Faced with pending trials to establish liability for defamation, another Alex Jones entity has decided to test the waters of bankruptcy. On Friday July 29, 2022, Free Speech Solutions, LLC, the company which actually produces the Alex Jones Show and his other programming, filed a petition under Subchapter V of Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Victoria Division. Case No. 22-60043.  In April, three minor entities within the Jones organization filed bankruptcy in an attempt to channel liability away from Jones and Free Speech Solutions. Those cases met substantial resistance and were voluntarily dismissed. The prior cases were filed in an apparent effort to shield Jones from having to face multiple juries. This was shown by the fact that the Jones entities filed on the eve of trial and then removed the cases to bankruptcy court. The current case was filed after a jury trial had already started in Austin. However, this time Free Speech Solutions immediately filed a motion to allow the trial to go forward. This suggests a more modest goal. Rather than pre-empting the jury trials, Free Speech Solutions has filed while the state court lawsuits remain as unliquidated liabilities. Eligibility for Subchapter V Filing while the claims were still unliquidated was necessary to gain access to Subchapter V. Subchapter V is the small business reorganization provision of the Bankruptcy Code which first became effective in February 2020. It allows a small business to confirm a plan which provides for payment of "projected disposable income" to creditors over a five year period. 11 U.S.C. Sec. 1191(c)(2). Unlike regular Chapter 11, creditor voting does not determine whether the plan may be confirmed. Subchapter V is limited to entities with qualifying debts of $7.5 million or less. However, there are two exceptions which may allow Free Speech Solutions to file with much greater liabilities. According to published accounts, the plaintiffs in the Travis County suit are seeking damages of $150 million. However, unliquidated claims are excluded from the eligibility calculation. 11 U.S.C. Sec. 1182(1)(A). Because the case was filed before the juries awarded damages, they didn't count toward eligibility. Free Speech Solutions may also benefit from another exclusion. Debts owed to insiders or affiliates are not counted. 11 U.S.C. Sec. 1182(1)(A). According to documents filed in the case, Free Speech Solutions owes over $70 million to an entity known as PQPR. According to a declaration filed in the case, PQPR is beneficially owned by Alex Jones's parents, David and Carol Jones. Dr. David Jones is an Austin dentist. According to a declaration filed in the case, he was the first advertiser on one of Alex Jones's predecessor shows. PQPR sells nutritional supplements which are advertised on the Alex Jones Show. If PQPR qualifies as an "affiliate" or "insider" of Free Speech Solutions, its debts will not be counted toward eligibility. According to 11 U.S.C. Sec., 101(2), an "affiliate" means (1) an entity that controls 20% of the voting securities of an entity, (2) a corporation 20% of whose securities are controlled by the debtor, (3) a person whose business is is operated under a lease or operating agreement with the debtor or (4) an entity that operates the business of the debtor under a lease or operating agreement. This definition does not seem to apply. However, the definition of insider may be a better fit. One type of "insider" is a "relative of . . . a person in control of the debtor." 11 U.S.C. Sec. 101(31)(b)(vi). Alex Jones is the person in control of Free Speech Solutions since he is its sole member. David and Carol Jones are Alex Jones's parents and therefore are his relatives. It could be argued that PQPR itself is not a "relative" of Alex Jones. However, the definition of insider says that it "includes" the stated categories, which means that it can include other unstated categories. In U.S. Bank, N.A. v. Village at Lakeridge, LLC, 138 U.S. 960 (2018), the Supreme Court did not provide a clear answer to who qualifies as a non-statutory insider, but suggested that it did not include persons who did business at arms length. Thus, any examination into whether PQPR is a non-statutory insider will likely look at whether its business dealings with Free Speech Solutions were done on an arms length basis. The Court would also likely look at the close relationship between PQPR and Alex Jones's parents. Venue Abuse?As with the previous Alex Jones entity filings, Free Speech Solutions, LLC filed its case in Victoria, Texas. This seems to be an apparent case of judge shopping. Judge Christopher Lopez is the sole judge assigned to the Victoria Division of the Southern District of Texas.  Thus, by filing the case in Victoria, Free Speech Solutions ensured that Judge Lopez would be assigned to the case as opposed to one of the two judges in the Austin Division of the Western District of Texas. According to the bankruptcy petition, Free Speech Solutions, LLC had its "domicile, principal place of business, or principal assets in this district for 180 days immediately preceding the date of this petition or for a longer part of such 180 days than in any other district." However, the address listed on the petition is 3019 Alvin Devane Blvd., Suite 301, Austin, TX 78741.  