Bracing for the next phase of the coronavirus recession: BankruptciesJune 9, 2020Art Van Furniture, Bar Louie and True Religion all sell different products, but they all have one thing in common: Each has gone bankrupt this year, as the coronavirus-induced recession that started in February flattens businesses large and small.Recent data show 722 companies sought bankruptcy protection around the U.S. last month, a 48% increase from the year-ago period. Chapter 11 filings also jumped in April and March, as states started imposing business restrictions amid the coronavirus outbreak. "This is a sign that already weak companies are succumbing to the lockdown recession," Chris Kuehl, an economist with the National Association of Credit Management, which tracks bankruptcies, said in a research note. Businesses that were struggling before the pandemic "are starting to get in some real trouble," he addedAmong those long-distressed companies finally tipped into bankruptcy by the economic fallout from COVID-19: Gold's Gym, Hertz, J. Crew, J.C. Penney and Neiman Marcus. Altough Congress has passed relief programs designed to help businesses survive shelter-in-place orders, including the Paycheck Protection Program and Economic Injury Disaster loans, the aid won't help floundering companies for long, one expert said. "As this relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy," said Amy Quackenboss, executive director of the American Bankruptcy Institute.Some analysts expect a wave of bankruptcy filings, particularly in hard-hit industries like retail and the energy sector, which has been slammed by falling oil prices and plunging demand during the virus. Boeing CEO Dave Calhoun also has predicted that a major U.S. airline will go bankrupt this year.Of course, bankruptcy doesn't necessarily spell doom. Court supervision is designed to help companies shed or restructure their debt, restructure their business, and emerge from Chapter 11 as a streamlined, more competitive company. For other companies that have recently gone under, such as Pier 1 and Modell's Sporting Goods, bankruptcy is the end of the road.Meanwhile, companies with healthy revenue streams, options for cutting costs and access to credit will rebound, predicted investment strategists Indranil Ghosh and Gina Sanchez. Although car sales have slumped, for instance, automakers are expected to bounce back as pent-up demand recovers and as many people shun public transportation due to virus concerns. "Car manufacturers have been discounted in recent years due to falling ownership rates among the young, but they may regain lost ground due to COVID," Ghosh and Sanchez said. "Car traffic in China is back to 90% of normal levels whereas public transport is still only at 50% because consumers feel safer in their car."

Reorganizing Your Debt under Chapter 13 Bankruptcy Huge debts can become overwhelming. You may try to pay them off, but your credit card interest rates just keep resetting higher and higher as your credit score suffers, making it harder for you to pay down the balances. You may want to pay what you owe to your mortgage, but your lender won’t work with you. You may want to pay off your medical debts, but the sums are just outrageous, and it feels like you will never be able to pay them. You can get the debt relief you need by filing for bankruptcy. Chapter 7 bankruptcy tends to offer the most relief since it liquidates your unsecured debts, relieving your need to pay them. However, you must pass a means test in order to file for Chapter 7 bankruptcy, and some people make too much money or have too many assets to file. In that case, you can still get debt relief by filing for Chapter 13 bankruptcy in Mesa. Debt Repayment Plan What Mesa Chapter 13 bankruptcy does is put you on an affordable debt repayment plan. This type of bankruptcy is often known as “debt reorganization.” Your Mesa bankruptcy attorney and the bankruptcy trustee create a repayment plan that prioritizes your secured debts, such as your home or car loans, and creates a monthly payment for all your debts that you can actually afford. The repayment plan takes into consideration your income as well as your debts. The plan is designed to last only three to five years. Under a Chapter 13 bankruptcy repayment plan, certain debts must be paid in full, including: Your mortgage Your auto loan Back taxes Student loans You will also be responsible for continuing to pay your alimony and child support. In some cases, your Phoenix bankruptcy attorney may be able to negotiate a lower interest rate for some of these payments so that it is easier for you to pay off your debts. Under this plan, you may be able to pay what you owe on your mortgage to keep your house out of foreclosure or to save your car from repossession. The plan allows you to catch up on what you owe while also making your debt more manageable. Unsecured Debts Your unsecured debt will also be included in your Chapter 13 bankruptcy repayment plan, including credit cards, medical bills, and some personal loans. Often, you’ll save money on these debts because you’ll be paying under a lower interest rate and you’ll be avoiding late charges and other penalties. At the end of the repayment period, you may not have paid back all your unsecured debt. If that is the case, that debt will likely be discharged. Therefore, you will only pay back a portion of your unsecured debt, based on your ability to pay, as determined by the bankruptcy courts. While Chapter 13 bankruptcy does not completely eliminate debts, it is often preferable to Chapter 7 bankruptcy because it allows you to keep all of your assets, such as your home and your car. Chapter 13 bankruptcy can also help you save your house from foreclosure or your car from repossession, which you cannot do with Chapter 7 bankruptcy. With Chapter 13, you can get a greater handle on your debt, while also freeing yourself of the burden of some of your unsecured debt. Talk to an experienced bankruptcy attorney serving Gilbert to review your finances and determine whether Chapter 13 bankruptcy would be right for you, or whether you would benefit more from other debt relief options. The bankruptcy attorneys at My AZ Lawyers can help you learn about your bankruptcy options and how each of them might provide you with debt relief so that you can regain control of your finances. We will thoroughly review your finances to better understand your debts and your financial means so we can suggest the best path forward. Our goal is to help you get the maximum debt relief possible. We help individuals and businesses with multiple bankruptcy filings, including both Chapter 7 bankruptcy and Chapter 13 bankruptcy for individuals. We serve clients throughout the Phoenix, Mesa, Tucson, and Glendale areas. Contact us today to talk to a bankruptcy attorney about your options. Arizona Offices: Mesa Location: 1731 West Baseline Rd., Suite #100 Mesa, AZ 85202 Office: (480) 448-9800 Email: info@myazlawyers.com Website: https://myazlawyers.com/ Glendale Location: 20325 N 51st Avenue Suite #134, Building 5 Glendale, AZ 85308 Office: (602) 509-0955 Tucson Location: 2 East Congress St., Suite #900-6A Tucson, AZ 85701 Office: (520) 441-1450 Avondale Location: 12725 W. Indian School Rd., Ste E, #101 Avondale, AZ 85392 Office: (623) 469-6603 The post Reorganizing Your Debt under Chapter 13 Bankruptcy appeared first on My AZ Lawyers.

