What Is Bankruptcy?
Over the many years we've spent working with HP employees and retirees, we always try to inform our clients about what should happen if they need to file for bankruptcy, as it is always good to be prepared. Bankruptcy refers to a set of laws and court processes that allow individuals and businesses to manage burdensome debts. Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Bankruptcy proceedings take place in special federal bankruptcy courts (there are no state bankruptcy courts), and are governed by the Bankruptcy Rules.
Typically, bankruptcy is voluntary; a debtor files a petition for relief. In rare cases, bankruptcy is involuntary; creditors petition the court to order a debtor into bankruptcy. Once a petition is filed, creditors generally cannot pursue the debtor or the debtor's property outside of the bankruptcy proceeding. Most collection activities must stop, including foreclosures, repossessions, wage garnishments, telephone calls, and dunning letters.
There are two general types of bankruptcy proceedings: liquidation and reorganization. A liquidation proceeding involves selling a debtor's non-exempt property, distributing the proceeds to creditors, and discharging remaining debts. Reorganizations allow debtors to keep their property, and pay past-due debts in installments over time.
In most bankruptcy cases, a trustee is appointed to administer the case and take legal possession (but usually not physical possession) of the debtor's non-exempt property, which is referred to as the bankruptcy estate. Exempt property is property debtors are allowed to keep in liquidation proceedings. Liquidation proceedings are governed by Chapter 7 of the Bankruptcy Code, while reorganizations are governed by Chapter 11, Chapter 12, and Chapter 13.
Tip: Chapters 7 and 13 are specifically designed for individuals and will be useful for our HP clients to know about. These are often referred to as personal or consumer bankruptcies.
Types of Bankruptcy Filings
Chapter 7
First, we'd like to discuss with our HP clients about Chapter 7. Chapter 7 is a liquidation proceeding, sometimes referred to as straight bankruptcy. Both individuals and businesses can generally file under Chapter 7. Businesses that file under Chapter 7 typically cease operations — otherwise, they file under Chapter 11.
Individuals who qualify for Chapter 7 get to keep exempt assets, while non-exempt assets are sold to repay creditors. In reality, most Chapter 7 cases are 'no asset' cases; there are no non-exempt assets and debts are simply discharged, with some exceptions (e.g., most taxes, domestic support obligations, and student loans). Chapter 7 typically takes four to six months to complete, and is often said to give debtors a 'fresh start.'
Caution: It's important that our HP clients are aware that t he Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 , also known as the Bankruptcy Reform Act (2005 Bankruptcy Act), imposed a means (income) test on Chapter 7 individual debtors (with primarily consumer debts). The result is that more debtors are ineligible for Chapter 7 and must file under Chapter 13 for bankruptcy relief.
Chapter 13
Next, we will discuss Chapter 13 with our clients from HP. Under Chapter 13, a reorganization bankruptcy for individuals, debtors repay their creditors, either in full or in part, over a period of three to five years. Chapter 13 is sometimes referred to as wage-earners bankruptcy. The reorganization period gives the debtor time to get caught up on past-due payments. Debtors can keep their property, regardless of whether it is exempt or non-exempt. Debtors must file a reorganization plan shortly after filing the bankruptcy petition that either pays all debts in full or uses all the debtor's disposable income. Chapter 13 tends to do less damage to a debtor's credit history. If a debtor misses payments under the plan, the Chapter 13 case may be dismissed.
Caution: It's also important that our HP clients are i ndividuals with debts in excess of certain dollar limits are ineligible for Chapter 13 and must file under Chapter 11 to reorganize.
Chapter 12
We also like our HP clients to review Chapter 12. Chapter 12, a reorganization bankruptcy, is specially designed for family farmers and family commercial fishing operations. Individuals, corporations, and partnerships engaged in those businesses are eligible to file under Chapter 12 (as long as certain other requirements are also met). Those that do not qualify can file under Chapters 13 or 11.
Chapter 11
Chapter 11, a reorganization bankruptcy, is used primarily by corporations and partnerships who do not want to go out of business, but need protection from creditors to keep operating. In essence, Chapter 11 companies buy time to get back on their feet. In most cases, a trustee is not appointed; the company itself acts as trustee, giving the company (known as a 'debtor in possession') the ability to make day-to-day decisions without court approval. Instead, committees are created to represent the interests of creditors, investors, and other parties in interest. The company gets an opportunity to propose a reorganization plan, which must be approved by the committees and the court. If the company's plan is successful, the company comes out of bankruptcy; if not, the company typically liquidates.
