When a party walks into a case, the only thing on their mind is their side of the case. They normally only see what it is they want and they feel justified in asking for everything they have been asking for since the case began. Most parties have a hard time putting themselves in the shoes of the Judge, let alone in the shoes of the other side. What they don't see are all the hidden costs to continuing the case. If people had a better understanding of the additional costs of the litigation, then they may be more willing to make a fair deal. In this post, I want to address, some, but definitely not all of the associated costs of litigation, both real and emotional.
Real Costs:
1. Attorney's Fees: This may seem obvious, but attorneys are expensive company. In continuing a case, with a reasonable offer on the table, you incur more attorneys' fees. If you have the chance to get out of a case, with a reasonable offer, it is normally best to do so. It will cut down the costs of litigation and can save you considerable money in the long run.
2. Employment: Courts are normally only open during normal working hours. This means that every time most people have to go to court, they have to take time off from their jobs. This can mean a significant loss of wages and loss of future time off. Many employers also have a limited amount of time that an employee can take off in any given year. Burning your time off to visit the courthouse on a monthly basis can use up all your time off in a year. If there are still court dates in the future, you may face problems at work including termination.
3. Expert Witnesses: Expert Witness are also a cost which is incurred in many cases. These witnesses may be accountants, doctors, master technicians, etc.... These witnesses will charge a fee for the case that is being handled. That fee is normally significant. If the case continues to drag on, these witness fees will as well.
Emotional Costs:
Emotional costs are as important as the monetary costs. The mental health of people in protracted litigation will suffer. Most of the emotional costs stem from the uncertainty of the litigation. The constant worry about the outcome of a case can be a Sword of Damocles hanging over the head of the litigant. This worry bleeds over into the litigant's friendship, family, and work relationships. Many people get tired of hearing about that person's case and may avoid contact with them until that litigation is over. When that uncertainty turns to certainty, in the form of a judgement or agreed order, the litigant can start putting their lives back together.
All of this information is to help clients understand that when they come into a settlement conference or are reading through an agreed order that gives them some of what they want, but not everything, they need to take into account the additional costs that they will incur if they proceed. If a case that could cost you $10,000.00 ends up with a settlement offer of $5,000.00, you need to analyze whether it make sense, from a monetary and emotional standpoint, to proceed in the case to get the other $5,000.00. It may be that the attorneys' fees and work costs for a trial may exceed that $5,000.00 gain. In addition, the emotional toll of a trial is a lot.
When you are discussing settlement, please think of all of these issues as you make your determination of whether to accept a negotiated settlement or not. The attorneys at Barash & Everett, LLC are experienced in settlement negotiations and can assist you through the legal process. Please contact our firm for assistance.
Personal liability through co-mingling:
The greatest threat to your LLC is you. If you comingle your personal business with that of your company you are opening the door to challenges that your LLC is not actually a real entity. To prevent an argument for comingling follow these rules:
1. Never pay LLC debtor or bills with personal money.
2. Never pay Personal bills with LLC money.
3. Never deposit LLC money into a personal account.
4. Never deposit personal money into LLC accounts.
5. Open a LLC account in the name of the LLC.
6. Pay yourself a salary or draw based upon a documented business plan and do so in an ordinary fashion. Consult with a bookkeeper for guidance about how to pay yourself legally.
7. Keep LLC expenses strictly business expenses. For example: don't pay your personal cell phone with the business account unless you document that you are using it for business purposes. Same with all other bills.
8. Do not open LLC accounts in your personal name. This includes power, water, trash, phones, internet, banking, insurance, or any other business account.
Personal liability through sloppiness or laziness of signature practices:
In addition to comingling you can bind yourself personally to the liabilities of the LLC by not maintaining signature discipline. Always be mindful of who is acting when you sign a document. You are not your LLC. If the LLC is the principal acting that created the paper your signature should read as follows:
Cool Business, LLC by Johnny Coolname, its member.
