Winning Isn't Easy: Long-Term Disability ERISA Claims

Business Bankruptcy and Disability Policies - Chatting with Bankruptcy Attorney Kristina Feher

• Nancy L. Cavey • Season 3 • Episode 41

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Welcome to Season 3, Episode 41 of Winning Isn't Easy.  In this episode, we'll dive into the complicated topic of "Business Bankruptcy and Disability Policies."

In this enlightening episode, your host, Nancy L. Cavey, is joined by a special guest, bankruptcy attorney Kristina Feher.  Nancy and Kristina will share their combined expertise to provide valuable guidance for individuals facing the intricate relationship between business bankruptcy and disability policies.  This is a crucial topic for individuals who may find themselves in financial distress due to business bankruptcy, while also relying on disability policies for support.

 In this episode, we'll cover the following topics:

1 - The complexities of business bankruptcy and its impact on disability policies.

2 - Practical insights into managing disability claims during the bankruptcy process.

3 - Tips and strategies for individuals navigating the challenges of maintaining disability benefits amidst financial difficulties.

Whether you're dealing with business bankruptcy, disability claims, or are a professional assisting clients in similar situations, this episode offers essential information to help you navigate these complex matters.


Resources Mentioned In This Episode:

LINK TO ROBBED OF YOUR PEACE OF MIND: https://caveylaw.com/get-free-reports/get-disability-book/

LINK TO THE DISABILITY INSURANCE CLAIM SURVIVAL GUIDE FOR PROFESSIONALS: https://caveylaw.com/get-free-reports/disability-insurance-claim-survival-guide-professionals/

FREE CONSULT LINK: https://caveylaw.com/contact-us/


Need Help Today?:

Need help with your Long-Term Disability or ERISA claim? Have questions? Please feel welcome to reach out to use for a FREE consultation. Just mention you listened to our podcast.

Review, like, and give us a thumbs up wherever you are listening to Winning Isn't Easy. We love to see your feedback about our podcast, and it helps us grow and improve.

Please remember that the content shared is for informational purposes only, and should not replace personalized legal advice or guidance from qualified professionals.

Disability Attorney Nancy Cavey:

Hey, it's Nancy Cavey. Welcome to this week's episode of Winning Isn't Easy. We have a special guest today, and our guest , uh, is well-known to the audience. She's spoken to us before about family law , uh, matters. But Kristina Feher is also a bankruptcy lawyer. And the reason I wanted her to , um, speak today is that we do have clients , uh, in our long-term disability , uh, cases who own businesses. And the question ultimately becomes, well, what happens to my disability insurance case, my benefits if I file for bankruptcy? When should I file for bankruptcy? Uh, and all sorts of questions that Kristina is the expert on. In addition to practicing , uh, bankruptcy law, she also is an instructor at the St . Pete College paralegal program where she met my , uh, now associate , um, uh, Krysti Monaco . And so she's been an educator, not only of paralegals, but she's an educator , uh, today for us to learn more about , uh, the , uh, wonderful world of bankruptcy and , uh, business. So, welcome, Kristina.

Bankruptcy Attorney Kristina Feher:

Thank you, Nancy. So great to be here. Hoping to help some people get some questions answered today.

Disability Attorney Nancy Cavey:

Great. As I said, we have issues with clients who own businesses and who wonder what they should be doing with their disability insurance and the filing of bankruptcy. So let's start out with the obvious question. What is a business bankruptcy? 'cause I know there are different types of bankruptcy, so educate us, please.

Bankruptcy Attorney Kristina Feher:

Sure. So a business bankruptcy is really the last resort when your business fails. And a business bankruptcy really helps address the debt problems that the business has incurred. And so when we talk about business bankruptcies, there's really only two types of business bankruptcies. The first is the chapter seven. That's when a business liquidates it's shuts down. A lot of times what we see in the media is you go to a store, the doors are locked, the lights are off, there's a sign in the window. That's the worst case scenario. But what that chapter seven does is very much the same thing. You shut the business down and you stop operating. On the flip side, a chapter 11 bankruptcy is when your debt has just really been holding your business back or being the anchor that prevents it from moving forward. So a chapter 11 allows you to reorganize your debt, still keep operating, and then come out of the bankruptcy, a much leaner, healthier version of the business without debt.