The initial declaration filed by Marc Schwartz, the proposed Chief Restructuring Officer, mentions Austin at least ten times in connection with the business and references Victoria only as the place where the case was filed.  What Comes Next?Will this case be more successful than the prior ones? At least this time, Jones has placed his primary business into bankruptcy. To use a chess analogy, in the prior cases, Jones placed three of his pawns into bankruptcy, while this time, he has filed his queen. However, Jones himself has not filed. This leaves both Mr. Jones and his membership interest in Free Speech Solutions, LLC vulnerable to claims of creditors.  One consequence of filing under  Subchapter V is that the case will move quickly. Free Speech Solutions will be required to file its plan of reorganization within 90 days.  Thus, unless FSS obtains an extension, the plan confirmation process will begin before Halloween.  

 An EIDL loan is one issued by the SBA for economic injury development. These loans were issued after PPP loans to businesses that had suffered economic injury.  However, unlike PPP loans, these loans must be repaid by borrowers. Many clients are calling about defaulted EIDL SBA Loans, the consequence of those defaults and remedies for those defaults. Shenwick & Associates has experience dealing with defaulted SBA loans and we have published 3 articles on our blog regarding these defaults. One post involves EIDL loans and bankruptcy, which can be found at http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.htmlA Second post pertains to defaulted EIDL loans and the SBA Offer in Compromise program.  That post can be found at http://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.htmland A Third post is about EIDL loan defaults and document review for those defaults. That post can be viewed at http://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.htmlClients or professionals with questions about defaulted EIDL loans should contact Jim Shenwick, Esq.   jshenwick@gmail.com   212-541-6224

As many readers of our blog posts are aware, at Shenwick &Associates we have expertise in EIDL loan workouts, bankruptcy filings and offers in compromise, for defaulted EIDL loansRecently we did a post on EIDL loans and bankruptcy, which can be found at http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html and  a post on defaulted EIDL loans and the SBA Offer in Compromise program.  That post can be found at http://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html When clients retain us with respect to defaulted EIDL loans, they often ask what documents they need to provide us for our review.We have developed the following checklist of documents after doing workouts and bankruptcy filings for various types of debtors and creditors. Provided below is a list of  documents needed for business borrowers and another for individuals, who took out the EIDL loans personally or who guaranteed EID Lloans, which are in default.BUSINESS BORROWER:1. Recent Balance sheet for the business2.  Recent Income statement for the business3. Most recent Federal Tax Return 4. EIDL Loan Documents5. Property that was Collateral for EIDL Loan6. Guarantees give for EIDL Loan 7. Check registry and wires going back 90 days for the business8. Bank statements for 90 days  and 9. Executive Summary  regarding the company’s problems and  goals with respect to EIDL LoanINDIVIDUAL BORROWER OR GUARANTOR:1. List of property  you own (assets)2. List of who you owe money or property to (liabilities)3. After Tax Monthly Budget showing after tax income & personal and business expenses4. Most recent tax return5. List of obligations you personally guaranteed6. Taxes owed, if any including the nature of the tax, the tax year and amount7. Brief summary of your problem(s) and your goalsIf you provide us with this information, we will be able to do an analysis regarding your best options with respect to the defaulted EIDL Loan, including a Workout,  Offer in Compromise, closing of the business or a bankruptcy filing.   Additionally, we will advise the guarantor on their options and best course of action.Jim Shenwick, Esq has handled thousands of workouts (out of court settlements) and over 500 bankruptcy filing for individuals and businesses. Jim Shenwick, Esq has an LLM in Taxation from NYU law school and he can also provide advice regarding relief of indebtedness issues. Jim Shenwick, Esq  jshenwick@gmail.com   212 541 6224   

For those who are owed or paying child support prior to filing for bankruptcy, the idea of discharge can be either terrifying or welcome. Regardless of which one applies to you, though, the truth of the matter might be altogether different than you imagined. Child Support Debt is Non-Dischargeable Child support is a priority debt.+ Read More The post Everything You Need to Know About Bankruptcy and Child Support appeared first on David M. Siegel.

