At the time of this writing, the filing fees for Chapter 7 bankruptcy are $306.  The filing fees for Chapter 13 bankruptcy are $281.  Each law firm differs on how much they require down as well as how much they require in terms of a total fee to file a type of bankruptcy.  In my+ Read MoreThe post How much is it to file a Chapter 7 or a Chapter 13 bankruptcy? appeared first on David M. Siegel.

Once a Chapter 13 bankruptcy case is filed and a plan is proposed, it’s going to run for a certain number of months, typically between 36 and 60 month.  Now, there are some cases that end much earlier than 36 months and there are no cases that can exceed the 60 months.  So somewhere between+ Read MoreThe post How many payments do I have left in my Chapter 13 bankruptcy case? appeared first on David M. Siegel.

Many people filing Chapter 7 bankruptcy wonder what happens after they have completed the meeting of creditors. What are the timelines for wrapping up the bankruptcy process and what else do you have to do?   What happens to my property after the meeting of creditors? As part of your filing, you were required to [...]

  The Court allowed modification of a reverse mortgage in the chapter 13 bankruptcy of the heir of the person who executed the mortgage.  In re Griffin, 2013 WL 1123826 (Bankr. D.Md. 2013).  The debtor's mother executed the reverse mortgage in 2007, which provided for interest payments and acceleration of the balance upon death of the borrower.  The mother passed away in 2011, and her son the Debtor was personal representative of her estate and 50% co-heir of the property, where he resides.  FNMA commenced foreclosure in March 2012, and a chapter 13 bankruptcy filed by the son in May 2012.  In the chapter 13, the Debtor proposes to pay the mortgage entire debt through the plan over 47 months at 5%, seeking modification of the obligation under §1322(c)(2) and §1325(a)(5).  The mortgage company objects on the basis that the debt has been accelerated, and §1322(b)(2) prevents modification of a mortgage secured only by the debtor's homestead.  Second, the mortgage claims the debt cannot be modified because the co-heir, the debtor's sister, is not a party to the bankruptcy.       The Court rejected the initial argument, finding that §1322(c)(2) provides an exception to the anti-modification language of §1322(b)(2) when the final payment on the original payment terms on the mortgage is due prior to the final plan payment.  It is precisely because the final payment on the mortgage was moved upon the death of the obligor to a date prior to the final plan payment that the mortgage can be modified under §1322(c)(2).    The mortgage relied on  In re Gottron, No. 11–bk–20773, 2012 WL 907489, slip op. (Bankr.D.Md. Mar. 16, 2012) and Alvarez v. HSBC Bank USA, N.A., No. 8:11–cv–02886, 2011 WL 6941670, slip op., (D.Md. Dec. 28, 2011) to allege that the mortgage could not be modified without the necessary party of the co-owner.  However, both of these cases dealt with the right of one spouse to avoid liens on tenancy by the entireties property when the other spouse was not in bankruptcy.  Tenancy by the entireties property is created upon the marriage and is not the property of either spouse individually.  Since the debtor's interest in the property is not held in tenancy by the entireties, these cases are inapplicable.  The fact that a bankruptcy outcome will affect the ownership interests of non-debtors does not prevent a strategy in bankruptcy. 

    In In re Reichartz, 2013 WL 1143755 (Bankr. E.D. Wis. 2013) the Debtor had put a provision in the chapter 13 plan that "Debtor shall pay the American Family Insurance claim in full through the Chapter 13 plan. Interest, penalties, and garnishment shall cease" regarding an insurance claim related to a judgment for damages related to the intoxicated operation of a motor vehicle.  The unsecured claim was filed in the amount of $22,612.50, and no objection was filed to confirmation.  The order confirming the plan also included this provision.      After discharge, the creditor re-instituted garnishment proceedings after the bankruptcy, and caused Debtor's driver's license to be suspended.  The creditor acknowledged applying payments in the bankruptcy to interest, costs and other charges, and alleged a $12,000 balance due after payment in the chapter 13 plan.  Both parties sought to reopen the case and filed adversary proceedings.  The creditor alleged that under Ridder v. Great Lakes Higher Educ. Corp., (In re Ridder),171 B.R. 345 (Bankr.W.D.Wis.1994) the interest was not discharged.  The plan in that case provided for pro-rata distribution to unsecured creditors without interest, and the ruled that since post-petition interest was not an allowed claim, the obligation for its payment could not be discharged through the chapter 13.    The Reichartz Court found that United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) was more on point.  As the plan unambiguously provided for discharge of the post-petition interest, the creditor is bound by such provision, even if the provision would likely have been disallowed if an objection had been filed.    Note that §523(a)(9) only makes nondischargeable debts for death or personal injury caused by unlawful operation of a vehicle.  The case does not specify that the judgment was solely related to personal injuries.  Would it be an unreasonable argument that in exchange for payment of the debt in full of a debt that may or may not fall entirely under §523(a)(9) that the plan eliminates any further right to payment thereby avoiding substantial cost of litigation over the portion of the judgment that is actually nondischargeable?  