June 3, 2020The collapse of the New York City taxi medallion market will be remembered as one of the greatest government failures in Gotham’s history. The bankruptcies and foreclosures, the suffering and the suicides were not the consequences of market forces beyond the city’s control. Instead, this enduring crisis is the product of a deregulated, overpriced, over-leveraged market that the city not only failed to regulate, but also helped create through auctions, advertising and approvals of predatory transactions. As the city wrestles with how to uplift the hundreds of thousands of New Yorkers whose lives and livelihoods have been devastated by COVID-19, we must never forget that among those hit hardest are the more than 21,000 yellow and green taxi drivers who have been struggling to stay afloat well before the outbreak of coronavirus. Far from being an excuse for delay, COVID-19 is a call to action on behalf of all working people, and especially those taxi workers who were already underwater with crushing debt. To that end, I am calling for the city to immediately establish a Medallion Asset Relief Program (MARP) to reset medallion values to $250,000 for the 6,250 medallion owner-operators, or those who own and operate 20 medallions or fewer, through a government guarantee of every taxi medallion in NYC. A program such as this, modeled after the federal Home Affordable Refinance Program (HARP), would cost the city as little as $20 million to implement over the next five years — a small investment that would ultimately create nearly $1.4 billion in new equity for drivers that would help them for decades to come. While the average medallion loan currently holds a value of about $500,000, the actual value of those medallions averages less than $150,000. By resetting these values to $250,000, which is a much more accurate value for a working business, this would give owner-drivers the opportunity to restructure their loans at considerably more favorable rates, lowering their monthly payments to just over $1,000. Simply, MARP would rehabilitate the medallion as an asset, enable the affordable refinancing of medallion loans, lower monthly loan payments for owners and restore confidence in the medallion market. It is a win for all parties but the profiteers, who are deservedly denied a bailout. By creating a city-supported backstop to cover missed payments by drivers, the interest rates on these loans would immediately go down, substantially lowering payments for drivers to a value far more consistent with what their businesses earn, leading to a lower default rate. The status quo for New York’s taxi industry is immoral and untenable, as our city continues to abide a system that condemns over-leveraged medallion owners to debt slavery with no end in sight. Moreover, MARP is significantly more cost-effective than a bailout, a venture the city would have to spend hundreds of millions — if not billions — that we simply cannot afford.As the city weighs various proposals to help the countless New Yorkers across every industry who are struggling, it is critical we remember that among those hit hardest by the current pandemic are the taxi drivers, who were already fighting to stay afloat for years before coronavirus took hold of our city and economy. They played by the rules set by the city and are now enduring extraordinary financial hardships made even worse by the pandemic. Both the financial and human toll brought on by the medallion debt crisis cannot be overstated. It is clear that the pandemic has exponentially exacerbated the financial problems that drivers faced before the outbreak, making this not just the perfect opportunity for the city to step up and take sweeping action to save the drivers and fix the industry, but the only viable option for saving the jobs and businesses these drivers have poured their lives into.MARP is an elegant solution to a long-standing crisis that has been compounded by COVID-19.

The format was knocked out of wack a little when transferring to documents here. Sorry about that. You will find two documents here. First, the Motion for Summary Judgment filed in the Office of Administrative Hearings. Second, the Complaint filed in Pima County Justice Court.      Shannon Lee Trezza Irrev. Trust 5633 N. Camino […] The post Two lawsuits against Haciendas Del Conde Homeowners Association appeared first on Tucson Bankruptcy Attorney.

