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The recent decision in the Olivares case [2016 WL 6810716 (Bankr. S.D. Fla. 2016) reminds lenders of the perils of being a second mortgage holder where equity is questionable.

A lender that held a second mortgage on real property owned by the chapter 13 debtor objected to the debtor’s proposed plan on the basis that the debtor’s plan was filed in bad faith, not feasible and the debtor proposed to pay the first mortgage holder with out participating in the mortgage modification mediation program.  The debtor filed a motion to value the property and determine the secured status of the lender.

Unfortunately for the second mortgage holder, the decision of the Court came down to one issue, the determination that there was no equity in the property in excess of the first mortgage.  The lender conceded that there was no equity in the debtor’s real property.  Specifically, the property was valued at $459,544.00 and the amount owed on the first mortgage is $823,372.03.

The second lender attempted to make several objections that could have been raised by the first mortgage holder, but the Court found that the second mortgage holder could not argue objections belonging to a third party, including: 1) the debtor’s inability to meet the payment requirements of the first mortgage, 2) the veracity of the family members promises to help fund the first mortgage payments, and 3) bad faith for failure to participate in the MMM program.
The second mortgage holder also argued that the debtor could not strip off liens where the first mortgage is being “treated outside the plan”, but failed to cite any legal authority for their argument.
As a result, the Court found that the plan was proposed in good faith, confirmable, and the motion to value and strip off its lien should be granted.  The only solace for the second mortgage holder is that the lien strip is conditional upon the debtor’s successful completion of all payments under her chapter 13 Plan.

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

At the end of my October blog post, Dear Debtor, You Said I was Your First Priority, a VIP!, I suggested that you might want to join a “support group” called the “Official Committee of Unsecured Creditors” (fondly referred to as the OCC or GUCCs), if you felt angry or depressed about your unsecured claim status.  Admittedly, I may have led you astray.

The OCC is not really a “support group,” at least in the conventional sense of the word. So, if it is not a support group, what is it?

Going back to my October post – you have come to the realization that you were not really a VIP to the Debtor and are not entitled to priority payment. Shortly after you admit you are a general unsecured creditor, you receive a letter from the U.S. Trustee’s Office telling you that they are forming an OCC in the Debtor’s Chapter 11 bankruptcy case and asking you if you would like to serve on the committee.

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Your first reaction is to say – Yes, pick me!  Of course I want to “be all I can be”.

Not so fast! Aren’t there some questions you want answered first like…what is the OCC?…what can the OCC do?…what are members of the OCC required to do?…and what are the dangers and benefits of being an OCC member?

Here are the answers to those questions…

The OCC is a committee appointed by the U.S. Trustee’s Office from unsecured creditors that hold the 20 largest claims against the Debtor. It represents the interest of all unsecured creditors of the debtor before the bankruptcy court and in negotiations with the debtor and other parties. Generally, there are 3 to 7 members, depending on the size of the case.

The OCC members are fiduciaries to the other unsecured creditors and are expected to act in the best interest of all unsecured creditors. As a member of the OCC you cannot favor your interest over those of other unsecured creditors.

Among other things, the OCC has the power to do the following:

  • consult with the chapter 11 debtor on administration of the case.
  • investigate the debtor’s conduct and operation of the business.
  • participate in formulating a plan.
  • may, with the court’s approval, hire an attorney, accountant or other professionals to assist in the performance of the committee’s duties. These professionals are compensated by the debtor.
  • monitor management of the debtor’s business.

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The Pros:

  • having a seat at the table and an opportunity to have a voice in the bankruptcy process.
  • legal representation of the committee, paid for by the debtor, that you would ordinarily not receive on your own.
  • access to information regarding the bankruptcy process and the debtor’s financial information, some of which is not readily available to individual creditors.
  • power to participate in and affect the debtor’s plan negotiations and negotiations with other creditors.

Possible Cons:

  • Serving as a committee member can be require a significant (uncompensated) time commitment. Are you sure you have the free time to commit?
  • Is the case out of town? You may need to travel there once in a while.
  • Since your duty is to act in the best interests of all unsecured creditors, you might have to endorse actions that would be detrimental to you and your claim.  Are you prepared to do that?

So – now that you are in the know about the OCC are you ready to “be all you can be” in your debtor’s bankruptcy case?

Before you say “yes,” serving on a creditors’ committee is an important decision. You should carefully weigh pros and cons of serving based on the facts surrounding your claim and your relationship with the debtor. Seek out a trusted bankruptcy attorney in your neck of the woods for advice.


  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.  One of those questions is “Am I entitled to priority payment?”  This is also important to answer in a Chapter 7 case.

