All posts in Chapter 11

Wherein my 1111(b) article is cited by a Judge!

A thanks and tip of the hat to Bankruptcy Judge Eric Frank, Eastern District of Pennsylvania, for citing my article  The Section 1111(b) Election: A Primer, 31 Cal. Bankr. J. 755 (2011), written with Roksana Moradi-Brovia.   You can access the case here, In re Body Transit, Inc.  Pretty fun to be called a “commentator.”  Judge Frank writes, “One commentator explained it concisely as follows:” and goes on to quote two paragraphs from the article.

The issue to Judge Frank was whether the the bank’s “interest on account [of its claim] in [property of the estate] is of inconsequential value,” because if so, the bank cannot make the 1111(b) election.  The court said it was “inconsequential” under the facts of the case and pitched out the election.  Apparently here the value of the property was around $80,000 and the debt was $917,000 so the property was 8.2% of the debt.  Judge Frank rules that that is inconsequential, although comments that it is a close call.  I do not see it as a close call.  To force the debtor to pay the bank $917,000, certainly money taken away from other unsecured creditors, because its collateral is worth $80,000 is not a close call to me.

Judge Frank states astutely:

“[W]hile ‘the numbers’ provide an important starting point in deciding how much value is ‘inconsequential,’ the court also must consider other relevant circumstances presented in the case and make a holistic determination that takes into account the purpose and policy of the statutory provisions that govern the reorganization case.”

Here the bank was simply trying to scuttle the plan, in a subchapter V case by the way.  Judge Frank is absolutely correct here.

Letter from BMW in SBRA case

This is kind of galling if you ask me.  I just got this letter from a “a bankruptcy servicing company” relating to new Small Business case I just filed.  What is the point, I wonder, of instantaneously and unilaterally discontinuing “online access, monthly statements, notification emails,” and the “easy pay program”?

Dear M J HAYES:

We are AIS Portfolio Services, LP a bankruptcy servicing company for BMWF Financial Services. BMW Financial Services received a notice of bankruptcy filing on the above referenced account. As a result, online access, monthly Account Statement mailings, statement notification emails and, if applicable, the Easy Pay Program, have been discontinued.

Please be aware this letter is not an attempt to collect a debt nor is it a demand for payment. The information below, including payment options, is being provided for informational purposes only.

If you wish to make voluntary payments, you may do so anytime using BMW Financial Services automated phone system, paying by check, bank bill pay, or Western Union.  For all payments made, please include your account number and remit to:

BMW Financial Services NA, LLC
PO Box 78066
Phoenix, AZ 85062
Toll free – 800 – 398 – 3939

If you have any questions, please contact a Bankruptcy Specialist at (888) 455-6662, Monday through Friday, from 9:00 a.m. to 5: 00 p.m.ET

Thinking out loud about the new Small Business Chapter 11

Attached is a copy of my Daily Journal article entitled Thinking out loud about the new Small Business Chapter 11 published on November 27, 2019.  I’m happy to get your comments.

Daily Journal Article

San Fernando Valley Bar Association; Small Business Reorg Act Program Friday, 12/13, 2019 at 12 noon

Email from Steve Fox

Dear All:

We have a really timely and good program for you.

Starting in February, 2020, small businesses (including individuals) will have a new means to reorganize under chapter 11, the Small Business Reorganization Act (or “SABRA”).  The Act packs a lot of power, a lot of issues and a lot of food for thought.  Perhaps 90% of all businesses filing under chapter 11 could be eligible to opt in to SABRA and its provisions.  SABRA may also be a means to handle oversized chapter 13 cases.

The panel has been working hard on this topic.  Lew Landau is an experienced chapter 11 practitioner.  Jeremy Rothstein of Greenberg & Bass is the author of an article about SABRA.  Judge Ahart (ret) is well known to section members as a fine speaker and thinker. Yours truly is also on the panel.  Given the amount of material and issues, the panel will speak for 2 hours instead of the normal 1 and ¼ hours.  The panel has spent hours debating the statutes, what they mean or what they could mean.  If the panel does not have definitive answers, something which happens when a new law is passed, the panel will have the right questions. Read more…

Small Business Task Force – Central District

Email from Chief Judge Maureen Tighe:

Dear Bar Advisory Board members:

As I mentioned at our last meeting, I am seeking nominations for members of a small business task force I am setting up for January 2020.  You may send nominations to the email address below.  The task force will be in furtherance of the court’s goal to be as accessible as possible to business cases.  We will focus in the task force on the small family businesses and other small businesses in the district.  The group will define the term “small business” more as part of its work, but the total liabilities are likely under $3 million.  I will be selecting a broad range of people from around the entire district and encourage you to nominate people with connections to various communities and small business groups in the district, whether or not they have bankruptcy experience.  There will be monthly meetings and community outreach, discussion and report writing involved, so it should be someone able to commit sufficient time to the project.  If you could tell me a little bit about anyone you nominate, that would be helpful.  To give your more guidance, I list the goals of our soon to be final strategic plan below:  Outreach for Businesses. Ensure that businesses know how to appropriately access bankruptcy resources