   While the general rule in chapter 13 per 11 U.S.C. 1322(b)(2) is that the debtor cannot modify the mortgage on a debt secured by the debtor's principal residence (the debtor can cure and reinstate, but not change the terms of the mortgage); an exception to this rule comes into play when the final payment due on such mortgage comes due prior to the final payment due on the chapter 13 plan.  This was the case in In re Collier-Abbott, 2020 Bankr. LEXIS 1402, Case No. 19-21310-E 13 (Bankr. E.D. Cal., 27 May 2020).   The chapter 13 bankruptcy was filed on 1 March 2019, with a five year repayment plan.   The final payment, which was a balloon payment, on the mortgage was due on 1 April 2020.  Here the debtor filed a motion to value the home, supported by a broker's price opinion, and asserted that the exception contained in 11 U.S.C. 1322(c)(2) allowed a bifurcation of the mortgage holder's claim into secured and unsecured portions.  The creditor asserted that §1322(c)(2) only applied to short term mortgages, and thus was inapplicable to the case.  The bifurcation of the claim itself is done under 11 U.S.C. 506(a) which allows the splitting of a claim filed as secured into a secured claim for the value of the creditor's interest in the estate's interest in the property, and an unsecured claim for the balance of the original claim.  The case rides on the interpretation of 11 U.S.C. §1322(c)(2) which provides:   (c) notwithstanding subsection (b)(2) and applicable nonbankruptcy law -     (2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this tile. 11 U.S.C. 1325(a)(5) in turn permits a plan to pay the value of a secured claim over the life of the plan.   The 11th Circuit has ruled that §1322(c)(2) permits not only modification of the interest rate of the mortgage, but also reduction of the claim to the value of the property.1   The creditor cited Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) that §1322(b)(2) combined with §506 precludes bifurcation of a claim secured by the debtor's primary residence if there is any value to protect the claim.  However, Nobelman focused on the rights of the creditor protected by the statute, and was written a year prior to the adding of §1322(c)(2).  The bankruptcy court went on to Cite Collier on Bankruptcy to support the determination that the section permits not only the payment of such mortgages, but to permit modification of the claim itself.  The court concluded that bifurcation of the mortgage is permitted pursuant to §1322(c)(2).  The court then went on to examine the debtor's broker's price opinion and the creditor's appraisal.  Noting that while both refer to substantial damage to the property, only the broker's price opinion took into account the damage to the property, and accepted the valuation in the broker's price opinion.  Note that while this does show a use for valuation of homestead properties, the debtor is still faced with effecting a feasible plan to pay the rather high value over the short 5 year maximum time period for chapter 13 plans.Michael BarnettLaw Offices of Larry Heinkel, PA506 N Armenia Ave.Tampa, FL 33609-1703813 870-3100https://myfloridabankruptcylawyer.com/1 Am. Gen. Fin., Inc. v. Paschen (In re Paschen), 296 F.3d 1203 (11th Cir. 2002).↩

There is help available during this trying time. The federal Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) passed on March 27, 2020  provides for temporary mortgage and rent relief. Your state government, as well as private mortgage lenders and servicers, are also offering mortgage and rent relief programs. If you are struggling to pay your mortgage or rent due to income loss from the Coronavirus pandemic, you will likely qualify for some temporary relief, but bear in mind that this relief is very short-lived. When this crisis passes, you must evaluate your financial situation honestly. Can you afford your home? If the answer is no, you might consider filing bankruptcy or applying for a mortgage modification. These options can sometimes help you reduce your mortgage payments or perhaps allow you to stay in your home. However, if you simply cannot afford to keep your property, you can surrender the property in bankruptcy and walk away with no debt. The Law Office of David Offen has helped thousands of clients reorganize their mortgage debt. Why wait? While taking advantage of one or more of the numerous relief programs available to homeowners, call us at 215-625-9600  and talk with us about your long-term finances. Your initial consultation is free of charge – what do you have to lose, except your debt itself? We can help you make your home more affordable. Relief for Homeowners with Federally-Backed Mortgages Struggling Homeowners’ Right to Forbearance The CARES Act provides that federal mortgage lenders Freddie Mac and Fannie Mae offer monthly mortgage payment forbearance to borrowers experiencing financial hardship due to the coronavirus and mandated social distancing. “Forbearance” means you do not have to pay, or that you will pay a reduced amount. The available forbearance term is 180 days, extendable for another 180 days if necessary, for a total of twelve months. Late charges and other penalties will not accrue. Keep in mind that you will eventually have to pay what you skipped and that this program does not erase mortgage payments, it only delays them. You must apply for forbearance, so don’t just stop paying because then you will incur late fees and penalties. Call your lender if you’ve lost income due to COVID-19 and can’t afford your mortgage. It may take a while to get someone on the phone because there are a lot of Americans in the