When filing for personal bankruptcy, it can sometimes be difficult to determine which bankruptcy chapter is the right one for you. Many factors are at play when making this decision, but the first priority for anyone considering either is to learn more about bankruptcy itself. While there are technically more than two types of personal+ Read More The post What are the Differences Between Chapter 7 and Chapter 13 Bankruptcy? appeared first on David M. Siegel.

In a recent blog post we discussed EIDL LOAN WORKOUTS AND BANKRUPTCY http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html In this post we will discuss EIDL Loans and the SBA Offer in Compromise program (“OIC”).  An offer in compromise is an offer by the borrower to pay less than the amount that is owed on the SBA loan, in consideration for the SBA considering the loan satisfied. The “compromise amount” must bear a reasonable relationship to the amount that could be recovered through “enforced collection proceedings”. Enforced collection proceedings are litigation or the lien and levying on collateralized assets by the SBA including bank account levies, wage garnishments, and liens on houses pledged as collateral.Generally in an OIC, the business has closed and all business assets have been sold or abandoned. In rare cases, an OIC can  be filed while the business is open and operating.The compromise amount should be paid in one lump-sum payment on a specified date, usually within 60 calendar days of the approval date. Rarely the OIC can be paid in installments.Similar to an OIC for a tax obligation, the SBA Offer-In-Compromise is required when a borrower or guarantor is seeking to have their obligation released for less than the balance due after the business has closed.What are the Requirements for an Offer in Compromise?(1) The loan must be classified in liquidation status by the Lender or SBA;(2) The borrower has not filed for bankruptcy;(3) The full amount owed on the loan cannot be paid or recovered (4) Collection of the loan is not barred by a discharge in bankruptcy or the statute of limitations;(5) The borrower has not engaged in fraud, misrepresentation, or other financial misconduct; and(6) The compromise amount bears a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings. After defaulting on the EIDL loan, when the loan is classified in liquidation status by the Lender or the SBA, the borrower will receive a  60 day demand notice from the SBA.It is during this 60 day demand notice that a borrower typically files the OIC.If a borrower takes no action the SBA can commence litigation, seize IRS tax refunds, take Social Security benefits or an individual's wages can be garnished. The OIC package is sent to the lender who will review it and  forward it to the SBA for further review and action.What Documentation Must the Borrower Submit with the OIC?(1) SBA Form 1150 (Offer in Compromise).(2) SBA Form 770 (Financial Statement of Debtor) showing the borrower’s assets, liabilities, income, and expenses. (3) Statement of Personal History(4) Borrower Consent to Verify Information(5) IRS Form 4506-T (Request for Transcript of Tax Return);(6) The borrower’s federal tax returns for the past two years(7) If the loan involved personally guarantees, then 2 years of federal tax returns for the guarantor(8) If a house was collateral for the loan, then a recent appraisal of the house and a mortgage statement showing the mortgage balance on the house, if applicable.(9) A statement or explanation from the borrower stating why the loan cannot be repaid in full.Timing:The OIC process takes six months to one year.Will the SBA accept a payment plan for an OIC?The SBA prefers a lump sum payment, but they will also consider monthly payments from an individual. Note however, that the SBA will not issue a release, terminate a guaranty or release a lien on a house until all payments under the OIC are made. If your house is collateral for the loan, then the OIC offer must equal the equity in the house, which is determined by the fair market value of the house (based on a recent appraisal) less outstanding mortgages, less brokerage fees (if the house were sold), less your States homestead exemption and state and local transfer taxes.Bankruptcy filing vs OIC Clients will often ask us is it better to do an OIC or a bankruptcy filing? There is no correct answer and at Shenwick & Associates we do that analysis for clients.At Shenwick & Associates we have done hundreds of workouts for clients and many bankruptcy filings for individuals and businesses.   Clients having questions about the OIC process or bankruptcy should consult with Jim Shenwick, Esq.   jshenwick@gmail.com  212 541 6224  

