https://thejewishvoice.com/2021/11/pandemic-wiped-out-nycs-taxi-industry-now-uber-prices-are-soaring/

 The IRS announced a policy change in their Offer in Compromise ("OIC")program (for people who owe federal taxes) where for OI Cs accepted after November 1, 2021, the IRS will forego taking the post-OIC acceptance  tax refund for the year of acceptance. An excellent article on this topic can be found at https://procedurallytaxing.com/major-change-to-offer-in-compromise-policy/ 

 Recently I wrote about a Fifth Circuit case where a creditor tried to escape the terms of a confirmed plan in a subsequent case. Now the Court has written an opinion about a debtor that tried to do the same thing. Fortunately the result was the same in both cases: res judicata applied. BVS Construction, Inc. v. Prosperity Bank (Matter of BVS Construction, Inc.), Case No. 21-50274 (5th Cir. 11/15/21). You can find the decision here. What HappenedIn 2014, BVS Construction and its owner, Ricky Joe Palasota, Sr. filed chapter 11 petitions. They proposed a joint plan of reorganization which stated that the claim of Prosperity Bank would be allowed in the amount of $1,812,472.43. The plan was confirmed and the Debtors began making payments. The plan was confirmed without objection. The Debtor made the plan payments for 38 months before it defaulted and then filed a second case. In the second case, Prosperity filed a proof of claim in the amount of $1,333,695.84, which Prosperity contended was the original amount less the subsequent payments. The Debtor objected to the claim. It contended that the amount in the 2015 plan was incorrect and that Prosperity failed to account for certain payments. After a hearing, the Bankruptcy Court overruled the objection. The Court's Ruling On appeal to the Fifth Circuit, the Debtor argued that the Bankruptcy Court lacked jurisdiction to hear the claims objection, that the Debtor was not bound by the prior plan and that the Bankruptcy Court miscalculated the amount of the claim. The Court ruled against the Debtor on all grounds.The jurisdictional argument was strange to say the least. In Stern v. Marshall, the Supreme Court stated that determining matters arising from the allowance of claims was at the core of bankruptcy court jurisdiction.  Clearly the Bankruptcy Court had jurisdiction to rule on a claims objection.The Court of Appeals also had no difficulty finding that the 2015 confirmation order was res judicata as to allowance of the claim. While I could go through the elements, it is clear that there was a judgment, that is the confirmation order, which addressed the amount of the claim. The judgment was not challenged on direct appeal. As a result, the Debtor could not claim King's X in a subsequent bankruptcy.Finally, the Court found that the Bankruptcy Court correctly applied the subsequent payments to the allowed claim. Calculation of the claim was a factual determination governed by the clearly erroneous rule. The Court found that Prosperity properly accounted for each of the 38 payments made under the first plan. While the claim did not account for payments made during the second bankruptcy, this was proper. A proof of claim is filed as of the petition date. While subsequent payments will reduce the liability, they do not change the amount of the claim as of the petition date. The Court of Appeals found that Prosperity Bank's records sufficiently accounted for the payments made during the second bankruptcy. What It MeansThe lesson here is that a confirmation order is a final judgment of a court which will bind the parties. A plan contains many provisions, such as the amount of a debt or a credit to be given for surrender of property. Each of these provisions will be binding on the parties in a subsequent case. There is an important caveat. Not all court orders issued in a chapter 11 proceeding will have res judicata effect. A confirmation order is unique because it is the final judgment in a case. However, many cases will be dismissed along the way. When a case is dismissed, the various orders entered along the way also go away. However, for the rare cases that make it to confirmation, what is decided is final, even if the parties didn't pay much attention to it at the time.