same boat as you right now, but it will be worth it if you are approved for temporary forbearance under the CARES Act. Think of the stress relief. Make sure that when you talk with your lender or servicer, you get written documentation of the relief you’ve been granted just in case an administrative error occurs. Lenders and servicers are overburdened right now trying to help all of the many financially-distressed homeowners, so protect yourself from possible errors and problems with your account by getting everything in writing. Foreclosure Moratorium Under the CARES Act Foreclosures are suspended and prevented under the CARES Act for 60 days after March 18, 2020. If you were in an active foreclosure proceeding, that proceeding will be suspended for this period of time. Also, during this time, a new foreclosure action cannot be filed against you if otherwise your lender or servicer would be able to file under the foreclosure rules in your state. This prevents new foreclosure lawsuits, foreclosure judgments from being entered, and sheriff sales from happening until 60 days after March 18, 2020, unless the federal government passes more legislation extending that term. What to Do if You Are in Foreclosure Right Now You were struggling to pay your mortgage before, and now you are in even worse financial shape due to COVID-19-related job loss or reduction in hours. The CARES Act bought you some time in your home, but this is very temporary. Now is the time to take stock of your situation and take action, while you’ve been granted a breather. Call us or email us and and our experienced Philadelphia mortgage foreclosure attorneys will help you figure out how to solve your mortgage problem. For Others, There May Be Relief through Your Mortgage Servicer or Your State Some private lenders are granting forbearance for up to 120 days. Contact your lender or servicer to find out if you are eligible for deferred mortgage payments. State governments are taking the initiative as well. For example, in Pennsylvania, the state Attorney General created a relief program for those with private mortgages, based on the CARES Act federal loan relief. According to the Philadelphia Inquirer, PNC, Citizens Bank, Dollar Bank, First Commonwealth Bank, and OceanFirst Bank are participating in the program. Borrowers can apply for the following relief: At least a 90-day grace period for mortgage payments. A 90-day grace period for other loans, like auto loans. A 90-day window in which late or overdraft fees are not charged. A 60-day moratorium on foreclosure, eviction, or motor vehicle repossession. If a borrower takes advantage of any federal or state relief, there are no negative credit consequences. Again, if you’ve taken advantage of any of the relief offered by your lender or servicer or by your state, now is the time to assess your situation and find out what your options are for resolving your mortgage problem. Let us help you figure this out – call today for your free, no-obligation consultation. Mortgage Forbearance for Landlords Means Eviction Suspension for Renters For those who own rental property or multi-family property, there is also mortgage relief. The Federal Housing Finance Agency (FHFA) is providing mortgage forbearance for landlords if they agree to suspend evictions for non-paying tenants. This provision helps and protects both landlords and tenants during the COVID-19 crisis in that renters don’t have to worry that they don’t have the income to pay rent, and landlords don’t have to worry that they are not receiving enough rent to pay their mortgage. How Bankruptcy Might Help You Afford to Keep Your Home Filing bankruptcy might be the answer for homeowners and renters who: Could afford the mortgage or rent if they didn’t have to pay their credit card debt every month. Could afford the mortgage or rent if their medical debt was discharged. Could afford the mortgage if given a long-term opportunity to catch up with their mortgage, rent, alimony, or child support arrears. Call us at (215) 278-4519 to schedule your free consultation. Think of this period of temporary mortgage and rent relief as a time to think about how you want your financial future to look. We can help you discover your best option, and take action to make it happen.   The post How to Get Mortgage and Rent Relief During the COVID-19 Crisis appeared first on David M. Offen, Attorney at Law.

Can I Clear My Medical Debt by Filing for Bankruptcy in Arizona? There is no shortage of information about how health care expenses have spiraled out of control. Life-saving drugs cost thousands of dollars a month in some cases, and a single surgery can cost more than the price of a house. Insurance may cover some of that, but most insurance will not cover all of it. You may still owe tens of thousands of dollars for medical care, even if you have health insurance. If you don’t have health insurance, you could lose everything trying to pay off your medical bills. Fortunately, you do have options other than struggling in debt for years or selling off everything you own to pay for your medical expenses. Filing for bankruptcy in Glendale may be able to help you get rid of your medical expenses or to make them more manageable to pay. You should talk with a Glendale bankruptcy attorney to find out exactly how bankruptcy can help your particular circumstances. Chapter 7 Bankruptcy Filing for Chapter 7 bankruptcy in Phoenix can get rid of your medical expenses entirely. Chapter 7 bankruptcy discharges, or erases, all unsecured debt – which is debt that is not backed by some property as a promise in case of default. Doctors, hospitals, and