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Your delinquent customer told you not to worry, you were first in line for payment, and that payment would be coming soon.  Next thing you know, your customer has filed a bankruptcy and you have not been paid.  As discussed in my June 24th post, you obtain a proof of claim form and are prepared to fill it out and file it before the deadline, but then you get to the last question, number 12 – “Is all or part of the claim entitled to priority under 11 U.S.C. § 507(a)?”

Your first impulse is to check “yes” – of course you are entitled to priority – the debtor told you that you were first place, a VIP for payment.

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NOT so fast…most creditors’ claims are “general” unsecured claims, and not entitled to priority treatment.  Take a breath and ask yourself, does my claim fit into any of the following categories:

  • domestic & child support obligation;
  • salary, wages, or benefits owed to an employee;
  • deposit of less than $2,850.00 towards the purchase, lease, or rental of property or services for personal, family, or household use;
  • claim for contribution to an employee benefit plan;
  • claim of grain farmer or fisherman relating to storage and processing facility;
  • certain unsecured taxes or penalties owed to the government;
  • claim for death or personal injury resulting from operation of a motor vehicle or vessel by an intoxicated debtor;
  • customs duty arising out of the importation of merchandise; or
  • claim based on commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured deposition institution.

If you fall into one of these categories, GREAT, but chances are that you DO NOT!  Resist the urge to check “other”!  Check the “No” box, sign the bottom of the form and send it in.

Feeling angry and/or depressed?  If your customer is in Chapter 11, you may want to consider joining a support group – perhaps the “Official Committee of Unsecured Creditors” – fondly referred to as the OCC or GUCCs.  I’ll be back to discuss that in a future blog post!


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

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The results are in!

As I mentioned in my May 25th blog post, Curtis James Jackson III, better known as rapper 50 Cent (“Jackson”) was scheduled for his bankruptcy confirmation hearing yesterday (July 6th).

All impaired creditor classes voted in to accept Jackson’s proposed plan of reorganization (“Repayment Plan”).  He filed his own declaration and the declarations of three professionals in support of his Repayment Plan at 11 am the morning of the hearing.

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No one sought to cross exam the declarants however, the Court did have Jackson take the stand to confirm that he understood his significant repayment obligations under the Repayment Plan and that the were freely undertaken by Jackson.

The Court was specifically concerned with whether Jackson understood the terms of his settlement with Lastonia Leviston (“Leviston”).

Jackson affirmed his understanding that: 1) Leviston had an allowed unsecured claim in the amount of $6 million; 2) as long as he made the payments under the Repayment Plan, she would be paid a percentage of her claim with other unsecured creditors; and 3) if he defaulted in those payments for any reason, her claim is non-dischargeable and that she could pursue the full amount of her claim against him.

When questioned about the possibility of default, Jackson stated “That’s not going to happen.”

He swore that he was committed to making the payments under the Repayment Plan and believed he could make them.

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The Court confirmed Jackson’s Repayment Plan and congratulated the parties and counsel for coming to consensual resolution of the differences that existed the first day they walked into her bankruptcy courtroom.

The Court further stated that is was pleased to confirm Jackson’s Repayment Plan – remarking that it was a significant event and praising Jackson for what it viewed as his very substantial effort to repay creditors.

If you want to read more on this significant event, several articles have been written on Jackson’s bankruptcy success story – VibeThe Guardian, The Wrap, HipHopdx, NME, and TheYBF.


 

Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

 

In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.  In my prior posts, I have already addressed “first-day motions” and creditors’ meetings.  Let’s move on to three more questions about claims.

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The answers to these three questions are VERY important.  Why?  You may not be eligible to receive any money from the debtor if you do not know the answers and act accordingly!

1) Is my claim properly listed on the debtor’s Schedules?

This question is simple to answer.  Peruse the debtor’s Schedules filed with the Court and see if the debtor has listed you and whether the amount is correct.  If the answer is NO, you need to file a proof of claim before the deadline set by the Court.

2) Has the debtor listed my claim as disputed, unliquidated or contingent? 

The answer to this question is also simple.  Look at the box where your claim is listed (if it is listed) on the Schedules.  There is a section that says…

As of the petition filing date, the claim is:

Check all that apply.

¤   Contingent

¤   Unliquidated

¤   Disputed

If one of these boxes is checked, the answer is YES and you need to file a proof of claim before the deadline set by the Court.

3) When is the deadline to file a proof of claim? 

The clerk of the court (or in some instances the Debtor), send a notice out to all creditors LISTED on the debtor’s Schedules which will set forth the deadline for filing a proof of claim.  If you are not listed as a creditor and do not receive the notice, but are aware of the bankruptcy, you can find out the deadline from looking at the Court docket.

