What Is Bankruptcy?
Over the many years we've spent working with L3Harris 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 L3Harris 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 L3Harris 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 L3Harris 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 L3Harris. 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 L3Harris 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 L3Harris 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 L3Harris 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 L3Harris 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 L3Harris 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 L3Harris 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 L3Harris 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.
What specific factors should L3Harris Technologies employees consider when determining the most suitable form of pension benefit at retirement? Employees of L3Harris Technologies may have various options, such as life annuities, contingent annuities, and lump-sum payouts. Understanding the implications of each option, including tax treatments and benefit guarantees, can be crucial in making a decision that aligns with long-term financial goals. It is also important to consider how the selected form may affect survivor benefits and overall retirement income planning.
Pension Options at Retirement: L3Harris Technologies employees have various pension benefit options to consider at retirement, such as life annuities, contingent annuities, and lump-sum payouts(L3Harris Technologies I…). Each option has different tax treatments, survivor benefits, and guarantees. For example, selecting a life annuity ensures a fixed monthly payment for life, while a lump-sum payout might offer more flexibility but comes with immediate tax implications. Employees should evaluate how each option aligns with their long-term financial goals and whether it provides adequate survivor protection for dependents(L3Harris Technologies I…).
How does L3Harris Technologies determine eligibility for early retirement, and what implications does this have for pension benefits? Employees should familiarize themselves with the criteria for qualifying for early retirement, including age and service requirements. Additionally, understanding the benefits that are available should retirement occur before the standard retirement age can affect financial planning, as these benefits can differ significantly from those available at normal retirement age due to reduction factors or penalties.
Early Retirement Eligibility: L3Harris Technologies determines eligibility for early retirement based on age and years of service. Employees may qualify for early retirement if they are at least 55 years old and have completed 10 years of service(L3Harris Technologies I…). Opting for early retirement can result in a reduced pension benefit due to the longer payment period. These reductions, known as early retirement penalties, affect financial planning since the payout is lower compared to waiting until the normal retirement age(L3Harris Technologies I…).
In what ways do the pension formulas at L3Harris Technologies differ, and how can employees assess which plan is most advantageous for their retirement? Employees participating in the L3Harris pension plan can choose between different formulas, such as the Traditional Pension Plan and the Pension Equity Plan. Assessing which formula may yield higher benefits involves understanding the benefits calculation processes, including how each formula accounts for years of service, salary history, and participation criteria, which can significantly impact total retirement income.
Pension Formulas: L3Harris employees can choose between different pension formulas, such as the Traditional Pension Plan and Pension Equity Plan(L3Harris Technologies I…). The Traditional Plan is based on years of service and final average pay, while the Pension Equity Plan uses a lump-sum formula that accrues value over time. Understanding how each formula calculates benefits is essential for employees to determine which plan will provide higher retirement income, depending on their service years and salary history(L3Harris Technologies I…).
How should L3Harris Technologies employees prepare for the selection of a beneficiary, and what are the potential impacts on their pension benefits? Selecting a beneficiary is an important component of retirement planning. Employees at L3Harris Technologies must understand the implications that come with adding a spouse or other individuals as beneficiaries, including the effect on benefit amounts and how beneficiary selection can influence survivor payouts. Moreover, they should familiarize themselves with the requirements for updating beneficiary information and the legal implications of such designations.
Beneficiary Selection: Choosing a beneficiary is a crucial step for L3Harris employees. Adding a spouse or another individual as a beneficiary may reduce the employee's pension benefit but ensures that a portion of the pension continues after the employee's death(L3Harris Technologies I…). Employees should be aware of the survivor benefit provisions, spousal consent requirements, and the need to regularly update their beneficiary information(L3Harris Technologies I…).
What procedures must L3Harris Technologies employees follow to appeal a denied pension benefit claim, and what timelines should they be aware of? Employees should be well-informed about the steps involved in the appeals process for denied claims, including how and when to file an appeal and the importance of providing adequate documentation. Understanding the statutes of limitations related to claims and appeals can significantly influence the outcomes for employees seeking to reinstate or secure their benefits.