Or
Cool Business, LLC by Johnny Coolname, its manager. (for manager managed LLCs)
If the document you are signing has this already typed in the signature block you can generally just sign the document. However, if the signature block just has your name typed or has nothing typed at all, you need to write the above into the block.
Personal Liability through inattention to detail:
Similar to the signature liability, you can arguably bind yourself individually to a document just by not paying attention to the documents details. Some documents, such as invoices, bear the name of the buyer or client at the top of the page. You should ensure that the LLCs name is the party on the invoice. Documents can also contain clauses creating personal liability for signatories regardless of the entity signing. You shouldn't agree to documents that bear this type of personal liability unless absolutely necessary. Most banks will require you to sign a personal guaranty for corporate debt, and a refusal will be met with a denial of the loan. It doesn't hurt to ask though.
Liability protection through tax identity:
If I have not done so for you, you may want to apply for an Employee Identification Number (EIN) for your LLC. You need to talk to your accountant or bookkeeper thought as this has tax ramifications as well. By operating on paper and through the government as an entity with a separate taxable identity from your own personal social security number you are lending your LLC a greater amount of presumptive validity in the face of challenges by creditor or the government. You apply for and receive this number online through the IRS webpage at irs.gov.
Liability protection through LLC structure and formality:
One of the benefits of choosing an LLC form of business entity is less formal structure and paperwork to maintain. However, less does not mean none. You should at a minimum have a record book of some kind were you record significant LLC decisions through membership resolutions. For example if you lease your company a building you need to actually have a written lease signed by you as member like I said above, and as yourself personally.
Liability protection through filing with the state:
One of the most common problems I see with LLC owners is a failure to file annual reports. This is a very easy way of ruining your liability protection. Every year the State of Illinois sends the registered agent of the LLC as annual report to return along with a payment to maintain the active status of the LLC. Fill it out and send in the money. If you don't file this report, your LLC will be inactive and eventually dissolved involuntarily. This can have far reaching effects to you individually should it happen.
Conclusion and Caveat:
This is a very basic guide for LLC's in Illinois. This guide is not meant to be legal advice for your particular business. All businesses are different. Additionally there are tax consequences and factors in play regarding your choice of business organizational structure and operations procedures. Any decision you made should also be discussed with your tax expert prior to implementation. Should you need to discuss your individual business and its organizational structure I encourage you to contact Barash & Everett, LLC.
]]>Prior to this change, farming assets sold after filing bankruptcy but before discharge that created capital gains or other taxes would result in nondischargeable tax debt. This could be very expensive in instances where for an effective reorganization of debt significant assets need to be sold including heavy equipment, and land with low cost basis or that was fully depreciated.
During the years of $7.00 corn, many farmers were buying new equipment to replace deferred maintenance equipment, as well as create tax deductions using section 179 of the internal revenue code or otherwise placing the item in service under a standard depreciation schedule. As a result of the section 179 deductions those items of significant expense now have a zero dollar basis and treatment as ordinary income upon sale triggering significant taxes.
This tax is not normally an issue, because with the sale came the money to pay the tax. However, when the sale is mandated by a bank with security in the item there is no cash to pay the tax. Once the banks are in a recovery mindset, they are not likely to release a portion of the sales price for underwater value machinery to pay the tax. This creates a large tax event, with no cash to pay it and under the old rule no way of discharging the debt in bankruptcy if the sale occurring post-petition in furtherance of a chapter 12 reorganization.
Now however, the dischargeability of taxes has been clarified so that the sale of property used in farming whether pre-petition or post-petition results in a non-priority dischargeable unsecured claim benefitting the government. They are treated no differently than a credit card, or any other unsecured creditor. They receive whatever portion of reorganization plan is earmarked for unsecured creditors and at the completion of the plan they are discharged.
This is a huge benefit to farmers suffering a cash flow problem resulting in the bank pulling their notes. This squeeze unfortunately is more and more common now that we are seeing $3.00 corn.
