West Palm Beach Bankruptcy Lawyer

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In an excellent decision for preference targets, the Eleventh Circuit recently held in the case of Kaye v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC) that the new value defense, under Section 547(c)(4), does not require new value to remain unpaid.

In reaching this conclusion, the 11th Circuit has found common ground with the Fourth, Fifth, Eighth, and Ninth Circuits which also reject the idea that § 547(c)(4) requires new value to remain unpaid.

This opinion should result in a meaningful reduction of preference exposure for vendors and others that continue to extend credit and transact business with financially troubled debtors.  In fact, vendors may be incentivized to continue extending short-term credit without fear of having all the payments they receive for newly delivered goods clawed back.

Yet another benefit (for practitioners) – complicated “remains unpaid” preference analysis spreadsheets will soon be distant memory (at least in the 11th Circuit).  Thank you 11th Circuit!

  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 August post, I discussed two cases.  In the Failla case, the Eleventh Circuit affirmed the District Court’s opinion that “once the debtor decides to ‘surrender’ secured property… [w]hile the debtor need not physically deliver the property to the secured party, the debtor is precluded from taking any action which would interfere with the secured creditor’s ability to obtain legal title to, and possession of, the property through legal means.”  Thereafter, the S.D. Bankruptcy Court held, in the Kurzban case, that “the Eleventh Circuit did not rule that a debtor’s decision to surrender lasted in perpetuity“.

As of October 1, 2018, a new statute which expands on the spirit of both the Failla and Kurzban cases will apply to all foreclosure cases filed on or after October 1, 2018.  Specifically, Senate Bill No. 220 was signed into law by Florida Governor Rick Scott this month and will become effective as Section 702.12, Florida Statutes.

Section 702.12 will streamline the foreclosure process for mortgage lenders where bankrupt borrowers have filed an intention to surrender the lender’s property, not withdrawn that intention, and the Bankruptcy Court has entered a final order either granting the bankruptcy debtor(s) a discharge, or confirming a repayment plan that provides for surrender of the property.  If these circumstances are present, the statute provides mortgage lenders with a rebuttable presumption that the borrower has waived any defenses to foreclosure.  The statute further provides that the court shall take judicial notice of Bankruptcy Court orders upon the request of lender.

While Section 702.12 is a positive new law for mortgage lenders, the advice in my August post, still applies – Do NOT sit on your rights!   Section 702.12(3), similar to the ruling in Kurzban, provides that the borrower is not precluded from raising a defense based on the mortgage lender’s action or inaction subsequent to the filing of the bankruptcy document which evidenced the borrower’s intention to surrender the mortgaged property to the mortgage lender.

  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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What is “redemption” in bankruptcy?

  • Redemption is an option available to Chapter 7 individual debtor (not corporations or business entities).
  • Redemption may allow the debtor to keep personal property (intended for personal, family, or household use) which is acting as collateral for a secured debt.
  • The most common example of personal property may be redeemed is an automobile.
  • The personal property is redeemed by paying the lienholder the amount of its allowed secured claim in full by one lump sum payment.  However, the road to redemption is oftentimes too difficult for debtors to travel because of the lump sum payment requirement.

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How does “redemption” work?

Suppose the debtor files for bankruptcy and still owes $20,000 to ABC Bank on her Honda Civic but, the car is now only worth $12,000.  In this scenario, ABC Bank has a debt secured by the vehicle up to its value ($12,000) and $8,000 that is essentially unsecured.

During the redemption process, the debtor can generally wipe out the unsecured portion (in this example, $8,000) by paying ABC Bank a lump sum of $12,000.  If the debtor chooses redemption and can follow through with payment, the debtor will own the car free and clear once the debtor receives her discharge.

If redemption is not an option, the debtor may be able to keep her Honda Civic by “reaffirming” the debt instead.  In that case, the debtor signs a “reaffirmation agreement” with ABC Bank prior to discharge where, the debtor agrees to again become legally obligated to pay all or portion of the entire debt owed by the debtor on the Honda Civic to ABC Bank, essentially excepting the debt from discharge.

Yet another option would be for the debtor to surrender her Honda Civic to ABC Bank.  In this case, assuming the debtor receives her discharge, she will no longer by liable for any debt to ABC Bank on the Honda Civic.

The decision whether to surrender, redeem, or reaffirm in bankruptcy is a difficult one and any debtor facing these issues will want to consult an experienced bankruptcy attorney before making any election.

  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.

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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 – Vibe, The 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.