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What Is Bankruptcy?
Over the many years we've spent working with FedEx 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 FedEx 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 FedEx 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 FedEx 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 FedEx. 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 FedEx 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 FedEx 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.
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Frequently Asked Questions
Will I Lose Everything?
Some of our FedEx 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 FedEx 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 FedEx 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 FedEx 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 FedEx 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 implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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