Third party releases are a controversial topic with Congress considering legislation to ban them. However, Judge Greg Costa, writing for the Fifth Circuit, has distinguished between an impermissible third-party release and a plan provision reducing a guarantor's liability in a new opinion.  New Falls Corporation v. LaHaye (Matter of LaHaye), No. 19-30795 (5th Cir. 11/12/21) which can be found here.What HappenedMr. and Mrs. LaHaye owned an LLC named LaHaye Enterprises, LLC. The LLC owned a grocery store. To finance the business, the LaHayes pledged the grocery store and a house they owned to Regions Bank.  The grocery store closed when a national chain came to town. The LLC tried to transfer its property to Regions Bank to reduce the debt. Instead, Regions Bank sold the debt to New Falls Corporation.  When the LLC filed bankruptcy, New Falls filed a proof of claim valuing the property at $225,000. The LLC confirmed a plan which surrendered the grocery store to New Falls in return for a credit of $225,000. The Plan also provided that the LaHayes would only be liable for the remaining balance of $100,000.New Falls then tried to foreclose on both the grocery store property and the house owned by the LaHayes. The LaHayes filed their own Chapter 11 bankruptcy. New Falls filed a proof of claim for the full amount of the debt without regard for the credit from the first bankruptcy. The Debtors objected to the claim which the Bankruptcy Court sustained. The LaHayes then confirmed a plan providing for payment of the $100,000 debt. New Falls appealed.  The Court's RulingOn appeal, New Falls made two arguments. First, it argued that it was not required to give credit for the value of the grocery store until it received title to the property. At the time of the individuals' bankruptcy, New Falls still had not received title and the vacant property had gone down in value. The Court noted that a plan is effective upon confirmation under 11 U.S.C. Sec. 1141(a) but relied on the specific plan language that said:The LaHayes shall be entitled to a partial release of the guaranties of the New Falls debt upon confirmation of this plan in an amount equal to the value of the property surrendered under the Plan. The LaHayes shall thereafter be liable only for the remaining balance of $100,000.00 as provided for above.The plan did not leave any room for ambiguity. The individuals were entitled to credit upon plan confirmation not upon property transfer.The second argument that the creditor made was that the plan provision was not binding on it vis a vis the guarantors. I am going to quote several pages of the opinion because it is extremely well-written and the court says it better than I could summarize.Under the Bankruptcy Code, the “provisions of a confirmed plan bind the debtor . . . and any creditor.” 11 U.S.C. § 1141(a). Based on this provision, we have long understood a confirmed bankruptcy plan to have binding effect on subsequent proceedings that involve the same debt. (citations omitted). This binding effect extends to third parties. Indeed, a confirmation order binds every entity that holds a claim or interest in the planned reorganization, regardless of whether they assert those interests before the bankruptcy court. (citation omitted).That being said, the “discharge of a debt of the debtor does not affect the liability of any other entity” for the debt 11 U.S.C. § 524(e). A debtor’s bankruptcy plan generally does not discharge its guarantors’ obligations, even if the plan reduces or restructures the debt itself. (citation omitted). After all, the reason a lender obtains a guaranty is to guard against the risk that the borrower will not repay the loan. If a borrower’s insolvency discharged even a guarantor’s liability, the guaranty would lose much of its force. But discharge is not the issue here. The LLC’s bankruptcy plan does not discharge the New Falls debt or the LaHayes’ obligations under it. To the contrary, the plan provides that the LaHayes’ guarantees and mortgage “shall remain in force until the New Falls debt is paid in full.” The provision granting the LaHayes a partial release of liability for the secured portion of the debt is not a discharge. Rather, it requires New Falls to recover the secured debt from an asset—the Grocery Store—that is part of the LLC’s estate. The guarantee remains, with the LaHayes still owing the leftover balance. This is not the first time we have recognized the distinction between erasing a guaranty (impermissible) and reducing a guarantor’s liability by ordering a debtor to surrender assets in satisfaction of the debt (permissible). (citations omitted). In Stribling, for example, the debtor’s bankruptcy plan did not discharge a guaranty; instead, it ordered asset transfers and payments that reduced the debt and, in tandem, the guarantors’ liability. (citation omitted). Applying the same logic, in Sandy Ridge, we approved a proposed Chapter 11 plan similar to the LLC’s. That debtor also offered to surrender some of its real estate in exchange “for a ‘credit on the indebtedness.’” (citation omitted). The bankruptcy court rejected the plan due, in part, to its concern that the credit would release the debtor’s guarantors from liability. (ctiation omitted). We reversed, explaining that the proposed plan would not “operate to release the nondebtor guarantors.” (citation omitted). The surrendered assets would satisfy the secured portion of the claim and, with the guaranty still in existence, the creditor “would then be able to pursue the guarantors” for the remaining unsecured sum (the total debt minus the credit). (citation omitted). The LLC’s plan operates the same way. A simple way to frame the difference between discharging a debt and crediting an asset against its balance is to imagine that the bankruptcy court had ordered the LLC to turn over cash instead of real estate. No one would view an order requiring the LLC’s estate to pay New Falls $250,000 in cash as eliminating a guaranty. It would be a payment that reduced the debt—and thus the guarantee—to a $100,000 balance. The fact that the provision at issue contemplates an exchange of real property rather than cash does not make it any less binding. (citation omitted). A bankruptcy plan, then, can limit a creditor’s claim against third-party guarantors—not by discharging the guaranty but by determining the source and value of payments satisfying the guaranteed debt. Indeed, the bankruptcy court has broad discretion to determine how a debt will be settled, including through the sale or transfer of “all or any part of the property of the [bankrupt entity’s] estate.” See 11 U.S.C. § 1123(a)(5)(A)–(D).Opinion, pp. 7-9 (emphasis added). The opinion makes clear that this is not a Shoaf-type ruling where the creditor was bound due to failure to object. Rather, surrendering property to reduce the debt of both the debtors and the guarantor was permissible.Why It's Important This short opinion is important for several reasons. First, plans matter. When a debtor puts language in a plan, that language will bind the creditor even if the creditor doesn't like how the case turned out. Second, dirt for debt remains viable in the Fifth Circuit. In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1351 (5th Cir. 1989) was controversial at the time it was decided. However, today's Fifth Circuit regards it as settled law. I really liked the passage where Judge Costa compared paying a debt with real estate to paying with cash. Both types of property have value, although real estate is significantly less liquid than cash. Finally, it is permissible for a plan to impact the liability of a third party. While third party releases are impermissible, payments which benefit third parties are acceptable.  Finally, although I omitted the citations in my lengthy quotation, the opinion is a veritable encyclopedia of Fifth Circuit bankruptcy opinions from the 80s and 90s which remain viable today. 