other medical providers do not have the right to seize your home or personal property if you do not pay them. They are unsecured creditors, which means they have only your word that you are going to pay. Before you can file for Phoenix Chapter 7 bankruptcy, you have to qualify. You must pass a means test, which looks at your income in comparison to the average, as well as other factors. If you do not pass the means test, you cannot file for Chapter 7, and you cannot completely liquidate your medical debts. If you do qualify for Chapter 7, there is no limit on how much medical debt you can discharge. You could have hundreds of thousands of dollars in medical debt, and it can all be cleared when the bankruptcy is closed, which typically takes only a few months. Chapter 13 Bankruptcy If you cannot file for Chapter 7 bankruptcy, you can still get some relief from medical debt by filing for Chapter 13 bankruptcy in Mesa. Under Chapter 13, a debt repayment plan is created for you based on your ability to pay. You can put all your medical debt into a three- to five-year repayment plan. You will pay a lower monthly payment, avoid late fees and other penalties, and then likely have your debt dismissed when the repayment plan is over. Filing for Mesa Chapter 13 bankruptcy will put an end to the calls and letters you receive from your debtors, and it will give you an end point for paying off your debt. You also have the option to pay less of your debt than you would if you were just paying the bills as they came in. Filing for Chapter 7 or Chapter 13 bankruptcy in Phoenix can provide you with great relief from overwhelming medical debt. You might get immediate relief from all debt with Chapter 7, or you might reduce the burden by putting your debt into a manageable repayment plan under Chapter 13. You should talk to a bankruptcy attorney serving Phoenix to determine which chapter of bankruptcy would be best for your financial circumstances and your goals. Your Arizona bankruptcy attorney can help you understand the best course of action to take to reach your goals as quickly as possible. The bankruptcy attorneys at My AZ Lawyers are ready to help you get the maximum debt relief possible through bankruptcy, whether you are struggling with medical debt or some other kind of debt. We may be able to help you get total liquidation through Chapter 7, or we may help you get on an affordable debt repayment plan through Chapter 13. If you own a business, we can also help you explore the business bankruptcy options. We serve both individual and business clients through the Mesa, Glendale, Tucson, and Phoenix areas. Call our bankruptcy law office today to schedule a consultation with a reputable and committed bankruptcy attorney to learn about your options for debt relief. Arizona Offices: Mesa Location: 1731 West Baseline Rd., Suite #100 Mesa, AZ 85202 Office: (480) 448-9800 Email: info@myazlawyers.com Website: https://myazlawyers.com/ Glendale Location: 20325 N 51st Avenue Suite #134, Building 5 Glendale, AZ 85308 Office: (602) 509-0955 Tucson Location: 2 East Congress St., Suite #900-6A Tucson, AZ 85701 Office: (520) 441-1450 Avondale Location: 12725 W. Indian School Rd., Ste E, #101 Avondale, AZ 85392 Office: (623) 469-6603 The post Can I Clear My Medical Debt by Filing for Bankruptcy in Arizona? appeared first on My AZ Lawyers.

In politics, it is sometimes said, what did the president know and when did he know it. As it turns out this analysis is helpful in determining whether a lawyer should face sanctions under Rule 9011 as well. In the case of In re Dernick, No. 18-32417 (Bankr. S.D. Tex. 5/22/20), the fact that "there [we]re a fair number of complex and confusing details at play" was enough to prevent the motion in question from being objectively frivolous.What HappenedTwo individuals filed Chapter 11 and hired  lawyer AA (not his real initials).  AA filed a Motion to Disqualify law firm FG from representing one of their creditors, Dernick Encore, LLC. The motion alleged that FG had previously represented the Debtors in substantially related matters and were in possession of relevant confidential information.Dernick Encore responded and said that FG had not represented the Debtors and that the prior representations were not substantially related to FG's current representation of Dernick Encore. After a two day evidentiary hearing, the Court denied the Motion and allowed Dernick Encore to file an application for fees and costs. Dernick Encore sought to recover fees of $101,704.00. The Debtors objected that the Court lacked sufficient authority for fee shifting. The Court then issued a Show Cause Order for the Debtors and lawyer AA to show cause why they had not violated Rule 9011(b).Subsequently, the Debtors retained new counsel and lawyer AA withdrew. The Court conducted a hearing on the Order to Show Cause over the course of three days. While the Show Cause Order was under advisement, the Debtors, Dernick Encore and several other parties went to mediation and reached a settlement. Following approval of a motion to compromise, the Debtors were released from the Show Cause Order. That left the issue of whether lawyer AA was subject to sanctions.The Court's RulingThe Court concluded that because Derrick Encore had not filed a Motion for Sanctions, that the Court could not order lawyer AA to pay Derrick Encore's attorneys' fees. However, the Court still had power to award sanctions under Rule 9011 and its inherent authority. If this is confusing, it is because it is. Rule 9011 authorizes sanctions in two contexts. First, there are party initiated sanctions which require