Disability Attorney Nancy Cavey:

So generally, I will see two different scenarios here. The the first is, for example, a physician who has become disabled. Uh, they have debt associated with their practice , uh, and they potentially want to sell their business , uh, but potentially have to deal with this debt , um, either before bankruptcy or have that debt sold as part of the, of the business. Um, what advice do you give generally in that sort of situation where you have , uh, a business owner who is disabled , uh, uh, and doesn't necessarily wanna keep on practicing? And I'm gonna twist that because , um, next question is going to be they do wanna keep on practicing. They wanna collect their residual disability benefits, but they've got this debt issue that's just hanging over their heads and, you know, making their disability worse.

Bankruptcy Attorney Kristina Feher:

Sure. So the first question, you know, is really can they keep operating the business? And that really becomes the tough question of are they working to live or living to work? You know, if you are disabled, we really wanna make sure you're thinking about your health, the best decision for you. And so when you try to sell a business, maybe it's a little debt heavy , that's not going to be very appealing to a potential buyer. And so depending on what the books look like, assets versus debt, it might not be feasible to actually sell that business. And so if you can't, then the best thing would be to just file the chapter seven, let the court liquidate all of those assets, all of those debts, and just allow you to focus on your health.

Disability Attorney Nancy Cavey:

So I'm gonna give you a little , uh, twist here if you, if you will, on that answer. Um, what happens to their disability insurance policy? Uh, I'll tell you what I think <laugh> , uh, you can tell me what you think as the bankruptcy attorney. So they have a disability insurance policy, number one, but they're not disabled and they're gonna liquidate their business. And then , uh, question two is going to be they have a disability policy and they're disabled. What happens in both situations if you are doing , uh, an 11 , uh, um, what happens to the policy?

Bankruptcy Attorney Kristina Feher:

Sure. So in a chapter 11, the business is continuing operating. So maybe you have found a potential buyer who's going to come in, but we're getting rid of the debt in a chapter 11. And so in that case, as long as the insurance policy continues, if you are the disabled employee or the disabled business owner who's collecting, that's going to continue. What we see though sometimes in chapter elevens is that we cut costs to pay off some debt, right? And oftentimes things like disability policies and life insurance policies and pensions are the first things on the chopping block to help that business get more lean. So if all the business has, is the policy and no one's collecting on it, that's going to be an easy asset to chop, which could lead the business owner who's an employee without a viable insurance option,

Disability Attorney Nancy Cavey:

Right? Uh , and obviously from my perspective as a disability attorney, that is really a trap because what will happen is if the person has any type of preexisting conditions for which they're getting treatment and they try to go out into the market to get another disability policy, what we find of course is that the disability company will be happy to collect the premium and write the policy, but they'll issue a rider excluding whatever those preexisting conditions might be. Would

Bankruptcy Attorney Kristina Feher:

You agree? And so then is it really a good option ? And so as we're going through a chapter 11 bankruptcy, and we're looking at those cost saving measures of what to cut, it's important as a business owner to say to your bankruptcy attorney, I have these pre-existing conditions which may affect my ability to get good coverage going forward. So this, whether it's a health insurance, a disability policy, life insurance policy, it's going to be very important to let your bankruptcy attorney know about that.

Disability Attorney Nancy Cavey:

Great. Let's take a quick break and when we come back, I'm gonna ask you that same question in the term , in , in the form of a chapter seven. Alright , welcome back. What great information. Now, I told you that I was gonna ask you that question about a chapter seven. Does it make a difference?

Bankruptcy Attorney Kristina Feher:

It does. In a chapter seven, you are liquidating and shutting everything down. So that means that if you're closing your business, that disability policy is not going to continue. Those health insurance payments are not gonna continue. Those life insurance premiums are not going to continue. So if you are a business owner as also an employee receiving the benefit of those policies, that's important to know before you file the chapter seven that you've made other arrangements for a policy.

Disability Attorney Nancy Cavey:

So in from my perspective , uh, there are two points that , uh, I want to make. Uh, the first is that , uh, there is the issue of whether or not you are disabled. And certainly if you are disabled before you are filing for chapter seven, you're not necessarily gonna lose your disability coverage because you already potentially have filed a claim, correct? Right. The other point I , um, wanted to make , uh, was that many ERISA disability policies, and this is probably an ERISA policy, do have conversion rights that let you convert that group disability policy into an individual disability policy. So in that situation , um, all's not lost, but you have to do that before potentially you file for bankruptcy.