Summary judgment was intended to be a method of disposing of cases where there are not any disputed issues for the court to trial. Sometimes it seems that summary judgment is a way to get rid of cases that the court doesn't want to try. In a new opinion about insurance coverage, the Fifth Circuit has reminded lower courts that no genuine issue of material fact means exactly that. Guzman v. Allstate Assurance Company, Case No;. 20-11247 (5th Cir. 11/10/21).   In Guzman, a 26 year old man purchased an insurance policy. In his application, he said that he did not smoke and had not smoked in the past. The insurance company reviewed his medical records and a urine test and issued a policy for $250,000. When he died of a seizure just two years later, the insurance company performed an investigation and concluded that the man really was a smoker. The company refunded the premiums paid of $433.84. His wife sued. The insurance company filed for summary judgment. Allstate submitted medical records, most of which described the decedent as a smoker. His wife and his wife's sister submitted affidavits stating that he was not a smoker. The district court decided that it could ignore the affidavits because they were "self-serving" and granted summary judgment. The Fifth Circuit, in an opinion by Judge Elrod, reversed the District Court ruling. Judge Elrod said that the trial court was wrong for two reasons. First, “self-serving” affidavits and depositions may create fact issues even if not supported by the rest of the record. Where self-interested affidavits are otherwise competent evidence, they may not be discounted just because they happen to be self-interested. Indeed, “[e]vidence proffered by one side to . . . defeat a motion for summary judgment will inevitably appear ‘self-serving.’” (citation omitted). But self-serving evidence may not be discounted on that basis alone. How much weight to credit self-interested evidence is a question of credibility, which judges may not evaluate at the summary judgment stage. (citation omitted). Rather, self-serving evidence must only comport with the standard requirements of Federal Rule of Civil Procedure 56. Self-serving affidavits and declarations, like all summary judgment evidence, must “be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.” (citation omitted). And these facts must be particularized, not vague or conclusory. (citation omitted). *** Unlike in these cases, Mirna’s and Martha’s affidavits are competent summary judgment evidence. They are based on personal knowledge, set out facts that are admissible in evidence, are given by competent witnesses, and are particularized rather than vague or conclusory. Mirna and Martha testify about their personal experiences with Guzman. In her deposition and affidavit, Mirna claimed that Guzman was not a smoker; that she was often with Guzman and would know if he smoked; that she is “able to tell whether [people] use tobacco because they have a peculiar and specific smoke smell”; and that neither Guzman nor his belongings, including his clothes and truck, ever smelled like smoke. Martha made substantially similar claims in her own affidavit. Though self-serving, this testimony is sufficient to—and does— create a genuine dispute of material fact. Opinion, pp. 5-6, 7. The Court went on to find that summary judgment should not have been granted because Allstate's own summary judgment evidence was inconsistent, in that some medical records said he was a smoker and some did not. Additionally, the medical records were not clear about who had described the decedent as a smoker. Was this something that he said or someone else's conclusion? This is a good opinion because the Court of Appeals points out that the issue on summary judgment is whether there is a fact issue. Period. That fact issue can come from insufficiency in the moving party's proof or an affidavit from a self-interested witness which provides specific facts based on personal knowledge. The irony here is that the District Court was willing to discount the affidavits from the self-interested witnesses but overlooked the inconsistencies in the insurance company's proof. Given that federal judges have lifetime appointments, they should take the time to get it right, even if that means allowing a possibly weak case with genuine fact issues to go to trial.

