What Is Bankruptcy?
Over the many years we've spent working with Target 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 Target 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 Target 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 Target 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 Target. 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 Target 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 Target 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 Target 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 Target 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 Target 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 Target 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 Target 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 are the key benefits provided by Target Corporation's Personal Pension Account and Traditional Plan for employees approaching retirement, and how do these plans ensure financial security during retirement years? Understanding the synergy between these two plans is essential for retirees, as they work together alongside Social Security and personal savings to replace a portion of an employee's paycheck after retirement.
Key Benefits of the Personal Pension Account and Traditional Plan: Target Corporation's pension plan includes two components: the Personal Pension Account and the Traditional Plan. These plans work in tandem to replace a portion of an employee's paycheck during retirement. The Personal Pension Account provides pay credits and interest that accumulate over time, while the Traditional Plan uses a final average pay formula. Together with Social Security and personal savings, these plans help ensure financial security in retirement(Target Corporation_Dece…).
How can employees elect different payment options, such as the Single Life Annuity or the Joint and Survivor Annuities, within Target Corporation's pension plans? It is crucial for employees to grasp not only the financial implications of these choices but also the necessary spousal consent required when designating a joint annuitant, particularly if the chosen joint annuitant is not the employee's spouse.
Payment Options and Spousal Consent: Employees can elect different payment options, including the Single Life Annuity, which provides the highest monthly benefit and ceases at the retiree’s death, or the Joint and Survivor Annuity, which continues payments to a surviving spouse. To elect a non-spouse as a joint annuitant, spousal consent is required, and this must be notarized to ensure compliance with plan rules(Target Corporation_Dece…).
In what circumstances might benefits not be paid under the Traditional Plan, and what steps can employees take to ensure they remain eligible for their pension benefits upon termination of employment? Target Corporation's policy outlines several scenarios where benefits could be denied, making it necessary for employees to be proactive in understanding their rights and responsibilities concerning plan participation.
Circumstances for Denial of Benefits under the Traditional Plan: Benefits under the Traditional Plan may not be paid if an employee leaves before becoming vested (less than three years of service). Employees should ensure they meet the vesting requirements and maintain eligibility by avoiding termination before they reach the minimum service period(Target Corporation_Dece…).
What procedures should employees follow to report changes in marital status, address, or beneficiaries to ensure compliance with the requirements of Target Corporation's pension plan? Employees must understand the importance of timely reporting these changes to avoid potential issues with their retirement benefits and ensure that their pension plan information remains up-to-date.
Reporting Changes in Marital Status or Beneficiaries: Employees must promptly report changes in marital status, address, or beneficiaries to Target's Benefits Center to ensure their pension records remain up-to-date. Failing to do so can lead to delays or issues in processing pension benefits(Target Corporation_Dece…).
How does Target Corporation determine the final average pay used to calculate retirement benefits under its pension plans, and what factors may affect this calculation? Employees nearing retirement should be fully informed about how their compensation is considered in determining their pension benefits, including aspects such as bonuses and overtime that may influence their final average pay calculation.
Final Average Pay Calculation: Target Corporation calculates final average pay based on the five highest years of earnings out of the last 10 years of service. This includes regular pay, overtime, bonuses, and commissions but excludes items like workers' compensation or long-term disability payments(Target Corporation_Dece…).
How can employees begin the process of rolling over their Target 401(k) accounts into the Pension Plan, and what advantages does this Pension Purchase Program offer? Understanding this rollover option is vital for maximizing retirement benefits, as it can provide employees with a stable income stream while avoiding unnecessary fees typically associated with purchasing annuities outside the plan.
Rolling Over 401(k) into the Pension Plan: Employees can roll over their 401(k) accounts into the Pension Plan using the Pension Purchase Program. This option offers several advantages, including avoiding fees associated with purchasing annuities outside the plan and receiving a stable income stream during retirement(Target Corporation_Dece…).
What are the implications of a participant's age and joint annuitant's age on the payment amounts under the various Joint and Survivor Annuity options at Target Corporation? Employees should be aware of how age differences can impact their pension payouts, as the specific percentages payable under these options may vary based on the ages of both the participant and their designated joint annuitant.
Effect of Participant and Joint Annuitant’s Age on Payments: The Joint and Survivor Annuity options are influenced by the ages of both the participant and the joint annuitant. The younger the joint annuitant, the lower the monthly payout due to actuarial adjustments. Employees should consider these factors when selecting an annuity option(Target Corporation_Dece…).
How are retirement benefits managed during potential plan terminations or amendments at Target Corporation, and what protections are in place for employees in these scenarios? Employees should be well-informed regarding their rights in the event of changes to the pension plan, including how benefits would be distributed and under what circumstances they may remain fully vested.
Plan Terminations or Amendments: In case of plan terminations or amendments, vested benefits are protected, and employees will receive their earned pension. If the plan is amended or terminated, Target ensures that vested benefits are distributed according to the plan's terms(Target Corporation_Dece…).
For employees retiring or leaving Target Corporation, what options are available with respect to unused vacation time and how might this be factored into pension calculations? Understanding how accrued time off translates into benefits could have a significant impact on an employee's financial positioning upon retirement.
Unused Vacation Time and Pension Calculations: Unused vacation time does not directly affect pension benefits but can be included in eligible earnings calculations that determine final average pay. Employees nearing retirement should consult with Target’s Benefits Center to understand how unused time may impact their overall benefits(Target Corporation_Dece…).
How can employees contact Target Corporation for assistance with their retirement benefits to address any questions or concerns they may have about their pension plans? Accessing the right resources and support is essential for employees to navigate their retirement benefits effectively. They can reach out to the Target Benefits Center at 800-828-5850 for more specific inquiries related to their personal circumstances. These questions aim to enhance employees' understanding of their retirement benefits, ensuring they are well-prepared for their transition into retirement.
Contacting Target for Pension Assistance: Employees can contact the Target Benefits Center at 800-828-5850 for assistance with their retirement and pension plans. This center provides support with any questions related to pension options, payments, and administrative requirements(Target Corporation_Dece…).