortgage or HELOC has a lien on your home.  When you obtained the second/third mortgage loan or HELOC you singed a deed of trust.  That deed of trust provides them a lien on your home and gives them the option of foreclosing on your home if you fall behind on the payments.

In most cases, the second/third mortgage company or HELOC will allow you to get further behind on your mortgage payments before starting the foreclosure process.  They will also work with you for a longer period of time before foreclosing, since they know they will be required to pay the balance of the first mortgage loan before they receive any money from the foreclosure.  Sometimes the delay in the foreclosure process by the second/third mortgage company or HELOC can lull you into a false sense of security.  Unfortunately, when they start the foreclosure process you may be so far behind on the mortgage payments with them that you have no way of catching up.  At that point, you may want to consider filing a Chapter 13 bankruptcy to save your home.

What is A Collection Agency?

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When the original creditor goes unpaid for a significant amount of time, the debt goes into what is called “collections.”  Many of us have heard of these agencies but are somewhat confused as to what exactly constitutes a collection agency.  A collection agency is an outside organization helping original creditors to collect on unpaid debts. Both the original creditor and the collection agency only have one thing in mind and that is to get the money that’s owed from the Debtor.  An original creditor such as a hospital, understand that the longer the bill goes unpaid, the less likely it is that they will actually recover the debt.  This is why it is important to original creditors to send the debt into collections as soon as a significant amount of time has gone by.  This is truly the primary purpose of a collection agency which is to contact the Debtor with letters, phones calls, and other forms of communication in hopes of acquiring the debt.  Representatives of these agencies should immediately state their name and what creditor they are calling on behalf of.  If they do not, you have the right to ask where they are calling from and what debt they are trying to collect on.

Creditor & Collection Agency Phone Calls

There are at least three different types of collection agencies, all of those with the same goal, which is to recover the amount of money owed by the Debtor.  First party collection agencies are often representatives from the original creditor, therefore it is not considered an outside agency.  These first party agencies will try to collect on the debt for several months in hopes of maintaining a more constructive customer relationship, since they are working for the original creditor.  As previously mentioned, once a significant amount of time has gone by, the original creditor or first party agencies will eventually pass the debt along to a collection agency.

Third party agencies are those that are not representatives or associated with the original contract.  This is often where the term collection agency comes from, as these are representatives trying to collect on the debt for the original creditor.  The original creditor may assign specific accounts of various Debtors to the agencies.  It will most likely only cost the original creditor communication fees for the agencies to contact the Debtors, unless the debt is successfully recovered.  If the debt is recovered and the Debtor agrees to pay the balance, then it depends on the contract between the creditor and the collection agency.  The agreement between the two determines what percentage each will obtain.

The last type of collection agency can be referred to as a “Debt Buyer.”  These Debt Buyers basically purchase debts from original creditors for pennies on the dollar.  Their goal is to collect the full balance from the Debtor, which may include interest.  These debt buyers come in the form of regular companies or may be reorganized as law firms. They can try to collect the debt by reaching out to other collection agencies if necessary.  This is because the debt buyer has actually purchased the charged off or delinquent debt from the original creditor.   Unlike first party agencies, the debt buyers are not as concerned about the relationship they maintain with the Debtor. Therefore, they tend to be the ones who call at all ours of the day and night, use harassing techniques and are beyond rude on the phone.

Collection agencies are required to abide by the Fair Debt Collections Act, so be sure if you feel you are being harassed or abused by creditors in an unfair manner, you educate yourself on what you need to do or contact a bankruptcy lawyer to learn more about your rights. If you file a bankruptcy the the bankruptcy filing enacts the automatic stay which prevents form creditors and collection agencies form still trying to contact you.