The proposed law would prohibit “divisive mergers” in Chapter 11, a corporate reorganization tool made available by Texas and Delaware that allows companies to assign liabilities to a subsidiary that can then seek the protective auspices of bankruptcy. See an excellent article on this topic athttps://www.jdsupra.com/legalnews/new-bill-would-end-the-texas-two-step-3111746/?origin=CEG&utm_source=CEG&utm_medium=email&utm_campaign=CustomEmailDigest&utm_term=jds-article&utm_content=article-link

Sports Gambling Comes to Virginia Like most people, I’ve noticed that ads for sports gambling have taken over the TV (at least on basketball and college football, which is about all the TV I watch.) Sports gambling was legalized in Virginia April last year and began in January 2021. Now in October and November, I’ve […] The post Sports Gambling Comes to Virginia by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

 Evictions and BankruptcyOn November 7, 2021, the New York Times published an article titled "With Cases Piling Up, an Eviction Crisis Unfolds Step by Step". The article can be found at https://nyti.ms/3mP XsGf The article stated that evictions are on the rise nationwide. We are receiving more and more calls and emails from individuals facing evictions and/or businesses in distress at Shenwick & Associates.The first step an individual or business facing eviction should take is to consult with an experienced litigator or landlord-tenant attorney.  Can bankruptcy help these people and businesses? Yes, it can. Bankruptcy can provide temporary or permanent relief from many of these problems.By filing a bankruptcy petition, all litigation against the Debtor (person or company that owes money) is automatically stayed pursuant to section 362 of the bankruptcy code. The purpose of section 362 is to give the debtor breathing room!Chapter 13 of the Bankruptcy Code allows an individual debtor to reorganize pursuant to a   confirmed chapter 13 plan. A chapter 13 plan could permit the debtor to keep their house or lease, despite the pending eviction action. Chapter 13 plans are generally funded by 3 to 5 years of the debtor's future earnings. Corporations and limited liability companies cannot file for chapter 13 bankruptcy.Individuals who don't want to keep their lease or home and owe money to banks, landlords, or creditors can file for chapter 7 bankruptcy, which will wipe out their debts and give them a "fresh start."Corporations or LL Cs may file Chapter 7 or Chapter 11 bankruptcy or a new Subchapter V Chapter 11 bankruptcy. Debtors' finances are reviewed holistically, including the property they own, who owes money to them, a recent tax return and an after-tax monthly budget. For business we review their Income Statement, Balance Sheet, a recent tax return and guarantees. If you or your business is contemplating bankruptcy, call or email Jim Shenwick, Esq. 212 541 6224 or jshenwick@gmail.com to learn about your options.     

WHY ARE BANKRUPTCY FILINGS LOWER? Federal Aid Helped Bankruptcies Decline Through Covid Pandemic U.S. bankruptcies continued on a four-year decline through the COVID-19 pandemic according to research published by the Administrative Office of the U.S. Courts on Monday, Courthouse News reported. According to the report, “increased government benefits and moratoriums on evictions and certain foreclosures may have eased financial pressures in many households.” Bankruptcy filings often climb side by side with unemployment rates. With unemployment peaking at 14.8% in April 2020, some economists therefore expected a subsequent hike in evictions, foreclosures and bankruptcies. The $1.2 trillion CARES Act signed in March 2020 seems to have stanched some of the economic bleeding. The unprecedented stimulus package paid out stimulus checks, increased unemployment benefits, and placed moratoriums on evictions and foreclosures. Between September 2020 and September 2021, bankruptcies fell nearly 30%. Less than half a million individuals, 434,540 declared bankruptcy during that time period, compared with 615,561 a year prior. The 2021 figure includes 16,140 business and 418,400 non-business filings. Wednesday, November 10, 2021

 https://www.nytimes.com/2021/11/07/us/evictions-crisis-us.html