Articles Tagged with bankruptcy

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This post was prepared by yours truly, with contributions from Phil Bradford, a financial web content writer. Phil graduated from New York University School of Law and recently joined Herald University as a reporter. He has also written for websites such as debtfreeguys.com and disabilitycanhappen.org

An now, on with the post…

Those who’ve exhausted their financial options or are unable to meet obligations due to illness, divorce, job-loss, or other life-altering events, may consider filing Bankruptcy to get their life back on track.  Here is a quick-guide to help you navigate the process with the help of a good Bankruptcy Lawyer:

Basic Types of Bankruptcy

The most basic distinction when thinking about Bankruptcy is the one between a liquidation (Chapter 7) and a reorganization (Chapter 13 for most people). Whether you need to file a Chapter 7 or 13 case will depend on several factors, including:

  • Total “household” income
  • The value of your property
  • What you stand to lose
  • What you intend to keep

That said, below you will find a few of the most important points when considering if Bankruptcy is right for you.
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In re: Great Lakes Quick Lube, LP
7th Circuit Federal Court of Appeals
No. 15-2093 Decided Mar. 11, 2016

In this case the value of unexpired commercial leases was put to the test. When a popular auto-repair/oil-change franchise went into Chapter 11, its unsecured creditors sought to recoup the value of 2 unexpired leases it relinquished just before filing. The 7th Circuit analyzed the issue under 2 provisions of the Bankruptcy Code and ultimately decided that the terminated leases were an asset of the Estate and that letting them go was tantamount to an improper pre-filing transfer.

Factual Background

Great Lakes Quick Lube LP (Great Lakes) owned oil change and automotive repair stores throughout the Midwest. Its business model included selling stores to shareholders and leasing them back. One such arrangement was made with T.D. Investments I, LLP (TDI), which leased 2 stores to Great Lakes. But in 2012, under mounting financial pressure, Great Lakes terminated its TDI leases.

Adversary Case in Bankruptcy

Ultimately, Great Lakes sought Chapter 11 Bankruptcy protection less than 60 days after terminating the TDI leases. The Estate’s Unsecured Creditors’ Committee filed an Adversary action contending that those lease terminations amounted to either a preferential or fraudulent transfer by Great Lakes to TDI, and that the value of those leases should be disgorged to the Bankruptcy Estate. The Bankruptcy Court denied relief to the Unsecured Creditors’ Committee because, in its analysis, termination of the TDI leases was not a “transfer” at all – much less a preferential or fraudulent transfer.

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Baker Botts L.L.P. v. ASARCO LLC, 14-109 (Jun 15) U.S. Sup.Ct.

Background

ASARCO hired the plaintiff law firms to assist it in carrying out its duties as a Chapter 11 Debtor in Possession (DiP) per 11 U.S.C. 327(a). When ASARCO emerged from Bankruptcy the law firms filed Fee Applications pursuant to 11 U.S.C. 330(a)(1), which permits the Bankruptcy Court to “award …reasonable compensation for actual, necessary services” by professionals.

Lower Court Rulings

ASARCO objected to the Fee Applications brought by its Attorneys. The Bankruptcy Court rejected ASARCO’s objections and went on to award fees for time spent defending the Fee Applications. On appeal from the Bankruptcy Court Order, The District Court held that the Law Firms could be awarded fees for defending their Fee Applications. On appeal from the District Court’s Order, the Fifth Circuit Court of Appeals reversed. Continue reading

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Carhart v. Carhart-Halaska Int’l, LLC 14-2968 (Jun 08)(7th Cir.)

Background

Federal Case

Carhart and Halaska own CHI. CHI terminated sales agent MRO. MRO filed a Federal suit for breach of contract. Carhart bought MRO’s Federal claim for $150,000 and became nominal Plaintiff. That lawsuit was actually against a company of which he was 1/2 owner.