Bankruptcy Attorney Kristina Feher:

Very much so. And we wanna make sure also that everybody's on the same page to know what that timeframe's going to look like so that we leave enough time to make sure that conversion goes through without any hitches. A lot of times when a bankruptcy is filed, everybody kind of freaks out. Federal laws regarding what people do after a bankruptcy is filed are very strict. And for that reason, a lot of people want to be hands off . So we want to make sure that if you are converting that policy, if you have submitted a claim that your bankruptcy attorney and your disability attorney are speaking and being on the same page with what the timeframe is for decision, and whether the filing of a bankruptcy is going to affect the filing of any claims.

Disability Attorney Nancy Cavey:

Uh , so that, that's a a good point here because , uh, and I would ask you to explain this to our audience. When you file a bankruptcy, who now owns, if you will, the business,

Bankruptcy Attorney Kristina Feher:

Right? So when you are filing a chapter seven bankruptcy, the moment you file that business is no longer yours and goes into the hands of a bankruptcy trustee, trustee in our area, most of our trustees are either lawyers or CPAs. And so they then take over and start liquidating the business, closing bank accounts, selling assets, et cetera. So if there are any claims out there that claim belongs to the trustee and not the business, that could be a little different though when we're talking about an individual. So if an individual has a claim pending, that's still gonna belong to the individual, but any claim the business has is gonna belong to the trustee

Disability Attorney Nancy Cavey:

Trustee . So for example, if you had business interruption insurance Sure . Business overhead , uh, insurance, and there were claims pending because of your disability, then you're saying that the trustee would then own those claims.

Bankruptcy Attorney Kristina Feher:

Correct. And then the trustee would then also administer the claims. They would approve settlements, they would approve any claim amount, they would essentially step into the shoes of the business for the purposes of receiving any monies the business is entitled to, and then distributing it or liquidating it per the chapter seven .

Disability Attorney Nancy Cavey:

So let me ask you, is this different if you're doing a seven, does the , who owns the business then ?

Bankruptcy Attorney Kristina Feher:

So in a chapter 11 , the business continues to operate. And so the business owner, for all intents and purposes, continues operating the business. So on the outside, no one knows any different, the lights are still on, the business is still operating, you don't cut employees at the filing of the bankruptcy. So for all intents and purposes, the business continues operating, you're not gonna have any issues with those claims being interrupted. The policies and premiums being paid as the chapter 11 goes down its course, and we look at what expenses to cut, how we're going to reduce debt, that's all going to fall into the overall picture of how to make this business leaner, stronger, and debt free .

Disability Attorney Nancy Cavey:

Have you ever seen a situation where the trustee recommends that disability insurance coverage or life insurance coverage be , uh, terminated?

Bankruptcy Attorney Kristina Feher:

So in some instances, yes, especially for larger po larger companies, that's one of, and looking at the cost. So sometimes disability coverage isn't as expensive as perhaps health insurance, but could be one of the guilty by association insurances that since we're going to cut health insurance, we're also gonna cut disability and vision and dental. And oftentimes , unfortunately, they are a package deal in smaller businesses when maybe it's a family run business and this is the only option they have for health insurance, life insurance, disability insurance, there's a better argument to keep that around and keep it a viable expense for the business and look at other ways of reducing expenses.

Disability Attorney Nancy Cavey:

Great. Let's take a quick break and I'm gonna ask some interesting questions when we come back about filing and circumstances around filing. Alright , welcome back. I'm learning lots and I hope you are too. So many times , uh, in my practice, I represent business owners , um, who are faced with the issue of the disability and, and bankruptcy. And many times they say to me, well, can I just sell my business to my spouse or partner just to avoid all of these debt issues associated with my , uh, disability? Or should I be filing for bankruptcy? What's your general advice in that situation?

Bankruptcy Attorney Kristina Feher:

So it's very much like owning a home. You can own a business and you can also be responsible for debt. So just because you transfer the business to a spouse, a friend , a family member, that still hasn't really addressed the problem of the debt that goes along with the business, many business owners often find that they have personally guaranteed many debts of the business, whether that's for merchant fees, for credit card processing systems, or for some of the furniture used in the business or equipment used in the business. So really transferring the asset is kind of like transferring the deed to a house. You don't own the house anymore , but you're still responsible for paying the mortgage. So oftentimes we want to make sure that business owners are doing a, a twofer. If you're going to sell and transfer the business, make sure that that business debt goes with it. And also that the creditors are part of that so they know, don't come after me anymore for this debt, but go after the person who's getting the business. Which if it's a friend, family member or spouse might not really help. The overall situation

Disability Attorney Nancy Cavey:

Might lead into a divorce. <laugh> yes,

Bankruptcy Attorney Kristina Feher:

<laugh>

Disability Attorney Nancy Cavey:

Or family issues. So , um, in a situation where a , the, the client is disabled, a business owner , um, what is your general advice about , uh, when to consult a bankruptcy attorney and potentially when to file?