 EIDL LOAN WORKOUTS AND BANKRUPTCY Recently we have received many telephone calls and emails from clients regarding their default under EIDL Loans and EIDL Grants, from the SBA or related banks and their options with respect to those defaults.In the way of background, EIDL (Economic Injury Disaster Loans) and EIDL Grants were provided to small businesses to help them recover from the COVID-19 pandemic. EIDL loans were supposed to  used for working capital and operating expenses.     EIDL loans are not forgivable and must be repaid.EIDL Grants do not need to be repaid.The maximum for EIDL Loans was $2 million. The interest rate on those loans was not to exceed 4%.The term was up to 30 years, with no prepayment penalty or feesIn SBA nomenclature, if a borrower does not make payment on an EIDL Loan, the loan can be Delinquent or go into Default. SBA regulations provide that  “Delinquent” means you’re behind on your SBA loan repayments, but your lender still believes you will be able to repay some, or all, of the loan amountIf a lender determines that you  will be unable to repay your loan, then you will be classified as a “Default”.Delinquent on EIDL Loan:In the typical EIDL loan, the lender will assess a late fee for failure to pay, contact you for repayment, restructure the loan, extend your loan over a longer length of time (to reduce monthly repayments), allow you to repay only the interest portion of your loan, or some blend of the above (typical loan workout strategies).Lender’s will push for a payment  within 30 days of contacting you.Default On EIDL LoansIf you repeatedly fail to make repayments and cannot reach an agreeable plan with your bank or the SBA, then your loan will go into default. Consequences of Default:Any collateral (property) you pledged for the loan is at risk. Depending on applicable state law the lender has the  right to take the property and sell those assets to repay the loan.Any parties or entities that guaranteed the loan can be required or sued to repay the loan balance.The SBA will send you a demand letter, demanding that the loan be repaid. The SBA can sue you or the guarantor of the EIDL Loans. Your business and personal credit reports will show the default and your credit score will decline.The SBA can lien and levy on federally held assets such as tax refundsThe loan default will be reported to the IRS and you may have to recognize income equal to the amount of the loan default, which is not repaid to the lender.REMEDIES FOR AN EIDL LOAN DEFAULT:1. Offer to pay some money towards settling the loan.2. You can fill out an “Offer in Compromise” form and send it to an SBA Loan Officer,  which provides financial  information and the  amount that you can pay as a final and full payment to satisfy the loan.3. Prepare for litigation.4. Consider a bankruptcy filing  GUARANTIES AND COLLATERAL FOR EIDL LOANSEIDL loans of $25,000 or less do not require collateral or personal guarantees.EIDL loans between $25,000 and $200,000, require collateral (UCC-1 and a Security Agreement)  but generally do not require personal guarantees. In case of a default with respect to loans of this size, collateral such as accounts receivable, inventory or equipment could be seized and sold to satisfy the debt.EIDL loans greater than $200,000 require collateral and personal guarantees.EIDL and BankruptcyBankruptcy is a last resort for an individual or a business. However, an individual with an EIDL loan or a company that guaranted an EIDL loan can file for  chapter 7, 13 or 11 bankruptcy. Chapter 7 is a liquidation (the business closes), chapter 13 is a 3 to 5 year payment plan for individuals (not businesses) and chapter 11 is a reorganization or a liquidation for an individual or a business. A business that has an EIDL loan can file for  chapter 7 or 11 bankruptcy or chapter 11, Subchapter V bankruptcy (a form of chapter 11 bankruptcy for small businesses). EIDL loans can be discharged in a chapter 7 bankruptcy filing.   Assets that were collateralized for an EIDL loan, such as equipment or accounts receivable would become the property of the Lender. Parties who guaranteed EIDL loans can be sued by the EIDL lender and they would need to do a workout (an out of court workout) or a bankruptcy filing.  Clients or professionals with questions about EIDL loan workouts or bankruptcy filing  should contact Jim Shenwick, Esq   jshenwick@gmail.com  212 541 6224  