If you file bankruptcy, you need to send in proof of your income.  For most people, that means your pay stubs.   Section 521 of the Bankruptcy Code requires people to send in at least two month of their “payment advices“–meaning pay stubs–received from your “employer.” What if you are self employed?   You don’t [...]The post Filing Bankruptcy and self employed? You need a “Profit and Loss” appeared first on Robert Weed.

If all the children in Lake Woebegon are above average, all the small businesses our clients run are quite valuable. If the Chapter 13 trustee is asking the question, anyway. I rail when the Chapter 13 trustee’s business questionnaire asks “how much would you sell your business for.” Phrased that way, the question implicates all kinds of facts that aren’t in play in Chapter 13. First, what would the debtor have to get to part with the business that supports his family? Second, it assumes that the debtor is a party to the sale, and can deliver a non compete agreement and even some training for a business buyer. Third, the question touches the entrepreneur’s self worth. Who among us wants to admit that the enterprise you’ve devoted heart and soul to has no objective value to anyone else? Recalibrate So, let’s go back.  You represent a sole proprietor in a Chapter 13 case.  The best interests of creditors test for confirmation requires that the plan provide creditors at least what the creditors would receive if the case had been a Chapter 7. We’re not talking, then, about what the debtor could sell the business for if he were to sell out.  We’re looking for what could a Chapter 7 trustee get for the business. Let’s imagine a sale of a small business by a Chapter 7 trustee.  What happens? Trustee shuts the business down, because he doesn’t want responsibility for operating it post petition.  Going concern value is gutted. Trustee seeks buyer.  Only trustee doesn’t know anything more about the customer base and the business operation than the debtor tells him at the 341 meeting. Any buyer of the business has no assurances that the debtor will not open up the self same business next door to his old shop and compete with the buyer. Buyer gets no transitional training from the man who ran the business before him. So, what is this business worth? In a Chapter 7 context, it’s probably little more than the value of the lease;  the equipment;  the inventory at liquidation prices; and the accounts receivable, suitably discounted. Vigilance Putting a value on the business in writing usually comes up in two places:  on Schedule B and on the trustee’s business questionnaire. The question for counsel is whether there is any saleable goodwill in the business:  value over and above the value of the assets,  profits over and above what a passive business owner would have to pay someone to do your client’s job in the business? Value may well be a question at the 341 meeting. Prep your client to think about the question beforehand. I prompt that consideration by asking my client what would his estate get if he were run over by a truck and the survivors had to sell the business.  And that scenario probably overstates the value, since a buyer wouldn’t have to worry about competition from the deceased client. If the debtor understands that he may have to live with the number he utters at the 341 meeting, and pay it dollar for dollar into the plan, he may approach the valuation question with appropriate caution. Your mission, as counsel, is to foresee the issue and prepare papers and client to deal realistically with value. That’s the value that you, as debtor’s counsel, bring to the table. Image courtesy of Flickr and bsabarnowl.