Bankruptcy Attorney Kristina Feher:

It is always, always, always better to meet with a bankruptcy attorney sooner rather than later. I have been practicing for 15 years and most of my clients have said, I wish I had talked to you sooner. I wish I would've consulted with you sooner. Because bankruptcy is often such a last resort. We tend to be the person you consult with either in the 11th hour or when things are really bleak, which makes us have a more difficult conversation about what to do with the business. If you had maybe come see me six months sooner, we could have still had the options of whether to liquidate in a chapter seven or reorganize in a chapter 11. But if you've waited, now you've become disabled, now you've missed a significant number of payments on the commercial lease or the vehicle of the business, now we have less options. And so my advice for clients would be, if there is a, a thought in your mind that payments are getting tight, you're not sure how you're going to make the lease payment, the, are there any things that are pending right now that we wanna wait for? Are there any issues or concerns you have, like your claim being put through or being filed for a disability claim? So there's no harm in meeting with a bankruptcy attorney soon , early and, and preferably not later or in the 11th hour.

Disability Attorney Nancy Cavey:

So lemme ask you this, you just gave us a big set of rocks that a person would have to stumble over before they would wanna call you. What's, and so, you know, unfortunately there are people who, who don't wanna acknowledge the impact of their disability, think they're John Wayne or Superman, and , and wanna soldier , soldier on, if you will. Mm-hmm , <affirmative> , what's the next big set of rocks that ought to hit them in the head and say, okay, I, I stumbled over the first set of rocks, but now I really need to go talk to Kristina.

Bankruptcy Attorney Kristina Feher:

Well, a lot of times what we notice is you're not looking at the books and you know, your income, your expenses, all of those are very black and white rocks, if you will, that show us things aren't really great. Other rocks you could look for are, you've missed a payment on something and it doesn't matter what it is. If you've missed a payment on the business credit card, if you've missed a payment in being able to pay yourself, those are rocks, those are flags that should be saying, I need to, to meet with Kristina. I need to meet with a business bankruptcy attorney to figure out my options and what's going on. Even if you are not looking at the books, we will and we might be able to help identify that there's a particular debt or a particular expense that if removed could really shift the trajectory of your business.

Disability Attorney Nancy Cavey:

So how much does it cost to consult someone like you about these issues before you're, you know, ready to file? Well,

Bankruptcy Attorney Kristina Feher:

The good news is that most bankruptcy attorneys don't charge for consultations and I'm included. So whether you are talking about chapter seven, whether you're talking about chapter 11, there's no cost to meet with me, which should really help kind of sway everybody to, hey, what a great idea. And it's free. When we talk about filing for bankruptcy, that's kind of different and there's a very big difference in the filing fees for closing down and liquidating the business in a chapter seven versus chapter 11. So in a chapter seven, because we're just closing the business in liquidating, most business bankruptcy attorneys charge somewhere between two and $5,000 for their attorney's fees in order to help wind up the business. And then there's also a filing fee of $338

Disability Attorney Nancy Cavey:

With the court

Bankruptcy Attorney Kristina Feher:

With for the court. Yes. On the flip side, when you are starting a chapter 11, you're gonna keep operating the business reorganizing. Most business bankruptcy attorneys for chapter elevens start their retainer at 7,500 to 15,000 and it goes up significantly from there. A chapter seven is flat fee . A chapter 11, however, is based on hourly work. So the more complex the chapter 11, the more things we have to fix with the business, the more expensive it could cost. And that also depends on how many creditors you have. The chapter 11 filing fee to the court is also $1,738. Wow. So that's a much bigger chunk of change for the filing for the chapter 11 case.

Disability Attorney Nancy Cavey:

So the longer you screw it up, then the longer you delay, the more likely it is it's gonna cost you more money. Would that be

Bankruptcy Attorney Kristina Feher:

Correct or, or that you're not gonna have any other option but to shut down the business.

Disability Attorney Nancy Cavey:

Um, so sometimes clients will say to me, well, yeah , I wanna shut down the business and maybe seven's the way to go. May maybe an 11, but I can come back and open a new business. So what's the harm? What's the foul?