When U.S. Sen Elizabeth Warren continued to speak at the confirmation hearing for AG Jeff Sessions after being cautioned by Majority Leader Mitch McConnell, it gave rise to the feminist slogan, "Nevertheless, she persisted." A new opinion from the Fifth Circuit adapts that slogan to the Federal Energy Regulatory Commission's attempts to prevent debtors from rejecting regulatory energy contracts. Judge Jerry Smith's opinion in Case No. 21-60017, Gulfport Energy Corporation v. Federal Energy Regulatory Commission (5th Cir. 7/19/22) points out that the Fifth Circuit and others have held that debtors "may 'reject' regulated energy contracts even if (FERC) would not like them to." Noting that FERC continued to press the issue, Judge Smith noted that "Nevertheless, FERC persisted." While many believe that Sen. Warren got the better of Majority Leader McConnell in their exchange, the Bankruptcy Code came out on top in the Fifth Circuit's new decision.Judge Smith ably summed up the issue in the case:The parties dispute how two legal regimes—the Bankruptcy Code and the Natural Gas Act—interact. But their dispute is narrow. The question is how a bankrupt debtor’s power to reject executory contracts interacts with FERC’s power to decide whether a party may change or cancel filed-rate contracts, which the agency regulates. To answer that question, we must review what rejection does and then explain how it relates to the Natural Gas Act.Opinion, p. 2.  Skipping ahead to the end, the Natural Gas Act gives FERC the power to decide whether to "change or cancel filed-rate contracts."  Rejection, on the other hand, allows the debtor to breach an executory contract and excuses future performance. Those are different things and they don't conflict.What Does Rejection Mean? The opinion has a good explanation of what rejection means. The Bankruptcy Code empowers debtors, “subject to the court’s approval,” to “assume or reject any executory contract.” 11 U.S.C. § 365(a). That means that a debtor may choose either to perform (assume) or “breach” (reject), § 365(g), any contract “that neither party has finished performing,” That tool might seem unhelpful. Breaching a contract does not erase that contract; it entitles the contract’s counterparty to seek damages for the debtor’s nonperformance. But here’s the rub: Most debtors are broke and cannot pay in full that damages claim. So “in a typical bankruptcy,” the counterparty to a rejected contract “may receive only cents on the dollar” for its claim against the debtor, yet the debtor will retain the benefit of having ceased performance. Ibid. In that way, “rejection can release the debtor’s estate from burdensome obligations that can impede a successful reorganization.” Opinion, pp. 2-3. Under the Natural Gas Act, FERC has the right to approve or reject changes to filed-rate contracts. Rejecting a contract does not terminate or cancel the contract. Therefore, rejection does not conflict with the Natural Gas Act. As explained by the Court:Rejection does not change or cancel a contract; it breaches that contract, giving the debtor’s counterparty a damages claim for the value of the debtor’s continued performance. The contract itself does not change; nor does the filed rate. No change is wrought where the counterparty’s claim for damages is “calculated using the filed rate,” even if the debtor cannot pay that claim in full.Opinion, pp. 3-4. The opinion goes on for another 23 pages. However, the excerpts above contain the important lessons about what it means to reject a contract. Nevertheless, FERC PersistedWhat should we make of the Court's Elizabeth Warren reference?  On the one hand, it's kind of clever. It takes a phrase from public discourse and adapts it to a dull bankruptcy issue. Because of my politics, I think that Sen. Warren was well-justified in persisting and the purchasers of many tshirts and bumper stickers seem to agree. Judge Smith is definitely trying to send a message to FERC to stay in its lane and not interfere with bankruptcy jurisdiction, which I appreciate as a bankruptcy practitioner. Finally, given that Elizabeth Warren is a bankruptcy expert, inserting a Warren reference into a bankruptcy opinion is even more clever. The bottom line is that this case will be useful to practitioners needing to explain what rejection means. We have progressed so far from the days when it was assumed that rejection vaporized the contract.     