Within the span of a few days, Judge Patrick Higginbotham of the Fifth Circuit released two decisions which will ease the way for chapter 11 debtors to confirm their plans.   In the first decision, the Court definitively put a stake through the heart of the artificial impairment doctrine, while in the second, the Court held that the Till prime + formula, while not mandatory, was becoming the "default" rule for calculating interest in chapter 11 plans.    The cases are Matter of Village at Camp Bowie I, LP, No. 12-10271 (5th Cir. 2/26/13), which can be found here, and Matter of Texas Grand Prairie Hotel Realty, LLC, No. 11-11109 (5th Cir. 3/1/13), which can be found here.Village at Camp Bowie and Artificial ImpairmentVillage at Camp Bowie involved an oversecured creditor whose claim overshadowed those of other creditors.    Western Real Estate Equities held a debt of $32.1 miliion secured by property valued by the court at $34 million.    The Debtor owed $59,398 to thirty-eight (38) trade creditors.    Under the plan, the Debtor's equity holders and related parties were to infuse $1.5 million in new equity.   As a result, the Debtor had sufficient funds to simply pay off the trade creditors and leave their claims unimpaired.   This would have allowed Western to veto the plan since there would not have been another class available to accept the plan.Western objected that the Debtor's plan had not been proposed in good faith and that the plan hadn't really been accepted by an impaired class since the impairment was "artificial."     The Bankruptcy Court confirmed the Plan over Western's objections.The Court noted that the Eighth Circuit requires that impairment be driven by economic need, while the Ninth Circuit did not distinguish between "discretionary and artificially driven impairment."    The Court also noted that it had previously rejected the concept of artificial impairment in Matter of Sun Country, Ltd., 764 F.2d 406 (5th Cir. 1986), but that because the court concluded that the impairment in that case was economically motivated "we deprived our analysis of precedential force."    On the other hand, the court had expressed concern over potential artificial impairment in Matter of Sandy Ridge Development Corp., 881 F.2d 1346 (5th Cir. 1989).  (Parenthetically, it is interesting to note that these cases involved two individuals who went on to achieve prominence on the Texas bench.   Leif Clark was the Debtor's lawyer in Sun Country, while Wesley Steen was the bankruptcy judge for Sandy Ridge during the period in which he was a judge in Louisiana).       Judge Higginbotham found that artificial impairment was inconsistent with the statutory language of the Code, writing:Today, we expressly reject Windsor [the Eighth Circuit decision] and join the Ninth Circuit in holding that § 1129(a)(10) does not distinguish between discretionary and economically driven impairment. As the Windsor court itself acknowledged, § 1124 provides that “any alteration of a creditor’s rights, no matter how minor, constitutes ‘impairment.’” By shoehorning a motive inquiry and materiality requirement into § 1129(a)(10), Windsor warps the text of the Code, requiring a court to “deem” a claim unimpaired for purposes of § 1129(a)(10) even though it plainly qualifies as impaired under § 1124.   Windsor’s motive inquiry is also inconsistent with § 1123(b)(1), which provides that a plan proponent “may impair or leave unimpaired any class of claims,” and does not contain any indication that impairment must be driven by economic motives.The Windsor court justified its strained reading of §§ 1129(a)(10) and 1124 on the ground that “Congress enacted section 1129(a)(10) . . . to provide some indicia of support [for a cramdown plan] by affected creditors,” reasoning that interpreting § 1124 literally would vitiate this congressional purpose.   But the Bankruptcy Code must be read literally, and congressional intent is relevant only when the statutory language is ambiguous.   Moreover, even if we were inclined to consider congressional intent in divining the meaning of §§ 1129(a)(10) and 1124, the scant legislative history on § 1129(a)(10) provides virtually no insight as to the provision’s intended role, and the Congress that passed § 1124 considered and rejected precisely the sort of materiality requirement that Windsor has imposed by judicial fiat.The Windsor court also reasoned that condoning artificial impairment would “reduce [§ 1129](a)(10) to a nullity.”   But this logic sets the cart before the horse, resting on the unsupported assumption that Congress intended § 1129(a)(10) to implicitly mandate a materiality requirement and motive inquiry.   Moreover, it ignores the determinative role § 1129(a)(10) plays in the typical single-asset bankruptcy, in which the debtor has negative equity and the secured creditor receives a deficiency claim that allows it to control the vote of the unsecured class.   In such circumstances, secured creditors routinely invoke § 1129(a)(10) to block a cramdown, aided rather than impeded by the Code’s broad definition of impairment.Opinion, pp. 8-10.While the passage quoted above is rather long, I have quoted it in its entirety because I find its statutory analysis to be spot-on.  There is no need to make things more complicated by delving into the meaning of a provision when the words used are clear.   Congress set the bar for determining impairment quite low.  Thus, when Congress required acceptance by an impaired class, it similarly set an easily met standard.  (Note: when Judge Higginbotham speaks of judicial fiat, I can't help but think of a small Italian car filled with black-robed judges).The Court also rejected the argument that Matter of Greystone III Joint Venture, 995 F.2d 1274 (5th Cir. 1991) embodied a "broad, extrastatutory policy against 'voting manipulation.'"   