For more information about this readers are invited to check out 11 U.S.C. Sec. 1232, effective 11/7/17, and of course should you have any questions about farm bankruptcy, or any other chapter of bankruptcy contact Barash & Everett, LLC.
]]>To address this issue, the statute was recently amended to provide courts with guidelines on the length and amount of maintenance. The following is a series of steps, rules, and examples of how to figure out the guideline maintenance.
1. The first thing we need to determine is what each person's income is in a year. For maintenance calculations, we use gross income.
Example 1:
Person A earns $80,000/year
Person B earns $20,000/year
Example 2:
Person C earns $55,000/year
Person D earns $45,000/year
2. Next we take 30% of the higher earner's income minus 20% of the lower earner's income. This amount is the yearly maintenance due. However, as we see in step 3, there are limitations to this amount. (A x 0.3) - (B x 0.2) = Yearly maintenance due.
Example 1:
A: $80,000 x 0.3 = $24,000
B: $20,000 x 0.2 = $4,000
$24,000 - $4,000 = $20,000
Example 2:
C: $55,000 x 0.3 = $16,500
D: $45,000 x 0.2 = $9,000
$16,500 - $9,000 = $7,500
3. However, the person who receives maintenance's income and the maintenance due cannot exceed 40% of the combined total of the two people's income. (A + B) x 0.4 must be smaller than the yearly maintenance due plus A in order to receive maintenance.
Example 1:
$80,000 + $20,000 = $100,000
$100,000 x .4 = $40,000
$20,000 (sal) + $20,000 (main)=$40,000
$40,000 (sal + main)=$40,000 so maintenance will be $20,000/year
Example 2:
$55,000 + $45,000 = $100,000
$100,000 x .4 =$40,000
$45,000 (sal) + $7,500 (main)=$52,500
The salary alone exceeds the 40% rule, so there will be no maintenance due.
The length of maintenance is normally a percentage of the length of the marriage. Maintenance is a tax deduction for the payer and taxable income for the recipient.
Sound complicated? It certainly can be. The attorneys of Barash & Everett, LLC are experienced with how the statute works and the tendencies of the circuit judges. Because judges may make maintenance awards outside the boundaries of the guidelines, it's important to know what judges find important. The best action you can take is to make an appointment so we can help you navigate this legal minefield.
By Lance Camp
]]>As a general rule taxes are nondischargeable in bankruptcy, but only for the first three years they are assessed. After three years, they can be discharged through bankruptcy, both in a chapter seven bankruptcy and chapter thirteen reorganization. There is a catch though. In order to be dischargeable you have to have followed the IRS rules.
First, you had to have filed the return. You cannot discharge taxes for a year in which you don't file. All too many times I have encountered clients who failed to file their taxes because they knew or feared that they would owe money. Please, don't do this! Even if you think or know you will have large tax debt, file the return. Not only do you risk prosecution criminally for failure to file returns, you destroy any ability to work out a deal with the IRS and you destroy any availability for relief through bankruptcy if you don't file.
Not only do you have to file the return to be allowed to discharge the tax, you must also have filed it on time. Late filed returns are nondischargeable in the same manner as returns that are unfiled. Filing on time also includes allowed extensions. If you think that you cannot get your return filed in time for the deadline which applies to the type of taxes you file, file an extension. By extending you preserve your availability of relief thereafter.
Finally, your tax return must be honest and complete. You cannot discharge tax debt that was derived from fraudulently created returns. It doesn't matter how bad the situation is, if you are honest with the government and cooperate, they often will work with you, and after three years the taxes can be discharged.
This blog article provides a brief description of issues pertaining to the discharge of tax debt. The nuance of bankruptcy law and its application requires the professional advice of a seasoned practitioner. I encourage you to contact us and let us take a look at your situation if you are facing tax debt, or any other financial crisis.
- Justin Raver
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