Bankruptcy Attorney Kristina Feher:

Well, really there isn't, and I think sometimes that is a very good way to look at it. There are lots of businesses that have very little assets, maybe they have very little things tied into the business. And so shutting down the business in a chapter seven is a great idea. Note, most courts only want businesses to file a chapter seven if there are assets to liquidate. So if you don't have assets to liquidate, you don't have a bank account, then you probably don't need a chapter seven to close the business down. Most of the time you can just do the business closing procedure with your Secretary of state. And so that could be a way to address it that way and then start a new business. Really what a business owner should be looking for is, do I have any personal guarantees on the deaths of the business? So if the business shuts down, that takes care of the business's liability for the debts of the business, but it doesn't remove your personal liability for the debts of the business. That's really what a business bankruptcy attorney can help you look into what's tied to your personal and what isn't.

Disability Attorney Nancy Cavey:

So how long does it take to do a seven and a and an 11?

Bankruptcy Attorney Kristina Feher:

So a chapter seven from the date I first meet with a client until the date that we file the paperwork usually takes about two months. And then once the business bankruptcy for a chapter seven is filed, the business owner only needs to attend a 3 41 meeting of creditors. Now the 3 41 meeting of creditors is called a 3 41 meeting. It's for the bankruptcy code section 3 4 1, which requires the person or entity filing bankruptcy to be asked questions about the assets of the business, the debts of the business, et cetera. And even though it's called a meaning of creditors, most creditors aren't going to show up. Larger creditors like JP Morgan Chase or Capital One Discover American Express, they're not going to show up. Oftentimes the people who do show up are the creditors who are more private creditors. Maybe your commercial landlord, maybe a buddy that loaned you money to start the business. That would be it. After that meeting of creditors is completed, the bankruptcy itself continues so that the court can liquidate it, but there's nothing else for the business owner to do . They just get to sit back, move on, open another business, go get the healthcare that they need if they are disabled. And then the business continues and wraps up, usually takes about a year.

Disability Attorney Nancy Cavey:

Wow. Okay.

Bankruptcy Attorney Kristina Feher:

On the chapter 11 side, the reorganization of the debtor usually takes about, I'd say eight to 10 months to get a plan approved by the courts. And then most plans continue for five years without court supervision. So I'd say that a chapter 11 could be a business in chapter 11, could be inside the bankruptcy for about a year, and then working through their reorganization plan for the next five. But again, on the outside, you wouldn't notice that a business is in chapter 11 because they're operating, the lights are on, the employees are working.

Disability Attorney Nancy Cavey:

So you as the uh, attorney are preparing a chapter 11 plan, submitting it to the trustee for the trustee's approval in the court's endorsement. Correct.

Bankruptcy Attorney Kristina Feher:

Correct. There's a little bit extra steps too where some creditors do get to vote and weigh in on whether the plan meets the criteria under the code, but that's what we're doing. We're creating that bankruptcy reorganization plan with our clients under the law and then getting everybody's thumbs up from the trustee to the creditors to the courts.

Disability Attorney Nancy Cavey:

So how do we find a great bankruptcy just like , uh, attorney just like you to help us with these issues?

Bankruptcy Attorney Kristina Feher:

Well, you can certainly contact me at all of my wonderful information where located here in St . Petersburg, 7 2 7 3 5 9 0 3 6 7 . You can find us@faherlaw.com. You can email me at k fayer@faherlaw.com . What I always say is ask your friends, ask your colleagues. The difficult thing is bankruptcy is still a little taboo, right ? So we don't want to tell people that we're looking for a bankruptcy attorney. But you would be surprised at how many of your friends, your neighbors, your colleagues, your uncles, your sisters, have had these discussions. And so try to find someone you trust and just know that you need to find a good attorney because you're gonna be sharing a lot of financial and sensitive information with them.

Disability Attorney Nancy Cavey:

Well, their accountant certainly could be a source of that information.

Bankruptcy Attorney Kristina Feher:

Very much so. Accountants are very helpful.

Disability Attorney Nancy Cavey:

Excellent. Excellent. Well, I wanna thank you for your time as always. I've enjoyed it. I've learned lots, and I hope our audience has , uh, learned lots. If you've liked this episode of Winning Isn't Easy, please uh, like this episode, make some comments and please subscribe to this podcast. As always. Uh, we take a break this time of year and we are going to be concluding the , uh, 20 , uh, 23 season, if you will, and we will be back in , uh, mid-January. We look forward to , um, another year worth of great episodes of Winning Isn't Easy, and we hope everyone has a happy holiday. Thanks.