He stated: Greystone does not stand for the proposition that a court can ride roughshod over affirmative language in the Bankruptcy Code to enforce some Platonic ideal of a fair voting process.     Opinion, p. 11.    While it is comforting to see Greystone limited to its actual holding, you also have to admire a judge who can work "Platonic ideal" into a bankruptcy opinion.   (According to Wikipedia, Platonic idealism refers to universals or abstract objects.  Thus, a Platonic ideal of voting would mean voting according to abstract, universal principles.)Nevertheless, the Court did point out that good faith was still a relevant inquiry.We emphasize, however, that our decision today does not circumscribe the factors bankruptcy courts may consider in evaluating a plan proponent’s good faith. In particular, though we reject the concept of artificial impairment as developed in Windsor, we do not suggest that a debtor’s methods for achieving literal compliance with § 1129(a)(10) enjoy a free pass from scrutiny under § 1129(a)(3). It bears mentioning that Western here concedes that the trade creditors are independent third parties who extended pre-petition credit to the Village in the ordinary course of business. An inference of bad faith might be stronger where a debtor creates an impaired accepting class out of whole cloth by incurring a debt with a related party, particularly if there is evidence that the lending transaction is a sham.  Ultimately, the § 1129(a)(3) inquiry is factspecific, fully empowering the bankruptcy courts to deal with chicanery. We will continue to accord deference to their determinations.Opinion, pp. 12-13.Texas Grand Prairie and Cram-Down Interest RatesIn the second case, the Court affirmed a bankruptcy court ruling which confirmed a chapter 11 plan which using a 5% cram-down rate of interest under the Till decision.   In Grand Prairie, the parties agreed that the Till decision provided the appropriate method for calculating a chapter 11 cram-down interest rate.   The Debtor's expert, faithfully following the Till approach, concluded that prime + a risk factor of 1.75% was appropriate, so that the indicated interest rate was 5.0%.   Even though the lender stipulated that Till was the correct approach, its expert did not follow its methodology.  Instead, he opined that the proper rate was 8.8% by "taking the weighted average of the interest rates the market would charge for a multi-tiered exit financing package" and then adjusting for risk factors.  The Court adopted the 5.0% rate which had the effect of costing the lender $1,485,000 in interest per year based on the appraised value of $39,080,000.On appeal, Wells Fargo sought to exclude the Debtor's expert testimony on the basis that his "purely subjective approach to interest-rate setting" violated the Supreme Court's call for an "objective inquiry" in Till.   The Court wisely observed that:Here, Wells Fargo does not challenge Robichaux’s factual findings, calculations, or financial projections, but rather argues that Robichaux’s analysis as a whole rested on a flawed understanding of Till. As we read it, Wells Fargo’s Daubert motion is indistinguishable from its argument on the merits. It follows that the bankruptcy judge reasonably deferred Wells Fargo’s Daubert argument to the confirmation hearing instead of deciding it before the hearing.  We pursue the same path and proceed to the merits.Opinion, p. 7. Next, the Court addressed the proper legal standard for calculating an interest rate under section 1129(b).   The court ultimately concluded that the Till decision was not binding on the court because: Till was a plurality opinion; andTill expressly left open the issue of interest rates in chapter 11 in footnote 14. As a result, the Court found that its prior decision in In re T-H New Orleans Partnership, 116 F.3d 790 (5th Cir. 1997) remained binding.   T-H New Orleans held that the Court would not "establish a particular formula for determining an appropriate cramdown interest rate," but would review the Bankruptcy Court's decision for "clear error."   Having concluded that the Till formula was not mandatory, the Court nevertheless found that it was becoming the majority approach. In spite of Justice Scalia’s warning, the vast majority of bankruptcy courts have taken the Till plurality’s invitation to apply the prime-plus formula under Chapter 11. While courts often acknowledge that Till’s Footnote 14 appears to endorse a “market rate” approach under Chapter 11 if an “efficient market” for a loan substantially identical to the cramdown loan exists, courts almost invariably conclude that such markets are absent.   Among the courts that follow Till’s formula method in the Chapter 11 context, “risk adjustment” calculations have generally hewed to the plurality’s suggested range of 1% to 3%.   Within that range, courts typically select a rate on the basis of a holistic assessment of the risk of the debtor’s default on its restructured obligations, evaluating factors including the quality of the debtor’s management, the commitment of the debtor’s owners, the health and future prospects of the debtor’s business, the quality of the lender’s collateral, and the feasibility and duration of the plan. Opinion, pp. 14-15.  Under the Fifth Circuit's deferential clear error analysis, a bankruptcy court which followed the majority approach could not be faulted, even if the court could have found another approach more persuasive.    The Court found that the Debtor's expert properly followed the Till approach.   