Strategies:

- Have sufficient outreach and public education to ensure that businesses in financial distress are aware of bankruptcy laws, referral resources, and bankruptcy-related fraudulent schemes

- Understand the difference between omnichannel vs multi-channel and how to elevate your customer experience strategy.
- Investigate and identify barriers that prevent small businesses from accessing court resources
- Maintain and develop relationships with a diverse range of organizations, community groups, and bar associations
- Study the existing business bankruptcy procedures to see whether there are barriers to business access

The recently enacted Small Business Reorganization Act will be considered as part of this task force, as we would like to see that word gets out about this new law and that the court implement it well.  The scope of the task force is broader than the new law, however.  Because the task force likely will not complete its work until late 2020, the Rules Committee we will be addressing separately and much sooner whether any new rule or form changes are required before the Act goes into effect in February.  Judge Scott Clarkson, Chair of the court’s Rules Committee, is currently gathering suggestions from the bar of any changes you believe are required for any of the recently enacted bankruptcy legislation. Please send your comments directly to him at Scott_Clarkson@cacb.uscourts.gov. And send nominations for the Task Force to Email address: CACB_SBTF@cacb.uscourts.gov

Maureen Tighe, Chief Bankruptcy Judge United States Bankruptcy Court,Central District of California

Hard Money Loans in Chapter 11 – CLA Program

California Lawyers Association

Insolvency Law Committee
Hard Money Lending Issues in Bankruptcy
Presented by the Business Law Section Insolvency Law Standing Committee

Tuesday, October 29, 2019

Earn 1 Hour of MCLE Credit. Includes legal specialization, Bankruptcy Law

Alston & Bird
333 S. Hope Street, 16th Floor
Los Angeles, CA 90071
Parking will be validated for cars arriving after 5:30 p.m.

Panelists:

Kit Gardner, Law Offices of Kit J. Gardner
Steven Kurtz, Levinson Arshonsky & Kurtz, LLP
Eve Karasik, Levene, Neale, Bender, Yoo & Brill LLP
Honorable Scott H. Yun, United States Bankruptcy Court

Frequently, a business debtor will resort to private, unregulated lenders to finance its operations. The resulting credit facilities are usually easier to obtain than a traditional bank loan, but come with more strings attached. Moreover, the lender is usually far more active in monitoring and protecting its interest in these risky loans. Therefore, when a business files bankruptcy, the debtor is immediately confronted with a host of unique issues that may determine its future survival, and the lender is confronted with the possibility that it will not receive the full benefit of its bargain.

US Trustee has a new mailing address for the quarterly payments

The mailing address for quarterly fee payments that debtors send on or after May 15, 2019, is the following:

United States Trustee Payment Center
P.O. Box 6200-19
Portland, OR 97228-6200

The address shown above is a lockbox at a bank and is for quarterly fee payments only.  Do not use this mailing address for service of process, correspondence, or purposes other than paying quarterly fees.  Any correspondence or documents sent to the lockbox address, other than the payment and payment form, will be destroyed.

ABI Commission Report on Consumer Bk

The ABI Commission just released the report on consumer bankruptcy.  You can find the summary of findings by clicking here.

Some interesting recommendations:  allow for postpetition chapter 7 attorneys fees, get rid of both credit counseling courses for a chapter 7, and increase chapter 13 debt limit to $3 million and eliminate the secured / unsecured distinction.    Interesting stuff in the full report which can be retrieved by registering your email here.  Curious what they will do with your email….

Adjusted Dollar Values – April 1, 2019

I am posting this because I always have a hard time finding the adjusted dollar values. I admit, I stole this from the Eastern District. You can find it by clicking here, and I have pasted a few choice numbers for convenience:

Debt limits for Chapter 13 cases: unsecured, $419,275; secured $1,257,850.

Wages entitled to priority: $13,650.

Definition of a small business: $2,725,625.

Definition of assisted person: $204,425.

Subtle Difference Between “Deemed Exempt” versus “Claimed Exempt” — Just Because Schedule C Lists the $100 in Bank Account Does Not Mean Debtor Can Immediately Use It

I tried to make the title as concise as possible — Ockham’s Razor failed.

Client comes to see you and they have $5,000 in their checking account.  You list it on Schedule B then exempt it on Schedule C and file the case.  The 341(a) is in 30 days.  Client goes to the bank the next day and withdraws all of the funds to pay rent and spend it on gambling.  You don’t think it is a problem because the funds have been fully exempt.

But is it?

In Section 70a of the former Bankruptcy Act, there was an automatic exclusion of exempt property such that by simply listing the asset on Schedule C — then that asset was automatically and immediately exempt.  That is not how it works under the current Code — it is not automatic.  I was reading the Mwangi case from the Ninth Circuit that clarifies a subtle distinction between an asset that has been “claimed exempt” versus one that is actually “deemed exempt.“   In the hypo above, it is a “no harm, no foul” situation but it’s still worth thinking about.

Read more…