 As many readers over blog posts are aware, at Shenwick & Associates we practice personal and business bankruptcy law and workouts. With respect to our personal bankruptcy practice, we do not have a volume practice and we are generally referred more complex personal bankruptcy filings, rather than the run-of-the-mill filings, which we also do.Recently, a client contacted us and wanted a second opinion regarding his personal bankruptcy filing. Briefly, the facts were as follows, the individual was a relatively high income earner with a lot of personal debt and a significant amount of student loans, including graduate student loans. He had consulted with a number of personal bankruptcy attorneys, who indicated that based on his income, he did not qualify for Chapter 7 bankruptcy but rather Chapter 13, which would entail a 3 to 5-year payment plan.We met with the client and got detailed background financial information. Many of the clients' student loans were  graduate student loans, were related to his profession or his ability to earn an income and accordingly case law held that they may be classified as business income and not personal income. In the way of background, if an individual's income is greater than the state's “Median Income” and they fail the “Means Test”, they cannot file for chapter 7 bankruptcy.We asked the client for documentation regarding his graduate school attendance and did exhaustive research regarding treating  graduate student loans as business income, rather than personal income. We put together a research memorandum, containing documents, case law and articles and based on our reviews of his file and our research, we believed that he would qualify for a Chapter 7 bankruptcy. We did not over-promise and indicated that we thought his chances of success were approximately 60% and that the Chapter 7 bankruptcy trustee and the United States Trustee would question the treatment of the graduate loans, review the filing and possibly challenge the bankruptcy filing.The client was happy about the news, but concerned about his chances of  success and spoke with his father who advised him to move ahead with our law firm and file for Chapter 7 bankruptcy.We spent a lot of time preparing the client for his 341 hearing had we forward our research memo to the chapter 7 trustee, who sent it to the United States Trustee and we were thrilled to find out this week that the client received his Chapter 7 bankruptcy discharge The client wrote us a  letter of recommendation which is provided below. Bankruptcy,  particularly personal bankruptcy is a specialized area of the law and clients having questions about which type of bankruptcy to file, if any and what chapter to file should contact Jim Shenwick for a consultation or a second opinion.   Jim Shenwick, Esq.   jshenwick@gmail.com   212 541 6224Client Recomendation“I needed to file bankruptcy which was a very difficult and stressful decision. I never wanted to get to the point of having to file chapter 7, but I knew in order to have a fresh start it was the only way out. I spoke with several attorneys, most said I could only file chapter 13. I was single, no kids, and employed; my career and lifestyle were getting better but the debt was still substantial and I couldn't save any money. I felt overwhelmed thinking I had to figure out how to pay off the debt. James was the only attorney that firmly said you need to file for chapter 7. He didn't promise it would happen, in fact he was honest saying I had a 60/40 chance but he believed I had a good chance. I'm so glad I followed my instincts and went with him. He was aggressive and direct and got the job done. He prepared me for the court day and it went in my favor. I'm not gonna lie, I'm not proud of the situation, but I'm happy to be debt free with a new promising start. Thanks James!”

This article from TD Pel Media will be helpful to many clients (and some attorneys) titled 10 Tips On How To Avoid Legal IssuesThe article can be found at https://tdpelmedia.com/10-tips-on-how-to-avoid-legal-issuesJim Shenwick, Esq. jshenwick@gmail.com jshenwick@gmail.com