Chapter 15
The 2005 Bankruptcy Act created a new set of laws, referred to as Chapter 15, Ancillary and Other Cross-Border Cases. This chapter replaced Section 304 of the Bankruptcy Code, which was repealed. This chapter is generally designed for foreign businesses with property or operations located within the United States or its territories (e.g., multinational corporations).
'Chapter 20'
There is no Chapter 20 in the Bankruptcy Code. However, some consumers have (1) filed under Chapter 7 to discharge as many unsecured debts as possible, and (2) immediately thereafter, filed a Chapter 13 case to obtain a favorable repayment schedule for secured debts such as mortgages and car loans. The name is derived from multiple filings (7+13=20). The 2005 Bankruptcy Act eliminated this strategy.
Featured Video
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
Frequently Asked Questions
Will I Lose Everything?
Some of our HP clients may be wondering if they will lose everything when filing for bankruptcy, but you won't. Some of your assets are exempt. Both the federal government and the individual states have exemption laws. Some states allow debtors to choose between the two, while other states require debtors to follow the state exemption laws. In states where you have a choice, your decision should turn on which set of rules allows you to keep the most, or most important, assets.
Exemptions generally include amounts for your homestead (i.e., home equity), motor vehicles, life insurance, jewelry, tools of trade, and household goods, as well as certain retirement and education savings.
Can I Get Rid of All of My Debts?
Another question we receive from our HP clients in regard to bankruptcy is whether or not you can get rid of all your debts. The short answer is, probably not. Certain debts cannot be discharged in bankruptcy. A discharge releases you from legal liability for the debt. Liens, however, remain; secured creditors are still able to get property back. Non-dischargeable debts remain after the bankruptcy case ends, and include (under Chapter 7) most tax debts, most student loans, domestic support obligations, and debts incurred in connection with fraud, larceny, and driving while intoxicated. Chapter 13 has a more limited list of exceptions.
Do I Need to Use a Lawyer?
After reading this article, many HP clients may be curious to know if the use of a lawyer is necessary. No, you do not have to use a lawyer. You can file yourself (this is known as filing 'pro se'), or with the help of a petition preparer. However, bankruptcy can be a complex process, and filings must be precise. An experienced attorney can guide you through the process, and advise you about the potential consequences of your actions. Regardless of the fee, an attorney can help you save time, money, and stress.
Will I Have to Go to Court?
Yes. You are required to attend at least one meeting at the court shortly after you file (between 20 and 40 days). This is known as a Section 341 creditors meeting or first creditors meeting, and typically lasts less than 30 minutes. The purpose of the meeting is to give your creditors and the trustee an opportunity to question you about your financial affairs. However, creditors are not required to attend and often do not. It's important that these HP employees remember that you are required to answer any questions under oath.
Will My Utilities Be Cut Off?
No. Public utilities are not allowed to cut off your service because you filed for bankruptcy. They can, however, require you to pay a deposit for future service, and they can terminate service if you fail to make current payments after filing.
Will My Creditors Stop Harassing Me?
Yes. Once a petition is filed, an automatic stay goes into effect. While the stay is in effect, creditors must not engage in collection activities without permission from the bankruptcy court. Lawsuits, foreclosures, repossession efforts, wage garnishments, dunning letters, and bill collector calls all should stop.
Will My Credit Be Affected?
Yes. The bankruptcy will appear on your credit report for 10 years. However, you will likely receive unsolicited credit card offers, and you should still be able to get credit, though it may be at a higher rate of interest or require a co-signer.
Can I Keep My Credit Cards?
Yes, if the credit card companies agree. However, it's important that these HP clients keep in mind that if overextended credit card debt got them into bankruptcy, they should think twice about using them. You'll be unable to file bankruptcy again for several years.
Will Everyone Know That I Filed for Bankruptcy?
Maybe. Your bankruptcy case is a matter of public record; it can be reviewed by anyone making an inquiry at the clerk's office in the bankruptcy court where you filed.
How does HP Inc. ensure that the pension plan benefits will remain stable and secure for employees in the future, and what measures are being implemented to mitigate financial volatility associated with these benefits? Employees of HP Inc. should be particularly aware of how the transition of their pension payments to Prudential will affect their financial security and what protections are in place to ensure that these payments are maintained without disruption.
HP Inc. ensures pension plan benefits remain stable and secure by transferring the payment obligations to Prudential, a highly-rated insurance company selected through a careful review by an Independent Fiduciary. This move is aimed at reducing financial volatility associated with HP's pension obligations while maintaining the same benefit amount for retirees. Prudential's established financial stability provides additional security to employees(HP Inc_November 1 2021_…).