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If you are not listed, your claim is not properly listed, or your claim is listed as contingent, unliquidated, or disputed, you MUST file a proof of claim in order to have your claim accurately allowed in the Chapter 11 case.

DO NOT miss the deadline to file a proof of claim!  There are very few acceptable excuses for late-filed claims and more likely than not, your late-filed claim will be DISALLOWED.


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

 

In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.  In my June 2nd post, I addressed the first question on “first-day motions”.

Let’s move on to the second question –  When is the “meeting of creditors” and should I attend?

bankruptcy questions

Section 341 of Title 11 of the U.S. Code, requires a creditors’ meeting – also referred to as “the 341 meeting” or “meeting of creditors,” which generally takes place within forty days after the bankruptcy is filed.

All creditors listed on a debtors schedule of debts are given notice of the meeting by the clerk of the bankruptcy court.  An assistant U.S. Trustee or attorney from the U.S. Trustee’s office generally presides over the recorded meeting where a representative of the corporate debtor appears and answers questions under oath.

Creditors are not required to attend, but may want to attend as the meeting is a chance for the creditor to get a preliminary idea of:

  • the debtor’s financial situation
  • whether the debtor has good prospects for reorganizing
  • what the debtor’s plan of reorganization might look like, and
  • the likelihood of the creditor’s claim being paid.

The Assistant U.S. Trustee or attorney will questions about the debtor’s financial history, reason for filing bankruptcy, plans for reorganization and generally go through the Chapter 11 filings to insure all filings are complete, true and correct.  This is a good way to educate yourself about the case and decide how actively you want or need to participate going forward.

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Creditors are also permitted to ask questions at the meeting, but as a general rule, the opportunity to ask questions will be limited.  If the size of your claim warrants it and you wish to do a detailed examination of the debtor about the case and/or your claim, you employ counsel to notice and take the debtor’s Rule 2004 examination – a deposition where you can inquire broadly into the debtor’s finances.


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate.

At least 5 Chapter 11 cases (Nirvana Inverrary Lofts, Inc., Inverrary Resort Hotel Condominium Assoc., Inc., Alrames S.A. de C.V. Corp., HDRepair.com Corp., and Kattour, Inc.) have been filed in South Florida in the last 2 days.

Several first day motions have already been filed and heard by the Court in the Iron Bridge Tools, Inc. bankruptcy, which was mentioned in my last post.

A Ferris Bueller quote is applicable here –  Life [like bankruptcy cases] moves pretty fast. If you don’t stop and look around once in a while, you could miss it [i.e. important bankruptcy events and deadlines].

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So let’s hurry up and address my first question – Is my claim (or are my rights) affected by any “first-day motions”?

When a Chapter 11 is filed, there are a number of motions which are ordinarily filed by a debtor on the first day of the case, hence the name “first-day motions”.

In the Southern District of Florida, these motions may include the following: Motions for Authority for the Payment of Prepetition Wages, Motion for Payment of Critical Vendors, Motion to Use Cash Collateral,  Motions for Approval of Postpetition Financing, Motions for Authority to Pay Prepetition Claims.

As the titles to these motions suggest, they almost always seek to provide certain creditors priority treatment they might not otherwise be entitled to under the Bankruptcy Code’s general priority scheme for claims.  These motions are often granted if the debtor can establish that the payment of certain claims is critical to the debtor’s ongoing operations and the going concern value of the business.

Cash collateral and postpetition financing motions, if approved, can have an enormous impact on payment to unsecured creditors because they commonly provide for priming, replacement liens, debt service requirements and sometimes, carve-outs for payment of certain claims.

Unsecured creditors should review these motions carefully and determine whether the relief sought could have an impact on their rights or make payment on their claim less likely.  If the motion benefits you, great!  However, if it negatively affects your claim or your rights, and there are grounds to object, act quickly…otherwise, you may find that you missed your opportunity.


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

Yesterday, Iron Bridge Tools, Inc., a full-service design, development, and distribution company serving the consumer and professional hand-tool market, filed for Chapter 11 bankruptcy protection in Fort Lauderdale (Case No. 16-17505-RBR).

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Among the 20 largest creditors are ZheJiang Everpower ($9,885,335.75), Everpower Group Co., Ltd. ($2,800,000), Meridian Int’l Co. ($1,274,057.43), True Value ($490,805.42), Retract-A-Bit ($396,658.22), Packaging Corporation of America ($200,948.57) and Southeast Computer Solutions ($156,193.75).

