Bankruptcy and your Credit Score:
Four common myths surrounding Bankruptcy:
- Bankruptcy will destroy my credit forever – false
- I will not be able to get credit for the next 10 years – false
- I will never be able to lease a car or get a car loan – false
- I will never be able to get a home mortgage again – false
Many potential Bankruptcy clients think that filing for Bankruptcy protection will ruin their credit forever. Families are afraid that they will never get credit cards or financing again.
Most clients seeking Bankruptcy protection have not paid their credit cards or mortgages for a long time. Some clients have lawsuits, judgments or foreclosure actions. Their credit score is already at the lowest point in their lives.
Most business clients have lost their lines of credit and may be facing lawsuits from bank lenders, vendors or landlords.
In reality, families who emerge from Bankruptcy actually experience a boost in their credit score because they are now a better credit risk to lenders. A typical family that has emerged from Bankruptcy has eliminated all of its debt, reversed a foreclosure, and maintained its assets of home equity or pensions or IRA’s.
Not surprisingly, a recent University of Iowa study revealed that credit card companies actually solicit individuals emerging from Bankruptcy. For better or worse, the credit card industry is as eager as ever to provide credit to America. Many lenders and mortgage brokers specialize in providing finance to recent Bankruptcy filers. Many of my clients receive credit card offers before their case Bankruptcy case is even closed!
A typical Bankruptcy client will usually be eligible to lease a car within 2 years and obtain a mortgage or a refinance within 4 years of receiving a Bankruptcy discharge.
………and Business Law
Should you agree to be a director or officer of a small business corporation?
Many times you will work for a family business or a small business with less than 15 employees and the owners will ask you to act as a director or officer of the corporation. Or, you may be the owner of a small business and would like to place yourself and your close associates as President, Vice-President, Treasurer, etc.
What are your duties and potential liabilities as a director or officer of a small business corporation?
A Director of a corporation sits on a “Board of Directors” and votes on management and policy decisions. The Board of Directors may be comprised of shareholders, employees or non-employees such as accountants, lawyers, bankers or other specialists.
An Officer of a corporation is an employee and takes direct action on management and daily administration of the corporation. Examples of officers are President, Vice- President, Secretary, Treasury, Chief Financial Officer and Chief Executive Officer.
Directors and Officers of small corporations have “fiduciary duties”, which are duties of care and loyalty owed to the business itself and the shareholders who own the business. In the event of a business distress or possible insolvency, the directors and officers may actually owe fiduciary duties to the corporation’s creditors as well. In other words, directors and officers of a distressed small business have “insider information” that the business may not be able to pay its debts, and therefore entering into new contracts with outside creditors may expose the directors and officers to personal liability.
Directors and Officers may also be held personally liable for certain debts incurred by the corporation such as:
- Failure to pay withholding and sales taxes
- Failure to pay wages and benefits
- Unlawful payment of dividends
- Preferential payments to creditors or insiders while the corporation is insolvent
- Withdrawing or failing to deposit monies to pension plans
Clearly, the benefit of acting as a director or officer of a small business is that you are able to maintain control over your own business and place persons of trust and competence in positions of day to day management and operations. In most solvent and even distressed small businesses, directors and officers usually incur no personal liability as long as they are acting within their fiduciary duties.
As always, please feel free to contact me for a free consultation regarding your specific financial circumstances.
I have been practicing Bankruptcy Law, Business Law and Litigation for over 25 years.
The Law Offices of Allen A. Kolber, Esq. is a full service law firm that provides quality representation in the following areas:
- Bankruptcy Law and Litigation
- Business and Corporate Law and Litigation
- Foreclosure Defense
- Loan Modifications/Short Sales