What specific details can HP Inc. employees expect to learn in the Welcome Kit from Prudential, and how will these details help them understand their new payment system? HP Inc. pension participants will need to familiarize themselves with the information outlined in the Welcome Kit to make informed decisions regarding their pension benefits going forward.
The Welcome Kit from Prudential will provide HP Inc. employees with instructions to set up an online account, along with details on managing payments, tax withholdings, and other resources. This information will allow employees to familiarize themselves with Prudential’s system and ensure a seamless transition without disruptions(HP Inc_November 1 2021_…).
In what ways does the selection process for Prudential as the insurance provider reflect the commitment of HP Inc. to the well-being of its employees? Understanding the rationale behind this decision will give HP Inc. employees insights into the fiduciary responsibilities and governance processes that protect their retirement benefits.
The selection of Prudential reflects HP Inc.'s commitment to employee well-being, as it involved the Independent Fiduciary conducting an extensive review of insurance providers. Prudential was chosen based on its financial strength and ability to manage pension payments securely, showing HP's focus on protecting retirement benefits(HP Inc_November 1 2021_…).
How will the annuity payments from Prudential differ from the previous pension payments in terms of tax implications and reporting for HP Inc. employees? It is crucial for employees of HP Inc. to comprehend the tax treatment of their new annuity payments to avoid any potential pitfalls in their personal financial planning.
The annuity payments from Prudential will be taxed similarly to the previous pension payments, though employees will receive two separate 1099-R forms for 2021 (one from Fidelity and one from Prudential). For future years, only a single form will be issued. This ensures employees are aware of how to manage tax reporting(HP Inc_November 1 2021_…).
What resources are available to HP Inc. employees seeking assistance regarding their pension benefits, and how can they effectively utilize these resources to address their concerns? Knowing how to access support and guidance will empower HP Inc. employees to manage their retirement benefits proactively.
HP Inc. employees seeking assistance can access live customer support through Fidelity or contact Prudential directly after the transition. Additionally, the Welcome Kit will include important contact information for managing their benefits, making it easy for employees to address concerns(HP Inc_November 1 2021_…).
How can HP Inc. employees verify the financial health and stability of Prudential, and why is this factor important in the context of their pension benefits? Employees must ask how Prudential's financial standing influences their view of long-term pension security and what metrics or ratings they should consider.
HP Inc. employees can verify Prudential’s financial health by reviewing Prudential's annual financial reports, which are publicly available. Prudential’s strong financial ratings were a key factor in its selection, assuring employees of long-term pension security(HP Inc_November 1 2021_…).
What steps should HP Inc. employees take to update their personal information, such as banking details and tax withholding preferences, following the transition to Prudential? Understanding these processes will ensure a smooth continuation of benefits for HP Inc. employees as they adapt to the new system.
Employees do not need to re-submit their personal information to Prudential, as HP will securely transfer all necessary data, including banking and tax withholding preferences. This ensures the continuation of pension payments without the need for employee intervention(HP Inc_November 1 2021_…).
How does HP Inc. plan to address potential changes in the financial landscape that may affect pension benefits, and what role does the insurance contract with Prudential play in this context? HP Inc. employees should be informed about the company's strategic outlook and how it aims to safeguard pension assets against economic uncertainties.
HP Inc. plans to address potential financial changes through its contract with Prudential, which guarantees pension payments will remain the same. Prudential manages these risks as part of its core business, providing added security against economic volatility(HP Inc_November 1 2021_…).
In what circumstances might HP Inc. employees see changes in their net pension payments following the transition to Prudential, despite assurances that payment amounts will remain unchanged? This understanding will help employees manage their expectations regarding future payments and any adjustments they may need to make.
Employees might see changes in their net pension payments due to tax adjustments or changes in withholding instructions, but the gross payment amount will remain unchanged. Any garnishments or other deductions will continue as before, ensuring consistency in payment structure(HP Inc_November 1 2021_…).
How can HP Inc. employees contact the company directly to learn more about the pension transition process, and what channels are available for them to have their questions addressed? Clear communication lines are essential for HP Inc. employees to ensure they receive timely and relevant information regarding their pension situations.
HP Inc. employees can contact the company through the Fidelity support line or directly through Prudential for any questions about the pension transition. The Welcome Kit and other resources will provide contact details, ensuring employees have access to timely support(HP Inc_November 1 2021_…).