a safe harbor notice. Second, there are Court initiated sanctions which are triggered by an order to show cause which must describe the specific conduct which the respondent is alleged to have committed. Apparently the relief which can be granted with regard to Court-initiated sanctions are different than when sanctions are party-initiated.This brought the Court to the merits of whether lawyer AA had violated Rule 9011(b). The Court stated that a pleading could violate Rule 9011 if it met one of the four subsections of Rule 9011(b), which the Court described as the frivolousness clause or objective component and the improper purpose or subjective component. In order to avoid violation of the frivolousness clauses, the lawyer must (i) perform a reasonable preliminary investigation and (ii) conclude that the legal papers filed are grounded in "both a nonfrivolous legal theory and well-founded factual contentions and/or denials that, at a minimum, have a reasonable possibility of having evidentiary support after further investigation and discovery."  The court's inquiry "should focus on the merits of the motion gleaned from the facts and law known or available to the attorney at the time of filing."  Opinion, p. 11.Failure to conduct a reasonable investigation will not protect the attorney even if he had a good faith belief that the motion was sound. Reasonableness depends on "the time available for investigation, whether Mr. [AA] had to rely on Debtors for information as to the underlying facts, whether the Motion was based on a plausible view of the law, and may depend on the extent to which factual development necessitates discovery."  Opinion, p.. 12.In order to disqualify an attorney there must be (i) a prior representation and (ii) a substantial relationship between the prior representation of the Debtors and the current representation of Dernick Encore.FG had represented the Debtors previously in connection with their status as minority shareholders of a company called Cinco Resources, Inc. However, FG's engagement letter stated that it was limited to filing answers for the minority shareholders and would be completed once the answers were filed. It also stated that continued work would be contingent on timely payment of their invoices (which did not happen). To further complicate things, another one of the minority shareholders asked FG to perform various tasks related to other companies and to bill the matter to the Cinco Resources Minority Shareholder matter.  Dernick Encore paid the bill for the other services rendered.Attorney AA concluded that FG had continued to represent the minority shareholders (including the Debtors) through 2015. The Court stated:The Court finds credible Mr. [AA]’s testimony that his review of the record before him raised reasonable concerns about [FG]’s scope of representations with respect to Debtors. While the Court carefully combed through the trial record and found certain points where Mr. [AA] could have been more investigative in his inquiry before filing his Motion, the Court’s job is not to direct counsel on how to prosecute their motions. Rather, the Court is guided by Rule 11 and Rule 9011, which cautions that sanctions run the risk of chilling zealous and creative advocacy, as well as potentially meritorious claims that circumstances make difficult to prove. In reviewing the record, the Court notes that there are a fair number of complex and confusing details at play, especially regarding Debtors’ numerous businesses, Debtors’ dealings with CRI and DRI, and Debtors’ dealings with various law firms, either individually or through their companies. Taking the record in toto, the Court is not convinced that Mr. [AA]'s Motion was objectively frivolous. The interrelatedness of Debtors’ companies and the timing of representations would certainly give any competent attorney pause, and the Court does not find that Mr. [AA]'s Motion approached frivolous levels under Rule 9011(b).Opinion, pp. 16-17. The Court also found that the motion was not filed for an improper purpose. The Court reasoned that if the motion was objectively nonfrivolous, it could not have been filed for a subjectively improper purpose. This raises the question of whether the improper purpose test adds anything to the rule beyond the objective test. Thus, Judge Rodriguez declined to impose sanctions under his Show Cause Order.What Does It Mean?I see at least three takeaways from this case.The first is that if a party wants to recover its attorneys fees, it should send a safe harbor letter (which must include a copy of the proposed motion). Had Dernick Encore sent a safe harbor letter, the Debtors might have reconsidered going ahead with their disqualification motion. Instead, the company incurred over $100,000 in legal fees which it was unable to recover.The second is that the initial investigation is crucial. Here, lawyer AA reviewed enough documents to constitute a reasonable inquiry. Had he merely relied on his clients' word, he might likely have lost. While bankruptcies move quickly, asking the client for documentation (and then actually reviewing that documentation) is good defense for the lawyer, particularly when the motion is likely to be contentious. Finally, it takes a thoughtful judge to deny relief on his own order to show cause.Hat tip to Matt Garcia for sending me the opinion. Note: I did not use the name or initials of the lawyer in question. Publicizing an order granting sanctions can be a further punishment to the lawyer. However, where sanctions were denied, there is no good reason in publicizing the name of someone who was not sanctioned.  