Appealing Denied Claims: L3Harris Technologies employees must follow a formal process to appeal denied pension benefit claims(L3Harris Technologies I…). The process includes submitting an appeal within a specific timeframe and providing supporting documentation. It is important to be familiar with the statute of limitations and administrative remedies to ensure the best chance of success when appealing a decision(L3Harris Technologies I…).
How does L3Harris Technologies handle survivor benefits, and what actions should employees take to ensure that their surviving spouses or partners have access to these benefits? Understanding the components of survivor benefits at L3Harris Technologies is crucial. Employees should learn about the eligibility of their spouses or partners following their death, the type of benefits due, and any actions required to secure these benefits. Familiarity with the plan’s rules surrounding survivor benefits and timelines for elections can also affect the financial security of beneficiaries.
Survivor Benefits: L3Harris offers survivor benefits to spouses or designated beneficiaries(L3Harris Technologies I…). Employees must ensure that their spouse or partner is properly designated to receive these benefits, which may involve selecting an annuity option that provides continued payments to the survivor. Understanding the timelines for making these elections and the rules governing survivor benefits is crucial for securing financial support for loved ones(L3Harris Technologies I…).
What resources are available for L3Harris Technologies employees for receiving personalized retirement counseling, and how can these resources aid in making informed financial decisions? Employees may benefit from accessing professional counseling services or informational resources provided by L3Harris Technologies. These resources can include individual retirement planning sessions that help employees align their pension benefits with their overall retirement strategy, ensuring that they utilize their benefits effectively and are informed about their options.
Retirement Counseling Resources: L3Harris provides personalized retirement counseling services to assist employees with their pension and retirement planning(L3Harris Technologies I…). These resources include individual sessions to discuss how pension benefits fit into overall retirement strategies. By leveraging these services, employees can make well-informed decisions about their financial future(L3Harris Technologies I…).
How can employees of L3Harris Technologies find out more about their eligibility for the Cash Balance Plan and the advantages of this plan over traditional pension formulas? Employees should research what defines an "active Cash Balance Plan Participant" as well as the benefit calculations associated with it. Investigating the elements that set this type of plan apart—specifically regarding lump-sum distributions and the ability to track benefits—can better inform employees about the potential advantages for their future retirement income.
Cash Balance Plan: Employees interested in the Cash Balance Plan can research its advantages over traditional pension formulas. The Cash Balance Plan allows for lump-sum distributions and provides clear benefit tracking, which can be more appealing to employees looking for flexibility and control over their retirement funds(L3Harris Technologies I…).
What impact do potential changes to the L3Harris Technologies pension plan have on current employees, and what steps should they take to stay informed about such changes? Employees should remain vigilant regarding any amendments to the pension plan that could influence their retirement benefits. This includes understanding their rights under ERISA and staying engaged with communication from L3Harris regarding plan updates, ensuring that they are equipped to make timely decisions based on the latest information.
Plan Changes: L3Harris employees should stay updated on any changes to the pension plan, which could impact their benefits(L3Harris Technologies I…). Monitoring communications from the company and understanding their rights under ERISA is essential to making timely decisions based on new plan terms or amendments(L3Harris Technologies I…).
How can employees of L3Harris Technologies contact the Benefits Service Center to address specific questions regarding their pension plan or retirement strategy? It is essential for employees seeking clarity on their pension benefits or retirement planning to know how to reach out to the L3Harris Benefits Service Center. This center acts as a vital resource, and understanding its operations—including contact times, methods of contact, and the types of inquiries that can be addressed—will enable employees to receive the guidance they need regarding their benefits.
Benefits Service Center: L3Harris employees can contact the Benefits Service Center for any questions regarding their pension or retirement strategy. The center provides assistance with understanding pension benefits, resolving issues, and addressing specific inquiries related to retirement planning(L3Harris Technologies I…)(L3Harris Technologies I…).