We agree with the bankruptcy court that Robichaux’s § 1129(b) cramdown rate determination rests on an uncontroversial application of the Till plurality’s formula method. As the plurality instructed, Robichaux engaged in a holistic evaluation of the Debtors, concluding that the quality of the bankruptcy estate was sterling, that the Debtors’ revenues were exceeding projections, that Wells Fargo’s collateral — primarily real estate — was liquid and stable or appreciating in value, and that the reorganization plan would be tight but feasible. On the basis of these findings — which were all independently verified by Ferrell — Robichaux assessed a risk adjustment of 1.75% over prime. This risk adjustment falls squarely within the range of adjustments other bankruptcy courts have assessed in similar circumstances.Opinion, p. 18.Finally, the Court rejected Wells Fargo's argument that the path taken by the Debtor's expert produces "absurd results."Wells Fargo complains that Robichaux’s analysis produces “absurd results,” pointing to the undisputed fact that on the date of plan confirmation, the market was charging rates in excess of 5% on smaller, over-collateralized loans to comparable hotel owners. While Wells Fargo is undoubtedly correct that no willing lender would have extended credit on the terms it was forced to accept under the § 1129(b) cramdown plan, this “absurd result” is the natural consequence of the prime-plus method, which sacrifices market realities in favor of simple and feasible bankruptcy reorganizations.   Stated differently, while it may be “impossible to view” Robichaux’s 1.75% risk adjustment as “anything other than a smallish number picked out of a hat,” the Till plurality’s formula approach — not Justice Scalia’s dissent — has become the default rule in Chapter 11 bankruptcies.  (emphasis added).Opinion, p. 19.    Thus, the Court is not required to apply Till, but if it does, it is not error to pick a "smallish number" out of a hat.Final ThoughtsThese two opinions, while both affirming confirmation of chapter 11 plans, take very different approaches to judging.    Village at Camp Bowie is very much a straightforward application of statutory analysis.    While I thought that Sun Country's statement that:Congress made the cram down available to debtors; use of it to carry out a reorganization cannot be bad faith. effectively killed the doctrine of artificial impairment, it is nonetheless heartening to see a judge put the final nail in the coffin.     Just as I noted in my prior post about Spillman Development Group, this is a case of a judge rejecting magical thinking.   In this case, the magical thinking was that Greystone III Joint Venture can be cited in talismanic fashion for the proposition that the secured creditor automatically gets a veto.Texas Grand Prairie is a much more subversive opinion.   While ostensibly following T-H New Orleans' no formula approach, the court gave the green light to bankruptcy courts to follow the Till plurality's prime + approach, referring to it as the majority approach and the default rule.   On the other hand, the Court left bankruptcy courts free to reject Till as well.   If anything, this decision gives broad discretion to the factfinder, something that has been noticeably lacking since the adoption of BAPCPA. Finally, Texas Grand Prairie may spell the death of expert interest rate testimony in chapter 11 cases.   If the Debtor's expert can pull a "smallish number" out of a hat, why can't the Debtor's attorney do so without the intervention of an expert witness?   The irony of Wells Fargo's Daubert argument is that it probably was right, but not for the reason that Wells Fargo thought.   The logical extension of Till is that the fact-finder does not require "scientific, technical or other specialized knowledge . . . to understand the evidence or determine a fact in issue" as required by Fed.R.Evid. 702 so that neither side should have been allowed to tender an expert witness.   This case will probably not preclude courts from considering experts pontificating on interest rates, but it frees up the court to take it or trash it.Post-script:   While Judge Higginbotham may not receive as much recognition as a scholar of bankruptcy law as some of his colleagues, it is worth noting that he has now authored about 50 bankruptcy opinions, which is more than some bankruptcy judges.   In addition to the opinions discussed in this post, some of his other influential opinions include Wells Fargo Bank, N.A. v. Stewart, 647 F.3d 553 (5th Cir. 2011); Milligan v. Trautman, 496 F.3d 366 (5th Cir. 2007); Supreme Beef Processors, Inc. v. USDA, 275 F.3d 432 (5th Cir. 2001); Krafsur v. Scurlock Petroleum Corp., 171 F.3d 249 (5th Cir. 1999); Miller v. J.D. Abrams, Inc., 156 F.3d 598 (5th Cir. 1998); In re Clay, 35 F.3d 190 (5th Cir. 1994); and In re Howard, 972 F.2d 639 (5th Cir. 1992).   In my view, this is sufficient to earn him a place among the leading bankruptcy lights on the court.

Here’s an email I got on Friday, March 15 2013. I started the bankruptcy process with your office in 03/2012 and stopped the process.  That was a wrong decision!!!  My house is scheduled for foreclosure on Monday 03/18/13 and I have tried working with Wells Fargo to postpone the sale.  NACA and Senator Mark Warner’s [...]The post Emergency bankruptcy filing in Northern Virginia appeared first on Robert Weed.

Chapter 7 Bankruptcy – More of the Basic Steps in Your Bankruptcy   Where to File – Residency Requirements   Under U.S. bankruptcy laws you can file in any federal court district where you have had a “domicile, residence, principal place of business or principal assets for the last 180 days.”   For long-time Arizona [...]