  In reversing a bankruptcy court decision, the 1st Circuit BAP found that a $18,000 uncashed check for a loan from the Debtor's 401k was property of the estate, and was not exempt.  Ostrander v. Brown (In re Brown), 2020 Bankr. LEXIS 1340, BAP No MS 19-024 (21 May 2020).  Debtor had borrowed the $18,000 from her 401k in July 2018, and had not cashed the check as of the date she filed chapter 7 on 6 August 2018.  At the meeting of creditors in September 2018 the debtor acknowledged the loan and check, and that the monthly deductions on her paycheck were repayment for such loan.  The debtor did not separately schedule the check in her schedules or separately claim the check as exempt; asserting through the case that the exemption in the 401k encompassed the funds represented by the check.  On 27 February 2019 the trustee filed a motion for turnover, requesting that the debtor turn over the check to the estate, asserting that the check was 'non-exempt' property of the estate.  The debtor objected, asserting that the check was still part of the 401k plan.  The trustee asserted that the funds could not be excluded from the estate under §541(c)(2) as they had been distributed to the debtor, and were within her possession and control when the case was filed.  The bankruptcy court denied the motion, finding that the funds remained in an account of a third party until the check was cashed, and that such account was exempt.    The trustee appealed.  The BAP first examined the turnover statute: §542(a).  This statute requires turnover of property the trustee may sell if 1) the property is in the possession, custody, or control of a noncustodial third party; 2) that it is property of the estate; and 3) that it is property of the type the trustee could sell or lease or that the debtor could exempt; and 4) that the property is not of inconsequential value to the estate.  The only issue contested is whether the check is property of the estate.  The appellate court found that under §541(a) and §542 every conceivable interest of the debtor is within the reach of §541(a) but noted §541(b) can exclude property subject to a restriction on the transfer of a beneficial interest in a trust that is enforceable under nonbankruptcy law.  In Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 2246, 119 L.Ed. 2d 519 (1992) the Supreme Court found that ERISA restrictions are the type of nonbankruptcy law restrictions that exclude ERISA qualified pensions plans from property of the estate.  However, once funds are distributed, loaned, or withdrawn from an ERISA qualified plan, they lose such protection and become property of the estate.1  Thus the BAP found that the check having been distributed from the 401k was now property of the estate.  The BAP then looked to whether the funds were exempt.  Initially the court noted that the debtor never raised the argument that the trustee failed to timely object to the exemption.  Even if such argument had been raised, the BAP found that the trustee's motion for turnover was in effect an objection to exemptions since it mentioned the trustee's position that the funds were not exempt, and gave notice that he was objecting to the exemption.  Also, the debtor never separately scheduled the check as an asset or as exempt.  As the trustee never adjourned the meeting of creditors, and the deadline for such objection to exemptions under Fed. R. Bankr. P. 4003(b)(1) is 30 days after conclusion of the meeting of creditors, such objection was timely.  Finally the BAP found that an exemption under §522(d)(12) must satisfy two requirements: 1) the amount sought to be exempted must be retirement funds, and 2) those funds must be in an account that is exempt from taxation under the relevant provisions of the tax code.  A number of cases have held that funds withdrawn from a retirement account lose their exempt character if not placed in another account exempt from taxation under the tax code.2  The BAP found that the funds were distributed on 12 July 2018 (the decision is not clear but presumably that is the date the check was issued) and that as of the date of the filing of the bankruptcy the check was in the possession or control of the debtor.  The funds were not rolled over into another tax exempt fund within 60 days of the distribution to her, thus as of the date the case was filed the funds were no longer "in" one of the tax exempt funds listed in §522(d)(12).  The case appears to imply the result may have been different if the debtor had rolled them over into a tax exempt funds, even after the filing, if such rollover was within 60 days of the date of distribution to debtor.  The court rejected the debtor's argument that funds distributed from a 401k via check remain in the account until the check is cashed, citing In re Merillat, No. 14-10896, 2014 U.S. Dist. LEXIS 63548, 2014 WL 1846105, at *6-8 (E.D. Mich. May 8, 2014); In re Whittick, 547 B.R. 628, 636 (Bankr. D.N.J. 2016)  This case raises a number of concerns.  Generally, if a debtor wrote a check prior to filing bankruptcy but such check has not cleared as of the date of filing, the courts consider such funds to remain property of the estate.  This heads I win tails you lose approach to retirement checks seems contradictory.  Further, one must query what happens if the check is destroyed prior to filing, and a new check issued after filing.  It also would seem to follow from the decision that if a check is lost and reissued, and the reissued check is not deposited in a new tax exempt account until more than 60 days after the initial check was issued, arguably such funds could never qualify as exempt: a result which seems at odds with ERISA and Patterson v Shumate.1 In re Weinhoeft, 275 F.3d 604, 606 (7th Cir. 2001).↩2 In re Sullivan, 596 B.R. 325, 332-33 (Bankr. N.D. Tex. 2019).↩Michael BarnettLaw Offices of Larry Heinkel, PA506 N Armenia Ave.Tampa, FL 33609-1703813 600-5889https://myfloridabankruptcylawyer.com

