Hurricanes And Bankruptcy Considerations
Bankruptcy interacts with a lot of different things in life. We’ve previously written about divorces, taxes, or inheritances, and how bankruptcy affects those. But what about hurricanes? What considerations should people in bankruptcy or who are thinking about filing for bankruptcy have for hurricanes?
Chapter 11 Debtors in Possession
If you are filing for Chapter 11 bankruptcy and you are a debtor in possession you are the safeguard of your equipment and the value of your business. The value of the equipment and inventory, and the ability to continue to run your business, are all benefits that inure to your creditors, and you have an obligation to protect your creditors.
That means that you should do obvious things like physically protecting or moving property out of harm’s way if possible, and backing up electronically stored data, but you should also make sure that all insurance policies are in effect.
Just as you would for personal property, make sure that important paperwork (insurance or otherwise) is protected from floods or wind. That applies no matter who you are and what chapter of bankruptcy you may be filing. After a storm, if you want to file a bankruptcy, you don’t want a problem when vital documents and records you need for your bankruptcy case are lost in storm damage.
After a storm, make sure that you understand your obligations to timely report a loss. As a debtor in possession, you can be held responsible if there is no insurance coverage for property or for the business, because you ignored an important contractual deadline.
If you have a homestead, and the homestead is exempt property, you will be relieved to learn that insurance proceeds paid to rebuild or replace homestead property are exempt to the same extent the actual homestead is. If you have, are holding, or expect to receive insurance funds for the replacement or repair of homestead property, you may want to isolate those moneys in a separate account, to demonstrate those funds are exempt under the homestead exemption.
Remember that when you make an insurance claim, any proceeds that you may expect to receive from the claim, must be disclosed. That doesn’t mean the trustee will take or has a right to take those proceeds, but your expectation of receiving them must be disclosed.
Additionally, any lawsuit that you may have pending against any insurance company for nonpayment or underpayment under an insurance policy are contingent assets that also have to be disclosed in your bankruptcy schedules.
Hurricanes and the Timing of Filing
You may want to wait to file for bankruptcy until after a storm passes. After a storm you could be out of work for an extended period of time. You may have necessary insurance deductibles that you will have to put on credit cards. If any of these come to be true, you may need a bankruptcy to help you later on down the road.