Iron Bridge as estimated that it has $1 – 10 million in assets and $10 – 50 million in liabilities.  As the Debtor has not filed its Schedules, Statement of Financial Affairs or Chapter 11 case summary yet, little other information is currently available.

As general unsecured creditors are generally the last-in-position to be paid according to the payment scheme provided under the Bankruptcy Code, they may benefit from monitoring the debtor’s case and/or consulting an attorney regarding their claim.

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Unsecured creditors in any Chapter 11 case, including Iron Bridge Tools, should know the answers to the following questions (among others) and take action where appropriate:

1) Is my claim affected by any “first-day motions”?

2) When is the “meeting of creditors” and should I attend?

3) Is my claim properly listed on the Debtor’s Schedules?

4) Has the Debtor listed my claim as disputed, unliquidated or contingent

5) Am I entitled to priority payment?

6) Do I have any reclamation rights?

7) When is the deadline to file a proof of claim?

8) Do I want to serve as a member on any creditors’ committee that is formed?

We will explore these issues further in my future blog posts.


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

 

Since my April 15th blog post, Curtis James Jackson III, better known as rapper 50 Cent (“Jackson”), has made it past the disclosure statement approval phase of his bankruptcy case, and is running towards the plan confirmation finish line.

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The confirmation hearing is scheduled for July 6th.  At that hearing, the Court will decide whether Jackson’s proposed plan of reorganization can be approved based on the ballots cast by creditors and the provisions of Section 1129 of Title 11.

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If you are one of Jackson’s creditors, keep a close watch on your mail box for the third amended disclosure statement, plan, notice of deadlines, and ballot!  Remember, if you don’t object and/or vote by June 27, 2016, you lose your right to complain later.

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The Debtors will include a list of executory contracts and cure amounts with service of the plan documents, but will not disclose which executory contracts are being assumed or rejected until June 17th.  Parties to contracts, when considering whether to vote in favor of the proposed reorganization plan, should assume their contract or lease is being rejected.

50 Cent

The Court thanked all the parties for their professionalism, actively participating in the case, and working to come to a compromise – making Jackson’s reorganization possible.  For more details about Jackson’s disclosure statement hearing, check out Law 360’s article – 50 Cent’s $23.4M Bankruptcy Exhibit Gets Initial Approval.


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.

$100 piggy

Since my April 8th blog post, Curtis James Jackson III, better known as rapper 50 Cent (“Jackson”), filed his proposed First Amended Plan and Disclosure Statement.  The deadline for creditors and parties-in-interest to object to Jackson’s Disclosure Statement is April 27th, followed by a May 18th hearing on approval.

Jackson’s Plan proposes to allow Sleek Audio, LLC’s, Suntrust Bank’s, and Lastonia Leviston’s unsecured claims in the amounts of $17,320.67, $3,890,000.00 and $6,000,000.00, respectively.  He will be contributing up to $23.4 million in cash over the proposed plan of 5 or less years, and will also contribute up to 70% of the net proceeds from his currently pending malpractice claim.  Jackson estimates that general unsecured creditors will receive between 74% and 92% of their allowed claims and each holder of an allowed unsecured claim under $10,000.00 will be paid in full.

What is a disclosure statement? 

A disclosure statement is a document that a Chapter 11 debtor or plan proponent files with the Court in conjunction with his proposed plan of reorganization (or liquidation).  The disclosure statement must provide “adequate information” to allow creditors to make an informed decision about whether to accept or reject the proposed plan.

The Court has broad discretion to determine whether the disclosure statement provides adequate information and that decision is often made based on the nature, history, and complexity of the finances of the Chapter 11 debtor.  Generally, a disclosure statement includes information about the debtor’s financial history, circumstances that resulted in the bankruptcy filing, description and value of the debtor’s assets and the amount and nature of his debts, description of his plan of reorganization and repayment to creditors as compared to a Chapter 7 liquidation.

Why would someone object to a disclosure statement?

Creditors and parties in interest may file an objection on the basis that the plan does not provide sufficient information or analysis which would allow the them to make a decision whether to vote for or against the proposed plan.  They may also object to statements in the plan they believe are incorrect.  Courts have denied approval of disclosure statements where statements contained there in were unsupported by factual information such that creditors were unable to independently evaluate the merits of the plan.

As to Jackson’s amended disclosure statement, upon a quick review, it appears to be quite comprehensive.  Moreover, since he has come to an agreement with his largest unsecured creditors, he may not receive any objections unless the U.S. Trustee’s office or perhaps a secured creditor takes issue with his disclosures.  Jackson is closer to the finish line and his happy ending.  More to report after April 27th!


Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP.  Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation.  You can contact Heather at 561-804-4419 or hries@foxrothschild.com.