Miriam Goott, a bankruptcy attorney at Walker & Patterson at her home in Houston, Friday, May 8, 2020.Photo: Karen Warren, Houston Chronicle / Staff photographerHouston attorney Miriam Goott, who represents small businesses in their bankruptcies, likes telling potential clients: “I hope to never see you again.” That’s because she’s worked out a deal with their creditors or helped them solve a problem that avoided bankruptcy altogether.“Half the time, I play the role of a therapist,’’ she said. “What they perceive to be this huge problem generally isn’t. It’s typically one or maybe two creditors that are really the issue.”Some attorneys predict a wave of bankruptcies in the months ahead, as the economic toll of the oil bust and the pandemic create long-term struggles for the area’s economy, according to a University of Houston Bauer College of Business forecast. Plus, the CARES Act made it even easier for small businesses to file for bankruptcy.GROWTH OPPORTUNITY: Law firms with bankruptcy practices positioned to do well in downturnBankruptcy may provide much-needed relief for small businesses but it’s more of a last resort than a first resort. The good news is, for many borrowers struggling to make payments, a bankruptcy may not even be necessary.Goott focuses her practice at Walker & Patterson on consumer and small business bankruptcy.“I don’t feel comfortable filing a bankruptcy until we know we’ve exhausted all our options,’’ she said. Why? Bankruptcy can help beleaguered business owners sleep at night, but it also comes with risks.Personal bankruptcy will have a significant impact on credit and borrowing costs in the future. Businesses have to open their books to public scrutiny and there are reputational risks as well.“It’s different to hear your CPA filed bankruptcy than maybe your hairdresser,’’ Goott said. Plus, bankruptcy is expensive. Goott charges as little as $10,000 to $15,000 for a business Chapter 7, or liquidation, and fees can run as high as $300,000 for a complicated Chapter 11, or reorganization. Some law firms charge millions for complex, big-business reorganizations.Taking stockFor a small business, the first step to avoid bankruptcy is to get a handle on its financial situation. That’s easier said than done, given the current uncertainty in the economy. But secured creditors are going to be running projections anyway, said Patrick Hughes, a bankruptcy attorney and partner at Haynes Boone in Houston.Estimate operating costs and revenues for the next 12-week to 1-year periods, taking a look at the business’ capital structure and tax obligations, he said. “What does it take to survive in the near term?’’ Hughes said. “It’s a sobering exercise. It’s disheartening. Sometimes, you realize cuts have to be made.”A big mistake small businesses make is failing to pay taxes. What starts as a business obligation quickly becomes a personal liability, as owners will be on the hook and even criminally responsible, bankruptcy lawyers said. Make sure some cash is set aside in case the business does need to file for bankruptcy.A handle on debtThe details of loan terms matter. Go to creditors, focusing on secured creditors first.“Your primary concern is the lifeblood assets of your business,” Hughes said. “If you’re a trucking company, you don’t want a lender to declare a default and exercise remedies against your trucks.”Creditors may be hardheads and won’t want to work with you. But they are more likely to take aggressive steps if you’re not upfront and transparent about the state of your business, he said.“If your lender doesn’t have confidence because the debtor has gone turtle and won’t give information, they’re going to be more aggressive in how they handle that,’’ Hughes said.TOMLINSON’S TAKE: Reopen Texas economy cautiously, second COVID-19 wave would devastateYour creditors may not be willing to negotiate. But lenders usually don’t want to foreclose on assets in a bad economy. If your business is viable and has a track record of making payments on time, generating revenue and attracting customers, that will work in your favor, Hughes said.Goott frequently gets on the phone with creditors and negotiates a solution. Sometimes, she tells creditors that if they don’t negotiate, the debtor is going to file for bankruptcy. Sometimes, she just needs to tell creditors the reality of someone’s business and the chances of collecting on the debt.One of Goott’s clients, for example, was personally liable for the debts of the business, and an ex-business partner was successful in obtaining a judgment in court. Goott was able to negotiate a payment plan over a 12-month period that lowered the interest rate on the debt.Her one piece of advice: get the agreement in writing. When you’re relying on a verbal agreement, creditors can change their minds. Bank employees move on and you’re stuck with someone who doesn’t acknowledge the agreement. Or the employee might not have had the authority to offer a modification in the first place.Litigation riskUnsecured creditors are a different matter. They can sue you; they can get a judgment. In Texas, certain assets are exempt from most judgments, including the owner’s residence, car and retirement accounts. Creditors can garnish bank accounts, however. If that hasn’t happened yet, you may want to wait and see what happens, Goott said. An unsecured creditor may sell your debt to a collection agency. Or they may go out of business. You may never get sued.Of course, efforts to avoid bankruptcy may be unsuccessful. If creditors simply won’t negotiate and start lawsuits and the process of acquiring assets of the company, or even personal assets, it’s possible to hand over the keys, or negotiate a transfer outside of bankruptcy. You might be able to get an injunction in court, although that’s rare, Hughes said.A bankruptcy filing can be useful because it triggers a stay — basically, the courts block landlords and creditors from evictions or seizing assets while the case winds its way through the court system.Congress passed the Small Business Reorganization Act last year, making it easier and less costly for small businesses to file. For example, business owners normally have to pay creditors in full under a Chapter 11 reorganization to retain ownership. But a small business Chapter 11 allows small businesses to pay less than 100 percent in exchange for shelling out three to five years of the business’ disposable income instead.No creditors’ committees are allowed, which helps lower the cost of the bankruptcy.The CARES Act, which passed in March, also raised the cap on total debt for a small business Chapter 11 from $2.7 million to $7.5 million, allowing many more businesses to qualify. “This creates a huge opportunity for small business to restructure their debt,’’ Hughes said.Often, bankruptcy can be avoided altogether. Goott doesn’t make any money that way. But she builds trust with potential clients. “The best thing I do for (businesses) is to give them the ability to narrow in and focus on the problem,” she said.