State Case

Halaska sued Carhart in Wisconsin State Court, alleging that Carhart had breached his fiduciary duty by becoming the Plaintiff in the MRO Federal case, by writing checks against CHI accounts without approval, by depositing payments owed to CHI into Carhart’s account, and by withholding accounting and financial information.  The Wisconsin State Court appointed a Receiver, who informed the Federal court that CHI had no assets with which to pay a lawyer and consented to the entry of a $242,000 default judgment (the sum sought by Carhart), giving Carhart a profit of $92,000 on the purchase. Continue reading

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Gasunas vs. Yotis, 14-321 (Nov.24) ND IL ED (J. Schmetterer)

The Facts

Yotis, a former Illinois Attorney, borrowed over $50,000 from his Client Gasunas using various tricks and subterfuge: from outright lies to misrepresentations and material omissions of fact designed to manipulate his “friend” and benefactor. Once he had the money, Yotis filed a Chapter 13 Bankruptcy.

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We represent many consumers in Bankruptcy, and getting our Clients back on their feet afterwards is a big part of what we do. Often, cases are driven by upside-down home loans or even reasonable loans in which payments have become too high because the homeowner lost their job or had to take a lower paying job as a result of the Great Recession. One option for those who’ve gone through Bankruptcy and are looking to borrow again is the FHA Loan.

Before the housing bubble burst in 2008 FHA loans were considered the choice for buyers with little credit or bad credit; or an option for those with low incomes. But since everyone’s home value began falling – often taking their credit standing with it – FHA mortgages have become more widely appealing, especially when compared to conventional loans that require private mortgage insurance (“PMI”). PMI is the mortgage lender’s way of ensuring it gets paid following default. It is insurance for which the borrower pays the premium, adding to the cost of the loan.

For those considering an FHA Loan, keep these points in mind:

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As a Bankruptcy lawyer I can’t count how many times people have asked why Courts won’t reduce their mortgage debt to match the deflated value of their home, or why they should pay anything on that second mortgage, line of credit, or HELOC, when they’re underwater. I even discussed these questions and the state of the law concerning lien strips in this post. Now, the very cases referred to in that post have made it to the U.S. Supreme Court and the stage is set for the battle of the lien strip cases.

Of course this all started with the Supreme Court’s 1992 Opinion in Dewsnup v. Timm that the Bankruptcy Code does not permit the cramdown of a partially secured mortgage. Some Courts took this to mean that lien-strips are a no-no. Others interpreted it to mean that lien-strips were permissible under the right circumstances. So in some parts of the country a completely unsecured second mortgage can be stripped, but only in a Chapter 13 reorganization; while in other parts it can be stripped in a Chapter 7 liquidation, too.

So, with Courts in disagreement, what’s a home-owner to do? Remember, in Dewsnup the Court ruled the Bankruptcy Code doesn’t permit mortgages to be written down to the value of the home – even though that practice, known as the cram down,  is acceptable as to vehicles. Ironically, one of the Court’s primary concerns in Dewsnup was to prevent windfall gains to home-owners who strip away their loans, then enjoy the profits as their homes rise in value.

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So you’re doing business as usual and notice that payments from your customer are getting later and later. Turns out that customer is struggling to navigate in the sputtering economy. Waiting for your money is bad enough; but what if you receive a demand to refund what you’ve been paid? And not because of anything you’ve done but because your customer has filed for Bankruptcy?

Sound like a nightmare? Actually, it happens everyday. So what do you do if you’re next? That was the question addressed in the recent New York case of Davis vs. Clark-Lift, in which a reorganizing Chapter 11 Debtor paid vendors later and later as it listed towards Bankruptcy. But even those lucky creditors who got paid could not escape the demand of the Trustee (Davis) to fork over what they had received.

As the Court in Davis explained, to set aside a payment as a “Preferential Transfer” under Section 547(b) of the Bankruptcy Code the moving Creditor or Trustee must established that the Debtor made it:

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